A STUDY ON

“WORKING CAPITAL MANAGEMENT”

WITH REFERNCE TO

RASHTRIYA ISPAT NIGAM LIMITED, VISAKHAPATNAM

PROJECT REPORT

A project report being submitted to Dr.B.R.Ambedkar University, srikakulam in

partial fulfillment of requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

K.KUSUMA
Registration No. : 1509907025

Under the guidance of

B.PRAKASH BABU

M.com, MPhil, Ph.D.

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

DR.B.R.AMBEDKAR UNIVERSITY, SRIKAKULAM.

ETCHERLA 2015-2017
 DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES
DR.B.R.AMBEDKAR UNIVERSITY, SRIKAKULAM

DECLARATION

I KOLUPURU KUSUMA, hereby declare that this project report entitled

“WORKING CAPITAL MANAGEMENT” With special reference to Rashtriya
Ispat Nigam Limited, Visakhapatnam, is written and submitted by me under the
guidance of B.PRAKASH BABU, M.com, MPhil, Ph.D. Assistant professor in
the Department of commerce and management studies DR.B.R.AMBEDKAR
UNIVERSITY, Srikakulam for the award of degree Master of business
administration it is an original work. This report either full of part not forms a part
of the requirement for any degree or diploma earlier.

Place:

Date:

KOLUPURU KUSUMA

Reg No (1509907025)
 CERTIFICATE

This is to certify that the project work entitled “A Study on “working capital
management” With the special reference to Rashtriya Ispat Nigam Limited,
Visakhapatnam, is a bonified work done by kolupuru kusuma, is a student of
M.B.A, under my guidance and supervision to submitted in the department of
commerce and management studies, DR.B.R.AMBEDKAR UNIVERSITY,
srikakulam is partial fulfilment of the requirement for the award of degree of
master of business administration

Place:

Date:

B.PRAKASH BABU

M.com, MPhil, Ph.D.

Assistant professor

Dept. of commerce & management studies

Dr.B.R.Ambedkar University,

Srikakulam, Etcherla.
 ACKNOWLEDGEMENT

I Express my deep gratitude to my guide B.Prakash babu,

M.com,mphil,ph.d, assistant professor in the department commerce and
management studies Dr.B.R.Ambedkar university-srikakulam for his guidance,
encouragement and support throughout my entire project work, without his timely
guidance and advice this project could not have been completed effectively.

I express my sincere gratitude to prof. T. Kamaraju, M.B.A, M.com, Ph.D.

Head of the department of commerce and management studies Dr.B.R.Ambedkar
University, srikakulam, etcherla for giving permission to my project work and
also thank to pro. G.Tulasirao, M.B.A, M.com, Ph.D. register in
Dr.B.R.Ambedkar university, srikakulam, and all other faculty members for their
support complete my project work.

I express my sincere thanks to k.badrinath assistant general manager

(F&A) of RINL, Visakhapatnam. And all the staff members of the organization
for extending their cooperation & support through the duration in completing my
project.

Finally, I would like to express my deep sense of gratitude to my believed

parent’s & their support and encouragement to complete entire the project work. It
was indeed a learning experience for me.

PLACE:

DATE:

K.KUSUMA

REG NO.1509907025
 CONTENTS

CHAPTER I INTRODUCTION

Introduction
Scope of the study
Objective of the study
Methodology of the study
Limitation of the study

CHAPTER II INDUSTRIAL PROFILE

Growth in chronological order

Recession period
Out look
Major steel industries in India

CHAPTER III COMPANY PROFILE

Mission
Vision
Objectives
Core values
Policies in RINL
Welfare measures in RINL
Achievements & awards
Major units & major sources
Main products of RINL
Performance of RINL
Major departments of RINL
CHAPTER IV CONCEPTUAL FRAME WORK

OF WORKING CAPITAL

CHAPTER V DATA ANALYSIS & INTERPRETATION:

Analysis and interpretation

Liquidity Ratios
a) Current ratio
b) Working capital turnover ratio
c) Gross working capital Ratio
d) Net working capital Ratio
Activity Ratios
SWOT Analysis
Findings
Suggestions
Conclusion
Bibliography

CHAPTER-I
 INTRODUCTION
The focus of the study is an analysis of the financial performance of Rashtriya
Ispat Nigam ltd. By using working capital management, which is widely used
technique of management. This evokes the interest and need for the study.

Finance is an integral part of modern economic life and occupies

an important place in all economic activities. Finance is “The science of money”
and life blood of industrial system. Financial management is that managerial
activity, which is concerned with the planning and controlling of the firms
financial resources. Financial management in its infancy dealt with the financing
of corporate enterprises. Its evolution may be divided into two broad phases, the
traditional phase and the modern phase. Its scope was treated in the narrow sense
of procurement of funds. Thus the field of study dealing with the finance was
treated as encompassing here interrelated aspects of rising and administrating
resources from outside.

Financial instruments are through which funds are raised from the capital market
and the related aspects of capital market.

There is a legal and accounting relationship between a firm and its

sources of funds. These decisions were assumed to be given to him, and one was
requiring rising the needed funds from a combination of various sources.

The traditional approach of looking at the role of the financial manager

locked a connected frame work for making financial decisions, miss placed
emphasis on rising of funds and neglected the real issues relating to the allocation
and management of funds, the second criticism of the traditional approach was
that the focus was on facing problems of corporate enterprises on its scope was
contained to industrial enterprises and non- corporate organizations lay out side its
scope. In this broader view the central issue of financial policy is the wise use of
funds and the central process involved is a rational matching of advantages
potential uses against the cost of alternative potential sources so as to achieve its
broad financial goals which an enterprise sets for itself. At another basis on which
it was challenged was that it was a closely combine to a description of infrequent
happenings like promotion, incorporation, merger etc; and day- to-day activities
were ignored.
 Finally, it was found to have a lacuna to the extent the focus was on long
term financing and working capital management in a broad sense and provide a
conceptual and analytical frame work for financial decision making. The
development of a number of management skills and decision making techniques
facilitated its implementation of a system of optimum allocation of the firm’s
resources. The emphasis shifted from rising of funds to efficient and effective of
funds.

SCOPE OF THE STUDY:

The scope of the study is confined to one of the key areas of finance i.e. inventory
management, which plays a vital role in the working capital management. The
study concentrates on the methods and techniques followed by Rashtriya Ispat
Nigam ltd. For its inventory management and its relative merits and demerits. This
present study also concentrates on the importance of inventory management for
effective management of working capital management of the company.

The data required for the study inventory management and its impact on working
capital is collected from the past eleven year’s published annual reports of the
company.

To ensure that each of the current assets is efficiently managed to

ensure the overall liquidity of the unity and at the same time not keeping too high
level of any one of them working capital management is a must. Working capital
management ensures smooth working of the unit with out any production held ups
due to the paucity of funds. Thus as working capital is the life blood and nerve
centre of a business. It is managed in order to attain a smooth running of the
business.

OBJECTIVES OF THE STUDY:

The present study is intended to analyze the practices of working capital

management in Rashtriya Ispat Nigam ltd. The efficiency of the firm’s working
capital management is determined by the efficient administration on its various
components.

Keeping in the view of above facts and figures, the following are
the objectives of the study.

 To examine working capital needs of Rashtriya Ispat Nigam ltd.

 To know the financial strength and weaknesses of the company.
 To know the short term solvency of the firm.
 To understand the capital structure of the firm.
 To find out the reasons of the problem and to evaluate possible way to
resolving them.
 To determine the efficiency and effectiveness of the management and each
segment of the working capital management is being financed.
 To know the various methods to be followed by RINL for inventories and
accounts receivables.

METHODOLOGY OF THE STUDY:

Methodology is a systematic procedure of collecting information in

order to analyze and verify a phenomenon. The collection of information is done
through two principle sources, viz.

1. Primary data

2. Secondary data

PRIMARY DATA: It is the information collected directly with out any

references. In this study it is gathered through interviews with concerned officers
and staff, either individually and collectively, some of the information has been
verified and supplemented with personal observation conducting personal
interviews with the concerned officers of finance department of VSP.

SECONDARY DATA: It is the information collected from already published

sources such as pamphlets of annual reports, returns and internal records. The data
collection includes:

(a) Collection of required data from annual records of VSP.

(b) Reference from text books and journals relating to financial
management.
LIMITATIONS OF STUDY:
The limitations that came across during the course of this work are listed below:

 The entire study is based on only financial data i.e. provided by the company
financial statements.
 The smaller time i.e. ten weeks are available for understanding this study is
one of the significant limitations of the study.
 These calculations may not be future indicators.
 The study is purely based on the date available in the form of annual reports.
 As VSP is multi product manufacturing unit the cycle time of each product
varies and it could be a problem to study the working capital management in a
limited period.
 Since the procedures and policies of the company do not allow disclosing of
all financial information the project has to be completed with the available
data collected with maximum effort.
 Some aspects of financial information were not available because of the
confidentiality of VSP.
CHAPTER-II
 INDUSTRIAL PROFILE

Steel is an alloy of iron usually containing less than 1% carbon is a versatile

material with multitude of useful properties used most frequently in the
automotive and construction industries. Steel can be cast into bass strips, sheets,
nails, spikes, wire, rods or pipes as needed by the intended user. The consumption
of steel is regarded as the index of industrialization and the economic maturity any
country has attained.
The development of steel industry in India should be viewed in
conjunction with the type and system of government that had been ruling country.
The production of steel in significant quantity started after 1900. The growth of
steel industry can be conveniently studied by dividing in the period into pre
&post-independence era. The total installed capacity for ingot steel production in
during pre-independence era was 1.5 million tones/ year, which has risen to about
8 million tons of ingot by the seventies. This is the result of the bold steps taken
by the government to develop this sector.
THE GROWTH IN CHRONOLOGICAL ORDER IS AS FOLLOWS:
1830: Josiah Marshall health constructed the first manufacturing plant at pot in
madras presidency.
1874: James Erskine founded the Bengal iron works
1899: Jamshedji Tata initiated the scheme for an integrated steel plant.
1906: Formation of TISCO.
1911: Tata iron & steel company started production.
1916: Tesco was founded.
1944: Formation of Mysore iron.
1951-56: First five year plan.
No new steel plant came up the Hindustan steel ltd(HSL) was
born on 19th January, 1954 with the decision of setting up three steel plants each
with one million tone input steel per year at Rourkela, Bhilai and Durgapur, Tesco
stated its expansion programming.
1956-61: A bold decision was taken up to increase the ingot steel output India to 6
million tons per year and production at Rourkela, Bhilai, and Durgapur steel
plants started.
1961-66: (Third five year plan) during the third five year plan the three steel
plants under HCL, TISCO and HSCO were expanded as shown.
1966-69 –RECESSION PERIOD:

STEEL PLANT ORGINAL YEAR EXPANDED YEAR

Rourkela 1.0 1.8

Bhilai 1.1 2.5

Durgapur 1.0 1.6

Tesco 1.0 2.0

Osco 0.5 1.0

The entire expansion programs were actively executed during the period.
1969-74: Fourth five year plan Salem steel plant started.
Licenses were given for setting up of many mini steel plants and
reenrolling mills Govt. of India accepted setting up two more steel plants in south:
One each at Visakhapatnam (A.P) and Hotspot (Karnataka) SAIL was formed
during the period of 24th Jan 1973. The total installed capacity from 6 integrated
plants was 106mt.
 In 1979 annual plan, the erstwhile Soviet Union agreed to help in setting
up the VSP.
 In 980-85 fifth year plan, work on VSP was started with a big bang and top
priority was accorded to start the plant; scheme for modernization of
Bhilai, Rourkela, Durgapur and Tesco steel plants were initiated.
 In 1985-91 seventh five year plan, expansion work of Bhilai and Bokhara
steel plant’s completed; progress on VSP picked up and the rationalized
concept has been introduced to commission the plant with 3mt liquid steel
capacity by 1990; VSP started its production modernization of other steel
plant’s is also duly envisaged.
 In 1997-02 ninety five year plan; steel industry register’s a growth of
9.9%, VSP has high regime targets and achieved the best of them
OUTLOOK
The steel companies in India are looking up amidst a tough the global
competition when the market is crisis-crossed with a variety of tariff and non-
tariff barriers. The dexterity with which the Indian exporters diversified their
markets, modified the composition of their export basket to suit the changing
global demands and affected reduced production costs by adopting the state-of-
the-art technologies provides ample testimony to the maturity of this industry.
From a highly protected inward looking enterprise of the pre-liberalization years,
it has turned into a modern and globally integrated industry in an astonishingly
short span of time. The economic reforms have brought with its immense
opportunities for market-led growth of this industry, once a symbol of state
control.
On the supply side, deregulation meant access to domestic private
capital and low-cost overseas funds, advanced technology and cheap inputs. On
the demand side, the new policy regime meant opportunities to sell steel in an
expanding domestic market and, most importantly, in the large international
marts.
The Indian steel industry is at an important juncture today. The
global strengthening of the market, the potential growth in domestic steel
consumption and the global shortage of critical raw materials like iron ore and
scrap have raised issues like the need to further boost in the production capacities
of the plants by modernization, creation of a strong base of raw materials and
industry specific development of the infrastructure.
The government has been fostering a harmonious growth of the
industry on the principles of competitiveness and economic efficiency. It has also
paid the highest attention to help the industry in overcoming structural rigidities
within the sector, remove scarcities of essential inputs, develop infrastructure and
remove the market distorting forces commonly experienced by the developing
countries in the course of industrialization. The industry is being protected from
unfair competition from domestic and overseas sources.

MAJOR STEEL INDUSTRIES IN INDIA:

1. Bharat refectories ltd.

2. Hindustan steel works construction ltd.

3. Jindal steel and power ltd

4. Kundremukh iron ore company ltd.

5. Manganese ore (INDIA) ltd

6. Metal scrap trade corporation ltd

7. Metallurgical and engineering consultants India ltd

8. National mineral development corporation (NMDC)

9. Rashtriya Ispat Nigam Ltd

10. sponge iron India ltd

11. Steel authority of India ltd

12. Tata iron steel

The global industry has witnessed several revolutionary changes during the last
century. The changes have been in realms of both technology and business
strategy. The ultimate object of all these changes is to remain competitive and
open global market. The Indian steel industry is growing very rigorously with the
major producers like SAIL, RINL, TISCO, JVL and many others. Our steel
industry has amply demonstrated its ability of adopt to the changing scenario and
to survive in the global market that is becoming increasingly competitive. This has
been possible to a large extent due to the adoption of innovation operating
practices and modern technologies. Industrial development in India has reached a
high degree of self-reliance and the steel industry occupies a primary place in the
strategy for future development .At present the production of steel industry
country is 34 Mt. the public sector steel industry has been restructured to meet
challenges and a separate fund has been established for modernization and future
development of the industry. It is now being proposed that Indian steel industry
should gear up to achieve a production level of about 100 Mt. by the year 2000.

PRICING AND DISTRIBUTION

 Price regulation of iron and steel was abolished on

16-01-1992.

 Distribution controls on iron and steel removed except 5

Priority sector, viz. Defense, railway small scale

Industries Corporations, exporters of engineering goods and north Eastern
region.

 Allocation to priority sectors is made by ministry of steel.

 Government has no control over prices of iron and steel.

 Open market prices are generally on rise.

 Price increases of late have taken place mostly in long

Products than flat products.

CHAPTER-III
 COMPANY PROFILE

CORE VALUES

 Commitment
 Customer satisfaction
 Continuous improvement
 Concern for environment
 Creativity & Innovation

MISSION

To attain 16 million ton liquid steel capacity through technological up gradation,

operational efficiency, expansion to produce steel at international standards of
(cost and quality), to meet the aspirations of the stakeholders and to be the most
efficient steel maker having the largest single location shore based steel plant in
the country.

VISION

 To be a continuously growing world-class company

 Harnesses the growth potential and sustain profitable growth
 Deliver high quality and cost competitive products and be the first choice of
customers
 Create an inspiring work environment to unleash the creative energy of people
 Achieve excellence in enterprise management
 Be a respected corporate citizen, ensure clean and green environment and
develop vibrant communities around us
OBJECTIVES

 Achieve gross margin to turnover ratio > 10%

 Plan for finishing mill to integrating with 7.3 Mt capacity and commission the
same by 2017-18
 Achieve rated capacity of new & revamped units by 2017-18
 Achieve leadership in energy consumption by achieving 5.6 Gcal/tcs by 2017-
18
 To grow in harmony with the environment & communities around us.
 POLICIES IN VSP

QUALITY POLICY:
Visakhapatnam steel plant is committed to meet the needs and
expectations of their customers and other interested parties. To accomplish
this, they will
 Supply quality goods and services to customers delight
 Achieve quality of the products by following systematic approach through
planning, document procedures and timely review of quality objectives
 Continuously improve the quality of all materials, processes and products
 Maintain an enabling environment of all employees with their involvement.

ENVIRONMENT POLICY
Visakhapatnam steel plant, while carrying out its operations reaffirms its
commitment to preserve the environment to accomplish this, they will
 Document, implement, maintain and continuously review the environment
management system
 Comply with all the relevant environmental legislations, regulations and other
requirements
 Ensure continual improvement in the environmental performance and
prevention of pollution by minimizing the emissions and discharges
ENERGY POLICY:
Visakhapatnam Steel Plant is committed to optimally utilize various forms of
energy in a cost effective manner to effect conservation of energy resources to
accomplish this they will be following
 Monitor closely and control consumption of various forms of energy through
an effective energy management system.
 Adopt appropriate energy conservation technologies.
 Maximize the use of cheaper and easily available forms for energy

HR POLICY:
Visakhapatnam steel plant, believe that its employees are the most important
resources to realize the full potential of employees, the company is committed to:
 and motivated for maximizing productivity
 Establish systems for maintaining transparency fairness and equality in
dealing with employees
 Provide work environment that makes the employees committed Empower
employees for enhancing commitment, responsibility and accountability
 Encourage teamwork, creativity, innovativeness and high achievement
orientation
 Ensure functioning of effective communication channels with employees

CUSTOMER POLICY:
 VSP will endeavor to adopt a customer-focused approach at all times with
transparency
 VSP will strive to meet more than the customer needs and expectations
pertaining to products quality and value for money and satisfaction
 VSP greatly values its relationship with customers and would make efforts
at strengthening these relations for mutual benefit

IT POLICY:
 RINL/VSP is committed to leverage information technology as the vital
enabler in improving the customer-satisfaction, organizational efficiency,
productivity, decision-making, transparency and cost-effectiveness, and thus
adding value to the business of steel making.
 Follow best practices in process automation & business processes through IT
by in house efforts/ outsourcing and collaborative efforts with other
organization/ expert groups/ institutions of higher learning etc. thus ensuring
the quality of product and services at least cost.
 Follow scientific and structured methodology in the software development
processes with total user-involvement, and thus delivering integrated and
quality products to the satisfaction of internal and external customers.
 Install, maintain and upgrade suitable cost effective it hardware, software and
other IT infrastructure and ensure high levels of data and information security.
 Enrich skill-set and knowledge based of all related personnel at regular
intervals to make employees as knowledge-employees.

WELFARE MEASURES IN VSP

Rashtriya Ispat Nigam Limited/ Visakhapatnam steel plant, considers human
resources as the most important of all the resources in the company. Its
development and welfare have therefore been given the utmost emphasis in the
overall policy of Human Resources Management of the company.
The welfare measures that have been taken by VSP are
1. Statutory welfare measures
2. Non-statutory welfare measures
1.Statutory welfare measures:

 Canteen facilities
 Baby crèche
 First aid facilities
 Water coolers
 Leave facilities
 Maternity Leave
 Factories Act
 Gratuity facilities
 Workmen’s compensation
 Contract Labor welfare

2. Non-statutory welfare measures:

 Education facilities
 Scholarships
 Medical facilities
 Medical Reimbursement
 Housing Facility
 Work dress
 Vehicle advances to employees
 House building advance
 Motivational schemes
o Awards
o Jawaharlal Suggestion Rewards
o Gnana puraskar yojana(GPY)
o Incentive schemes
 Ltc\Lltc
 Leave encashment
 Facilities for recreation
o Community welfare centers (cwcs)
o Library
o Ukkunagaram club and steel club
o Parks
o Sports facilities
o Sports complex
 o hostel grounds
o cultural and trekking activities
o co-operatives
o employees consumers co-operative stores
3. Social security measures:

 Employee family benefit scheme

 RINC employees superannuation benefit fund
 Family benefit scheme(death benefit fund)
 Group savings linked insurance scheme
 Group personal accident insurance scheme
 Contribution from incentive earnings
 Funeral expenses
 Traveling/ transport expenses
 Medic lain insurance policy for retired employees
Achievements and awards
The efforts of vsp have been recognized in various forms. Some of the major
awards received by VSP are in the area of energy conservation, environment
protection, safety, quality, Quality Circles (QCs), Rajyasabha, MOU, sports
related awards.

Year Award Purpose

2000 Merit certificate Energy efficiency

2001 National energy conversation award Energy efficiency

(2nd)

2002 National energy conservation Energy efficiency

award(1st)
2003 National energy conservation Energy efficiency
award(1st)

2004 National energy conservation Energy efficiency

award(1st)
2005 National energy conservation award Energy efficiency

2006 National energy conservation Energy efficiency

award(1st)
2004 ICWA national award Good performance, for excellence in
cost management.

2004 World quality commitment Performance excellence, quality

international star award management and quality
achievement.

2004 Leadership and excellence award in Excellence in SHE by CIT south

SHE(safety health and environment) zone.

2005 Certificate of appreciation by Excellence in energy conservation.

institution of engineers, AP chapter

2005 Energy conservation by AP Best organization in energy

productivity council. conservation initiatives.
2005 CIT-GBC national award Excellence in energy management

2005 Business achievement award for Environmental conservation and

excellence. pollution
2006 CIT leadership and excellence award Control presented by confederation
in safety ,health and environment- of Asia pacific chamber of commerce
2005 and industry.

2006 Safety innovation award For contribution in innovating,

promoting and implementing the best
safety practices presented by
institution of engineers(INDIA)

2006 Golden peacock environment Encourage and recognize effective

management award (GPEMA) implementation of environment
management systems and their
continuous improvement.

2006 Organizational excellence award. Efficient suggestion scheme

operation given by INSSAN.

2006 Strong commitment – CII Excellence in H.R processes and

H.R excellence award 2006 practices

2007 Commendation prize for significant Overall excellence in all activities of

achievement to excellence – CII the company
EXIMBANCE award for business
excellence 2006
2014 Vishwakarma awards- vishwakarma Innovative suggestions for higher
Rashtriya puraskar for 2 employees efficiency , productivity &process
improvements.

2014 Third prize of Indira Gandhi For effective implementation of

rajbhasha shield official language

2015 Performance excellence award by For implementation of 5s

QCFI

2016 "Corporate vigilance excellence For promoting transparency in

award" by institute of public procedures and awareness in
enterprise combating corruption

2016 "Best enterprise award" Under For outstanding contribution for the
maharatna & navratna category by betterment of women employees.
scope_ 2nd prize

MAJOR SOURCES OF RAWMATERIALS

RAW MATERIAL SOURCE

Iron ore lumps and fines Beulaville , MP

BF lime stone Jaggayapeta, AP
SMS lime stone UAE
BF dolomite Madharam, AP
SMS dolomite Madharam, AP
Manganese ore Chipurupalli ,AP
Boiler coal Talc her , Orissa
Cooking coal Australia
MAJOR UNITS &MAIN PRODUCTS OF VSP

STEEL PRODUTCS BY PRODUCTS

Angels Nut coke, granulated slag.

Coke dust, lime fines.
Billets Coal tar, ammonium sulphate
Channels Anthrancene oil.
Beams Hp Naphthalene.
Squares Benzene.
Flats Toluene.
Rounds Zylene.
Re-bars Wash oil.
Wire rods

Financial performance:

Year Gross margin Cash profit Net profit

2006-2007 2633 2584 1363
2007-2008 3515 3483 1943
2008-2009 2355 2267 1336
2009-2010 1603 1525 797
2010-2011 1412 1247 670.8
2011-2012 1167 1110 749.4
2012-2013 1265 1250 845
2013-2014 1159 821 366
2014-2015 809 103 62

Commercial performance:

Year Sales turnover Domestic sales Exports

2006-2007 9131 8487 424
2007-2008 10433 9878 555
2008-2009 10411 10333 78
2009-2010 10635 10284 351
2010-2011 11517 11095 422
2011-2012 14462 14047 416
2012-2013 15451 15041 410
2013-2014 13488 12741 747
2014-2015 11673 10807 865
2015-2016 12281 11095 1186
Production performance:
Year Hot metal Liquid steel Saleable steel Labour
productivity(
TLS/man
year)
2007-2008 3913 3322 3074 389
2008-2009 3546 3145 2701 359
2009-2010 3900 3399 3167 382
2010-2011 3830 3424 3077 358
2011-2012 3778 3410 2990 389
2012-2013 3814 3250 2900 382
2013-2014 3769 3390 3016 371
2014-2015 3780 3488 3017 318
2015-2016 3975 3826 3513 345

Manpower as on 01-03-2016
Non - executives Executives
Commercial 106 546
Crop office 8 46
Finance 14 256
HR 479 501
Operation(mines,IT 213 221
&R&D )
Projects 47 368
Vigilance 4 28
Works 10678 4119
Grand total 11549 6085

MAJOR DEPARTMENTS OF RINL

1. Coke ovens &coal chemical plant

2. Sinter plant
3. Blast furnace
4. Steel melt shop
5. Light & medium merchant mill
6. Wire rod mill
7. Medium merchant & structure mill
8. Special bar mill
1. Coke ovens & coal chemical plant:

Coal is converted into coke by heating the prepared coal blend charge in the
coke ovens in the absence of air at a temperature of 10000C-10500C for a period
of 16/19 hours. The volatile matter of coal liberated during carbonization is
collected in gas collecting mains in the form of raw coke oven gas passing through
stand pipes and direct contact cooling with ammonia liquor spray. The main by-
product in the process of coke making is crude coke oven gas and this has lot of
valuable chemical.

2. Sinter plant:

Sintering is an agglomeration process of fine mineral particles into a porous

mass by incipient fusion caused by the heat produced by combustion within the
mass itself. Iron ore fines, coke breeze, limestone and dolomite along with
recycled metallurgical wastes are converted into agglomerated mass at the sinter
plant, which forms 70-80% of iron bearing charge in the blast furnace.

3. Blast furnace:

Iron is made in the blast furnace by smelting iron bearing materials with the help
of coke and air. The solid charge materials like sinter, sized iron ore, coke etc. are
charged in the vertical shaft of blast furnace at top and hot air blast is blown
through the tuyeres located at the bottom. The oxygen from the hot air combines
with the carbon of coke and generates heat and carbon monoxide. The gases,
while ascending upwards react with the descending charge materials. Eventually,
the charge melts hot metal and slag are produced and tapped out. The cooled gas
is also used as fuel in the plant. The paulwurth, bell less top system is installed for
furnace charging.

4. Steel melt shop:

Steel is made in steel melting shop in the refractory lined vessels called LD
converters by blowing oxygen through the hot metal bath. While iron making is a
reduction process, steel making is an oxidation process. The oxygen reacts with
the carbon in the hot metal and this reaction releases large quantities of gas rich in
carbon monoxide along with huge amount of dust. The gases released from the
converter are collected, cooled, cleaned and recovered for use as fuel in steel
plant. The entire molten steel at vsp is continuously cast at the radial type
continuous casting machines resulting in significant energy conservation and
better quality steel. 100% continuous casting on such a large scale has been
conceived for the first time in India.

5. Light & medium merchant mill:

The cast blooms from continuous casting departments are heated and rolled in
the two high speed and fully automated rolling mills namely light & medium
merchant mill (LMMM) and medium merchant & structure mill (MMSM). The
billets produced in LMMM are further rolled in bar mill / wire rod mill. (WRM).
The finished products include wire rods & long products like reinforcement bars,
rounds, squares, flats, angles, channels, billets etc. blooms from continuous
casting division are rolled into billets, some of which are sold and rest are sent to
bar mill/WRM. The continuous two bar mill comprise of stand double strand
roughing train, 2nos. of 4stand single strand intermediate train & 2 nos. of 4
strand single strand finishing train. Loopers are provided in between the finishing
stands for tension free rolling in order to obtain good surface quality and
tolerances. Housing are of closed top type. Roll necks are mounted in anti-friction
bearings.

6. Wire rod mill:

WRM-1

The mill is high speed 4 strand no-twist continuous mill designed to produce
850000 t of wire rod coils. Rolled billets of 125 mm x 125mm square cross
section, length ranging from 9.8 m to 10.4 m and weighting approximately 1250
kgs re used as input material. The mill is designed to roll steel stock of 0.9% max.
Carbons content.

WRM-2

The mill is designed to produce 600000 tons per year of rounds in coil form.
The mill is designed to roll low, medium and high carbon steel, case hardening
steel, cold heading quality steel, electrode steel, spring steel, bearing steel and free
cutting steel. The mill shall use continuous cast billets of 150mm square size, 12m
length and weighing approx. 2100 kgs are used as input material.

7. Medium merchant and structured mill:

Medium merchant and structured mill is one of the modern rolling mills in
Visakhapatnam steel plant. This is a single strand continuous mil having
production capacity of 850000 t/year. The important feature of this mill is that
universal beams (both parallel and wide flange) have been rolled first time in
India using universal stands. Parallel flange beams as, for the same weigh, the
section is stronger and stiffer due to greater moment of inertia and higher radius of
gyration.

8. Special bar mill:

The mill is designed to produce 750000 t of plain rounds in straight length and in
coil form from an input of continuous cast billets of 150 mm x 150 mm x12m and
weighing approximately 2050 kgs. The mill is designed to roll medium and high
carbon steel, case hardening steel, old heading quality stele, electrode steel, spring
steel, bearing steel and free cutting steel.
 ORGANISATIONAL PROFILE

Rashtriya ispat nigam limited, a navaratna PSE with 100% ownership held by
GOI, is the corporate entity of Visakhapatnam steel plant.

1. Main products and services:

RINL, with its exclusive product mix of longs is the largest producer of
long products in the country. The principal products of RINL are plain
wire rods, rebar, rounds, squares, angles, channels.
2. Delivery mechanism:
A network of 5 regional offices, 23 branch offices, stockyards, 5
consignment sales agents and 133 retailers spread across the country cater
to delivery requirements, which is further complemented by DLDs and
RDs to ensure availability of quality steel in rural areas affordable prices.
3. Culture of the organization:
Right from the inception stage, a conscious on inculcating a “New work
culture” of commitment, continuous improvement, concern for
environment and customer orientation among employees were initiated
and appropriate system put in place, which over a period of time has
evolved into a culture of creative and innovative improvement across the
organization.
4. Purpose, vision, mission, and values:
RINL is the last integrated steel plant to be set up as a PSE, basically to
proper growth in the infrastructure in the country and play a crucial role in
India’s industrialization and economic development.
5. Employee profile, education levels, workforce, job diversity, use of
contact employees:
Total employee base can be categorized into non- executive and executive
grades, categorization by department also provide a basic segmentation for
the purpose of administrative convenience and structured deployment and
monitoring of various initiatives.
6. Special health and safety requirement:
All employees engaged in identified hazardous areas are subjected to
periodical medical examination at the OHSRC. The hazards are well
guarded to minimize the danger and ensure safe working conditions.
7. Major technologies, equipment’s, facilities:
Technologies adopted during the inception of plant were the first of its
kind in the Indian steel industry, which RINL over the years has harnessed
and approved upon, to build a unique competitive advantage around its
operational efficiency. It will be further strengthened with stabilization of
the 6.3Mtpa expansion units.
8. Statutory and regulatory environment:
Being a GOI owned PSE, RINL complies with all the applicable
regulations and has adopting the recent DPE guidelines on CSR, CG, SD,
R&D, etc.
 ORGANISATIONL RELATIONSHIPS:
1. Structure, governance system and reporting relationships.
2. Customers, market segment, key requirements and expectations for the
products and services.
3. Suppliers & distributors relationships and communication.

FUNCTIONAL DIRECTORS OF RINL:

DIRECTORS FUNCTIONS

SHRI M. MADHUSUDAN Chairmen cum managing

director

SHRI P. Commercial director

RAYCHAUDHURY

SHRI PC MOHAPATRA project director

Dr. GBS PRASAD Personal director

SHRI TVS KRISHNA Finance director

KUMAR

SHRI D.N RAO Operation director

CHAPTER-IV
 WORKING CAPITAL MANAGEMENT

INTRODUCTION:

Working capital management is concerned with the problems that arise in

attempting to manage the current assets, the current liabilities and the inter
relationship that exists between them .The term current assets refer to those assets
which in the ordinary course of business can be, or will be, converted into cash
with in one year without undergoing a diminution in value and without disrupting
the operations of firm. The major current assets are cash, marketable securities,
accounts receivable and inventory. Current liabilities are those liabilities which
are intended, at there inception, to be paid in the ordinary course of business, with
in a year, out of the current assets or earning of the concern. The basic current
liabilities are accounts payable, bills payable; bank over draft, and outstanding
expenses, the goal of working capital management is to manage the firm’s current
assets and liabilities in such a way that a satisfactory level of working capital is
maintained.

MEANING OF WORKING CAPITAL:

Capital required for a business can be classified under two main categories
viz.

1. Fixed capital and

2. Working capital

Every business needs funds for two purposes for its establishment and to
carry out its day operations. Long-term funds are required to create production
facilities trough purchases of fixed assets such as plant and machinery, land,
building, furniture etc., Investments in these assets represent that part of firm’s
capital which is blocked on a permanent or fixed basis and is called fixed capital.
Funds are also needed for short-term purposes for the purchased or for the
purchase of raw material, payment of wages and other day–to-day expenses etc..,
these funds are known as working capital.
Definition:

 In the words of cubing “working capital is the amount of funds necessary to

cover the operating enterprise”.

 According to Gene Stenberg “Circulating capital means current assets of a

company that are changed in the ordinary course of business from one form to
another as for example, from cash to inventories, inventories to receivables,
into cash ”.

CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital

1. Gross working capital

2. Net working capital

The GROSS WORKING CAPITAL concept of working capital refers to a

firm’s investment in current assets. This is also known as ‘current capital concept’
or ‘circulating capital concept’. The gross working capital is represented by the
sum total of all current assets of the enterprise. It is also known as circulating in
the ordinary course of business form one form to another as for example, from
cash to inventories to receivable to cash. This concept focuses attention on two
aspects of current assets management, viz..,

a) Optimum investment in current assets,

b) Financing current assets.

The NET WORKING CAPITAL concept is an accounting concept, which refers

to the arithmetic difference between current assets and current liabilities of a
business concern. It is defined as “the difference between the book value of the
current assets and current liabilities”. The net working capital indicates.

(a) The liquidity position of the firm, and (b) suggests the extent to which working
needs maybe financed by permanent sources of funds. An alternative definition of
networking capital is that portion of firm’s current assets financed with long term
funds.

These two concepts of working capital are not mutually exclusive rather have
equal significance from the management point of view and represent two
important factors of the working capital management.
 The individual composite items of working capital are:

Current assets comprise items that would get converted into cash in short term,
with in a year, through the business operations. Current assets include,

1. Inventories: including stocks of raw material and components, work-in-

progress, finished goods and factory supplies, packing and shipment
materials, office supplies etc.,

2. Loans and advances and other Balances: Include Sundry Debtors, Bills
receivable and others including loans and advances, prepaid expenses etc.,

3. Marketable securities: Include Sundry debtors, Bills receivable and others

including loans and advances, prepaid expenses etc.,

4. Cash and Bank Balances:

CONSTITUENTS OF CURRENT ASSETS ARE:

1) Cash in hand and bank balances

2) Bills receivable

3) Sundry debtors(less provision for bad debts)

4) Short term loans and advances

5) inventories of stock as:

a. Raw materials

b.Work-in-progress

c.Stores and spares

d. Finished goods

6) Temporary investments of surplus funds

7) Prepaid expenses

8) Accrued income

In narrow sense the term working capital refers to the net working capital.Net
Working capital is the excess of currents assets over current liabilities(or)

Gross working capital= Current assets total

Net working capital=Current assets-Current liabilities

Net working capital may be positive or Negative. When the current assets exceed
the current liabilities the working capital is positive and the negative working
capital results when the current liabilities are more than the current assets. Current
liabilities are those liabilities which are intended to be paid in the ordinary course
of business with in a short period of normally one accounting year out of the
current assets or the income of the business.

Current Liabilities are those, which are expected to fall due or nature of
payment in short period of one year, and they represent short-term sources of
funds they include

1. Short-term borrowings: include bank borrowings other than those against

own debentures and other mortgages.

2. Trade creditors and other liabilities Sundry creditors, outstanding expenses

and advances received.

Provisions for taxation, dividends and other current provisions

CONSTITUENTS OF CURRENT LIABILITIES:

1. Bills payable

2. Sundry creditors (or) Accounts payable

3. Accrued or outstanding expenses

4. Short-term loans, advances and deposits

5. Dividends payable

6. Bank overdrafts

7. Provision for taxation, If it does not amount to appropriation of profits

THE NEED FOR WORKING CAPITAL:

A firm has to make profit to maintain its image in the capital market
where the investors will also be looking forward to the continuous growth of
profitability; gradual increase in profit will result in capital growth of the firm.
To earn substantial profit, sales volume has to be increased.

It is observed that sale of goods will not immediately be converted in to

cash. When the sale transactions are more credit in nature to have
uninterrupted business operations the amount will be looked up in the current
assets like accounts receivables, stock, etc., This actually happens due to the
cash cycle by the time the cash is converted back to the cash.
 The firm needs extra funds and hence the need for working capital. If this
is not provided the business operations will be effected to a greater extent and
hence this past of finance has to be managed well.

THE WORKING CAPITAL NEED FOR THE FOLLOWING PURPOSES:

1. The purchase of raw materials, components and spares

2. To pay wages and salaries.

3. To incur day-to-day expenses and overhead cost such as fuel, power and
office expenses, etc.,

4. To meet the selling costs as packing, advertising etc,.

5. To provide credit to the customers.

6. To maintain the inventories of raw material, work-in-progress, stores and

spares and finished stock.

IMPORTANCE OF WORKING CAPITAL: Working capital is the life blood

and nerve center of a business, just as circulation of blood is essential in the
human body for maintaining life, working capital is very essential to maintain the
smooth running of a business. No business can run successfully without an
adequate amount of working capital.

The main advantages of maintaining adequate amount of working capital are as

follows:

1. Solvency of the business.

2. Goodwill.

3. Easy loans.

4. Cash discounts

5. Regular supply of raw material.

6. Regular payment of salaries, wages and other day-to-day commitments.

7. Exploitation of favorable market conditions.

8. Ability to face crisis.

9. Quick and regular return on investments

10. High morale

CLASSIFICATION OF WORKING CAPITAL:

Working capital may be classified in two ways

a) On the basis of concept

b) On the basis of time

a) On the basis of concept, working capital is classified as gross working Capital

and net working capital. This classification is important from the point of view of
the financial manager.

b) On the basis of time, working capital may be

Classified as:

1) Permanent working capital

2) Temporary or variable working capital

1) Permanent working capital:

Permanent working capital is the minimum amount which is

required to ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. There is a minimum level of current assets which is
continuously required by the enterprise to carry out its normal business operations.
For example, every firm has to maintain a minimum level of raw materials, work-
in-process, finished goods and cash balance. This minimum level of current assets
is called permanent or fixed working capital.

2) Temporary or variable working capital:

Temporary working capital is the amount of working capital which is required to
meet the seasonal demands and some special exigencies. Variable working capital
can be further classified as seasonal working capital and special working capital.
Most of the enterprises provide the additional working capital to meet the seasonal
and special needs. The capital required to meet the seasonal needs of the
enterprise is called seasonal working capital. Special working capital is that part
of working capital which is required to meet special exigencies such as launching
of extensive marketing campaigns for conducting research, etc.

FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS:

The working capital requirements of concern depend upon a large number of

factors such as nature and size of business, the character of their operations, and
the length of production cycles. The rate of stock turnover and the state of
economic situation, it is not possible to rank them because all such factors have
different importance and the influence of individual factors changes for a firm
over time. The following are important factors generally influencing the working
capital requirements.

 Nature and character of business

 Size of business/scale of operations

 Production policy

 Manufacturing process/length of production cycle

 Seasonal variations

 Working capital cycle

 Credit policy

 Rate of stock turnover

 Business cycles

 Rate of growth of business

 Earning capacity and dividend

 Price level change

NATURE OR CHARACTER OF BUSINESS:

The working capital requirements of a firm basically depend upon the

nature of its business. Public utility undertakings like electricity, water supply and
railways need very limited working capital because they offer cash sales only and
supply services, not products, and as such no funds are tied up is inventories and
receivables.

SIZEOF BUSINESS/SCALE OF OPERATIONS:

The working capital requirements of a concern are directly influenced by the

size of its business which may be measured in terms of scale of operations.
Greater the size of a business unit, generally larger will be the requirements of
working capital.
PRODUCTION POLICY:

In certain industries the demand is subject to wide fluctuations due to

seasonal variations. The requirements of working capital, is such cases depend
upon the production policy.

MANUFACTURING PROCESS/ LENGTH OF PRODUCTION CYCLE:

In manufacturing business, the requirements of working capital increase in

direct proportion to length of manufacturing process. Longer the process period of
manufacture, larger is the amount of working capital required. The longer the
manufacturing time, the raw materials and other supplies have to be carried for
longer period.

SEASONAL VARIATIONS:

In certain industries raw material is not available through out the year.
They have to buy raw materials in bulk during the season to ensure blocked in the
form of material inventories during such season, which gives rise to more working
capital requirements, generally during he busy season, a firm requires larger
working capital than in the slack season.

WORKING CAPITAL CYCLE:

In manufacturing concern, the working capital cycle starts with the purchase
of raw materials and ends with the realization of cash from the scale of finished
products. This cycle involves purchase of raw materials and stores its conversation
into stocks of finishing goods through work-in-progress.

RATE OF STOCK TURN OVER:

There is a high degree of inverse co-relationship between the quantum of

working capital and the velocity or speed with which the sales are affected. A firm
having high rate of sock turn over will need lower amount of working capital as
compared to a firm having a low rate of turn over.

CREDIT POLICY:

The credit policy of a concern is in its dealing with debtors and

creditors influence considerably the requirements of working capital. A concern
that purchases its requirements on credit and sells its products/services on cash
requires lesser amount of working capital.
BUSINESS CYCLES:

Business cycle refers to alternate expansion and contraction in general business

activity. In the period of boom i.e. when the business is prosperous, there is a need
for larger amount of working capital due to increase in sales, raise in prices,
optimistic expansion of business etc.

RATE OF GROWTH BUSINESS:

The working capital requirements of a concern increase with the growth and
expansion of its business activities although it is difficult to determine the
relationship between the growth in the volume of business and the growth in the
working capital of business.

OTHER FACTORS:

Certain other factors such as operating efficiency, management ability,

irregularities of supply, import policy, asset structure, importance of labor,
banking facilities, etc also influence the requirements of working capital.

WORKING CAPITAL CYCLE

Working capital cycle: - The determination of WC helps in forecast, control&

management of WC. The duration of WC may vary depending upon the nature of
business.
The duration of operating cycle (WC cycle) for the purpose of estimating WC is
equal to the sum of duration of each of above events less the credit period allowed
by the supplier
For ex: A co. holds raw material on an average for 60 days, it gets credit firm
supplier for 15 days, production process needs15 days, finished products are held
30 days & 30 days is the total WC cycle. So, 60+15+30+30-15=120 days.

VARIOUS COMPONENTS OF OPERATING CYCLE

It may be calculated as follows:
A) Raw material shortage period = Average stock of raw material
Average cost of raw material consumed per day
B) WIP holding period = Average WIP inventory
Average cost of production per day
C) Finished goods storage period = Estimated production (in units) * direct lab
permit
12 months / 360 days
OR Average stock of finished goods
Average cost of goods sold per day
D) Debtors collection period = Average goods debtors
Average credit sale per day
E) Credit period available to suppliers = Average rate credit
Average credit purchase per day
Operating cycle = W+R+F+D+C

FINANCING OF WORKING CAPITAL

Financing of working capital can be done in two ways:
 Long term sources

 Short term sources

A. Long term sources
1. Share capital
a. Equity share capital
b. Preference share capital
2. Debentures
a. Convertible debentures
b. Non-convertible debentures
c. Redeemable debentures
d. Non-Redeemable debentures

3. Bonds
4. Loans from banks & financial institutions
5. Retained earnings
6. Venture capital fund for innovative projects
B. Short term sources
1. Bank credit
2. Transaction credit
3. Advances from customers
4. Bank advances
5. Loans
6. Overdraft
7. Bills purchase and discounted
8. Advance against documents of title of goods
9. Term loans by bank
10. Commercial paper
11. Bank deposits

REGULATION OF BANK FINANCE

Traditionally bank credit:
Source of meeting of working capital needs of business firms.

In other words, they have been extending credit to industry & trade on the basis
of security.

RBI has appointed various committees to ensure equitable distribution of bank

resources to various sectors of economy. The committees suggest ways & means
to make the bank credit & effective instrument of industrialization.
1. DAHEZA COMMITTEE
 In September 1969, Daheza committee of RBI pointed out in his report
that in the financing practice of the banks. There was no relationship
between the optimum requirement & bank loan.
The committee also pointed out that banks do not give proper attention to
financing patterns. So clients move towards double & multiple financing.
The Daheza committee suggested:
The heart hole which represents the minimum level of raw material, finished
goods & stores which any industrial concerned is required to hold for maintaining
certain level of production.
 The strictly short term components which should be the fluctuating path of
the accounting, the path should represents the short term inventory, taxes,
dividend, and bonus payments.

Conclusion of Daheza committee:

 Orientation towards project & need based lending.

2. TONDON COMMITTE
In July 1974, RBI constituted a study group under the chairpersonship of
Mr. P.L Tondon. The study group was asked to give its recommendations
on the following matter:
 What constitutes the working capital requirement of industry and what is
end use of credit?
 How is the quantum of bank advanced to be decided?
 Can norms be involved of current assets & for debt equity ratio to ensure
minimum dependents on bank finance?
 Can the current manner & stage of lending be imposed?
Can an adequate planning assessment & implementation system be involved to
ensure a discipline flow of credit to meet genuine production needs & its
proper supervision?

The final recommendations for committee were:

A. Banks finance essentially for meeting working capital needs.
B. To fill up the working capital gap.
. Norms: The borrowing requirement of industrial unit depends on the length
of working capital cycle.
D. Three different methods for calculating the borrowing limit to finance
working capital requirements are:

First step is to use required fund deposit your money in term deposit, never
purchase excessive inventory.
The borrower will have to provide a minimum 25% of total current assets from
the term fund.
To decide the limit as per current assets & current liabilities.
E. Style of credit
F. Information system for banks
STEPS INVOLVED IN WORKING CAPITAL MANAGEMENT
There are two steps involved in working capital management. They are
 Forecasting the amount of working capital.
 Forecasting the amount of working capital.
 Determining the sources of working capital.
Scope of working capital:
 Maintain the adequate level of working capital, always to meet the rising
turnover, this way peak needs can be taken

 Sufficient liquidity to meet short-term obligation & when they arise also to
avail market opportunities like purchase of raw material at low prices or at
attractive discount.
 Proper interdepartmental co-ordination to minimize working capital
investment. I.e. co-ordination between the marketing department & production
department.
 Selection of appropriate sources of working capital viz trades credit, bank
finance, or other short-term finance as well as long term finance.
 It becomes easy to avail finance for the working capital if the firm banker
relationship are good and built on strong good faith.
For the purposes of optimizing working capital, the most important factors are

 Accounts receivables management

 Inventory management
 Liquidity and Cash management
 Accounts payable management
Receivable Management
Trade credit arises when a firm sells its product or services on credit and does not
receive cash immediately. It is an essential marketing tool, acting as a bridge for
the movement of goods through production and distribution stages of customers.
A firm grants trade credit:
 To protect its sales from the competitors and,
 To attract the potential customers to buy its product at favourable terms.

Trade credit creates account receivable. The customers from whom receivables or
book debt have to be collected in near future are called as trade debtors or simply
as debtors and represent the firm’s claim or asset. The credit sales have three
characteristics:-
It involves an element of risk that should be carefully analysed

 Credit sales is based on economic value

 The buyer will make the cash payment for good or services received by
him in a future period
Debtors constitute a substantial portion of current assets of several firms. Trade
debtors are the major part of current assets. The interval between the date of sale
and the payment has to be financed out from working capital of an organization.
This necessitates the firm to get funds from banks or other sources. Thus, trade
debtors represent investment. If substantial amounts are tied-up in trade debtors; it
needs careful analysis and proper management
Inventory Management
“Inventory refers to the stockpile of the products a firm is offering for the sale and
the components that make up the product”.
In other words, inventory management is a process of maintaining the raw
materials when entered in the company till it is converted into finished goods.
The importance of keeping the right level of inventory lies in the fact that a
maximum proportion of working capital remains blocked in the inventory until it
is completely sold off and debtors realized.
Objectives:
 To minimize investments in inventory
 To meet a demand for the product by efficiently organizing the production
and sales operations.
Thus the objective of the inventory management is to maintain an optimum level
of inventory at right place with minimum of cost to avoid a stock out option.
 Maintaining optimum level of inventory also has other benefits like:
 Meeting the market demand when it arises
 Meeting the unexpected demand when it arises
 Handling seasonal or cyclical fluctuations
 Customer satisfaction
 Minimizing cost of sales so that affordability of sales remains
Cost of holding inventory:
 Those cost that arise due to storing of inventory (Carrying Cost)
 The opportunity cost of fund

Benefits of holding inventory:

There are various benefits of holding inventory-
 Benefits in Purchasing
 Benefits in Production
 Benefits in Work in Process
 Benefits in Sales

Inventory includes all types of stocks. For effective working capital management,
inventory needs to be managed effectively. The level of inventory should be such
that the total cost of ordering and holding inventory is the least. Simultaneously,
stock out costs should also be minimized. Business, therefore, should fix the
minimum safety stock level, re-order level and ordering quantity so that the
inventory cost is reduced and its management becomes efficient.
The basic responsibility of the finance manager is to make sure the firm’s cash
flows are managed efficiently. Efficient management of inventory should
ultimately result in the maximization of the owner’s wealth. In order to minimize
cash requirements, inventory should be turned over as quickly as possible,
avoiding stock-outs that might result in closing down the production line or lead
to loss of sales.
3.1.5 Liquidity and Cash Management
Cash is the lifeline of an organization. A sustained growth of an organization
depends on the cash ability of the profit, not the profit per se as reflected in the
income statement. The rising profit curve of an organization may mislead
managers into high rates of growth, which are unsustainable due to the actual cash
position of the company. This leads to continuous erosion of liquidity and may
even make a company sick.
There has not been much of cash management in Indian enterprises due to easy
availability of working capital finance from banks. However, recently, cash
management as a discipline is emerging in the country.
Three main activities contribute to the cash flow:
 Operating activities cover cash flows relating to all revenue generating
activities of the organisation.
 Investing activities cover cash flows arising from investments.
 Financing activities cover cash flows arising out of all capital and debt
issues of the organisation.

METHODS OF ESTIMATING WORKING CAPITAL

There are two methods which are usually followed in determining working capital
Requirements. There are:
1. Conventional method
2. Operating cycle method
3. Cash cost technique
1. Conventional method
According to the conventional method cash inflows and outflows are matched
with each other. Greater emphasis is laid on liquidity and greater importance is
attached to current ratio, liquidity ratio, etc…which pertains to the liquidity of a
business.
2. Operating cycle method
In order to understand what gives rise to differences in the amount of timing of
cash flows, one should first think of the length of time which is required to
convert cash into resources, final product, final product into receivables,
receivables back into cash. The length of the operating cycle is a function of a
nature of a business. There are four major companies of the operating cycle of a
manufacturing company. These are:
  The cycle starts with free capital in the form of cash and credit, followed
by investment in materials, manpower and other services
 Production phase
 Storage of the finished products terminating at the time –finished product
is sold
 Cash or accounts receivables collection period, which results in and ends
at the point of dis-investment of the free capital originally committed.
New free capital then becomes available for productive reinvestment.
When new liquid capital becomes available for recommitment to
productive activity, a new operating cycle begins.
3. Cash cost technique
In this method, all transactions are shown in the working capital forecast on cost
basis. For forecasting working capital, the following information is required.
 Costs to be defrayed on materials, wages and overheads.
 Length of which time during raw materials are to remain in stock before
they are put to production.
 Length of production cycle
 Length of sale cycle denoting the period of time finished goods have to
stay in the warehouse before sale
 Period of credit availed of from creditors
 Time- lag involved in the payment of wages and overhead expenses
4. Balance sheet method
In this method a forecast is made of the various assets and liabilities. Thereafter,
the difference between the two is taken out the difference will indicate the
deficiency or surplus of cash.

MANAGEMENT OF WORKING CAPITAL

It refers to the excess of current assets over current liabilities. Management of

working capital therefore, is concerned with the problems that arrive in attempting

to manage the current assets, the current liabilities and the inter-relationship that

exists between them. In other words it refers to all aspects of administration of

both current assets and current liabilities.

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

assets and current liabilities of a firm in such a way of satisfactory level of

working capital to be maintained, i.e.., it is neither inadequate nor excessive.

Capital management is three dimensional in nature:

i. Dimension I is concerned with the formulation of policies with regard to

profitability, risk and liquidity.

ii. Dimensions II is concerned with the decision about the composition and
level of current Liabilities.

iii. Dimension III is concerned with the decision about the composition and
level of current assets.

Principles of Working Capital Management

The following are the general principles of sound working

capital management policy and they are as follows:
 1. principle of risk variation

2. principle of cost of capital

3. principle of equity position

4. principle of maturity of payment

1. Principle of risk variation: Risk here refers to the inability of a firm to meet its
obligations as and when they become due for payment. Larger investment in
current assets with less dependence on short term borrowings increases
liquidityand reduces risk and there by decreases the opportunity for gain or loss.
On the other hand less investment in current assets with greater dependence on
short term borrowings increases risk, liquidity and increases profitability .In other
words, there is a definite direct relationship between the degree of risk and
profitability.

2. Principle of cost of capital: The various sources of raising working capital

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

3. Principle of equity position: The principle is concerned with planning the total
investment in current assets. According to this principle, the amount of working
capital invested in each component should be adequately justified by a firm’s
equity position. Every rupee invested in the current assets should contribute to the
net worth of the firm. The level of current assets may be measured with the help
of two ratios (I) current assets as a percentage of total assets and (II) current assets
as a percentage of total sales while deciding about the composition of current
assets, the financial manager may consider the relevant industrial averages.

4. Principle of maturity of payment:

This principle is concerned with planning the sources of finance for

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

1. The Hedging or Matching Approach:

The term ‘hedging’ usually refers to two off-selling

transactions of a simultaneous but opposite nature which counter balance
the effect of each other, with reference to financing mix, the term hedging
refers to a process of matching maturities of debt with the maturities of
financial needs

2. The Conservative Approach

This approach suggests that the entire estimated investments in

current asset should be financed form long-term sources and the short-term
sources should be used only for emergency requirements

3. The Aggressive Approach:

The aggressive approach suggests that the entire estimated

requirements of current asset should be financed form short-term sources and even
a part of fixed assets investments be financed form short-term sources. This
approach makes the finance-mix more risky, less costly and more profitable.
RATIO ANALYSIS

INTRODUCTION:-

The ratio analysis is one of the most powerful tools of financial analysis. It is the
process of establishing and interpreting various ratios (quantitative relationship
between figures and groups of figures). It is with the help of ratios that the
financial statements can be analyzed more clearly and decisions are made from
such analysis.

MEANING OF RATIO:

A ratio is a simple arithmetical expression of the relationship of one number to

another. It may be defined as the indicated quotient of one numbers”. According
to Kohler, a ratio is the relation of the amount ‘a’ to another ‘b’, expressed as the
ratio of ‘a’ to ‘b’; a: b (‘a’ is to ‘b’); or as a simple fraction, integer, decimal,
fraction or percentage. In simple language ratio is one number expressed in terms
of another and can be worked out by the dividing one number into the other.

NATURE OF RATIO ANALYSIS:

The following are the four steps involved in the ratio analysis:

1. Selection of relevant data from the financial statements depending upon the
objective of the analysis.

2. Calculation of appropriate ratios from the above data.

3. Comparison of the calculated ratios with the ratios of the same firm in the
past, or the ratios developed from projected financial statements or the ratios
of the some other firms or the comparison with ratios of the industry to which
the firm belongs.

LIMITATIONS OF RATIO ANALYSIS:

The ratio analysis is one of the most powerful tools of

financial management. Though ratios are simple to calculate and easy
to understand, they suffer from some serious limitations.

LIMITATIONS OF RATIO ANALYSIS

1. Limited use of a single ratio

2. Lack of adequate standards

 3. Inherent limitations of Accounting

4. Change of Accounting procedure

5. Window dressing

6. Personal bias.

7. Un comparable

8. Absolute figure distortive

9. Price level changes

10.Ratios no substitutes

I. Limited use of a single ratio: A single ratio, usually, does not convey much
of sense. To make a better interpretation a number of ratios have to be
calculated which is likely to confuse the analyst than help him in making any
meaningful conclusion.

II. Lack of Adequate Standards: There are no well accepted standards or rules
of thumb for all ratios which can be accepted as norms. It renders
interpretation of the ratios difficult.

III. Inherent Limitations of Accounting: Like financial statements, ratios also

suffer from the inherent weakness of account ion records such as their
historical nature. Ratios of the past are not necessarily true indicators of the
future.

IV. Change Accounting procedure: Change in accounting procedure by a firm

often makes ration analysis misleading, e.g., a change in the valuation of
methods of inventories, from FIFO to LIFO increases the cost of sales and
reduces considerably the value of closing stocks which makes stock turnover
ratio can be lucrative and an unfavorable gross profit ratio..

V. Window Dressing: Financial statements can easily be window dressed to

present a better picture of its financial and profitability position to outsiders.
Hence, one has to be very careful in making a may be very difficult for an
outsider to know about the window dressing made by a firm.
 VI. Personal Bias: Ratios are only means of financial analysis and not an end in
itself. Ratios have to be interpreted and different people may interpret the
same ratio in difficult ways.

VII. Incomparable: Not only industries differ in their nature but also the firms of
the similar business widely differ in their sixes and account ion procedures,
etc. It makes comparison of ratios difficult and misleading. Moreover,
comparisons are made difficult due to differences in definitions of various
financial terms used in the ratio analysis.

VIII. Absolute figure Distortive: Ratios devoid of absolute figures may prove
distortive as ratio analysis is primarily a quantitative analysis and not a
qualitative analysis.

IX. Price Level Changes: While making ratio analysis, no consideration is made
to the changes in price levels and this makes the interpretation of ratios
invalid.

X. Ratios no Substitutes: Ratios analysis is merely a tool of financial statements

Hence ratios become useless if separated from the statements from which they
are computed.

CLASSIFICATION OF RATIOS:

Classification According to Tests

1. Liquidity Ratios

2. Leverage Ratios

3. Activity Ratios

4. Profitability Ratios

LIQUIDITY RATIOS:

1. Current ratio

2. Quick ratio

3. Absolute liquid ratio

4. Inventory to working capital ratio

5. Stock to current assets ratio

6. Cash and bank balances to working capital ratio

 7. Receivable to current assets ratio

8. Cash and bank balances to current assets ratio.

TURNOVER RATIOS:

1. Capital turnover ratio

2. Working capital turnover ratio

STATEMENT OR SCHEDULE OF CHANGES IN WORKING CAPITAL:

Working capital means the excess of current assets over current liabilities.
Statement of changes in working capital is prepared to show the working capital
between the two balance sheet dates. This statement is prepared with the help of
current assets and current liabilities derived from the two balance sheets.

As working capital=Current assets-Current Liabilities.

i. An increase in current assets increases working capital.

ii. A decreasing current assets decreases working capital

iii. An increase in current liabilities decreasing working capital

iv. A decreasing current liabilities increases working capital.

 A typical form of statement or schedule of changes in working capital is as
follows.

STATEMENT OF CHANGES IN WORKING CAPITAL

Previous Current year Effect on Working

year capital
Particulars
Increase Decrease

A. CURRENT ASSETS:
Inventory
Cash & Bank balance
Sundry debtors
Loans & Advances
Other current

TOTAL CURRENT ASSETS

B. CURRENT LIABILITIES:
Sundry Creditors
Advances from customers
Other advances
Earnest money, security & other
deposits
Interest accrued but not due
Other liabilities
Provisions

TOTAL CURRENT LIABILITES

Net Working Capital(A-B)

CHAPTER-V
DATA ANALYSIS AND INTERPRETATION

Working capital statement of RINL from F Y 2011-12 to 2014-15

In crores

Particulars 2011-12 2012-13 2013-14 2014-15

CURRENT
ASSETS:

Semi finished goods 1779.96 2083.70 2065.05 3129.95

Raw materials 1225.76 1283.35 1311.31 1467.60

Stores &spares 397.39 461.55 486.68 581.60

Total inventories 3403.11 3828.60 3863.04 5179.51

Net receivables 427.15 1009.65 803.65 1035.43

Cash &bank balance 2068.34 1625.02 175.89 63.94

Short term loans 2366.34 3417.75 3461.35 3259.83

&advances

Other current assets 226.97 96.73 96.73 98.75

Total current 8492.11 9977.75 8400.66 9637.46

assets(A)

CURRENT
LIABILITIES:

Short term 2575.14 3658.44 3739.93 7444.89

borrowings

Trade payables 390.19 737.94 829.93 600.60

Current liabilities 3645.84 5615.19 5484.04 6979.28

Short term 610.44 173.10 157.65 34.61

provisions

Total current 7221.61 10184.67 10211.55 15059.38

liabilities(B)

WORKING 1270.50 (206.92) (1819.89) (5421.92)

CAPITAL(A-B)
Increase &decrease (1747.22) (1477.42) 2017.81 3611.03
of working capital

Note: Figures in parenthesis indicate negative values.

Interpretation:

There is a significant decrease in net working capital over past 3 years however in
the previous year there was a drastic decrease in working capital which was
because of decrease in current assets and increase in short term debts.

Table 4.1 showing Gross working capital

Gross Working Capital

Year (Rs .In crores)

2011-2012 8492.11

2012-2013 9977.75

2013-2014 8400.60

2014-2015 9637.46

Source: Annual reports of RINL

Gross Working Capital (Rs.In crores)

10000

9500

9000

8500 Gross Working Capital

(Rs.In crores)
8000

7500

Interpretation:

There is a significant increase in net working capital, which amounts to

8492.11 to 9977.75 crores in the year 2011-12 to 2012-13. There noticeable
increase in net working capital is due to increase in cash & bank balances. The
decrease in cash is 934.17 crores. A positive growth is observed in loan &
advances and other current assets. The increase in liabilities is offset by the
increase in total current assets. The net effect of the above changes has brought
about the increased working capital.
Net working capital: The net working capital of RINL shows an decrease trend
from 2012-13 to 2013-14.

The main reason for the decreasing trend in the years is due to the
increasing creditors year after year. If also indicates a weak cash balance to meet
the liabilities.

The increase in working capital is due to better sales and full capacity
utilization. This has resulted in reduction of cost of production. The net working
capital of RINL for the past 4 years is depicted in the table.

Table 4.2 showing net working capital

Year Net Working Capital (Rs. In

crores)

2011-2012 1270.50

2012-2013 (206.92)

2013-2014 (1810.89)

2014-2015 (5421.92)

SOURCE: Annual reports of RINL

Net Working Capital (Rs. In crores)

2011-2012
2012-2013
2013-2014
2014-2015

Net Working Capital

Note: Figures in parenthesis indicate negative values.

LIQUIDITY RATIOS
It is extremely essential for a firm to be able to meet its obligations 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 should ensure that it does not suffer from lack of
liquidity and also that it does not have excess liquidity. The failure of a company
to meet its obligations due to lack of sufficient liquidity will result in poor credit
worthiness, loss of creditors confidence and even in legal tangles. A very high
degree of liquidity is also bad, idle assets earn nothing. The firm’s funds will be
unnecessarily tied up in current assets. There fore it is necessary to strike a proper
balance between high liquidity and lack of it. The most common ratios are

 CURRENT RATIO
 QUICK RATIO
 NET WORKING CAPITAL RATIO.

CURRENT RATIO

The current ratio is the ratio of total current assets to current liabilities. It is
calculated by dividing current assets by current liabilities. A current ratio of 2:1 is
considered to do ideal. The ration is an indicator of the firm’s commitment to
meet its short-term liabilities. It indicates the rupees of current assets available for
each rupee of current liability. The higher the current ratio is higher the funds
available for every rupee of current liabilities. As a convention rule a current ratio
of 2:1 or more is considered satisfactory. The higher the current ratio is higher the
funds available for a firm.
Current ratio = Current Assets / Current liabilities
 Table 4.3 showing current ratio

CURRENT CURRENT CURRENT

YEAR ASSETS LIABILITIES RATIO

2011-2012 8492.11 7221.61 1.17

2012-2013 9977.75 10184.67 0.97

2013-2014 8400.66 10211.55 0.82

2014-2015 9637.46 15059.38 0.63

SOURCE: Annual reports of RINL

Interpretation:

The ratio has started decreasing from there on and is at 1.17 in 2011-12.
Further there is a little decrease in the year 2013-14 & 2014-15.The current ratio
is a crude measure of the liquidity of a firm. The limitation of the current arises
from the fact that it is a quantitative and not a qualitative index of liquidity, In
spite of having high current ratio yet to be illiquid.

Working capital turnover ratio

Working capital turnover ratio is the ratio of sales to net working capital. It
is indicator of efficiency of working capital management. Higher the ratio greater
is the efficiency.

The working capital turnover ratio has constantly decreased from 2011-12
to 2013-14. It is mainly due to decreased sales.

Working capital turnover ratio= net sales / gross working capital.

Table 4.4 showing working capital turnover ratio

Net Sales Working Capital Working Capital

YEAR
(In Crores) (In Crores) Turnover Ratio

2011-2012 13143 1270.50 10.34

2012-2013 12009 -206.92 -58.03

2013-2014 11961 -1810.89 -6.61

2014-2015 9282 -5421.92 -1.71

SOURCE: Annual reports of RINL

INTERPRETATION OF DATA: Working capital turnover ratio has been
gradually decreased 10.34 in 2011-12 to -1.71 in 2014-15. This shows the
company’s growth performance in terms of turnover ratio. It is best understood
from the following graphical representation.

15000

10000

Net Sales
5000
Working Capital

0 Working Capital
2011- 2012- 2013- 2014- Turnover Ratio
2012 2013 2014 2015
-5000

-10000

INVENTORY MANAGEMENT IN RINL

RINL is multi-product, integrated steel plant with 3.0 M.T capacities. This
makes RINL to store, handle and process of huge quantity of material. Also RINL
is a process industry running 365 days throughout the year 24 hrs a day it material.
This calls form efficient inventory management o the part of RINL. RINL holds
three types of inventory, they are:

1. Raw materials
2. Stores, spares and scrap
3. Semi/finished goods.
Different sections carry out the procurement, storage and control of these
inventories.

Raw materials:

The raw materials are produced and stored by raw materials department.
The basic principle followed by RINL in holding raw material inventory is to hold
indigenous raw material for 10 days.
Stores and spears:

The stores and spares are procured and stored by central stores department
(a part of purchase department).

The store and spares Re-categorized as

1. Automatic recoupment items:
2. Department specific items
Automatic recoupment items:

A.R items are those, which are general consumables with standard
specification and are required by more than one department. The main
objective of stock control is to make available vital items all time.

The AR items are classified as a class, b class and c class as per value given
below.

a. Annual consumption value more than rs.100,000

b. Annual consumption value between rs.100,000-50,000
c. Annual consumption value less than rs50,000
The stocks of these items are maintained as per their vitality, consumption
frequency, automatic indenting of the items done once the level of stock
comes to recumbent level foxed for each item.

Department specific items:

User departments based on approval given by top management for level of

inventory to hold indents department specific items. The amount is fixed based
on consumption of a particular item in the previous years. These items are also
stored by stored department and are released against stores indent note issued
by department.

Inventory control:

Inventory control is major responsibility of stores department in RINL. It

adopts following procedure for inventory control:

1. The stores department generates data periodically on the inventory status

and conducts analysis of it. The same is circulated to all departments once

in a quarter.
 2. XYZ analysis of all items is carried out and circulated to all departments.

Categorization is based on values of item contributing to total value of

stock.

3. Identification of non-moving and slow moving items on regular basis and

intimating it to user departments and there by reducing the indent quantity.

4. Identification of absolute and surplus items which are of no use and

disposal of the same after receiving clearance from top management.

5. Standardization of general store material and spares and reduce the number

of items.

6. Conduct ABC analysis on consumption pattern o items and submit the

same to purchase department for regulation of supplies.

ACTIVITY RATIOS

Funds of creditors and owners are invested in various assets to

generate sales and profits. The better the management of assets is the larger
the amount of sales. Activity ratios are employed to evaluate the efficiency
with the firm manages and utilizes it’s assets .These ratios are also called
turnover ratios because they indicate the speed with which assets are being
converted or turned into sales. Activity ratios thus involve a relationship
between sales and assets. A proper balance between sales and assets generally
reflects that assets are managed well. Several activity ratios can be calculated
to judge the effectiveness of assets utilization. The major ratios calculated are

 INVENTORY TURN OVER RATIO.

 DEBTORS TURN OVER RATIO.
 NET ASSETS TURN OVER RATIO.
Inventory turnover ratio:
Inventory turnover ratio is ratio of sales to average inventory, the turnover
ratio of RINL is between 2 and 8.

This is however a low value, indicating huge quantity of funds locked up in

stock. As mentioned earlier the reason for low turnover is due to large quantity
of nonmoving spares and stores.

The inventory turnover ratio of RINL for the past 4 accounting periods is
shown in the table.
 Table 4.5 showing inventory turnover ratio

YEAR Net Sales Avg Inventory Inv.Turnover ratio

2011-12 13143 3328.91 3.95

2012-13 12009 3615.855 3.32

2013-14 11961 3845.82 3.11

2014-15 9282 4521.27 2.05

SOURCE: Annual reports of RINL

Interpretation:

 The higher the Inventory turnover ratio. The grater ability to meet
itscurrent obligations.
 The measure of liquidity is a relationship rather than the differences
between current assets and current liabilities.
 The working capital however measure the firm's potential.
 The ratio highest in the year 2011-12.
Inventory turnover ratio

Inventory turnover ratio Net Sales

2011-12
2012-13
2013-14
2014-15

CASH MANAGEMENT IN RINL

All the working capital decisions place at cash section. In RINL cash
section is working very well. Everyday information about all payments and
receipts from all the branches, sections, departments are collected latest by 11 am
on daily basis.
Procedure of Cash Management:-

In RINL cash requirements is placed and arrived at in the following

manner.

1) The chairman cum managing director of RINL in consultation with board

of directors and decides the production schedule for the following year.
2) The production schedule as approved by the directors is then circulated to
all departments after that production target for each month will be set.
3) The heads of 35 budgets formulate various budgets regarding to the
production, finance.
4) After receiving all the budgets, the directors formulate a master budget for
the particular year and the monthly budget allocation is done for each
section.
5) At the end of every month the actual results are comparing to the project
budgets. The management and the directors discuss about results of
performance.
6) And finally, they will take decision about the amount of cash required for
the next month.

They gathering the information regarding to the cash inflows like cash from
customers, export incentive, export credit etc., cash outflows like purchase of raw
materials, spares, excise duty, sales tax, payment of wages and salaries, railway
fright etc.

Week wise cash management:-

Proper cash management system is very important to any organization to

meet objectives of the company. In RINL cash is managed in a different way. In
RINL every week decides, what would be done in next week. Every week
analyzes, what are the payments and receipts of the next week and prepare the
cash budget. When ever cash budget choose surplus balance of cash, RINL invites
the tender to public limited banks and also some private banks which have an
MOU. Then RINL receive the bids from various banks in the form of sealed bids
or through the email. After that RINL select the bank, which bank codes the
highest interest rate and also agree with the rules and regulations of RINL.
 In the same way when RINL have deficit balance of cash, again we invite
the tender and select the bank which bank codes less interest rate. In this way
RINL manage the cash very effectively.

OBJECTIVE:

To transfer Funds from Branches to Head Quarters, Visakhapatnam without any

transit time i.e., crediting on day Zero at the designated account at
Visakhapatnam with charges being most economical.

FUNDS COLLECTION MECHANISM:

The Sales are affected by way of DD/ Pay Orders and Cheques payable at
respective Branches.

SALIENT FEATURES OF CASH COLLECTION POLICY:

a) The Collections of each day at the Branches of RINL will be deposited in the
Bank before 11.00 AM of the next working day.
b) The Bank will provide pick up facility for collection of cheques from the
respective RINL branches at their risk and responsibility.
c) The funds so deposited at various branches will be pooled and credited to the
account of RINL held at Visakhapatnam on the same day by 3.00 PM, as long
as Cash Management System is in vogue.
d) Banks must be capable to switch over immediately to Real Time Gross
Settlement (RTGS) at those RINLs locations once RBI enables and the credit
to the account of RINL at Visakhapatnam must be as per the system in vogue
at that time.
e) The bank at Visakhapatnam should honor the cheques received in the clearing
or Transfers issued by RINL against the anticipated funds for the day.

Cash ratio:

Cash ratio is ratio of cash held by a firm to current liabilities. VSP is maintaining
almost an average cash of around 1.2 except for the past three accounting periods.
This is because as mentioned earlier cash holding is kept at minimum except for
some petty cash needs. The increase in cash ratio indicates the significance
increase in cash and bank balances in the total current assets.
 Cash ratio=cash in hand (or bank)/current liabilities.

Table 4.6 showing cash ratio

YEAR Cash in Hand/Bank Current Liabilities Cash ratio

2011-12 2068.34 7221.61 0.28

2012-13 1625.02 10184.67 0.16

2013-14 175.89 10211.55 0.02

2014-15 63.94 15059.38 0.004

SOURCE: Annual reports of RINL

Interpretation:

The cash ratio of RINL has been decreasing and ranges between0.28 -0.004there
is a gradual decrease in the cash ratio. The levels of cash management is quite
optimum and needs much concentration.

RECEIVABLES MANAGEMENT IN RINL

Procedure of receivables management:

VSP sells its products to its customers. It has 27 marketing officers spread
through, out the country. The marketing and the finance department and top
management at the lead quarter formalize the price of different products. The
sales and billing are done at the individual branches and the record of the daily
transactions is maintained.

Collection policy of VSP:

VSP follows two types of credit sales of its products. They are:

1. Secured credit sales

2. Unsecured credit sales

Secured credit sales are primarily done with private customers. Cheque facility is
extended to the customer based on the credit worthiness of the party. The average
collection, period of VSP is30 days. Cheque honor and dishonor, and claims
against the parties are taken provided in the prospectus. Cheque facility to such
customers is cancelled for all further sales.

Unsecured sales are made mostly to the government agencies. Credit period varies
from 15=16 days. Generally, VSP cannot compel government agencies for prompt
release of payment due to unlink private parties since they are also part of the
government agencies.
Receivable turnover ratio:

Receivables turnover ratio is defined as ratio of total sales to average

receivables. This ratio indicates the number of times the management is able to
convert the receivables into sales and it indicates the efficiency with which
receivables are managed. The receivables turnover ratio of VSP for past 10
accounting years is given below

Receivables turnover ratio=sales/ Avg.net receivables

Table 4.7 showing receivables turnover ratio

YEAR SALES AVG NET REC.TURNOVER

RECEIVABLES RATIO

2011-12 14570.19 378.88 38.45

2012-13 13565.28 718.4 18.88

2013-14 13489.46 906.65 14.87

2014-15 11674.66 919.54 12.69

16000

14000

12000

10000
SALES
8000
NET RECEIVABLES
6000 REC.TURNOVER RATIO

4000

2000

0
2011-12 2012-13 2013-14 2014-15

INTERPRETATION:

The receivables turnover ratio of RINL has significantly decreased from

2011-12 to 2014-15. The highest receivable turnovers ratio is 38.45
 PAYABLES MANAGEMENT

Management of accounts payable is as much important as the management

of such accounts receivable. However there is a basic difference between the
approaches adopted by the finance manager in both the cases. The underlying
objective in such case of accounts receivables is to maximize the acceleration of
collection process while incase of accounts payable it is to slow down the
payments process as much as possible. The delay in payments of accounts payable
may result in saving of some interests costs but proves very costly to the firm in
the form of loss of credit in the market. The finance manager therefore has to
ensure that the payments to the credits are made at the stipulated time period after
obtaining the best credit term possible.

Control of accounts payable:

Computing the average age of payable can be calculated by any of the

following methods. Months or days in the period / Accounts payable turnover
accounts payable turnover = Credit purchase in the period / Average accounts
payable.

SWOT ANALYSIS IN RINL:

SWOT analysis of RINL depicts the strengths of RINL, weakness that are
to be avoided, opportunities that should be banked, and threats that should be
faced & yet survive in the business.

Strengths:

 State of the art technology:

RINL was built with the co-operation of USSR and claims to be one of the
most modern steel plants in the country. RINL employs highly
sophisticated technology, large-scale computerization & automation in the
production.

 Location advantages:
RINL was rendered with additional advantages due to its location. The
location aspect has helped the RINL in easy procurement of raw materials
as most of the raw materials are imported from Andhra itself, apart from
Orissa & M.P which are located near by, More over the existence of
Visakhapatnam port makes it easy in procurement of raw materials like
 cooking coal from Australia. Also exports to various countries can be
made directly from Visakhapatnam port.

 Self-Sufficiency in power:

RINL has its own power generation unit with a total capacity of 286.5
MW. RINL requires power of 180 MW to 200 MW. RINL, after meeting
its requirement exports power to APSEB.

 High commitment on part of employees: The productive environment

prevailing in the company fosters an atmosphere of growth both for
employees & for the company. The labor productivity is currently
262tones/man/year which is unparallel in the public sector steel industry.
 Strong commitment to conserve environment:
RINL is forefront of Indian industry in area of pollution control,
equipment & measures. The total cost of these measures works out at
Rs.4600 million which forms nearly 8% of total cost of steel plant. RINL
is an ISO-14001 certified company (certificate for environment protection
& pollution control measures).

Weakness:

 Low return product mix:

The product mix of RINL is small. RINL’s long products like billets, wire
rods, structural are facing less demand due to the crisis in South East Asian
nations.

 Inadequate port facilities:

The berthing facilities at RINL are not adequate relative to the
requirements of RINL.

Opportunities:

Sizeable export markets: China is the biggest importer of Indian steel. China is
going to have huge requirements of steel.

Other promising factors are-

 Proximity to southern market.

 Strong economy.
 Possibility of new markets.
 A slow but steady increase in domestic steel demand.
Threats:

Global steel majors like POSCO & Mittal steel are venturing into steel production
very soon. This may pose a problem to RINL in the procurement of raw materials
as it is dependent on Orissa for these materials. Input costs are increasing due to
the increasing cost of raw material. Also the demand for coal & coke is escalating.

No captive iron ore mine:

RINL is the only steel major in the country without a captive iron ore
mine. This may present a difficult situation when the demand supplies equation
for the iron ore changes.

Other Distributing Threats Include:

 Weak Domestic market

 Liberalization & decontrol, Globalization
 Sensitive to exchange rate risk.
FINDINGS
1. The net working capital is decreased from 2012-13 to2014-2015. In
2014-2015 net working capital is -5421.92 crores. It is a negative value.

2. Cash/ bank balance is decreasing from 2011-12to 2014-15. In

2014-15 cash/bank balance is 63.94 crores. It is lowest amount.

3. Current Ratio is shows decreasing trend from 2011-12 to 2014-15.

4. The below table shows the net increase of working capital

from2011-2012 to 2014-2015.

(In Crores)

Year Net Increase in working

capital

2011-2012 -1747.22

2012-2013 -1477.42

2013-2014 2017.81

2014-2015 3611.03
 5. Working capital turnover ratio is decreasing year by year. It is very
low (-1.71) in the year 2014-15.

SUGGESTIONS

VSP is a multi product manufacturer unit with varying cycle time for each
product.

 The company has already accumulated funds excess of Rs. 6400 Crores & can
look forward to bigger investment in building up capacities compared to the
proposed 6.3 million tons.
 The company is getting all its funds i.e. day zero (0) when the rates are
compared; the company is investing surplus funds at 8-8.5% & paying at 3-5%
to get the funds on zero (0). The spread should be maintained during the time
of expansion also.

 Unlikely any other steel company VSP is not having its own sources of raw
material i.e. coal mine, Suppliers for its raw materials. Had the company
utilized its 2-3% half % of its working capital limit for acquisition of mines
purchasing of mines, etc. It could have been a favorable situation.

 In the 20014.15 the cash & Bank balance is 63.94 crores. This amount is very
low amount.
 CONCLUSION

Though the working capital is decreasing year by year and the ideal cash is

also decreasing. So, the company has to exercise a lot of proper control and proper

system of working capital management to manage such cash and inventory in a

profitable way.

A proper working capital management system definitely helps to achieve the

objectives of the company and for its continuous improvement.

 BIBLOGRAPHY

Books referred:

Essentials of financial management I.M. Pandey

Financial management Prasana Chandra

Financial management R.K.Sharma, sheshi, K.Gupta

Annual reports of Rashtriya Ispat Nigam Limited

Website :- www.vizagsteel.com (Audited Reports)

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