Download - Report WCM

Transcript
Page 1: Report WCM

A STUDY TO ASSESS THE EFFECTIVENSS OF WORKING CAPITAL MANAGEMENT

AT

JSW Steel Ltd. Torangallu, Vijaynagar works.

Submitted to

In Partial fulfilment of as a requirement towards completion of

PGDM in 2010-12

Mr. Muralidhar W Prof. G.N VenkateshDGM (Finance & Accounts) Finance & Control JSW steel Ltd. International school of business & media

By Sridip Sarkar

Roll No. 610030

International School of Business & Media.

Plot No. – 241, Sompura Industrial Area,Nidvanda Village, Sompura Hobli,

Nelamangala Taluk, Bengaluru - 562111

Page 2: Report WCM

Acknowledgment

No work is said to be complete without thanking the people who have helped me in completing the job. So this acknowledgment is for those who have played their role in completion of my project entitles “A study of Working Capital Management at JSW Steel Ltd”. The project would not have been completed without the kind of cooperation and help of certain individuals to who I owe this heartfelt gratitude.

At the very outset, I would like to thank my external guide Mr. Murlidhar Wuntakal, (DGM, Finance) who constantly guided and inspired me in completion of this project. During this project I experienced the real environment, market situation, mannerism etc. that are very much needed in this competitive environment.

I expressed my sincere thanks to Mr. Achutha Raghava (HR) and Mr. Mallappa for granting the permission to undergo project in JSW STEEL LTD, Torangallu.

I would also like to acknowledge all those respondents who have lend their precious time without which this project work would not have been successful.

I expressed my sincere gratitude to the whole of JSW Steel Ltd. Bellary for extending their warm support and guidance in various natures.

My sincere thanks to my project Internal guide Prof. G N. Venkatesh for his valuable support and guidance in the completion of this project successfully.

Finally I thank my Family, friends and each one who have directly or indirectly helped

me in making this project successful and memorial. Last but not the least I express

my thanks to all my friends for helping me the project work.

Page 3: Report WCM

DECLARATION

I SRIDIP SARKAR declare that this Project on THE ASSESSMENT OF EFFECTIVENSS OF WORKING CAPITAL MANAGEMENT at “JSW STEEL LTD” TORNAGALLU, BELLARY is a record of bonified research carried out by me under the guidance of, Mr. Wuntakal Muralidhar (Dy. General Manager, F&A) and under the supervision of Professor G.N. Venkatesh , Department of Finance & Control, ISB&M Bangalore.

I further declare that this has not previously formed the basis of the award of any degree, diploma or similar title of recognition.

Date: 04/05/11 SRIDIP SARKARPlace : Bangalore Roll No.610030

Page 4: Report WCM

Table of Contents:

Executive Summary

General Introduction

Research Methodology

Industry & Company profile

Swot Analysis

Mc Kinsey 7S Model

Data Analysis & Interpretation

Findings, Suggestions & Conclusions

Annexure

Bibliography

Page 5: Report WCM

EXECUTIVE SUMMARY

This is final project “a study of working capital in Jindal South West Steel Ltd” deals

to ascertain the efficiency of working capital management of the company.

Working capital may be regarded as lifeblood of business; working capital is

needed to meet the day-to-day requirement of the business unit. The exploitation of

working capital assets is possible only by efficient working capital management. This

study on working capital management is conducted in JSW Ltd.

Working capital management not only shows the financial efficiency of

business, but also its credit worthiness, which has gained importance in these days

of credit squeeze. Therefore, study of the management of working capital is very

necessary. Objective of the project was to study the pattern and procedures followed

for managing various components of working capital, so as to evaluate the efficiency

of working capital management. So, this study intends to comprehensively evaluate

the inventory, receivables, creditors and cash management. The study also aims to

analyze the alternative sources of working capital financing employed by JSW Ltd.

Desk research method is adopted for this study. The required information was

collected through secondary sources.

Secondary data were collected from various sources including the annual

reports of the company for the year 2004-05, 2005-06, 2006-07, 2007-08, and 2008-

09.

Page 6: Report WCM

1. General Introduction

Finance is the life blood of business. It is rightly termed as the science of

money. Finance is very essential for the smooth running of the business. Finance

controls the policies, activities and decision of every business

MEANING AND SIGNIFICANCE OF WORKING CAPITAL

One of the vital aspects of company’s financial management is to manage its current

assets and the current liabilities in such a way that a satisfactory level of working

capital is maintained. Working capital management means administration of all

aspects or working capital i.e. current assets and current liabilities. Firm has to

manage it properly in order to attain its goal of wealth maximization.

Meaning:

Working capital is that part of total capital which is used for carrying out

routine business operations. In simple terms, working capital is the capital with which

the business of the company is worked over. Working capital it is the controlling

system of every business firm.

The working capital management is concerned with the problems that arise in

attempting to manage the current assets and current liabilities and the

interrelationships that exist between them. This tries to evolve how much funds to be

invested in each type of current assets and what should be the proportion of long

term funds to short term funds and which are the sources that are ideal for financing

current assets.

Page 7: Report WCM

Significance of the working capital:

To fulfil its endeavour to maximize the shareholder’s wealth, firm has to earn

sufficient return from its operations, which needs a successful sales activity, the firm

has to invest sufficient funds in current assets to succeed in sales, as the sale do not

convert into cash instantaneously because of time gap between the sale of goods

and actual receipts in cash.

Hence there is a need for working capital in the form of current assets to

sustain sales activity during that period. Since cash inflows and cash out flow don’t

match, firms have to necessarily keep cash or investment in short term liquid

securities to fulfil its obligations as and when they become due.

The adequate stock of inventory provides a cushion against being out of stock

and help as a guard to meet the demand for its products. To be competitive, the firm

must sell its products to their customers on credit, which necessitates the holding of

accounts receivables therefore an adequate level of working capital is absolutely

necessary for the smooth sales activities, which in turn enhance the owner’s wealth.

The working capital need arises for the following purpose:

For purchasing raw materials, components and spare parts

For paying wages and salaries

To incur day to day expense and overhead costs like fuel, power and office

expense etc.

To meet selling costs of packing advertising etc.

Page 8: Report WCM

2. Research Methodology:

Statement of the problem:

The working capital is the most critical problem in financial management, Importance of working capital management.

A substantial portion of total investment is invested in current assets. Level of current assets and current, which can be determined, by the level of

current assets and current liability. The composition of current assets and current liabilities.

Need and Importance of Study:

To fulfil its endeavour to maximize the shareholder’s wealth, firm has to earn sufficient return from its operation, which needs a successful sales activity. The firm has to invest sufficient funds in current asset to succeed in sales, as the sales do not covert into cash instantaneously because of the time gap between the sales of goods and actual receipts in the cash. Hence there is a need for working capital in the form of current assets to sustain sales activity during that period. Since cash inflow and cash outflow don’t match, firms has to keep cash or investment in short term liquid securities to fulfil its obligations as and when they become due. The adequate stock of inventory provides a cushion against being out of stock and help as a guard to meet the demand for its product. To be competitive, the firm must sell its product to their customer on credit, which capital is absolutely necessary for the smooth sales activities, which in turn enhance the owner’s wealth.

The working capital need arises for the following purposes:

For purchasing raw material, components and spare parts For paying wages and salaries. To incur day today expenses and overhead costs like fuel, power and office

expense etc. To meet selling costs of packing advertising etc, To provide credit facilities to customers.

Page 9: Report WCM

Objective of study:

To study the efficiency of working capital management of the company. To analyse the working capital trends in the company to study the efficiency of

cash, inventory and receivable management of the company. To understand and analyse the working capital position of JSW Ltd. to measure the overall financial position of the organization with the help of

ratio analysis.Scope of the study:

Since the decision regarding working capital are of operating nature not one time decision, the scope of the study is geared toward identifying important areas of control and to establish model for better control of the various components of working capital.

The study would also attempt to identify the various sources available for financing of working capital.

The study gives a fair idea of improvement and efficiency of working capital management and also to have proper control over the components of working capital and managing of efficiency.

Methodology:

Desk research method is adopted for the study. The required information was collected through secondary sources.

Secondary data were collected from various sources including the annual reports of company for the years between 2005 to 2010.

Limitation of the study:

The study deals with the data made available. Hence the result of this study cannot judge the business of the firm in general.

The study has been influenced by the limitation of the ratio analysis. The study extensively uses the data provided is the financial report of the firm

which may also have their own limited perspective. The analysis made on the working capital management is for a particular

period of time the current assets and current liabilities will change for an analysis made at any order of time.

Page 10: Report WCM

3. INDUSTRY AND COMPANY PROFILE

Introduction:

Steel has been part of some of the greatest achievement in history. Nearly 15

years ago steel sparked off the industrial revolution, the steel industry has an

important role to pay in the development of any industrial nation. It is a critical

intermediate for industry, and the strength of construction.

Steel is a product of a capital intensive and complex industry that requires

national attention for its development. The demand of steel is basically a derived

demand; growth in the industry is dependent on the level of activity of the steel

consuming industries specifically the construction, automotive, appliances and other

consumer durable.

India is the 6th largest steel producer of iron-ore, and the 9 th largest industry is

equipped to meet over 90% of the country’s total requirements of steel, with imports

restricted preliminary to a small sophisticated high level addition products.

Jindal organization is faster growing group with enviable business trend

record and a strong market presence in India today. Jindal was established by

OMPRAKASH JINDAL in the year 1952 with a small making steel pipes bends and

sockets at Liluah near Kolkata. OMPRAKASH JINDAL has developed into a

multifaceted organization and is one of the largest steel producers in India.

The steel industry is in the threshold of a new era, the departure from a

regime of control of free market, from protection to completion, from public sector to

private investment and an inward marketing policy to a global vision has all placed.

The industry in a course of development and that has been endless

opportunities also at the same time stiff challenges and a terrain of uncertainty to

Page 11: Report WCM

improve its strength and competitive edge to product good quality products at lower

prices.

The steel industry being a core sector, tracks the overall economic growth in

the long term. Also, the growth of the steel industry is dependent on the development

of steel consuming industries like automobiles, consumer durable and infrastructure

and realty development in the country the past few years have witnessed an

increase in steel consumption and in order to match the even the steel industries

have geared up with capacity expansions to meet this growing demand.

Page 12: Report WCM

COMPANY PROFILE

Background and inception of the company

Jindal Vijaynagar Steel Works (JSW) is ranked 4th amongst the top Indian

business houses in terms of sales and profit the Rs. 19700 crores. Jindal

organization is faster growing group with enviable business trend record and a

strong market presence in India today. Jindal has recognized in India and Asia

pacific region. It is the 4th largest sales turnover in the private sector after reliance,

Tata’s and Aditya Birla groups.

Jindal was established in 1972 by OMPRAKASH JINDAL. The group has

grown from a single unit making steel pipes bends and sockets at Liluar near

Calcutta (present day Kolkata) to the present multi location, multi product giant from

the mining of iron ore/coal/chrome-ore to the manufacturing of value added steel

products it has a preeminent position in the flat steel segment in India and is today

more than 20000 people are working in the organization.

Jindal Vijaynagar Steel Ltd. This plant is located at Tornagallu in the Bellary-

Hospet area the heart of high grade iron-ore belt; spread over 3700 acres of land.

The plant is 340 kms from Bangalore and well connected to Goa and Chennai ports.

The steel industry bring them on the threshold of adopting new technology we

took a lead in adopting the latest technology of steel making as COREX developed

by vest alpine of Austria. The JVSL was the first Greenfield project to save COREX

as a mainstream facility.

The other who had it as a part of brown field expansion was ISCOR of South

Africa and POSCO of South Korea.

Page 13: Report WCM

Mining of iron ore to the manufacturing of value added steel products Jindal has a

preeminent position in the flat steel segment in India as is on its way to be a major

global player, with its overseas manufacturing and marketing alliances with other

world leaders.

“Where there is a challenge there is Jindal”

“If it is Jindal, it must be first class”

Nature of the business carried:

India’s only fully integrating stainless steel plant

Until the mid 70’s huge chunks of India’s stainless steel requirements were

met by imports the challenge was to produce high quality stainless steel at less than

world steel prices. In 1979-80 the Jindal were successful in using Argon Oxygen

Decarburization Converter, a state of art technology development in house.

A process integrating of the different stages in the manufacturing of stainless

steel was successfully done. As a result everything from the conversion of raw

material in the billets and slabs, to hot rolling to strip and plates, as well as cold

rolling was done in house.

Since then, Jindal strips ltd(JSL) has forged ahead and has become India’s

largest stainless steel produce in the countries private sector with a capacity of 2

lakh.

India’s only integrated private sector galvanized steel producer.

In 1982, a decision was taken to increase the product mix under the dannes

of Jindal. Iron and steel co ltd a plant acquired at Tarapur to produce slabs and

addendum to this, a facility was set up at Vasind to manufacture hot rolls, plates,

Page 14: Report WCM

JISCO has burgeoned in to leading cold roller and a largest producer and exporter of

galvanized steel and high value steel product in the country, JISCO has a production

capacity of 4lakh MT in galvanized products.

Ferro chrome: another breakthrough in Jindal

Ferro-Chrome an essential ingredient in manufacture of stainless steel was,

until recently was imported from other countries. In 1987, Jindal Ferro Alloys Ltd; at

Vishakhapatnam was the first to manufacture Ferro-Chrome 100% In house

technology, which was conceived marginalize the monopoly of outside suppliers. To

establish a synchrony and to develop a market base, JFAAL has been recently

merged with JSL as autonomous division, INDIA’S ONLY INTEGRATED GREEN

FIELD STEEL PROJECT.

JSW, a green field integrated steel plant with integrated steel plant with

integrated steel plant with a capacity of 1.60 million ton per annum of hot rolled coils.

JSW has collaborated with voest Alpine of Australia, which will provide a unique

advantage in manufacturing and technology.

Other Significant Breakthrough:

Jindal have also pioneered India’s first continuous slab casting machine and

India’s first hot stickle mill to produce hot rolled stainless steel coils.

Jindals are the people to have developed the Indian private sectors, first

DD(deep drawing) and EDD(extra deep drawing)grade mill steel wide strips.

The process of DD and EDD grades of steel involves a consistent adeptness

and knowledge; it calls for a technology of higher order.

Jindals are also pioneers in India to use the newly introduced process of

COREX c-2000 module, developed by voest Alpin, Australia to manufacturing pig

iron. Jindal breakthroughs are almost limitless; it has become axiomatic to say.

JSW vision, mission and values

Page 15: Report WCM

Vision:

“TRANSFORM STEEL DOMAIN THROUGH INNOVATIONS”

Jindal’s 5 Years Vision:

Value and groom people for innovating the future

Continuous improvement in the value chain for cost stewardship

Nurture lasting customer relationship by anticipating their needs and

delivering beyond expectation

Catalyst for growth of India’s steel and power industries.

Out of the box marketing of value added branded products for domestic and

global markets.

Inspire community growth with utmost care for the environment in areas in

which we operate.

To achieve a turnover of Rs 20000 crores by march 2009.

Mission:

JSW corporate mission guide the approach to the work and environment,

which transforms the way we deliver our products and services.

“MAXIMIZE CUSTOMER SATISFACTION AND SHAREHOLDERS VALUE

THROUGH HRD.”

With our young thinking, we promise to innovate the future by driving with

leadership and a crystal clear focus while differentiating the benefit of our

deliverables to all stakeholders.

Page 16: Report WCM

Core values:

Attitude- crystal clear

Behavior-drive with leadership

Creativity-differentiate the benefit

Delivery- innovate the future

3.1 Ownership pattern:

Categories No of Holders No of Shares % of Holding

Promoters 11372 776995188 60.19

NRI 18152 53218087 4.12

Page 17: Report WCM

FII 7 3426012 0.27

OCB 12 567200 0.04

IFI 7 38990003 3.0

IMF 26 7813900 0.61

Banks 6 12301824 0.95

Employees 4179 1026100 7.95

Body 3119 102879988 7.97

Corporate 831847 291408341 22.57

Public 6 2371357 0.18

Trust

Total 868733 1290998000 100

3.2 SHAREHOLDING PATTERN

Categories % of holding

Promoters 45.0

Foreign 30.75

Page 18: Report WCM

Corporate 3.2

Institutions 5.9

Public 15.1

Competitor’s information

Major competitors

Major players in the field of iron and steel manufacture are as follows:

1. Steel authority of India (SAIL)

2. Rastreeya Ispat Nigam Ltd (RINL)

3. ISPAT

Page 19: Report WCM

4. Tata steel co (TISCO)

5. Essar steel

6. Lloyds steel industries ltd

7. National mineral development corporation (NMDC)

Infrastructural Facilities

The plant has concrete roads everywhere, shuttle services and dust recycling systems, separate buildings for each department, canteen facilities, well equipped furniture & computers. JSW imparts compulsory safety training to all its employees. JSW foundation works for welfare of society, which provides services like education, health, computers, rehabilitation for the surrounding villages. Sandur shivaji high school was renovated, bypass road was constructed & passenger airport has also been done by JSW.

There is a 58 room centrally air-conditioned and well furnished guest house serving Indian and continental food. Sanjeevani hospital is built to cater the medical needs of employees as well as general public. It has telemedicine facility with 200 specialists & mediclaim insurance scheme also.

Good transport facilities. Good sports & medical facilities. Modern sports town ship with excellent amenities. Club and knowledge centre facilities for all the JSW employees. Jindal Vidya Mandir with high standards of education etc.

Achievements/Awards

JSW is today India’s third largest integrated steel company with a capacity of 2.5 million tonnes of steel. They have a 15% market share in Indian and a 50% in their home in South India, and have a play a pivotal role in growing India’s finished steel market in 14.84 MT in 1991-92 to 38 MT in 2004-05.

All units operating above rated capacity

Page 20: Report WCM

Lowest water consumption (3.30 m3/tes) Zero effluent discharge Highest manpower productivity( 1273 tes/JSW works employee) Lowest plant inventory of finished products. Lowest stores & spares inventory

Awards:

Frost and Sullivan India Manufacturing excellence award (IMEA) National Quality Award 2004, from Indian Institute of Metals for Best quality

Managements Practices amongst Integrated Steel Plants. Steel Metallurgist Award- 2004 from Indian Institute of Metal to Dr. Shayam

Sunder Gupta. Silver Award in Metal sector 2003-04 for constituted by CII own in the

category of ‘Excellent water efficient unit’. CII- EXIM Bank Award- 2004 for strong commitment to Excel. JSW energy wins Business Leadership Award in 2010-11 Karnataka Chapter Safety Award 2009-10 ISO-14001:2004 Certification National Award for excellence in Energy Management 2009 CII- EXIM Award 2009 IMC Ramakrishna Bajaj National Quality Award

Future Growth and Prospects.

“We are the future of Steels”

A part of multi products, multi industrial group popularly known as Jindal Organization innovation product mix backed by strong in-house R&D activities, world

Page 21: Report WCM

class quality, highly competitive prices, on time deliveries and excellent sales network have enabled Jindal to emerge as a front runner in Indian steel industry. From mining of iron-ore to manufacturing of value added steel product, Jindal has a pre-eminent position in the flat steel segment in Indian and is on its way to be major global player, with its overseas manufacturing facility and strategic manufacturing and marketing alliances with other world leaders.

Work Flow Model

The below chart shows work flow model of the Jindal South West Steels Ltd.

Raw material Handling System Raw material Handling System

Beneficiation System Beneficiation System

Pellets & Sinter Making Pellets & Sinter Making

Coke Oven & Cement Plant Coke Oven & Cement Plant

Corex & Blast Furnace Corex & Blast Furnace

Basic Oxygen Furnace Basic Oxygen Furnace

Quality Checking Quality Checking

Continues Casting Continues Casting

Hot Strip Mill Hot Strip Mill

Inspection Inspection

Page 22: Report WCM

SWOT ANALYSIS OF JSW:

STRENGTHS:

JSW has reputation in steel market. This is the result of long experience of aroung 3 decades in the steel industry.

Major strength of JSW lies with the prices. JSW enjoys reduction in cost due to very low cost of power (generated by COREX gas)

States of art & technology, the Corex process makes it a low cost production of steel in the industry.

Excellent work force well-qualified and highly experienced Employees.

Production quality is the strength of the JSW.

Well planned Infrastructure for inward & outward by rail & road as base foundation for future growth.

Cost effective & compact rail network system. Well designed yard for receipt dispatches with inter-connectivity. Multi entry/exit to the yard for greater flexibility. Support from the state Government. It is a continuous process and large scale production is undertaken. Future demand for steel industry.

WEAKNESS:

Page 23: Report WCM

Raw material through GOA port due to capacity constraints, railways network is not likely to support.

Krishnapatnam port movement is not smooth. Challenge in handling 52MTPA cargos at signal location. Over dependence on Railway for movement of materials. With increasing intensity of operations, tipper performance would become a

serious concern.

OPPORTUNITY:

Capacity expansion plan of IR network are well co-ordinate with overall expansion plan of JSW.

A special incentive from Indian Railways to Steel Industries is under Consideration.

Located in the centre of Bellary-Hospet region, a high grade iron belt. Easy access to the main parts of Goa, Chennai and Mumbai.

THREAT:

IR has not taken any initiative for DFC to develop their network serving JSW plant.

Foreign companies like Mittal Steel and Posco entering the Indian steel market.

Dumping of metal from countries like Korea is another major threat. Inordinate delay in construction of the world already sanctioned by the

Railways & which is in progress. User to create their own infrastructure for smooth inward/outward movement. Availability of Railways wagon for outward movement. Priority for Iron ore export affecting wagon, supply, rolling stock and

locomotive. Poor road conditions & weak bridges between Hospet- Bellary.

Page 24: Report WCM

STRENGTHS

1. Growing Economy

2. Low Manpower Cost

3. High manpower Productivity

4. Skilled and vibrant workforce

WEAKNESSES

1. Sourcing of skilled Manpower

2. Compensation

3. Infrastructure

OPPORTUNITIES

1. Lucrative market condition

2. Organic and inorganic

Expansion mode

THREATS

1. Poaching of employees by Competitors and other Industries.

2. Even changing market Condition

3. Volatile job market

S

W

O

T

A

N

A

L

Y

S

I

S

Page 25: Report WCM

MC KINSEY’S 7S MODEL.

The 7-S framework of MC Kinsey is a Value Based Management (VBM) model that describes how one can holistically and effectively organizes a company. Together these factors determine the way in which a corporation operates. The 7S framework first appeared in “The Art of Japanese Management” by Richard Pascal and Anthony Athos in 1981. They had been looking at how Japanese industry had been so successful, at around the same time that Tom peters and Robert Waterman were exploring what made a company excellent. The 7-S models were born at a meeting of four authors in 1978. It went to appear in “In search of Excellence” by Peters and Waterman and was taken up by as a basic tool by the Global Management Consultancy firm Mckinsey.

Structure

Organizational structure refers to formal hierarchical relationships & positional arrangements. It deals with how members communicate with others, how information flows, what roles he performs, rules & procedures existing to guide the activities of

Page 26: Report WCM

members as part of the organization. It refers to type of organization say autocratic, flat structured, democratic etc.

With reference to JSW it has good mentor, disciplined relationship, encouragement, help & guidance.

Board of Directors

1) Mrs. Savitri Devi Jindal, Chairperson

2) Mr. Sajjan Jindal, Vice Chairman Director Managing Director

3) Dr. B.N. Singh, Jt.Managing Director and CEO (Upstream SBU)

4) Mr. Raman Madhok, Jt. Managing Director and CEO (Downstream SBU)

5) Mr. Seshagiri Rao M.V.S. Director (Finance)

6) Mr. Balaji Swaminathan Nominee Director of ICICI Bank Ltd.

7) Mr. R.N Roy, Nominee Director of IDBI Ltd.

8) Mr. I.M. Vittala Murthy, IAS, Nominee Director of KSIIDC

9) Mr. Jambunathan, IAS (Retd.), Nominee Director of UTI Asset Management Company Pvt. Ltd.

10)Mr. S. David Chandrashekran, Nominee Director of LIC of India.

11)Dr. S.K. Gupta, Director

12)Mr. Anthony Paul Pedder, Director

13)Mr. Vijay Kelkar, Director

14)Mr. Sudipto Sarkar, Director

15)Dr. Ram Swami P. Aiyar, Director.

Page 27: Report WCM

Organizational Structure: Key Persons

Chairman

Managing Director

ED COMMERCIALED OPERATIONAL

VP STEEL

JMD & CEO

DIRECTOR FINANCEED

GM PROJECTVP COMMERCIAL

VP COMMERCIAL

VP HSM

VP PALLET GM MARKETING

Page 28: Report WCM

SKILL: Skills are capabilities of organization as a whole. Skills, which describe the organization as part of its character is, core competence like in JSW has manufacturing skills, R&D etc.

The skills, which JSW process are assertive, Decision- making, business knowledge, leadership, attitude, adaptability courageous & dynamism. However the skill requirement varies from job to job.

STYLE :According to MC Kinsey style is patterns of actions taken by top management.

In JVSL, there are 66 Quality circles where the employees can suggest any improvements in systems. There is a grass root level participation. These suggestions are implemented either by interdepartmental communications, mutual understanding, or by top-level analysis, where huge investments ate involved. Even the policy decisions are taken with consultancy of respective persons. Employees take casual decisions & their immediate head gives the feedback. From the above facts we can say that JSW has a participative management style.

STRATEGY: It includes basic purposes, missions, objectives, goals & major action plans & policies.In JSW, every department has its own strategies & policies.

Human Resource Department:

The HR dept ensures that whether the goals are in line with business plans or not. The main strategy of HR is “To make JSW the most preferred employee”.

Marketing Strategies:

Page 29: Report WCM

Focusing on selected major customers in terms of their locations, segments, potential demands etc. Customization of product so that the best advantage by using JSW product in terms of yield, lower costs etc.

Pricing strategies:

JSW is into industrial goods segment where sales are made according to customer specifications. Hence not much of publicity & market leadership techniques are required.

Price fixation:

It defines for exports & domestic markets according to the Industry analysis made. At international market current price is around $570 pt.

Credit terms:

JSW has certain terms like credit and payment towards the letter credit.

Payment period:

JSW allows period of 15 days to a month as a payment period to its customers.

Promotional strategies:

The production is done on the basis of customer order; therefore the organization has not engaging in advertising activity, But as a promotional tool it is giving-

Quick delivery

Better customer relation

Direct marketing

Packing and labeling:

Page 30: Report WCM

The steel products are not perishable one, so it need not have any proper packing as compared to consumer products. Binding with wire tag does the packing and labeling is done by metal strip in different colors. Brand image of JSW is a India’s leading producer of HR coils and special grade of steel, as for end use applications, so the name of company i.e. JSW is the brand image of its products.

Policies:

Major action plans:

To build a slag based cement plant, build new blast furnace & DRI plant using cortex off gas. Sustain leadership, facilities decision making & promote team based cultures & ethics.

Environment Policy:

JSW has worked for continues up gradation of its systems in the environmental interests with a view to create a green world. JSW follows all the statutory rules & also educates its employees to maintain eco friendly operations. JSW has installed dust-recycling system. It has hence adopted COREX technology which emits less toxic gases & its stack gases is reused by power plant and thus creating zero wastages.

Safety Policy:

Providing a safe and healthy work place for all employees on the basis of hazard identification, risk assessment and its control of all activities. Providing appropriate levels of education and training to all employees including contractor’s employees.

Quality Policy:

Company has developed quality manual covering requirement standards, prepared with reference to quality systems.Level 1- System manualLevel 2- System proceduresLevel 3- Work instruction & master parameter sheetsLevel 4- Formats & records

Page 31: Report WCM

Vendor rating is done on quality& delivery time. Commercial department collects information on supplier & trail order is placed.

SYSTEMS: It refers to all rules, regulations & procedures both formal & informal. It includes production plans, control system, capital budgeting systems, cost accounting procedures, budgetary systems, valuation methods, recruitment training & development plans. In JSW, every department has got their own Management Information System.

Human resource information system:

There is an HR package which stores all employees profile such as employee ID, code no, joining date, place of posting, name, personal profile, bank name, A/c no, grade, department, qualifications, designation, experience, pay scale & history. On the basis of this data rating is done. It also gives information of overall employee structure like no of persons joined in a month, transfers, promotions, land giver category, loan taken employees etc.

Performance appraisal system:

The criteria used for appraisal is:Main: Business perspective & customer focus, result oriented & cost consciousness.Others: Job knowledge, customer satisfaction, human relations, safety orientation, clarity in communication, taking initiative to get task done, innovations, quality & quantity considerations etc. Annual & periodical appraisal is done with to assess the performance to decide rewards, promotions based on vacancy & potential.

Quality Systems:

Every production department has quality packages. They have their own targets & grades. JSW has laboratory, R& D & Testing facilities. For eg: pellet plant is supplier to corex department so corex checks the quality specification while purchasing from pellet plant. Hence, there is a value chain.

Page 32: Report WCM

Finance & Accounts Information system:

Following are the external & internal customers for the department whose profile Transaction details are maintained.

External: Suppliers, contractors, Government dpet, Banks, Financial Institutions, Consultants, Buyers & Auditors.

Internal: Materials department, Stores, Shops, Employees, HRD, Marketing department & Internal auditors.

STAFF :

Staffing is process of procurement of manpower required to achieve organizational

Page 33: Report WCM

4. DATA ANALYSIS AND INTERPRETATION

4.1 GROSS WORKING CAPITAL POSITION FOR THE LAST FIVE YEARS

YEARS GROSS WORKING CAPITAL

2004-05 1894

2005-06 2745.42

2006-07 2485.63

2007-08 3086.54

2008-09 4631.64

ANALYSIS

From the above table Gross Working Capital of the JSW are Rs 1894 crores in the

year 2004-005, Rs 2745.42 crores in the year 2005-06, Rs 2485.63 crores in the

year 2006-07, Rs 3086.54 crores in the year 2007-08,and Rs 4631.64 crores in the

year 2008-09.

Page 34: Report WCM

GROSS WORKING CAPITAL

4.1

INTERPRETATION:

The gross working capital of the company increased from year to year and the

performance of company is in good position. The gross working capital of the year

Rs 1894 crores, 2745.42 crores, 2485.63 crores,3086.54 crores, 4631.64 crores in

the year 2004-2005, 2005-2006, 2006-2007, 2007-2008, 2008-2009 with

respectively

4.2NET WORKING CAPITAL POSITION FOR THE LAST FIVE

YEARS

Page 35: Report WCM

YEARS NET WORKIG CAPITAL

2004-05 285.74

2005-06 425.30

2006-07 199.90

2007-08 -1015.83

2008-09 -2925.53

ANALYSIS

From the above table Net Working Capital of the JSW are Rs 285.74 crores in

the year 2004-005, Rs 425.30 crores in the year 2005-06, Rs 199.90 crores in the

year 2006-07, Rs (1015.83) crores in the year 2007-08,and Rs (2925.53) crores in

the year 2008-09.

4.2

Page 36: Report WCM

INTERPRETATION:

The net working capital of the company decreased from year to year and the

performance of company is in not in good position. The net working capital of the

year Rs 285.74 crores, 425.30 crores, 199.90 crores 2004-2005, 2005-2006,and

2006-2007 respectively and it reached negative figure in the further years ,it as to

look after its liabilities its heavy.

4.3 INVENTORY MANAGEMENT

Managing inventory is a juggling act. Excessive stocks can place a heavy

burden on the cash resources of a business. Insufficient stocks can result in lost

sales, delays for customers etc. the day is to know how quickly your overall stock is

moving or, put another way, how long each item of stock sit on shelves before being

sold. Obviously, average stock-holding periods will be influenced by the nature of the

business. For example, a fresh vegetable shop might turn over its entire stock every

Page 37: Report WCM

few days while a motor factor would be much slower as it may carry a wide range of

rarely-used spare parts in case somebody needs them.

Now a days, may large manufactures operate on a just in time bases whereby

all the components to be assembled on a particular today, arrive at the factory early

that morning, no earlier no later. This helps to minimize manufacturing costs as JIT

stocks take up little space, minimize stock holding and virtually eliminate the risks

obsolete or damaged stock. Because JIT manufacturing holds stock for a very short

time, they are able to conserve substantial cash. JIT is a good to strive for as it

embraces all the principles of prudent stock management.

The key issue for a business is to identify the fast and slow stock movers with

the objectives of establishing optimum stock levels for each category and thereby

minimize the cash tied up in stocks. Factors to be considered when determining

optimum stock levels include:

The broad range of project management and financial advisory services include:

What are the projected sales of each product?

How widely available are raw material, component etc

How long does it take for delivery by supplier.

Can you remove slow movers from our product range without compromising

best seller?

Remember that stock sitting on shelves for long periods of time ties up

money, which is not working for you. For better stock control, one can follow

the following:

Review the effectiveness of existing purchasing and inventory system

Page 38: Report WCM

Know the stock turn for all major items of inventory

Apply tight controls to the significant few items and simplify controls for the

trivial many

Sell off outdated or slow moving merchandise it gets more difficult to sell the

longer you keep it

Consider having part of your product outsourced to another manufacturer

rather than make it yourself.

Review your security procedures to ensure that no stock “is going out the

back door”

Composition of inventory:

Composition of inventory generally depends upon the nature of business. The

proportion of each component in the total inventory varies from industry to industry.

In order to assure effective control investment in inventories sit is desirable to

maintain a proper balance in all the components. The structure of inventory shows

us that which part of the inventory is more the organization.

Costs related to inventory:

One operating objective of inventory management is to minimize the cost.

Excluding the cost of merchandise, the costs associated with inventory fall into two

basic categories:

(1) Ordering or acquisition or set up costs, and

(2) Carrying costs.

These are important elements of the optimum level up inventory decisions.

Ordering cost:

Page 39: Report WCM

This category of costs is associated with the acquisition ordering of the

inventory. Firms have to place the orders with the supplier to replenish inventory of

raw material.

The expenses involved are referred to as ordering costs. Apart from placing the

order outside, the various production departments have to acquire materials from the

stores. Any expenditure involved here is also a part of ordering cost. Including in the

ordering costs are the costs are the costs involved in

Preparing a purchase order of requisition form

Receiving, inspection and recording the goods received to ensure both quality

and quantity

The cost of acquiring material consists of clerical costs and costs of

stationery, it is, therefore called a set up cost. They are generally fixed per order

placed, irrespective of the amount of the order.

Carrying costs:

The second broad category of costs associated with inventory is the carrying

costs. They are involved in maintaining or carrying inventory. They cost of holding

the inventory may be divided into two categories.

1. Those that arise due to the storage of inventory; the main components of this

category of carrying costs are

a) Storage costs, that is, tax, depreciation, insurance, maintenance of the

building, utilities and janitorial services

b) Insurance of inventory against fire and theft

c) Deterioration in the inventory because of pilferage, fire, technical

obsolescence, style obsolescence and price decline.

Page 40: Report WCM

2. Opportunity cost of funds: this consists of expenses in raising funds to finance

the acquisition on inventory. If the funds were not locked up into inventory,

they would have earned a return. This is the opportunity cost of the funds or

the financial costs component of the cost. The sum of ordering costs and

carrying costs and carrying costs represent the total costs of the inventory.

Benefits of holding inventory:

The second element in the optimum inventory decisions deals with the

benefits associated with holding the inventory. The major benefits of holding the

inventory are the basic function of inventory. In other words, inventories perform

certain basic functions which are of crucial importance in the firm’s production and

marketing strategies since inventories enable uncoupling of the key activities of the

firm, each of them can be operated at the most efficient rate. This has several

beneficial effects on the firm’s operations. The effects of uncoupling are follows.

Benefits of purchasing: if the purchasing of raw materials and other goods is not

tied to production/sales, that is, a firm can purchase independently to ensure the

most efficient, purchase, several advantages would become available. In the first

place, a firm can purchase larger quantities than is warranted by the usage in

production or sales level. Second the firms can purchase the goods before the

anticipated or announced price increase. This will lead to declining in the cost of

production.

Benefits in production: finished goods inventories serves to uncouple the

production and sale. This enables production at a rate different from that of sale.

That is production can be carried on at a rate higher or lower than the sales rate. The

levels of production are more economical as it allows the firms to reduce the costs of

discontinuities in the production process.

Page 41: Report WCM

Benefits in work in progress: the inventory of work in process performs two

functions. In the first place, it is necessary because production processes are not

instantaneous. The amount of such inventory depends upon technology and the

efficiency of production. The larger the steps involved in the production process, the

larger the work in process inventory and vice-versa.

Benefits in sales: the maintenance of inventory also helps a firm to enhance its

sales efforts. For one thing, if there are no inventories of sales will depend upon the

level of production. A firm will not be able to meet demand instantaneously. There

will be a time lag depending upon the production process. If the firm has inventory,

actual sales will not have not depend on lengthy manufacturing processes.

Debtor’s management:

Accounts receivable:

1. Loans and advance to suppliers

2. Credits extended to the buyer of the goods

Motives of extending the trade credit:

Operating motive: Anxiety of the producer to deep its manufacturing function

insulated from the vagaries of the market.

Marketing motive:

Entering to new market

Increasing market share in existing market

Means of price discrimination in a very competitive market

Page 42: Report WCM

Financial motive: Seller having a better access to the capital than its competitors

would profit by giving trade credit to the latter.

Credit evaluation:

Sourcing credit information:

Bankers of the customer

Other supplier to the customer

Financial analysis of the prospective client:

Fixed asset turnover ration

Inventory turnover ration

Creditors turnover ratio

Debt service coverage ratio

Subjective evaluation

Capacity

Capital

Condition

Character

Credit scoring:

Altman Z score

Weighted average score based on the ratios analysis for the customer

Some issues in credit policy formulation:

Determining the credit limit:

NPV=(COGS+tax)-PV(sp,a,f)

Page 43: Report WCM

The maximum value of TC that keeps the NPV positive is the amount of time

for which the credit limit can be extended to the buyer of the goods.

Maximum discount that can be offered:

Time value of money principle

Credit policy variation:

Profit=s(1-v)-[s(b+q)+ics365]

Based on above formula the impact of lengthening of trade credit limit can be

checked.

Sale of goods act 1930

Contact of sale

Goods

Sell & agreement to sell.

AS-IX:

Delivery delayed at buyer request & buyer takes title & accepts billing.

Delivered subject to conditions.

Purchase makes a series of installments, payments & the seller delivers the

goods only when the final payment is received.

Special order & shipments

Sale repurchase agreement

Sale to intermediate parties

Page 44: Report WCM

Monitoring receivables:

Debtors ageing schedule

Collection matrix

Day sales outstanding

Provision for doubtful debts and bad debts

Debtor’s management in JSW:

Small customer’

Large customer

Advance

Discount policy.

The steel major JSW Essar ISPAT

Debtors turnover 38.23 15.56 13.50

Average collection 9.54 23.45 27.00

JSW 2009 2008 2007 2006 2005

Debtors

turnover

41.14 43.36 38.23 26.79 19.94

Average

collection

8.72 8.41 9.54 13.62 18.30

Page 45: Report WCM

period

4.4 CASH MANAGEMENT:

Cash is the liquid money, which a firm can disburse immediately without any

restriction. The term cash includes coins, currency and cheques held by the firm and

balances in its bank accounts. Sometimes near cash items, such as marketable

securities or bank time deposits are also included in cash. The basic characteristics

of wear cash assets are that they can readily be converted into cash, and we invest it

in marketable securities. The kings of investment contribute some profit to the firm.

Approximately 1.5% of the average industrial firm’s assets are held in form of

cash, which is defined as the demand deposits plus currency. Cash is often called as

non earning asset. It is needed to pay for labor and raw materials, to buy fixed

assets, to pay taxes, to service debts, to hold for use in conducting its normal

business activities. It is the same time it should have sufficient cash.

1. To take trade discounts

2. To maintain this credit rating

3. To meet unexpected cash need

The cash management is concerned with the managing of

1. Cash flows into and out of the firm

2. Cash flows within the firm at

Page 46: Report WCM

3. Cash balance held by the firm at a point of time by financing deficit.

Cash management techniques of procedures:

1. Improving forecasts of cash flows

2. Synchronizing cash inflows and outflows

3. Speed up the cheque clearing process

4. Using float

5. Accelerating collections

6. Getting available funds to where they are needed

7. Controlling disbursements.

Collection techniques:

1. Speedy cash collections

2. Prompt payment by customer

3. Early conversion of payments into cash

Liquidity ratios:

Page 47: Report WCM

Liquidity refers to the ability of a firm to meet its obligations in the short run,

usually one year. Liquidity ratios are generally based on the relationship between

current assets (the sources for meeting short term obligations) and current liabilities.

The important liquidity ratios are: current ratio, acid-test ratio and cash ratio.

1. Current ratio:

This is most widely used ratio to know the working capital position. This ratio

expresses the relationship between current assets and current liabilities. This ratio

gives the information about firm ability to meet short term and long term working

capital.

Components of current ratio

Current assets Current liabilities

Cash in hand

Cash at bank

Marketable securities

Short term investment

Bills receivable

Sundry debtors

Inventories

Work in progress

Prepaid expenses

Outstanding or accrued expenses

Bills payable

Sundry creditors

Short term advances

Income tax payable

Dividends payable

Bank overdraft

Current ratio= current assets/current liabilities

4.5

Page 48: Report WCM

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

current assets 1894 2745.42 2749.18 3086.54 4631.64

current liabilities 1608.26 2538.75 2427.28 4399.9 7557.21

current ratio 1.17767 1.081406 1.132618 0.701502 0.612877

4.5

Interpretation:

The above table and graph shows that the current ratio of the company was

1.17767 in the year 2004-05 which has been decreased to 1.081406 in the year

2005-06. In the year 2006-07 the current ratio of the company increased to 1.132618

and in the year 2007-08 the current ratio has been decreased to 0.701502 and in the

year 2008-09 the current ratio has further decreased to 0.612877. The standard

Page 49: Report WCM

current ratio should be 1.33 but in 2007-08 the current ratio of the company is less

than one. Obviously, in this case it should not be considered to be a sign of financial

weakness.

Quick ratio:

Liquid ratio express the relationship between liquid assets and liquid liabilities,

the ideal ratio for a concern is 1:1. This ratio is measure repayment of immediate

liabilities.

Acid-test ratio= current assets – inventory / current liabilities

4.6

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

quick assets 1150.59 1821.19 1474.28 1537.38 2620.22

current liabilities 1608.26 2538.75 2427.28 4399.9 7557.21

quick ratio 0.715425 0.717357 0.607379 0.349412 0.346718

4.6

Page 50: Report WCM

Interpretation:

The above table and graph shows that the quick ratio of the company was

0.715425 in the year 2004-05 which has been maintained as 0.717357 in the year

2005-06. In the year 2006-07 the quick ratio has been decreased to 0.607379 and

which is further decreased to 0.349412 in the year 2007-08 and in the year 2008-09

it has been maintained as 0.346718. The company has not maintained more than

the standard quick ratio of 1:1 for all the above years. It shows that company was not

maintaining its liquidity position up to standard ratio so it should give importance to

improve the liquidity position.

Cash ratio:

Page 51: Report WCM

It is the ratio of equivalent balance to current liability it can be calculated

Cash ratio= cash/current liabilities

4.7

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Cash 127.37 103.75 354.86 554.97 419.96

current liabilities 1608.26 2538.75 2427.28 4399.9 7557.21

cash ratio 0.0792 0.04087 0.1462 0.12613 0.05557

4.7

Page 52: Report WCM

Interpretation:

The above table and graph shows that the cash ratio of the company was

0.0792 in the year 2004-05 which has been decreased to 0.04087 in the year 2005-

06. In the year 2006-07 the cash ratio was increased to 0.1462 and which was

decreased to 0.12613 in the year 2007-08 and in the year 2008-09 it has been

decreased to 0.05557, which is almost near to standard ratio 0.5:1. Lack of

immediate cash may not matter if the firm can stretch its payments or borrowings of

money at short notice if it is not able to do this, firm should maintain adequate cash

and bank balance to meet short term obligations.

Leverage ratios:

Financial leverage refers to the use of debt finance. While debt capital is a

cheaper source of finance, it is also a riskier source of finance. Leverage ratios help

in assessing the risk arising from the use of debt capital. Two types of ratios are

commonly used to analyze financial leverage; structural ratios and coverage ratios.

Page 53: Report WCM

Structural ratios are based on proportions of debt and equity in the financial structure

of the firm. The important structural ratios are: debt equity ratios and debt asset ratio.

Debt Equity ratio:

The debt equity ratio shows the relative contribution of creditors and owners.

It is defined as:

Debt-equity ratio= debt/equity

4.8

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

debt 3873.93 4838.08 5185.69 8798.37 12693.79

equity 3149.72 4356.22 5594.05 7677.25 7959.25

debt equity ratio 1.229928 1.110614 0.927001 1.146031 1.594848

4.8

Page 54: Report WCM

Interpretation:

The above table and graph shows that the debt equity ratio is 1.229928 in the

year 2004-05 which has been decreased to 1.110614 in the year 2005-06. In the

year 2006-07 debt equity ratio decreased to 0.927001 and which has increased to

1.146031 in the year 2007-08 and it is increased in the year 2008-09 is 1.594848. It

shows that a high ratio shows a large share of financing by the creditors of the firm; a

low ratio implies a smaller claim of creditors.

Debt to asset ratio:

The debt to asset ratio measures the extent to which borrowed funds supports the

firm’s assets.

It can be defined as

Debt to asset ratio=debt/asset

Page 55: Report WCM

4.9

particulars 2004-05 2005-06 2006-07 2007-08 2008-09

debt 3568.44 4096.05 4173.03 7546.53 12693.79

asset 7291.62 9194.3 10779.74 16475.62 20653.04

debt to asset ratio 0.489389 0.445499 0.387118 0.458042 0.614621

4.9

Page 56: Report WCM

Interpretation:

The above table and graph shows that the debt to asset ratio is 0.489389

times in the year 2004-05 which has been decreased to 0.445499 times in the year

2005-06. In the year 2006-07 debt to asset ratio decreased to 0.387118 times and

which has been increased to 0.458042 times in the year 2007-08 and in the year

2008-09 it has been increased to 0.614621. This ratio indicates that extent to which

borrowed funds support the firm’s assets. In terms of company increase the asset

proportion regarding this company is efficiency in management the compnay not

depend on the external funds.

Turnover ratio:

Turn over ratios, also referred to as activity ratios or assets management

ratios, measure how efficiently the assets are employed by a firm. These ratios are

bases on the relationship between the level of activity, represented by sales or cost

of goods sold, and levels of various assets. The important turnover ratios are:

Page 57: Report WCM

inventory turnover ratio, average collection period, receivables turnover ratio, fixed

assets turnover ratio and total assets turnover ratio.

Inventory turnover ratio:

This ratio indicates the number of times inventory is replaced during the year.

It measures the relationship between the cost of goods sold and the inventory level.

The ratio can be computed in two ways.

Inventory turnover ratio=sales/closing inventory (or) COGS/Avg inventory

4.10

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Sales 6679.36 6180.1 8554.36 11420 14001.25

average inventory 743.41 924.23 1011.35 1549.16 2051.42

inventory turnover ratio 8.984759 6.686755 8.458358 7.371737 6.82515

4.10

Page 58: Report WCM

Inventory:

The above table and graph show that the inventory turnover ratio is 9 times in

the year 2004-05 which has been decreased to 6.7 times in the year 2005-06. In the

year 2006-07 inventory turnover ratio increased to 8.5 times and which has been

decreased to 7.4 in the year 2007-08 and this once again decreased to 6.8 times in

the fiscal year 2008-09. This ratio indicates how fast the inventory is converted into

sales. Here high ratio implies good inventory management but in coming year 2004-

05 and 2005-06 decreased compared to previous years now its maintained good

inventory management approximately to 7 for the year 2008-09.

Fixed asset turnover ratio:

This ratio measures sales per rupee of investment in fixed assets

It is defined as,

Page 59: Report WCM

FATR=Net Sales/Avg Fixed Assets.

4.11

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Net sales 6679.36 6180.1 8554.36 11420 14001.25

Avg fixed assets 5835.81 7402.79 9285.98 13380 19447.5

Fixed Asset Turnover Ratio 1.144547 0.834834 0.925529 0.853513 0.71995

4.11

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2004-05 2005-06 2006-07 2007-08 2008-09

net sales

avg fixed assets

Page 60: Report WCM

0

0.2

0.4

0.6

0.8

1

1.2

2004-05 2005-06 2006-07 2007-08 2008-09

Fixed Asset Turnover Ratio

Fixed Asset TurnoverRatio

Interpretation:

The above table and graph shows that the fixed asset turnover ratio is 1.14

times in the year 2004-05 which has been decreased to 0.83 time in the year 2005-

06. In the year 2006-07 fixed asset capital turnover ratio increased to 0.93 times and

which has been further decreased 0.85 times in the year 2007-08, in the year 2008-

09 it decreased to 0.72 times.

This ratio is to measure the efficiency with which fixed assets are employed –

A high ratio indicates a higher degree of efficiency in asset utilization and a low ratio

reflects inefficient use of assets. In this case company utilizing the assets efficiently.

Working capital turnover ratio:

Working capital of a concern is directly related to sales. This ratio measures

the efficiency with which working capital is being used by a company.

WCTR= Net Sales/ Net working capital

Page 61: Report WCM

4.12

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Net sales 6679.36 6180.1 8554.36 11420 14001.25

Net working capital 285.74 425.3 193.45 -1015.83 -2925.57

Working Capital Turnover

Ratio

23.37566 14.53115 44.42719 -11.242 -4.78581

4.12

-4000

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

2004-05 2005-06 2006-07 2007-08 2008-09

net sales

net working capital

Page 62: Report WCM

-20

-10

0

10

20

30

40

50

2004-05

2005-06

2006-07

2007-08

2008-09

Working Capital Turnover Ratio

Working Capital TurnoverRatio

Interpretation:

The above table and graph shows that the working capital turnover ratio is 23

times in the year 2004-05 which has been decrease to 14.5 times in the year 2005-

06. In the year 2006-07 working capital turnover ratio has been increased to 44.5

times and which has been a further decreased to (11) time in the year 2007-08. In

the year 2008-09 this ratio was further increased to (5) times.

It shows the higher the ratio indicates the efficient utilization of working capital

and lower ratio indicates inefficient management of working capital.

Page 63: Report WCM

Current Asset Turnover Ratio:

Current Asset Turnover Ratio= Net Sales/ Current Assets

4.13

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Net sales 6679.36 6180.1 8554.36 11420 14001.25

Current Assets 1894 2745.42 2485.63 3086.84 4631.64

Current Assets Turnover

Ratio

3.526589 2.251058 3.457651 3.699576 3.022953

4.13

0

2000

4000

6000

8000

10000

12000

14000

16000

2004-05 2005-06 2006-07 2007-08 2008-09

net sales

current assets

Page 64: Report WCM

0

0.5

1

1.5

2

2.5

3

3.5

4

2004-05

2005-06

2006-07

2007-08

2008-09

Current Assets Turnover ratio

Current Assets Turnoverratio

Interpretation:

The above table and graphs show that the current assets turnover ratio is 3.5

in the year 2004-05 which has been decreased to 2.3 times in the year 2005-06. In

the year 2006-07 current assets turnover ratio increased to 3.5 times and which has

been further increased to 3.7 times in the year 2007-08. In the year 2008-09 it

decreased to 3 times.

It shows that the ability of the company to generate sales per rupee of current

asset which has been increasing and decreasing every year which has to be

improved by the company in coming years.

Total Assets Turnover Ratio:

The output-capital ratio in economic analysis.

Total assets turnover ratio can be defined as:

Page 65: Report WCM

TA Turn over Ratio= Net Sales/ AvgTA

4.14

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Net sales 6679.36 6180.1 8554.36 11420 14001.25

Avg Total Assets 7285.21 11125.3 11812.73 19654.46 26960.14

Total Assets Turnover

Ratio

0.916838 0.555555 0.727557 0.581039 0.519331

4.14

0

5000

10000

15000

20000

25000

30000

2004-05 2005-06 2006-07 2007-08 2008-09

net sales

avg total assets

Page 66: Report WCM

0

0.2

0.4

0.6

0.8

1

2004-05 2005-06 2006-07 2007-08 2008-09

Total Assets turnover ratio

Total Assets turnoverratio

Interpretation:

The above table and graph shows that the total assets turnover ratio is 0.92

times in the year 2004-05 which has been decreased to 0.6 times in the year 2005-

06 and which has been increased to 0.7 times in the year 2006-07. In the year 2007-

08 the total assets turn over ratio was decreased to 0.6 times and by 2008-09 it is

further decreased to 0.5 times.

This ratio measures that efficiency of management and utilization of assets

here from the year 2004-05. More the ratio implies that the more efficiency and

utilization of assets and lower the turnover ratio underutilization of available

resources and presence of idle capacity.

Sales to current assets ratio:

Sales to current asset ratio can be defined as:

Page 67: Report WCM

Sales to Current Assets ratio= Net sales/ Current asset

4.15

particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Net sales 6679.36 6180.1 8554.36 11420 14001.25

Current assets 1894 2745.42 2485.63 3086.84 4631.64

Total Assets Turnover Ratio 3.526589 2.251058 3.323925 3.699936 3.022953

4.15

0

2000

4000

6000

8000

10000

12000

14000

16000

2004-05 2005-06 2006-07 2007-08 2008-09

net sales

current assets

Page 68: Report WCM

0

0.5

1

1.5

2

2.5

3

3.5

4

2004-05

2005-06

2006-07

2007-08

2008-09

Sales to Current Assets Ratio

Sales to Current AssetsRatio

Interpretation:

The above table and graphs show that the sales to current asset turnover

ratio is 3.5 times in the year 2004-05 which has been decreased to 2.25 times in the

year 2005-06. In the year 2006-07 sales to current asset turn over ratio increased to

3.3 and which has been further increased to 3.7 times in the year 2007-08 and by

the year 2008-09 it has been decreased to 3 times.

This ratio indicates that how the company utilize the current assets. In the

current situation it is showing the efficiency of the company to use its current assets

to a maximum extend to attain maximum output and it also measures sufficient

utilization of working capital.

Page 69: Report WCM

5. Analysis and interpretation of data

“Evaluating the financial performance of Jindal steel and iron mfg, ltd.”

Working capital management

Schedule showing working capital for financial years

Calculation of gross working capital

Particular 2004-05 2005-06 2006-07 2007-08 2008-09

A. Current assets

Inventories 743.41 924.23 1011.35 1549.16 2051.42

Sundry

debtors

266.6 229.19 245.16 337.39 398.14

Cash and

bank balance

122.49 98.87 337.80 339.22 419.96

Loans and

advances

761.50 979.42 549.28 842.15 1744.88

Other current

assets

------ 513.70 342.04 18.62 17.24

Total current

assets or

gross

working

capital

1849.00 2745.42 2485.63 3086.54 4631.64

Page 70: Report WCM

Calculation of net working capital

Inventories 743.41 924.23 1011.35 1549.16 2051.42

Sundry

debtors

266.60 229.19 245.16 337.39 398.14

Cash and

balance

122.49 98.87 337.80 339.22 419.96

Loans and

advances

761.50 979.42 549.28 842.15 1744.88

Other current

assets

------- 513.70 342.04 18.62 17.24

Total current

asset or

grossworking

capital

1894 2745.42 2485.63 3086.54 4631.64

B.Current Liabilities

Liabilities 1375.95 1926.86 2210.51 3666.36 7476.28

Provisions 232.31 393.26 75.22 436.01 80.93

Total current

liabilities

1608.26 2320.12 2285.73 4102.37 7557.21

(A-B)= net

working

capital

285.74 425.30 199.90 (1015.83) (2925.57)

Page 71: Report WCM

Liquidity ratios:

Particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Current ratio 1.17767 1.081406 1.132618 0.701502 0.612877

Quick ratio 0.715425 0.717357 0.607379 0.349412 0.346718

Cash ratio 0.0792 0.04087 0.1462 0.12613 0.05557

Leverage ratios:

Particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Debt-equity ratio 1.2299 1.1106 0.9270 1.1460 1.5948

Debt-asset ratio 0.4894 0.4455 0.3871 0.4580 0.6146

Turnover ratios:

Particulars/years 2004-05 2005-06 2006-07 2007-08 2008-09

Inventory

turnover ratio

8.9848 6.6866 8.4584 7.3717 6.8252

Page 72: Report WCM

Fixed-asset

turnover ratio

1.1445 0.8348 0.9255 0.8535 0.7200

Working capital

turnover ratio

23.3757 14.5312 44.4272 -11.242 -4.7858

Current-asset

turnover ratio

3.5270 2.2511 4577 3.7 3.023

Total-asset

turnover ratio

0.9168 0.5556 0.7276 0.5810 0.5193

Sales-current

asset ratio

3.5266 2.2511 3.3239 3.6999 3.0229

Page 73: Report WCM

6. FINDING, SUGGESTIONS AND CONCLUSION:

FINDINGS

The study is made for the purpose of findings of efficiency of working capital

management in JSW following are the findings arrived at after analysis,

JSW is ranked 4th amongst the top business houses in terms of sales and

profit the Rs. 19700 crores

The Gross Working Capital of the JSW is increasing from year to year i.e. Rs

1894 crores in the year 2004-005 and Rs 4631.64 crores in the year 2008-09.

The Net Working Capital of the JSW is decreased from Rs 285.74 crores in

the year 2004-005 to Rs (2925.53) crores in the year 2008-09.its suffering

from loss.

The current ratio of the company is found that ratio is less than the standard

ratio fixed. In the year 2004-05 ratio is 1.17 and it’s decreased to 0.61 in the

year 2008-09. .

The quick ratio of the company was 0.715425 in the year 2004-05 and in the

year 2008-09 is 0.346718. Its decreased year by year The Company has not

maintained more than the standard quick ratio of 1:1 for all the years.

The debt equity ratio shows that a low ratio implies a smaller claim of

creditors.

Page 74: Report WCM

The debt to assets ratio implies that the use of internal fund is more but the

company doesn’t depend on outside funds.

The company maintaining good inventory turnover ratio.

The fixed assets turnover ratio is to measure the efficiency with which fixed

assets are employed. The company utilizing the assets efficiently.

The working capital turnover ratio indicates that the company is inefficient

management of working capital.

The total assets turnover ratio measures that efficiency of management and

utilization of assets. The company is not utilizing available resources.

The company is utilizing the current assets and working capital to get

maximum output..

Marketing of products is a problem for the company.

The cash and bank balances shows increasing trend in 2006-07, 2007-08 and

2008-09.

Current assets turnover ratio is decreased compared to 2004-05 it was 3.53

to 2008-09 it is 3.

The liabilities of the company is showing increasing trend from year by year.

Which is decreasing the net working capital

Working capital turnover ratio is in downward trend.

Page 75: Report WCM

7. SUGGESTIONS

The company can improve its current ratio by taking suitable measures, so

that it meets the ideal ratio.

The quick ratio is low. The company may increase the investment on quick

assets to meet the ideal ratio.

Current assets turnover ratio is reduced so steps can be taken for utilization of

current assets.

The company can increase the debt content in its capital structure to give

higher return to its shareholders which shows better debt equity ratio.

If we see the current liabilities, it is going on increasing year by year. The

management should pay out its liabilities as it may effect the liquidity position

of the company.

It is clear from the inventory turnover ratio that major parts of funds have been

invested in stores and spares. The management can see to invest fewer

amounts in inventories.

Page 76: Report WCM

CONCLUSION

This report includes the in depth analysis of working capital management. On

the basis of the analysis following conclusions have been made.

JSW is a growing company and the third largest producer of steel in India.

Production of other items is also increasing because domestic and international

demand of steel products is continuously rising.

With the ongoing expansion activities, working capital carries immense

importance in an organization such as jsw

Trade creditors, amount owed by the business for supplies and services, are

a plus in the working capital equation. The higher the figure, the more has been

extended by other (usually at no cost) towards working capital needs. But there are

limits to the good news. Firms that go beyond agreed credit limits run into trouble;

they lose out on cash discounts, can incur interest charges, and upset their find

themselves in court with additional costs and penalties to pay. Therefore, companies

should try to find out the ways to delay the payments to its creditors so that more

funds are available for daily operations

At a plant level mostly the finished goods are sold on credit it increase upon

the market share and retain the consumer. Control of the debtors element ( the

amount owed the business in the short term) involves a fundamental trade-off

between the cost of providing credit to customer and the additional net revenue that

can be earned by doing so. The former can be kept to a minimum level.

Page 77: Report WCM

Cash management is a very important element of working capital

management. Forecasting is thus a planning tool. There are many kinds of forecasts

are done in a business.

Like sales forecasts, production forecasts, material, machinery etc. all these

forecasts are different from cash forecast.

All these forecast are based on accrual basis. Cash forecasting is very

important in the realm of overall business forecasting. Its is concerned with every

segment of business environment, be it permanent or temporary, capital or revenue,

income or expenses.

In 2008 the American recession affects Indian steel industries a lot, the prices

of steels were came down but in spite of that the Jindal is doing well in market.

Result of the study

The steel era is depicting a tremendous improvement in par with the

globalization of the economy. This boom of steel industry is the advantage accessed

by the company under study. The products of the company have good market, both

national and international.

The study was conducted to analyze the “WORKING CAPITAL MANAGEMENT”

of the company .the findings revealed an overall efficient working capital

management, showing a substantial improvement in inventory debtors thereby

increasing the company sales and profit.

The company had also achieved to manufacture its product in such a manner so

as to customer requirement and not required to maintain stock, this shows the

demand for the company‘s products. The data analysis thus depicts an overall

satisfactory working capital position of the company.

Page 78: Report WCM

ANNEXURE

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2005-06,

2006-07, 2007-08&2008-09.

Years Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

Income

Operating income 14,006.59 11,391.05 8,595.03 6,092.39 6,675.14

Expenses

Material consumed 9,101.25 6,276.58 4,443.77 3,372.66 3,193.40

Manufacturing expenses 867.10 698.01 480.94 488.44 640.65

Personnel expenses 288.75 273.98 175.47 127.04 107.21

Selling expenses 602.93 539.69 506.52 293.65 276.39

Administrative expenses 285.39 246.56 169.69 117.48 132.14

Expenses capitalized - - - - -

Cost of sales 11,145.42 8,034.82 5,776.39 4,399.27 4,349.79

Operating profit 2,861.17 3,356.23 2,818.64 1,693.12 2,325.35

Other recurring income 185.53 187.61 24.47 15.86 13.19

Adjusted PBDIT 3,046.70 3,543.84 2,843.11 1,708.98 2,338.54

Financial expenses 836.82 494.84 406.81 365.01 474.70

Page 79: Report WCM

Depreciation 827.66 687.18 498.23 405.82 359.54

Other write offs - - 109.02 61.79 60.48

Adjusted PBT 1,382.22 2,361.82 1,829.05 876.36 1,443.82

Tax charges 306.52 722.77 639.33 437.60 603.02

Adjusted PAT 1,075.70 1,639.05 1,189.72 438.76 840.80

Non recurring items -794.00 122.30 86.13 344.25 19.84

Other non cash adjustments 176.80 -33.16 16.15 73.52 -10.12

Reported net profit 458.50 1,728.19 1,292.00 856.53 850.52

Earnings before appropriation 3,964.36 3,995.75 2,623.66 1,576.10 718.62

Equity dividend 18.71 261.87 204.98 125.58 103.23

Preference dividend 28.99 29.06 27.90 27.90 27.91

Dividend tax 8.11 49.44 33.49 21.53 20.58

Retained earnings 3,908.55 3,655.38 2,357.29 1,401.09 566.90

Page 80: Report WCM

Balance sheet as at 31 st March 2005-06 & 2006-07 – 2007-08 & 2008-09

Mar

' 09

Mar

' 08

Mar

' 07

Mar '

06

Mar '

05

Sources of funds

Owner's fund

Equity share capital 248.08 248.08 225.01 218.03 190.10

Share application money - - 21.76 - -

Preference share capital 288.93 288.93 279.03 279.03 279.03

Reserves & surplus 7,422.24 7,140.24 5,068.25 3,859.16 2,680.59

Loan funds

Secured loans 8,214.61 5,497.08 3,632.50 4,058.71 3,568.44

Unsecured loans 3,058.02 2,049.45 540.53 37.34 267.97

Total 19,231.88 15,223.78 9,767.08 8,452.27 6,986.13

Uses of funds

Fixed assets

Gross block 16,896.75 13,952.32 10,512.76 8,368.43 7,520.30

Less : revaluation reserve - - - - -

Less : accumulated depreciation 3,810.31 2,996.83 2,323.66 1,850.45 1,443.91

Net block 13,086.44 10,955.49 8,189.10 6,517.98 6,076.39

Page 81: Report WCM

Mar

' 09

Mar

' 08

Mar

' 07

Mar '

06

Mar '

05

Capital work-in-progress 9,242.06 5,612.43 2,002.93 1,861.90 349.30

Investments 1,250.11 923.53 192.94 85.08 229.57

Net current assets

Current assets, loans & advances 4,849.54 3,223.03 2,603.06 2,745.41 1,894.00

Less : current liabilities & provisions 9,196.27 5,490.70 3,415.82 3,062.15 1,913.75

Total net current assets -4,346.73 -2,267.67 -812.76 -316.74 -19.75

Miscellaneous expenses not written - - 194.87 304.05 350.62

Total 19,231.88 15,223.78 9,767.08 8,452.27 6,986.13

Notes:

Book value of unquoted investments 1,252.86 707.78 175.88 85.08 229.57

Market value of quoted investments 2.75 215.75 17.06 - -

Contingent liabilities 8,170.64 11,145.95 5,362.37 1,835.96 1,432.25

Number of equity shares outstanding

(Lacs) 1870.49 1870.49 1639.79 1569.76 1290.39

Page 82: Report WCM

BIBLOGRAPHY

Books referred:

1. C.R.KOTHARI Research Methodology, Wishtra Prakashan

2. I.M, PANDY Financial management, Vikas publishing Housing Pvt Ltd

Page 83: Report WCM

3. KHAN&JAIN FINANCIAL MANAGEMENT, TATA Mc Graw-hill

publishing co.

REPORTS

1. The Challengers 2008-09 (Annual report).

2. Profile of JSW.

Websites:

www.jsw.in

www.jindal.com


Top Related