raj kishor verma

PROJECT REPORT ON WORKING CAPITAL

A Project Report

On

Working Capital

At

BHARAT COKING COAL LTD.

DHANBAD (JHARKHAND)

(A SUBSIDARY OF COAL INDIA LTD).

Submitted to

BCCL Dhanbad

In partial fulfillment for the course of “Post Graduate Diploma in Management”

Under the Supervision of: Submitted By:

Mr.J.P.BHAGAT RAJ KISHOR VERMA

GENERAL MANAGER FINANCE CA & T Batch: PGDM 2009-2011

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Roll No: 37

Mangalmay Institute of Management Studies (Greater Noida)

INDEXCH. No.

Particulars Page No.

Declaration 4

Preface 5

Acknowledgement 6

1 BRIEF PROFILE OF THE COMPANY 7About BCCL 8

Board of Directors 9

Coal Reserve 10

Product & Services 11-12

Gradation of Coal 13

Suitability of Coal 14

Areas 15

Washery 16-17

Performance 18

2 CONCEPTUAL FRAMEWORK OF WORKING CAPITAL MANAGEMENT

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Working Capital 20

Concept of Working Capital 20-21

Working Capital Management 22

Types of Working Capital 23-24

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Factors Determining of Working Capital 25-28

Estimate of Working Capital Requirement 29

Financing of Working Capital 30-31

Management of Inventory 32

o Need to Hold Inventory 32

o Objective of Inventory Management 32

Management of Cash 34

o Need to Hold Cash 34

Management of Receivables 35

Operation Cycle 35-36

Components of Working Capital Management 37

Significance of Working Capital Management 38

3. Research Methodology 39-41

4. ANALYSIS OF WORKING CAPITAL MANAGEMENT OF THE BHARAT COKING COAL LIMITED

42

Working Capital 43-44

Current Ratio 45-46

Acid-Test Ratio 47-48

Debtors Turnover Ratio 49-50

Inventory Turnover Ratio 51-52

Net Working Capital Turnover Ratio 53-54

Debt Collection Ratio 55-56

Statement of Ratio Analysis 57

5. CONCLUSION 58-61

6. BIBLOGRAPHY 62

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I, undersigned Mr. Raj Kishor Verma, hereby declare

that the project report entitled “WORKING CAPITAL

MANAGEMENT” under the guidance of Mr. J.P.Bhagat

submitted in partial fulfillment of the requirements for the

award of the degree of Post Graduate Diploma in

Management, from Mangalmay Institute of

Management Study is my original work – research study –

Carried out during 24th May, 2010 to 24th July, 2010 and

not submitted for the award of any other

degree/diploma/fellowship or other similar titles or prizes to

any other institution/organization or university by any other

person.

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Place: B.C.C.L. (Dhanbad)

Signature

Date: 24-7-2010 Raj Kishor Verma

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“Practice makes it more perfect”

In the field of management every time there is a

requirement of understanding or practical aspect of the

organization with managerial mind. There is requirement to go

for practical training of any subject supplement to the theoretical

knowledge and clarified concept.

It is more applicable in the field of the management

especially a professional course like Post Graduate Diploma in

Management from Mangalmay Institute of Management

Studies has prescribed 8 to 10 week of practical training & a

project report during the 4th Tri. Sem. as a part of PGDM

programmers my training at the Bharat coking Coal Limited

is to comply with this requirements also.

The project report on Working Capital Of Company,

which provide perfect direction of invest the money. The data

collections were by annual report of the different companies,

magazines related to the cement association and discussion with

concerned employees and experts.

At the end findings and suggestions are reported.

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I hope this serves the Purpose.

Words are indeed inadequate to convey my deep sense of gratitude to all those who have helped me in completing this summer project to the best of my ability. Being a part of this project has certainly been a unique and a very productive experience on my part.

I am really thankful to, Mr.J.P.Bhagat (General Manager Finance CA & T) for making all kinds of arrangements to carry the project successfully and for guiding and helping me to solve all kinds of quarries regarding the project work. His systematic way of working and incomparable guidance has inspired the pace of the project to a great extent.

I would also like to thank my mentor and project – coordinator, Mr. Shyam Agarwal for assigning me a project of such a great learning experience and acquainting me with real life project financing and appraisal.

I am very grateful to Mr. Anupam Narula, Dean of Mangalmay Institute of Management Study Who has given me the opportunity to do this project in the Bharat Coking Coal

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BRIEF PROFILE OF THE COMPANY


Ltd. and very thankful to all lecturers of MIMS for their useful guidance and advise.

This project would not have been successful without the help of Mr.P.Banarjee (General Manager Finance, Fund) & Mr.P.K.Chakraborty (Chief General Manager Finance) of Bharat coking Coal Ltd.

Last but not least I would like to thank all the employees of Bharat coking Coal Ltd. who have directly or indirectly helped me with their moral support for the completion of my project.

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About BCCLBoard of DirectorsCoal ReserveProduct & ServicesGradation of CoalSuitability of CoalAreasWasheryPerformance


ABOUT B.C.C.L

RTI Act 2005 | Tenders | Contact Us

Bharat Coking Coal Limited (BCCL) is a Public Sector Undertaking engaged in mining of coal and allied activities.

It occupies an important place in as much as it produces bulk of the coking coal mined in the country. BCCL meets almost 50% of the total prime coking coal requirement of the integrated steel sector.

BCCL was incorporated in January, 1972 to operate coking coal mines (214 Nos) operating in the Jharia & Raniganj Coalfields, taken over by the Govt. of India on 16th Oct,1971 to ensure planned development of the scarce coking coal resources in the country.

Currently, the Company operates 81 coal mines which include 40 underground, 18 opencast & 23 mixed mines as on 01.04.2010.

The Company also runs 6 coking coal washeries, 2 non-coking coal washeries.

The mines are grouped into 13 areas for administrative convenience.

The total manpower as on 1.4.05 was 92,268 and as on 01.03.2010 is 72,222.

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Board of Directors

Permanent Invitee

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Coal Reserve

COAL RESERVES IN INDIA : (As on 1st April, 2009)

(in billion tonnes)

Total Reserve Proved ReserveIndicated Reserve

Inferred Reserve

Coking 33.4 17.5 13.8 2.1

Non-Coking 233.8 88.3 109.7 35.8

Total 267.2 105.8 123.5 37.9

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Product & Services

COKING COAL :These coals, when heated in the absence of air, form coherent beads, free from volatiles, with strong and porous mass, called coke.

These have coking properties Mainly used in steel making and metallurgical industries Also used for hard coke manufacturing

SEMI COKING COAL :These coals, when heated in the absence of air, form coherent beads not strong enough to be directly fed into the blast furnace. Such coals are blended with coking coal in adequate proportion to make coke.

These have comparatively less coking properties than coking coal Mainly used as blend-able coal in steel making, merchant coke manufacturing and other metallurgical

industries

NLW COKING COAL :This coal is not used in metallurgical industries. Because of higher ash content, this coal is not acceptable for washing in washeries. This coal is used for power utilities and non-core sector consumers.

NON-COKING COAL :These are coals without coking properties.

Mainly used as thermal grade coal for power generation Also used for cement, fertilizer, glass, ceramic, paper, chemical and brick manufacturing, and for other

heating purposes

HARD COAL :Hard coke is formed from coking / semi-coking coal through the process of carbonisation.

Mainly used in metallurgical industries Also used in industrial plants utilising furnaces

WASHED AND BENEFICIATED COAL :These coals have undergone the process of coal washing or coal beneficiation, resulting in value addition of coal due to reduction in ash percentage.

Used in manufacturing of hard coke for steel making Beneficiated and washed non-coking coal is used mainly for power generation Beneficiated non-coking coal is used by cement, sponge iron and other industrial plants

MIDDLINGS :Middlings are by-products of the three stage coal washing / beneficiation process, as a fraction of feed raw coal.

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Used for power generation Also used by domestic fuel plants, brick manufacturing units, cement plants, industrial plants, etc.

REJECTS :Rejects are the products of coal beneficiation process after separation of cleans and / or middlings, as a fraction of feed raw coal.

Used for Fluidized Bed Combustion (FBC) Boilers for power generation, road repairs, briquette (domestic fuel) making, land filling, etc.

CIL COKE / LTC COKE :CIL Coke / LTC Coke is a smokeless, environment friendly product of the Dankuni Coal Complex, obtained through low temperature carbonisation.

Used in furnaces and kilns of industrial units Also used as domestic fuel by halwais, hotels, etc.

COAL FINES / COKE FINES :These are the screened fractions of feed raw coal and LTC coke / CIL Coke respectively, obtained from the Dankuni Coal Complex and other coke oven plants.

Used in industrial furnaces as well as for domestic purposes

TAR / HEAVY OIL / LIGHT OIL / SOFT PITCH :These are products from Dankuni Coal Complex using low temperature carbonisation of non-coking coal in vertical retorts.

Used in furnaces and boilers of industrial plants as well as power houses, oil, dye, pharmaceutical industries, etc.

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GRADATION OF COAL

A. COKING COAL

Grade Parameter

Steel – I Ash not exceeding 15%

Steel – II Ash exceeding 15% but not exceeding 18 %

Washery – I Ash exceeding 18% but not exceeding 21 %

Washery – II Ash exceeding 21% but not exceeding 24 %

Washery – III Ash exceeding 24% but not exceeding 28 %

Washery – IV Ash exceeding 28% but not exceeding 35 %

B. SEMI COKING COAL

Grade Parameter

Semi Coking – I Ash + moisture not exceeding 19 %

Semi Coking – IIAsh + moisture exceeding 19 % but not

exceeding 24 %

C. NON-COKING COAL

Grade UHV RANGE (KCALS/KG)

A Exceeding 6200

B Exceeding 5600 but not exceeding 6200

C Exceeding 4940 but not exceeding 5600

D Exceeding 4200 but not exceeding 4940

E Exceeding 3360 but not exceeding 4200

F Exceeding 2400 but not exceeding 3360

G Exceeding 1300 but not exceeding 2400

D. HARD COKE

Grade Ash %

By Product Premium Not exceeding 25 %

By Product Ordinary Exceeding 25 % but not exceeding 30 %

Beehive Premium Not exceeding 27 %

Beehive Superior Exceeding 27 % but not exceeding 31 %

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Beehive Ordinary Exceeding 31 % but not exceeding 36 %

SUITABILITY OF COAL

E. HARD COKE

Industry Type of Coal Required

Steel makingCoking and semi-coking coal, direct feed and washed; blendable coal; low ash % Assam and Ranigunj coal

Steel making, sponge iron industryNon-coking coal of high Initial Deformation Temperature (IDT) (>1200 degrees Celcius)

Cokeries / coke oven plants Coking and semi-coking coal

Briquette making / domestic fuel makingSemi-coking and non-coking coal; middling & rejects of washeries

Special Smokeless Fuel (SSF) Semi-coking coal of Coking Index 8 – 10

Power sectorNon-coking coal; middlings of coking coal washeries; washed coal of non-coking coal washeries

Cement sectorNon-coking coal; middlings of coking coal washeries

Glass and potteries Long Flame non-coking coal

Cast iron castings Hard coke

Steel castings Non-coking coal

BricksNon-coking coal; middlings of coking coal washeries

Old boilers Superior grades of non-coking coal

Halwais, domestic use, hotels, etc. Non-coking coal; CIL Coke / LTC Coke

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Areas

1. BARORA

2. BLOCK II

3. GOVIINDPUR

4. KATRAS

5. SIJUA

6. LODNA

7. C. V. AREA

8. KUSUNDA

9. P. B. AREA

10. KUSTORE

11. BASTACOLLA

12. E. JHARIA

13. W. JHARIA

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http://bccl.cmpdi.co.in/wj.htm

http://bccl.cmpdi.co.in/ej.htm

http://bccl.cmpdi.co.in/bastacolla.htm

http://bccl.cmpdi.co.in/kustore.htm

http://bccl.cmpdi.co.in/PB.htm

http://bccl.cmpdi.co.in/kusunda.htm

http://bccl.cmpdi.co.in/cv.htm

http://bccl.cmpdi.co.in/lodna.htm

http://bccl.cmpdi.co.in/sijua.htm

http://bccl.cmpdi.co.in/katras.htm

http://bccl.cmpdi.co.in/govindpur.htm

http://bccl.cmpdi.co.in/blockII.htm

http://bccl.cmpdi.co.in/barora.htm


Washery

BCCL WASHERIES

Introduction :

Coal Washing is a process of separation mainly based on difference in Specific Gravity of Coal and associated impurities like Shale, Sand & Stones etc so that we get relatively pure marketable coal without changing its physical properties.

The Washed Coking Coal is meant for Steel Plants. The Washed Power Coal/Washed Non-Coking Coal/Middlings is dispatched to various Power Houses.

Washing Process:

Washery System of Washing

Dugda-II HM Cyclone (13-0.5mm), Flotation (-0.5mm)

Bhojudih Deshaling Jig (75-0mm), HM Bath (75-25mm),

Batac Jig (25-0.5mm), Flotation (-0.5mm)

Patherdih Deshaling Jig(75-0mm), HM Bath(75-13mm),

HM Cyclone (13-0.5mm)

Sudamdih 2 Stage HM Cyclone (37-0.5mm), Flotation (-0.5mm)

Moonidih 2 Stage HM Cyclone (30-0.5mm),W/O Cyclone(-0.5mm)

Mohuda HM Cyclone (25-0.5mm), Flotation (-0.5mm)

Madhuban Batac Jig (13-0.5mm), Flotation(-0.5mm)

Details of Existing Washeries :

S. No.

Name of Washery Year of Commissioning Operable CapacityMTY

A. Coking Coal:1 Dugda-II 1968 2.00

2 Bhojudih 1962 1.70

3 Patherdih 1964 1.60

5 Moonidih 1983 1.60

4 Sudamdih 1981 1.60

6 Mohuda 1990 0.63

7 Madhuban 1998 2.50

TOTAL (Coking Coal) 11.63

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B. Non-Coking Coal:

1 Dugda – I 1961/1998 1.00

TOTAL (Non-Coking Coal) 1.00

GRAND TOTAL 12.63

Remarks:

Dugda-I stoped since Oct.'96 for safety reasons and its Sink Upgradation Section is being used for production of washed power coal w.e.f. '98.

Madhuban Washery was originally designed for washing Coking Coal.Due to non-availability of Coking Coal because of stoppage of Block-II OCP, the Washery was temporarily converted for Washing Non-Coking Coal which has been reverted back to washing coking coal again from October 2008.

Modernization of Washeries:

►Revival Plan of BCCL provides Rs. 125 Crores for Renovation of Washeries.

► Study was undertaken by CMPDI for performance improvement.► In the 1st Phase, the Revival Schemes involving an expenditure of Rs. 54.80

Crores has been approved by BCCL Board for Dugda-I, Dugda-II, Bhojudih, Sudamdih, Moonidih & Mohuda Washeries and they are under various stages of implementation.

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Performance

PRODUCTION(Figs in Million Tonnes)

Company Type1974 - 75

1984 - 85

1994 – 95

2001 – 02

2002 - 03

2003 - 04

2004 – 05

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10

BCCLU/G 15.64 13.34 11.49 7.59 7.29 6.74 6.38 5.47 4.90 4.46 4.13 3.9OC 2.10 8.50 17.26 17.66 16.86 15.94 15.94 17.84 19.30 20.75 21.38 23.61

TOTAL 17.74 21.84 28.75 25.25 24.15 22.68 22.32 23.31 24.21 25.21 25.51 27.51

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CONCEPTUAL FRRMEWORK OF WORKING CAPITAL MANAGEMENT


WORKING CAPITAL CONCEPT OF WORKING CAPITAL WORKING CAPITAL MANAGEMENT TYPES OF WORKING CAPITAL FACORS DETERMINING OF WORKING CAPITAL ESTIMATE OF WORKING CAPITAL REQUIREMENT FININCING OF WORKING CAPITAL MANAGEMENT OF INVENTORY

o NEED TO HOLD INVENTORY o OBJECTIVE OF INVENTORY MANAGEMENT

MANAGEMENT OF CASH o NEED TO HOLD CASH

MANAGEMENT OF RECEIVABLE OPERATION CYCLE COMPONENTS OF WORKING CAPITAL MGT SIGNIFICANCE OF WORKING CAPITAL MGT

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What is WORKING CAPITAL?

Fixed Capital is that part of which is required for the purchase of fixed assets like Land and Building , Plant and machinery etc. The fixed capital provides the basic means for the business to earn its return... But by themselves, these fixed assets would not produce anything. For instance, to operate the machines, we require men, materials, power, tools, accessories etc. These factors involve expenses. In addition, we have to maintain certain current assets like stocks, stores, equipments, etc. All these require enough resources to keep the wheels of the business in motion. Therefore, in addition to the amount of fixed capital every business – whether new or growing requires Working Capital. Working Capital is that portion of a business concern’s total capital, which is employed in term of operations. Without working capital, fixed capital would be idle and ineffectual. A number of definitions have been formulated: perhaps the most widely

acceptable would be;

“WORKING CAPITAL represents the excess ofCURRENT ASSETS over CURRENT LIABILITIES”

The same may be designated in the following equation: WORKING CAPITAL= CURRENT ASSETS – CURRENT LIABILITIES:Funds thus invested in current assets keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Thus it is known as revolving or circulating capital or short term capital.

TWO CONCEPT OF WORKING CAPITAL :- a. Gross Working Capital.b. Net Working Capital.

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Gross working capital is the total of all current assets. Net working capital is the difference between current assets and current liabilities. Though the later concept of working capital is commonly used it is an accounting concept with little sense to say that a firm manages its net working capital. What a firm really does is to take decisions with respect to various current assets and current liabilities. The constituents of current assets and current liabilities are shown in table A.

TABLE A: Constituents of Current Assets and Current LiabilitiesPART –A: CURRENT ASSETS Inventories – Raw materials and components, Work in progress, Finished goods, other. Trade Debtors. Loans and Advances. Investments. Cash and Bank balance.PART –B: CURRENT LIABILITIES Sundry Creditors. Trade Advances. Borrowings. Provisions.

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WORKING CAPITAL MANAGEMENT:-

Working Capital Management refers to management of current assets and current liabilities. The major thrust of course is on the management of current assets This is understandable because current liabilities arise in the context of current assets. Working Capital Management is a significant fact of financial management. Its importance stems from two reasons:- Investment in current assets represents a substantial portion of total investment. Investment in current assets and the level of current liabilities have to be geared quickly to change in sales. To be sure, fixed asset investment and long term financing are responsive to variation in sales. However, this relationship is not as close and direct as it is in the case of working capital components. The importance of working capital management is effected in the fact that financial manages spend a great deal of time in managing current assets and current liabilities. Arranging short term financing, negotiating favorable credit terms, controlling the movement of cash, administering the accounts receivable, and monitoring the inventories consume a great deal of time of financial managers. The problem of working capital management is one of the “best” utilization of a scarce resource.Thus the job of efficient working capital management is a formidable one, since it depends upon several variables such as character of the business, the lengths of the merchandising cycle, rapidity of turnover, scale of operations, volume and terms of purchase & sales and seasonal and other variations.

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TYPES OF WORKING CAPITAL:-

Working Capital may be classified in to two ways:-a) On the basis of concept.b) On the basis of time.

TYPES OF WORKING CAPITAL

Permanent or Fixed Working Capital:- Permanent or Fixed 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 always a minimum level of current assets that is continuously required by the enterprise to carry out its normal business operation. For example every firm has to maintain minimum level of raw materials, work in process, furnished goods and cash balance. The minimum

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TYPES OF WORKING CAPITAL

ON THE BASIS OF B/S CONCEPT

GROSS WORKING CAPITAL

NET WORKING CAPITAL

ON THE BASIS OF TIME

REGULAR WORKING CAPITAL

TEMPORARY WORKING CAPITAL

SEASONAL WORKING CAPITAL

SPECIFIC WORKING CAPITAL


level of current assets is called permanent or fixed working capital as their part of working capital is permanently blocked in current assets. With the growth of business there is an increase in current assets.

1) Temporary or Variable Working Capital:- Temporary or Variable Working Capital is the amount of working capital that is required to meet the seasonal demands and some special exigencies. Variable working capital can be further classified as:-a) Seasonal Working Capital.

b) Special Working Capital.

Most of the enterprises have to provide additional working capital to meet the special and seasonal needs. The capital required to meet the seasonal needs of enterprise is called Seasonal working capital. Special working capital is the part of working capital which is required to meet the special exigencies such as part of working capital which is required to meet special exigencies such as launching of extensive marketing campaigns for conducting research etc. is called Special working capital.

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FACTORS DETERMINING WORKING CAPITALREQUIREMENTS:-

With the type of business and the ambition of proprietors the amount is bound to vary. For instance, a small business would need lesser amount of working capital than a larger business engaged in the same line. As the business expands the amount needed would grow. Similarly, business with seasonal demand would require larger amount of working capital. Therefore, an estimate of requirements of working capital will differ from concern and from industry to industry. Further, cyclical changes, periods of prosperity and depression cause wide variations in the demand for working capital. Other unexpected happenings are likely to create unusual demands for working capital. There is no concrete formula to decide the amount of workings capital required by a business. There are also business in which fixed is small ion relation to working capital. The Major determinants of the proportion of fixed to working capital are as follows:-

1.Nature of Business:-

Business units selling service (like public utilities) instead of a commodity, have little need for working capital, as they have little demand for large inventories. Generally they operate in cash and prepay basis. But trading concerns (merchandising companies) make a greater use of working capital, since inventory represents a major item of investment. A relatively small proportion will consist of working capital in case of manufacturing concerns. Larger working capital will require in labor intensive industries than in highly mechanized industries. In chemical or engineering industries, working capital would be relatively larger. 1) Size of Business :

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The working capital requirements of a concern are directly influenced by the size of the business which may be measured in terms of scale of operations. Greater the size of a business unit generally larger will be the requirement of working capital. However, in some cases even a smaller concern may need more working capital due to high over head charges Insufficient use of available resources and other economic disadvantages of small size. 1) Production Policy:-

In certain industries the demand is subject to wide fluctuation due to seasonal variation. The requirement of working capital, in such cases depends upon the production policy. The production could be kept either steady by accumulating inventories during slack period with a view to meet high demand during the peak season or the production could be curtailed during the slack season and increased during peak season. If the policy is to keep production steady by accumulation inventories it will require higher working capital. A company should have some production policy i.e. to maintain the production is a considerable range in order to meet the changing demand. A company like BCCL whose productive capacities can be utilized for manufacturing varied products can have the advantages of diversified activities and solve their working capital problem.

2) Manufacturing Process/ Length of the 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, longer is the amount of working capital required. The longer the manufacturing time, the raw materials and other supplies have to be carried for a longer period in the process with progressive increment of labor and service costs before the finished product is finally obtained. Therefore, if there is alternative process of production, the process with the shortest production period should be chosen.

3) Working Capital Cycle:-

In manufacturing concern, working capital cycle starts with the purchase of raw materials and ends with realization of cash from the sale of finished goods. The

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cycle involves the purchase of raw materials and ends with the realization of cash from the sale of finished products. The cycle involves purchase of raw materials and stores, its conversion in to stock of finished goods through work in progress with progressive increment of labor and service cost, conversion of finished stick in to sales and receivables and ultimately realization of cash and this cycle continuous again from cash to purchase of raw materials and so on.

4) Market Condition:-

The degree of competition prevailing in the market places has an important bearing on working capital needs. When competition keen, a larger inventory of finished goods is required to promptly serve customer who may not be inclined to wait because other manufacturers are ready to meet their needs, further, generous credit terms may have to be offered to attract customers in a highly competitive market. Thus, working capital needs tends to be high because of greater investment in finished goods inventory and accounts receivable.If the market is strong and completion weeks a firm can manage with a smaller inventory of finished goods because customers can be served with some delay. Further in such situation the firm can insist on cash payment and avoid lock – up of funds in accounts receivable, it can even ask for advance payment, partial or total. 5) Credit Policy:-

The credit policy is concerned in its dealings with debtors and creditors influence considerably the requirements of the working capital. A concern that purchases its requirements on credit and sells its products/services on cash requires lesser amount of working capital. On the other hand a concern buying its requirements for cash and allowing credit to its customers, shall need larger amount of funds are bound to be tied up in debtors or bills receivables.

6) Business Cycle:-

Business Cycle refers to alternate expansion and contraction in general business activities. In a period of born i.e. when the business is prosperous there is a need for larger amount of working capital due to increase in sales, rise in prices,

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optimistic expansion of business etc. On the country at he time of depression i.e. when there is a down swing of the cycle, business contracts, sales decline, difficulties are faced in collections from debtors and firms may have a large amount of working capital lying ideal

7) Rate of Growth Of 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 relation between growth in the volume of the business and in the growth of the working capital of the business, yet it may be concluded that for normal rate of expansion in the volume of the business, we may have retained profits to provide for more working capital but in the first growing concerns, we shall require larger amount of capital. 8) Earning Capacity And Dividend policy:-

Some firms have more earning capacity than others due to the quality of their products, monopoly conditions etc. Such firms with high earning capacity may generate cash profits from operations and contribute to their capital. The dividend policy of a concern also influences the requirements of the working capital. A firm that maintains steady high rate of cash dividend irrespective of its generation of profits needs more capital than the firm retains larger part of its profits and does not pay high rate of cash dividend.

9) Price Level Changes:-

Changes in the prices level also effects the working capital requirements. Generally the rising prices will require the firm to maintain larger amount of working capital as more funds will require maintaining the same current assets. The effect of rising prices may be different for different firms. Some firms may be affected much while some other may not be affected at all by the rise in prices.

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10) Other Factors:-

Certain other factors such as operating efficiency, management ability, irregularities a supply, import policy, asset structure, importance of labor, banking facilities etc. also influences the requirement of working capital.

4.d)Estimate of working capital requirements: To avoid the storage of working capital at once an estimate of working capital requirements should be made in advances so that arrangement can be made to procedure adequate working capital. But estimation of working capital requirements is not an easy task and a large number of factors have to be considered before starting this exercise.

Factors requiring consideration while estimating working capital:-Total costs incurred on materials, wages and overheads. 1) The length of time for which raw materials are to remain in stores before they are issued for production.

2) The length of the production cycle or work in progress, i.e. the time taken for conversion of raw materials into finished goods.

3) The length of sales cycle during which finished goods are kept waiting for sales.

4) The average period of credit allowed to customers.

5) The amount of cash required to pay day-to-day expenses of the business.

6) The average amount of cash required to make advance payment.

7) The average period expected to be allowed by suppliers.

8) Time lag in the payment of wages and other expenses.

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FINANCING OF WORKING CAPITAL:-

The working capital requirements of a business concern can be classified as:-a) Permanent or Fixed working capital requirements.b) Tempory ot variable capital requirements.

In concern, a part of working capital investments are as permanent investment in fixed assets. This is so because there always a minimum level of current assets which are continuously required by the enterprise to carry out its day-to-day business operations and this minimum cannot be expected to reduce at any time. This minimum level of current assets gives rise to permanent or fixed working capital as this part of working capital is permanently blocked in current assets. Similarly some amount of working capital may be required to meet the seasonal demands and some special exigencies such as rise in prices, strikes etc. this proportion of working capital gives rise to temporary or variable working capital which cannot be permanently employed gainfully in business. The fixed proportion of working capital should be generally financed from the fixed capital sources while the temporary or variable working capital requirements of a concern may be met from the short term sources of capital. The various sources for the financing of working capital are:-

PERMANENT OR FIXED SOURCES OF WORKING CAPITAL:- 1) Shares2) Debentures3) Public Deposits4) Ploughing back of profits

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5) Loans from financial institutions

TEMPORARY OR VARIABLE SOURSESOF WORKING CAPITAL:-

1) Commercial banks2) Indigenous bankers3) Trade creditors4) Installment credit 5) Advances6) Accounts receivable- credit/factoring7) Accrued expenses8) Commercial paper

Commercial banks are the most important sources of short term capital. The major portions of working capital loans are provided by commercial banks. They provide of wide variety of loans tailored to meet the specific requirements of a concern. The different forms in which the banks normally provide loans and advances are as follows:-A) Loans b) Cash creditsc) OverdraftsD) Purchasing and discounting of bills

In addition to the above mentioned forms of direct finance, commercial banks help their customers in obtaining credit form their suppliers through the letter of credit arrangements.It is always a test to the prudence of a financial manager to obtain the correct amount of working capital at the right time, at a reasonable cost and at the most favorable terms. MANAGEMENT OF INVENTORY MANAGEMENT OF CASH MANAGEMENT OF RECEIVABLES

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MANAGEMENT OF INVENTORY:-

Inventories constitute the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 % of current assets in public limited companies in India.Because of the large size of inventories maintained by firms maintained by firms, a considerable amount of funds is required to be committed to them. It is, therefore very necessary to manage inventories efficiently and effectively in order to avoid unnecessary investments. A firm neglecting a firm the management of inventories will be jeopardizing its long run profitability and may fail ultimately. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories at considerable degrees, without any adverse effect on production and sales, by using simple inventory planning and control techniques.

1.1 Need to Hold Inventories:- There are three general motives for holding inventories:-1) Transaction motive emphasizes the need to maintain inventories to facilitate smooth production and sales operation.

2) Precautionary motive necessities holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors.

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3) Speculative motive influences the decision to increases or reduce inventory levels to take advantage of price fluctuations and also for saving in re-ordering costs and quantity discounts etc.

2.2. Objective of Inventory Management:- The main objectives of inventory management are operational and financial. The operational mean that means that the materials and spares Should be available in sufficient quantity so that work is not disrupted for want of inventory. The financial objective means that investments in inventories should not remain ideal and minimum working capital Should be locked in it. The following are the objectives of inventory management:-1) To ensure continuous supply of materials, spares and finished goods.

2) To avoid both over-stocking of inventory.

3) To maintain investments in inventories at the optimum level as required by the operational and sale activities.

4) To keep material cost under control so that they contribute in reducing cost of production and overall purchases. 5) To eliminate duplication in ordering or replenishing stocks. This is possible with the help of centralizing purchases. 6) To minimize losses through deterioration, pilferage, wastages and damages. 7) To design proper organization for inventory control so that management. Clear cut account ability should be fixed at various levels of the organization.

8) To ensure perpetual inventory control so that materials shown in stock ledgers should be actually lying in the stores. 9) To ensure right quality of goods at reasonable prices.

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10) To facilitate furnishing of data for short-term and long term planning and control of inventory

MANAGEMENT OF CASH:-

Cash is the important current asset for the operation of the business. Cash is the basic input needed to keep the business running in the continuous basis, it is also the ultimate output expected to be realized by selling or product manufactured by the firm. The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remain ideal without contributing anything towards the firm’s profitability. Thus a major function of the financial manager is to maintain a sound cash position.Cash is the 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 account. Sometimes near cash items such as marketing securities or bank term deposits are also included in cash. Generally when a firm has excess cash, it invests it is marketable securities. This kind of investment contributes some profit to the firm. NEEDTO HOLD CASH:The firm’s need to hold cash may be attributed to the following three motives:-

The Transaction Motive: The transaction motive requires a firm to hold cash to conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salaries, other operating expenses, taxes, dividends, etc.

The Precautionary Motive: A firm is required to keep cash for meeting various contingencies. Though cash inflows and outflows are anticipated but there may

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be variations in these estimates. For example a debtor who pays after 7 days may inform of his inability to pay, on the other hand a supplier who used to give credit for 15 days may not have the stock to supply or he may not be in opposition to give credit at present.

Speculative Motive: - The speculative motive relates to the holding of cash for investing in profit making opportunities as and when they arise. The opportunities to make profit changes. The firm will hold cash, when it is expected that interest rates will rise and security price will fall.

MANAGEMENT OF RECEIVABLE:-

A sound managerial control requires proper management of liquid assets and inventory. These assets are a part of working capital of the business. An efficient use of financial resources is necessary to avoid financial distress. Receivables result from credit sales. A concern is required to allow credit sales in order to expand its sales volume. It is not always possible to sell goods on cash basis only. Sometimes other concern in that line might have established a practice of selling goods on credit basis. Under these circumstances, it is not possible to avoid credit sales without adversely affecting sales. The increase in sales is also essential to increases profitability. After a certain level of sales the increase in sales will not proportionately increase production costs. The increase in sales will bring in more profits. Thus, receivables constitute a significant portion of current assets of a firm. But for investment in receivables, a firm has to insure certain costs. Further, there is a risk of bad debts also. It is therefore, very necessary to have a proper control and management of receivables.

Operating cycle:Operating cycle refers to the time duration required to convert sales ,after the conversion of recourses into inventories, into cash .the operating cycle of a manufacturing company like BCCL includes:1.) Accusation of resources such as raw materials, labor, power and fuel etc.2.) Manufacture of the product which includes conversion of materials into work-in-progress into finished goods.

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3.) Sale of the product either for cash or on credit. Credit sales create account receivables for collection.

OPERATING CYCLE:

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CASHRAW

MATERIALS

WIPFINISHED GODS

BOOK DEBTS


COMPONENTS OF WORKING CAPITAL ARE CALCULATED AS FOLLOWS:

1) Raw Materials Storage Period=Avarage stock of raw materials/Avarage cost of raw material consumption per day.2.) W-I-P Holding period=Average w-i-p in inventory/Average cost of production per day.3.) Stores and spares conversion period= Average stock of Stores and spares/ Avarage consumption per day.4.) Finished goods conversion period= Average stock of finished goods/Avarage cost of of goods sold per day.5.) Debtors collection period=Avarage book debts/Avarage credit sales per day.6.) Credit period availed=Avarage trade creditors/Average credit purchase per day..

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SIGNIFICANCE OF WORKING CAPITAL:-

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SIGNIFICAN--CE OF WORKING

CAPITAL

PAYMENT TO

SUPPLIERS

DIVIDEND DISTRIBU

TI-ON

INCREASE DEBT

CAPACITY

INCREASE IN FIX ASSETS

INCREASE EFFECIE

NC-Y

EASY LOAN FROM BANKS


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Research Methodology

For Every Comprehensive research a proper research methodology is indispenensable & it has to be properly conceived. The methodology adopted by me is as follows:-

Research DesignProblem Identification@ Find out Ratios related to working capital management of BCCL and compare with last 2 years. @ Find deviation of calculated from standard or Norms

@ Calculating the working capital requirement of Bharat Coking Coal Ltd.Information needed@ Information about firm’s assets, liabilities, revenue, expenditure, bankers, investment etc.@ Information about firm’s loan, security, stock level & other financial information.Data CollectionMy data collection source was secondary i.e.@ Annual reports of companies@ Balance sheet@ Profit & Loss Accounts

Analysis & InterpretationThe data collected and analysed subjectively as well as graphically where it is possible. The analysis is based upon available information & interpreted accordingly.ConclusionOn the basis of analysis conclusion has been drawn.Suggestion

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Suggestion has been given in order to improve performance of the firm.

Limitation

My scope of study is limited to the annual reports, Balance sheet of units for analysis

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ANALYSIS OF WORKING CAPITAL

MANAGEMENT OF

BHARAT COKING COAL LIMITED

WORKING CAPITAL

CURRENT RAIO

ACID-TEST RATIO

DEBTORS TURNOVER RATIO

INVENTORY TURNOVER RATIO

NET WORKING CAPITAL RATIO

DEBT COLLECTION RATIO

STATEMENT OF RATIO ANALYSIS

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WORKING CAPITAL Rs. In Lakhs

PARTICULARS YEAR 2010 YEAR 2009

CURRENT ASSETS:

Inventories 93890.02 70725.53

Sundry Debtors 39380.24 18682.50

Cash & Bank Balances 92302.76 91088.72

Loans & Advances 31950.62 22070.92

TOTAL CURRENT ASSETS (A) 257523.64 202567.67

% Change in Current Assets 27.12 N.A

CURRENT LIABILITIES:

Sundry Creditor’s 9411.40 13247.29

Small Scale Industries 254.18 237.63

Deposits From: Customers, Contractors,& Others

49138.91 63798.78

Employees Remunaration & Benefits 321673.81 340733.74

Power & Fuel 16049.21 16011.20

Contractual Exp. 15933.32 11706.30

Repair & Maintainance 3426.74 2874.31

Other Expences 4077.12 6093.89

Bank Overdraft 12370.92 4966.96

CISF Exp. 1893.63 5578.05

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Audit Fees & Exp. 41.45 39.20

Enter Subsidiary Current A/c Balances

CIL & CMPDIL

283142.09 297766.54

Statutory Dues 33231.64 26857.29

Pension Fund & Interest 11324.26 17987.45

Unutilised Grants 10278.71 6237.51

CBM Project Grants 165.34 145.34

Other Liabilities & Provisions 22377.61 20014.95

TOTAL CURRENT LIABILITIES (B) 794790.34 834296.43

% Change in Current Liabilities -4.73 N.A

NET WORKING CAPITAL (A-B) -537266.70 -631728.76

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CURRENT RATIO It is also known as “working capital ratio” .It is a measures of short-term financial strength of the business and shows whether the business will be able to meet it’ s current liabilities as when they mature.

Current ratio= Current assestsCurrent liabilities

Current Assets including assets which can be converted in to cash easily and itself like market securities debtors, inventory, prepaid expenses etc.Current Liabilities included creditors, bills payable, accrual expenses, short term bank loan, income tax liabilities and long term debt maturity in current year. In short it can be said as all obligation within a year are included in current liabilities.Current ratio is a measure of the firm’s short term solvency. It indicate the availability of current assets in rupee of current liabilities. As a conventional rule, a current ratio should be or slightly more. It focuses the strong of weak position of the company.

Current ratio= Current assestsCurrent liabilities

For the year:

2009−2010=257523,64,000794790,34,000

= 0.32

2008−2009=202567,67,000834296,43,000

= 0.24

YEAR CURRENT RATIO

2009 - 2010 0.32

2008 - 2009 0.24

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2010 20090

0.05

0.1

0.15

0.2

0.25

0.3

0.35

CURRENT RATIO

CURRENT RATIO

Interpretation:

It is generally believed that 2:1 ratio shows a comfortable working capital position. The tendon committee appointed by RBI had wide recommended a current ratio of 2:1.

Company doesn’t maintain this ration but trying to increase it year by year. A current ratio is 0.32 in the current year. But in the previous year the ratio is nearer to 0.24:1 so we can say that the company doesn’t having comfortable working capital position previous year but the company is trying to increase its current ratio.

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ACID-TEST RETIO

The measure of absolute liquidity may be obtained only cash and bank balance as well as only ready marketable security with liquid liabilities. This is every existing standard of liquidity and it is satisfaction if the ratio is 1.50:1

Acid−Test Ratio=C . A−InventoryC . L

For the year

2009−2010=257523,64,000 – 93890,02,000794790,34,000

= 0.205

2008−2009=202567,67,000 – 70725,53,000834296,43,000

= 0.158

YEARS ACID-TEST RATIO2009-2010 0.205

2008-2009 0.158

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2009-2010 2008-20090

0.05

0.1

0.15

0.2

0.25

ACID - TEST RATIO

ACID - TEST RATIO

Interpretation :

Acid-test ratio is near to one in current year that is 0.205 as compare to 0.158 in the previous year. Over all the acid-test ratio of last year & this year is not very satisfactory so we can conclude that the absolute liquidity of the Bharat Coking coal ltd. is in favour.

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This ratio shows the proportion of sales to average receivables. It shows the efficiency of the collection policy of the firm. The higher the ratio, the less satisfactory position of the firm. Higher ratio indicates weak collection policy of the firm.

DebtorsTurnover Ratio= Credit SalesAccount Receivable

2009−2010=43,90,07,931905,47,48,00000

= 8.018 days

2008−2009=36,46,72,783945,13,47,00000

= 7.102 days

YEARS DEBTORS TURNOVER RATIO

2009-2010 8.018 Days

2008-2009 7.102 Days

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2009-2010 2008-20096.6

6.8

7

7.2

7.4

7.6

7.8

8

8.2



Interpretation :

We know that the higher Debtor’s turnover ratio is not good for the firm. The lesser the period of the collection the better policy of collection of the company. In the year 2009-10 it is 8.018 days to collect the debts. So we can say that the collection policy of the company is excellent that they recover their debts near to 1/3 of month. But we also consider that in previous year this is 7.102 days so we can say that the company have to maintain this ratio.

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This ratio is also known as” stock turnover ratio”. The number of times the average stock is turnover during the year is known as stock turnover. It is computed by deciding the sales by the inventory. The ratio is important in joining the ability of management which it can move the stock.

Invertory Turnover ratio= Net salesAverage Inventory

2009−2010=45,15,14,530009,38,90,02000

= 4.80 times

2008−2009=37,13,28,700007,07,25,53000

= 5.25 times

YEARS INVENTORY TURNOVER RATIO

2009-2010 4.80 times

2008-2009 5.25 times

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2009-2010 2008-20094.5

4.6

4.7

4.8

4.9

5

5.1

5.2

5.3



Interpretation:

Higher the ratio more profitability the business would be. The ratio is joining the ability of management with which it can move the stock. Inventory turnover ratio is highest in the year 2008-09 is 5.25 as compare to current year it is 4.80 which is little bit lower than previous year but it is obvious that in heavy industries like Bharat Coking coal ltd. it is not a huge difference.

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NET WORKING CAPITAL TURNOVER RATIO

Net working capital turnover ratio is obtained by net working capital joining to sales. The excess of current assets over current liabilities is called working capital. It is found for measuring firm liquidity. It also measures the firm potential reserve of funds.Net WorkingCapital Turnover ratio

¿ SalesNet Working Capital

2009−2010= 45,15,14,53000−53,72,66,70000

= -0.84 times

2008−2009= 37,13,28,70000−63,17,28,76000

= -0.58 times


2009-2010 -0.84 times

2008-2009 -0.58 times

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2009-2010 2008-2009

-0.9

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0



INTERPRITATION: As per the balance sheet data of the creditor, the working capital turnover ratio is different for the different years. The ratio is -0.84 in 2009-10 and -0.58 in 2008-09. So it means that higher the ratio better the working capital condition of the company. BCCL having a negative ratio in both year so it doesn’t shows the sound position of the company.

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DEBT COLLECTION PERIOD

The Debt Collection shows the number of days taken to collect the debts of credit sales. It shows the efficiency and collection policy of the company. The ratio is computed by dividing the Debtor’s turnover ratio in to 365 days.

Debt Collection Period= 365days

Debto r ' sTurnover Ratio

2009−2010=365 days8.01

= 45.56 days

2008−2009=365 days7.10

= 51.40 days


2009-2010 45.56 days

2008-2009 51.40 days

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2009-2010 2008-20090

5

10

15

20

25

30

35

40

45

50



INTERPRETATION:

The collection period is highest in 2008-09 is 51.40 days as compare to low in the year 2009-10 is 45.56 only days. This shows the improvement in collection policy of the Bharat Coking Coal Limited. So it is very important for any company to collect the debs which this company do very well.

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STATEMENT OF RATIO ANALYSIS

RATIOS 2009-2010 2008-2009

Current ratio 0.32 0.24

Acid-test ratio 0.205 0.158

Debtor’s turnover ratio

8.018 days 7.102 days

Inventory turnover ratio

4.80 Times 5.25 Times

Net-working capital turnover ratio

-0.84 Times -0.58 Times

Debt collection period

45.56 Days 51.40 Days

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CONCLUSION

The study involves practical and conceptual over view of decisions concerning current assets like cash and bank balance ,inventories( like raw materials ,w-i-p,finished goods ),sundry debtors, loans and advances, other current assets and current liabilities like sundry creditors, securities and other deposits, other current liabilities and provisions of BCCL. Was with the objective of maximizing the overall net profit of the bank. And complete synchronization and co ordination among the working capital components which shall contribute to optimum level of operations. Mismanagement of each or any of these components shall be detrimental to the objectives of efficient operation, profitability and maximization of overall value of the bank.

The working capital limits would be considered only after the project nearing completion and after ensuring control over the inventory. The inventory is a great concern for BCCL and it need proper procurement and management.

Eligible working capital limits would be assessed by cash Budget method And Projected production method depending the market condition, scale of operation, nature of activity/enterprise and duration/length of operating cycle etc.

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RECOMMENDATION & SUGGESTION:

The recommendation & suggestion for effective management of working capital at BHARAT COKING COAL LTD. are given bellow:

1) For inventory, in order to improve the position, BCCL can reduce the level of stocks by resorting to phased production i.e. producing according to requirement and disposing off or recycling the unserviceable inventories.

However, the low turnover of stock may also be due to problems with generation of sales

Inventory management is a great concern for BCCL especially stores and spares. The purchase manager should take proper steps for procurement of inventories.

2.) The company must increase its Current Assets & decrease their Current Liabilities to overcome from Negative Working Capital.

3.) The plant must take certain steps to decrease the working capital cycle. One way can be better management of inventories.

4.) The plant is suggested to maintain a balance in capacities, synchronization of various inputs availability of some materials or parts which are not easily available.

5.) The plant should maintain inventory at an optimum level rather than a very optimistic level. 6.) The procurement for materials requisition processing should be reduced so as to minimize the lead time. 7.) Plant should given freedom in deciding the credit policies, cash discount or credit ratings.

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8). BCCL can also consider negotiating its creditors for relaxing the debt repayment period and repaying only on or just before the expire of the credit period.

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Bibliography

The Reference Books:

Author

Financial Management Khan & Jain

Financial Management I.M.Pandey

Research Methodology C.R.Kothari

BCCL last 2 year annual reports

bccl .cmpdi.co.in/

www. coalindia .in/

And help from:

Google search engine

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raj kishor verma

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