working_capital_mgmt_001 new by mukesh
TRANSCRIPT
Title of the Project Report :
WORKIMG CAPITAL MANAGEMENT ON BOKARO STEEL PLANT (SAIL)
Submitted in Partial fulfillment of the requirement for the award of the
Degree of Master of Business Administration.
Name of the Candidate : MUKESH KUMAR
Reg. No. : 09P35F0462
Name of the Specialization : FINANCE
Partner Institution : IBMR GURGAON
Under the guidance of: Mr. R.B. SHARMA
Designation: Jr. Manager, F & A
Centre for Participatory and Online Programmes
Bharathiar University
Coimbatore – 641 046
(From 5th of June to 31st of july , 2010)
i.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
CERTIFICATE
This is to certify that the project work entitled WORKING CAPITAL
MANAGEMENT ON BOKARO STEEL PLANT (SAIL) submitted to Bharathiar
University in partial fulfillment of the requirements for the award of
the Degree of Master of Business Administration in IBMR GURGAON is
a record of the original work done by MUKESH KUMAR under my
Supervision and guidance and that this project work has not
formed the basis for the award of any Degree/Diploma/Associate
ship/Fellowship or Similar title to any candidate of any University.
(Seal) Signature of the Guide
Name and Designation
ii.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Forwarded by:
Director/Principal
Partner Institution: IBMR GURGAON
Centre for Participatory and Online Programmes
Bharathiar University
Coimbatore -46
Submitted for University Examination held on______________________________
Internal Examiner External Examiner
iii.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
DECLARATION
I hereby declare that this project work titled WORKING CAPITAL
MANAGEMENT ON BOKARO STEEL PLANT (SAIL) is a record of Original
work done by me under the guidance of MR. R.B.SHARMA, Jr Manager F &
A, and that this project work has not formed on the basis for the award of
any Degree/Diploma/Associate ship/Fellowship or similar title to any
candidate of any University.
Signature of the candidate
Name : MUKESH KUMAR
Result :
MBA IN FINANCE
Course with Specialization
Date :
Countersigned by : MR. R.B.SHARMA
Signature of the Guide
iv.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Acknowledgement
At the very outset ,I wish to express my heartily gratitude to all those who extended their
help ,guidance and suggestion and without them it was not possible for me to complete this
project.
I am deeply indebted to my guide Mr. R.B .Sharma, Junior Manager, F&A, ,BSL,SAIL
without support of him it would not have been possible.
I am also thankful to all the employees who provided me with practical information about the
accounting processes in SAIL
I express my deep sense of gratitude to the management of Steel Authority of India
Limited ,Bokaro Steel Plant for allowing me to undertake the project as well as to study the
functions of various departments of the organization.
My project wouldn’t have been successful without the material assistance of a number of
people. I would like to acknowledge the help rendered by each of them .I express profound
gratitude to all the people who have been extremely inspirational in helping me complete this
project.
v.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Abstract
Analysis of Working Capital Management of BSL,SAIL
Objective : The project aims to analyze the various components of working capital in BSL
i.e. cash , inventory , receivables and payables .It also analyzes the various ratios and also
performs a comparative analysis with the competitors and finally provided recommendations
to manage the working capital more efficiently.
Background : Working capital management has been one of the major concerns of
managers in any organization. Effective management of working capital i.e. cash, inventory ,
account receivables and account payables is very important for a manufacturing concern like
BSL for its proper functioning.
Scope and methodology used : The research began with the study of finance and
accounts department in BSL, their major sections and their respective activities. It was then
followed by the study of various production plants to understand the production flow in the
steel plant. The study of various production plants gave the idea of the inventory levels
maintained in these plants.
The study was directed towards the analysis of working capital management in BSL which
included the analysis of the various components of working capital, the percentage of
various components maintained in BSL, determination of operating cycle and the cash
conversion cycle, the company’s policy towards its various suppliers and customers. The
study further included ratio analysis to determine the liquidity and profitability of the firm.
The data was collected from the following sources:
vi.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Primary sources:
Records of previous years profit and loss statements, balance sheets and cash flow
statements
Information provided by the senior finance executives and chartered accountants of
BSL
Secondary sources:
Secondary data was collected from the internet and various magazines, circulars
issued by SAIL and books.
Conclusion : Inventory in the steel plant consists of three parts : the raw material inventory,
storage and spare inventory and finished goods inventory .Raw material inventory consists
of the major part of the inventory section.
Bokaro Steel plant gives a credit period of 30 days to its customers which sometimes vary
between 25 – 40 days .The credit given by their suppliers is normally 15 days.
The liquidity position of BSL as analyzed by the current ratio and quick ratio says that the
company has sufficient amount of the most liquid assets to meet its contingent liabilities.
Although the company has a huge piling up of inventory due to less demand for flat
products. The quick ratio also showed a decrease from the previous year due to the increase
in current liabilities. However a low quick ratio is not a concern since funds are managed
centrally by the mother unit SAIL.
Finally a comparative of BSL was done with its major competitors i.e. Tata Steel and Essar
Steel .This analysis showed that BSL follows a conservative financing and conservative
investment policy as compared to its competitors. Tata has a negative working capital .It is
managing its inventories well, however it might face a problem in meeting its day to day
financing needs.
vii.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
CONTENTS
1)SAIL Overview 12
2)Bokaro Steel Plant 14
2.1)Major Units of BSL 16
a)Raw material and Material Handling Plant 16
b)Coke Oven and By Product Plant 16
c)Blast Furnace 17
d)Steel Metling Shop 17
e)Continuous Casting Shop 18
f)Slabbing Mill 18
g)Hot Strip Mill 19
h)Hot Rolled Coil Finishing 19
i)Cold Rolling Mill 20
j)Hot Dip Galvanizing Mill 20
2.2)Revenue and Profits of BSL 20
2.3)Product Profile of BSL 23
2.4)Production Process in BSL 23
2.5)Current Market Share of BSL 24
2.6)Manpower of BSL 24
viii.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
3)Role of Finance and Accounts 25
3.1)Sections in Finance and Accounts 25
3.2)Organization Chart of F&A 29
4)Working Capital Management 30
4.1)Importance of good Working Capital Management 30
4.2)Operating Cycle Period 31
4.3)Inventory Conversion Period 32
4.3.1)Inventory 32
4.3.2)Need to hold Inventories 32
4.3.3)size of inventories 32
4.3.4)Raw Material Inventory 33
4.3.5)Stores and Spares Inventory 34
4.3.6)Finished and Semi-finished Product Inventory 35
4.4)Receivable Conversion Period 36
4.4.1)Objective 37
4.4.2)Credit Policy 37
4.4.3)Size of Receivable 37
4.5)Operating Cycle Period(2008-09) 38
4.6)Operating Cycle Period(2009-10) 39
ix.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
5)Comparison 41
5.1)Analysis 41
5.1.1)Operating Cycle 41
5.1.2)Holding Period 41
5.2)Working Capital Status of BSL 42
5.3)Working Capital of various units of SAIL 43
6)Ratio Analysis Calculations(2008-09) 45
6.1)Liquidity Ratios 45
6.2)Activity Ratios 45
6.3)Profitability Ratios 46
7) Ratio Analysis Calculations(2000-10) 47
7.1)Liquidity Ratios 47
7.2)Activity Ratios 48
7.3)Profitability Ratios 49
8)Comparative Analysis with previous years figures 50
9)Comparative Analysis with its competitors 51
10)Conclusion and Recommendation 53
x.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
11)Bibliography 54
12)List of Abbreviations 55
13)Annexure 56
xi.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
1) SAIL – An Overview
One of the leading producers of steel in the world and the largest steel maker of the country,
SAIL occupies a prime place in the industrial scenario of India. Ranked amongst the top ten
public sector companies in India in terms of turnover, SAIL manufactures and sells a broad
range of steel product including hot and cold rolled sheets and coils, galvanized sheets,
electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other
alloy steels. SAIL produces iron and steel at five integrated plants and three special steel
plants, located principally in the eastern and central regions of India and situated close to
domestic sources of raw materials, including the companies iron ore, limestone and dolomite
mines. The company has the distinction of being India; largest producer of iron ore and of
having the country’s second largest mines network. This gives SAIL a competitive edge in
terms of captive availability of iron ore,
limestone and dolomite which are input of
steel making in the every integrated plant of
SAIL.
SAIL operates and owns four integrated steel
plant at Bhilai, Durgapur, Bokaro, Rourkela and three speciality steel plants at Salem,.
Durgapur and Bhadravati.
SAIL is the single largest investment in public as on date and is also a symbol of country’s
efforts towards indigenization.
Over the years since its inception company has grown in a strength reaching increased
levels of production. Over the years the plant has also made a definite contribution to the
economy of the country.
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SAIL is the leading steel making company in India. It is fully integrated iron and steel maker
producing both basic and special steels for domestic construction, engineering, power,
railway, automotive and defense industries and for sale in export markets
SAIL wide range of long and flat steel products are much in demand in the two clients’ world-
wide domestic as well as international market. This vital responsibility is carried out by SAIL
own Central marketing network of 34 branch offices and 54 stockyards located in major
cities and towns throughout India. With technical and managerial expertise and know-how in
steel making gained over decades, SAIL has a well-equipped Research and Development
Centre for Iron and Steel at Ranchi which helps to produce quality steel and develop new
technologies for steel industry. Besides, SAIL has its own in-house Centre for Engineering
and Technology (CET), Management training institute (MTI) and safety organization at
Ranchi. Our captive mines are under the control of the Raw materials division of SAIL
operate from their headquarter in Kolkata. Almost all our plants and major units are ISO
Certified.
Ownership and Management
The Government of India owns about 86% of SAIL's equity and retains voting control of the
company. However, SAIL, by virtue of its ‘Navratna’ status, enjoys significant operational
and financial autonomy. SAIL has created its own Central Marketing Organization (CMO)
and the International Trade Division to take care of its international and marketing operations
The steel products manufactured by SAIL include:
Hot and cold rolled sheets and coils
Galvanized sheets
Electrical sheets
Railway products
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Plates, bars and rods
Stainless steel and other alloy steels
Integrated Steel Plants
Bhilai Steel plant (BSP) in Chhattisgarh
Durgapur Steel Plant (DSP) in West Bengal
Rourkela Steel Plant (BSL) in Jharkhand
IISCO Steel Plant (ISP) in West Bengal
Bokaro Steel limited (BSL) in Jharkhand
2) BOKARO STEEL PLANT
History
Bokaro steel plant brings out before one’s eyes the vision of a massive giant in the making.
Bokaro Steel Plant - the fourth integrated plant in the Public Sector - started taking shape in
1965 in collaboration with the Soviet Union. It was originally incorporated as a limited
company on 29th January 1964, and was later merged with SAIL, first as a subsidiary and
then as a unit, through the Public Sector Iron & Steel Companies (Restructuring &
Miscellaneous Provisions) Act 1978. The construction work started on 6th April 1968.
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The Bokaro Steel Plant is hailed as the country’s first Swadeshi steel plant, built with
maximum indigenous content in terms of equipment, material and know-how. Its first Blast
Furnace started on 2nd October 1972 and the first phase of 1.7 MT ingots steel was
completed on 26th February 1978 with the commissioning of the third Blast Furnace. All
units of 4 MT stage have already been commissioned and the 90s' modernization has further
upgraded this to 4.5 MT of liquid steel.
Bokaro Steel Plant (BSL) situated in the coal belt of the eastern region, symbolize India’s
advancement in the design, engineering & equipment suppliers & construction of steel
plants. It is the 4th integrated steel plants in the public sector conceived in 1959; it actually
started taking shapes in 1965, with the collaboration of “SOVIET UNION”. It was initially set
up with a capacity of 1.7 million tones (MT) of flat products per annum with a provision to
expand up to 4 million tones .It was incorporated as a limited company. The plant was
conceived as the country’s 1st “SWADESHI” steel plant to be built with maximum
indigenization going into the equipments, materials & know-how.
The Bokaro Steel Plant is an integrated metallurgical unit engaged in the production of
ingots, plates, sheets and coils. In the process, it also produce a number of by -products
crude tar, Ammonium sulphate, Benzene, Xylene, Toluene, Coal Tar , Cresols.
Medical Facilities
The township has a modern 1100-bed Bokaro General Hospital (BGH) with specialized units
like Critical Care Unit, Intensive Coronary Care Unit, Nuclear Medicine Laboratory, Ultra
modern operation theatre complex and eye operation theatre. The child care unit of the
hospital has been recognized as baby friendly hospital by the UNICEF. The blood bank has
been given the status of regional training center by the central government, the only one in
the Jharkhand. To take care of the employees working in plant, an occupational health
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service center has been provided within the plant premises. BGH has been granted the
status of one of the training centers for students of nursing. The medical team boasts of
around 200 doctors and 1000 paramedic staff.
Vision of Bokaro Steel Plant
To be a respected world class Corporation and the leader in Indian steel business in quality,
productivity, profitability and customer satisfaction.
Mission of Bokaro Steel Plant
We build lasting relationships with customers based on trust and mutual benefit.
We uphold highest ethical standards in conduct of our business.
We create and nurture a culture that supports flexibility, learning and is proactive to
change.
We chart a challenging career for employees with opportunities for advancement and
rewards.
We value the opportunity and responsibility to make a meaningful difference in
people’s lives.
Strategic goals
To continue in the business of steel and steel related activities
To enhance market share in growth segments
To improve profits by productivity improvements , cost reduction , high value added
products and customer satisfaction
To achieve excellence in quality across the value chain
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To secure availability of key raw materials and alleviate infrastructure bottleneck
which may constrain long term growth
2.1) Major Units of Bokaro Steel Plant
(a.) Raw Materials and Material Handling Plant
The raw material and material handling plant receives blendes, stores and supplies different
raw materials to Blast Furnace. It also maintains a buffer stock to take care of any supply
interruptions.
Some 9 MT of different raw materials like iron ore fines and lumps, limestones, dolomite
lumps and chips, hard coal and manganese ore are handled every year.
(b.) Coke Oven and By Product Plants
The coke oven complex at Bokaro converts prime coking coal into quality coke for the blast
furnaces. The coke oven battery has 8 batteries with 69 ovens each, maintained in terms of
fugitive emission control, use of phenolic water and other pollution control measures.
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(c.) Blast Furnace
Bokaro Steel Plant has five 2000 cubic meter Blast Furnaces that produce molten iron, hot
metal for steel making. The process of iron making is automated using PLC (Programmable
Logic Control) Charging System and Computer Controlled Supervision system. The waste
products like furnace slag and gas are either used directly within plant or processed for
recycling reuse.
(d.) Steel Melting Shops(SMS)
Hot metal from the blast furnaces is converted into steel by blowing 99.5% pure oxygen
through it in the LD converter. Bokaro has 2 steel melting shops SMS-I and SMS-II. SMS-I
has 5 LD converters of 130T capacity each. It is capable of producing rimming steel through
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the ingot root. SMS-II has 2 LD converters each of 300T capacity with suppressed
combustion system and continuous casting facility. It produces various killed and semi- killed
steels.
(e.) Continuous Casting Shop
The CCS has two double strand slab casting machines producing high quality slabs of width
ranging from 950mm to 1850mm. The CCS has a ladle furnace and ladle rinsing station for
secondary refining of steel. The ladle furnace is used for homogenizing the chemistry and
temperature. CCS produces steel of drawing, deep drawing, extra deep drawing, boiler and
tin plate quality.
(f.) Slabbing Mill
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Slabbing Mil transforms ingots into slabs by rolling them in its 1250mm Universal Four–High
Mill. The rolling capacity of the mill is 4MT per annum. The shop has hot and cold scarfing
machines and 2800T shearing machine.
(g.) Hot Strip Mill (HSM)
Slabs from CCS and Slabbing Mill are processed in the state- of-the-art hot strip mill. The
fully automated Hot Strip Mill with an annual capacity of 3.363 million tones has a wide range
of products- thickness varying from 1.2 mm to 20 mm and width from 750 mm to 1850 mm.
The mill is equipped with state-of-the-art automation and controls, using advanced systems
for process optimization with on-line real time computer control, PLCs and technological
control systems.
(h.) Hot Rolled Coil Finishing
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All the Hot Rolled Coils from the Hot Strip Mill are received in HRCF for further distribution or
dispatch. HR Coils rolled against direct shipment orders are sheared and finished to
customers required sizes and dispatched to customers. The shop has two shearing lines
with capacities of 645000T per year and 475000 T per year respectively.
(i.) Cold Rolling Mill
Cold Rolling Mill at Bokaro uses state-of-the-art technology to produce high quality sheet
gauge material, tin mill black plate and galvanized products. Cold Rolling is done to produce
thinner gauge strips of very smooth and dense finish, with better mechanical properties then
Hot Rolling Mill. Rolling is done well below recrystallization temperature without any prior
heating of the material. The products of CRM are used for deep drawing purposes,
automobile bodies, railway coaches and coated steels.
(j.) Hot Dip Galvanizing Complex
The Hot Deep Galvanizing Complex integrated with the CRM produces zinc-coated cold
rolled strips resistant to atmospheric, liquid and soil corrosion. The continuous coil
corrugation line in the HDGC produces corrugative sheets and galvanized sheets.
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2.2) Revenue and Profits of Bokaro Steel Plant
2009-10(in
crores)
2008-09(in crores)
Profits 2830 1345
Turnover 12038 11858
2.3) Product Profile
Products of Bokaro Steel Plant
Bokaro Steel Plant - Product Basket
Mill Capabilities
Shop Products Facility Annual
Capacity
(,000
Thickness
range
(mm)
Width
range
(mm)
Length
(metre)
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Tonnes)
HSM HR Coils/
Sheets/
Plates
Continuous
Mill
3955 1.6 -16 900-
1850
HRCF HR Sheets/
Plates
Shearing
Line-I
- 5-10 1800 2.5-12
HR Sheets/
Plates
Shearing
Line-II
1.6-4 1500 1.5-4.5
HR Coil Slitting Line
CRM 1660
CR Coils/
Sheets
CRM-I
complex
0.63-2.5 700-
1850
CR Coils/
Sheets
CRM-II
complex
0.63-1.6 650-
1250
CR Coils/
Sheets,
TMBP
DCR Mill 100 0.22-0.8 650-
1040
GP Coils &
Sheets GC
Sheets
HDGL 170 0.3-1.6 650-
1250
Special Grades of Steel
As per the demand of the market, Bokaro Steel Plant has the capacity to
produce the special grades of steel.
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Special Steel GradesApplication
SAE 1541 Automobile Industry
MC 11 Cycle Industry
SPC 370/390 Cycle Industry
C 15 Cycle Industry
API X-42, X-46, X-52, X-56, X-60
(SAILAPI)
Pipe Line
SAILCOR (corrosion resistant) Railways
SAILMEDSi (Medium Silicon Steel) Heavy Electrical Winding
SAILPROP Propeller Shaft
Strapping Steel (for internal use
only)
Strapping Finished Products
Full-hard Galvanized Coil Extra hard roof of houses
Cold Rolled Medium Electrical Steel Transformer core
Extra-low Carbon Extra Deep
Drawing (HR & CR)
White goods
DMR 249A Grade Steel Defense Research
Development Organization
(DRDO) for fabrication of
Submarine parts (import
substitution)
E460/E500/E550 Floating bridges for Defense.
For M/S BEML; for making.
(import substitution)
IS8500 Fe 540B high strength low Kolkata fly-over
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alloy steel with UTS value in excess
of 540 Mpa
Low Carbon, Low Manganese, High
Strength Structural Steel without
micro alloying (Carbon 0.10% )
Structural purposes. Thermo-
mechanically Controlled
Processing.
2.4) Production Process in Bokaro Steel Plant
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2.5) Current Market Share of Bokaro Steel Plant
(In percentage)
PRODUCT 09-10 08-09
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HR coil 26.9 24.9
HR sheet 23.6 23.6
CR coil/sheet 12.1 16.7
GP/GC sheet/ coil 11.0 8.9
2.6) Manpower of Bokaro Steel Plant
2.7) Competitors of Bokaro Steel Plant
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EMPLOYEES As on 1st June
2010
Executives (Regular) 3390
Non-Executives
(Regular)
21996
Plant Attendant 474
Trainees (STs, JTs,
MTs)
153
Casual 109
Total 26122
Essar Steel
Jindal Steel
Saesa Goa
Nippon denro ispat
Usha ispat
Lanco industries limited
3) Role of Finance and Accounts
Finance is described as ‘science of money’ and involves the process of conversion of
accumulated funds to productive use .The essence of the effective financial management is
that the income generated should be greater than the cost of procuring and processing the
raw materials by optimum utilization of the same.
In the recent changed business scenario which is the outcome of changed Indian economic
policy from command economy to free economy to integrate the Indian economy to the world
economic order .The role of financial manager has become a crucial one since the factor of
efficiency in all productivity field has become paramount.
In a multi process industry like an integrated steel plant like this one where some processes
remain involved in certain endothermic behavior of cost one finds it difficult to prepare the
cost benefit analysis ,hence in deciding the optimum level of activity because each level of
activity can be attained with the various number of alternative resources available at a
particular point in time.
F&A is an important department of BSL headed by ED .There are 34 production cost centers
,24 service centers and 18 job costing centers of engineering shops : Cost and budget
section allows process costing systems for its production and service centers job costing
method for its engineering shops for maintaining its cost record like production and
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consumption of RM,power,fuel,stores, spares etc. .In production and service cost per unit is
determined upon output and in engineering shop cost is determined upon machine hour rate
.Monthly and annual cost is prepared on actual basis and derivations are reported to higher
management through MIS report.
The reporting of actual business performance and analysis of reason for variance with
planned one is done by use of management accounting techniques like variance
analysis ,ratio analysis and sensitivity analysis .Cost reduction activity is being monitored by
cost and budget section and performance in this stage is brought to the notice of higher
management.
Organizations like SAIL which have various units and subsidiaries, finance and accounts
plays an important role.
3.1) Sections in Finance and Accounts
CODE-01 PAY SECTION
It deals with the accounting of employee’s related salary slip .Basically deals with any activity
related to pay.
Loan
Bonus
Any monthly payments taken once in a year
CODE-02 MAIN ACCOUNTS SECTION
It deals with the consolation of accounts with each quarter along with the final close. It
prepares a main ledger, assets ledger, section ledger and trial balance etc..It prepares and
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maintains assets register of the company .It facilitates the inter plant reconciliation ,
coordination with the various auditors.
CODE-03 PURCHASE ACCOUNTS
It basically deals with the payments and accountings of all the goods against which purchase
order has been placed. Its work starts when goods are received and verified with GRN
(goods and returned notes).They receive and verify the bill.
CODE-04 CASH ACCOUNT
It deals with the disbursement and receipt of cash as per the bills passed by the officers of
various sections .Its main function includes monitoring of cash deposit ,liasioning with banks
.They generally prepare the bank reconciliation statements(BRS).They deal with Rs 350-380
crores of expenditure on monthly basis. Whereas the revenue side consists of lease, rent
etc.
CODE-05 PROJECT FINANCE
It deals with the project accounting (not with the project calculation).Basically it deals with
the payments to parties related to different projects.
CODE-06 ESTATE ACCOUNTS
It deals with the accounting of IPU cases.IPU is investment in planning unit and is related to
projects.
CODE-08 STORE ACCOUNTS
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It deals with the accounting and maintenance of stores ledger .receipt, balance of inventories
etc. . .Stores department has the custody of around two lakh items. The document raised by
the stores department is:
Issue notes
Material return notes
Dispatch notes
Goods receipt notes
Stock transfer voucher
Stock adjustment voucher
Provisional voucher
Book transfer voucher
CODE-09 PROVIDENT FUNDS
It deals with the accountings of employee’s provident funds along with the loans taken
against provident funds balance.
CODE-10 FREIGHT ACCOUNTS
It deals with the payments and accounting of freight bills related to raw materials .This
section generally deals with the freight inward whereas outward is dealt by the invoicing
section(which is not the part of sales accounts).
CODE-11 INSURANCE SETION
It deals with the accounting of sales tax matters which are related to steel goods
CODE -12 OPERATIONAL PAYMENTS SECTION
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It deals with the payments of those expenditures which are generally not related with any
particular department like
Telephone bills
Water bills-15 crores
Township management bills
Aviation
Miscellaneous payments
City park (horticulture)
In plant scrape recovery-15 crores
Railways-10 crores
Sports
CMO
Railways-10 crores
Sports
CMO
CODE-14 SALES ACCOUNTS
It deals with the preparation of invoice and accounting thereof.
CODE-15 COST AND BUDGET
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There are 77 cost centers .They prepare the budget on monthly ,quarterly and annual
basis .They deal with daily profits.They prepare the MIS reports .They make the valuation of
finished /semi finished stock of plant .Actually this section decides the rate of each output.
CODE -16 RAW MATERIAL
It deals with the accounting of raw material consumption including Ferro and non Ferro
items.It deals with evaluation of raw materials as well as payment of bills related to raw
material.
CODE-17 EXCISE ACCOUNTS
It deals with the CENVAT ,Excise duty.
CODE -18 VAT
It deals with the accounting and payments of VAT to central governments.
3.2) Finance and Accounts Department
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Organization Chart
4) Working Capital Management
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ED (F&A)
GM (F&A)
DGM (F&A)
DGM (F&A)
DGM (F&A)
DGM (F&A)
DGM(F&A)
DGM (F&A)
DGM (F&A)
OF,Project Finance, A/C admin, Cash A/C, Insurance&Claims, Hindi Cell,Quality Circle & Suggestion Scheme
Pay A/C,PF & Pension, Time Office, Estate A/C, BGH
C&B, Main A/C, Stock Verification,MIS, Govt. Audit and Internal Audit
Purchase & Stores A/C,RM A/C, Railway Freight & Claim, Opas, Direct Taxes Report & Return
Sales & Excise ,Service Tax ,Indirect Taxes –Report & Return
Kolkata A/C
ERP
Working Capital
The term working capital refers to the amount of capital that is readily available to the
organization. That is , working capital is the difference between the resources in cash or
readily convertible into cash (current assets) and the organizational commitments for which
cash will soon be required ( current liabilities).
Current assets are resources which are in cash or will soon be converted into cash in the
“ordinary course of business”.
Current liabilities are commitments which will soon require cash settlement in the the
“ordinary course of business”.
Thus:
Working capital = current assets – current liabilities
In a department’s Statement of Financial Position, these components of working capital are
reported under the following headings:
Currents assets include:
Sundry debtors
Inventories
Interest receivable
Cash and balances
Loans and Advances
Current liabilities include:
Bank overdraft
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Bill payable
Creditors
Outstanding expenses
Short term loans
Provisions(excluding provisions for gratuity ,VRS, Accumulated leave)
4.1) Importance of Good Working Capital Management
Working capital management constitutes part of the Crown’s investment
department .Associated with this is an opportunity cost to the Crown (money invested in one
area may cost opportunities in other areas).If the department is working with more working
capital than is necessary, this over investment represents an unnecessary cost to the
Crown.
From a department’s point of view, excess working capital means operating inefficiencies .In
addition, unnecessary working capital increases the amount of the capital charge which
departments are required to meet since July 1, 1991.
Approaches to Working Capital Management
The approaches of working capital management is to maintain the optimum balance of each
working capital components .This includes making sure that the funds are held as cash as
bank deposits for as long as and in the largest amounts possible to meet the immediate
liabilities .
Working capital can be managed in two ways:
Ratio analysis can be used to monitor overall trends in working capital and to identify
areas requiring closer management.
The individual components of working capital can be effectively managed by using
various techniques and strategies.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
When considering these techniques and strategies, departments need to recognize that
each department has a unique mix of working capital components .The emphasis that needs
to be on each component varies according to the various departments. For example some
departments have significant inventory levels while others have little.
The working capital requirement of a firm depends to a great extent upon the cash
conversion cycle of the firm .The cash conversion cycle may be defined as the time duration
starting from the procurement of the goods and raw materials and the ending with the sales
realization of the finished product(after going through the various stages of production)
Thus the cash conversion cycle of the firm consists of the time required for the completion of
the chronological sequence of the following:
Procurement of raw materials and services
Conversion of raw material into work in progress
Conversion of work in progress into finished goods
Sale of finished goods
Conversion of receivable into cash
Cash conversion cycle = Inventory days + Accounts receivable days – Accounts Payable
days
= (inventory *365)/COGS + (Ending A/R *365)/Sales – (A/P
365)/purchases
4.2) Operating Cycle Period
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Operating cycle may be defined as the sum of the inventory days and the accounts
receivable days
Operating cycle = inventory days + Accounts receivable days
= (inventory *365)/COGS + (Ending A/R *365)/Sales
4.3) Inventory Conversion Period
4.3.1) Inventory
Inventory represents one of the most important assets that most businesses posses
because of the revenue generation and subsequent earnings for the companies
shareholders /owners. It consists of raw materials ,work in progress and finished goods
inventories.
Possessing a high amount of inventory for long periods of time is not usually good for a
business because there are inventory storage, obsolescence and spoilage costs .However
possessing not enough good inventory is also not good either because the business runs the
risk of losing out on potential sales and potential market share as well .
Inventory management helps in forecasting the demand and formulating strategies, such as
just in time inventory system can help minimize inventory costs because goods are created
or received inventory only when needed.
4.3.2) Need to hold inventories
Holding inventories involves tying up of company’s funds storage and handling costs .There
are generally three general motives for holding inventories:
1. The transaction motive emphasizes the need to maintain inventories to facilitate
smooth production and sales operation.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
2. The precautionary motive emphasizes on the need to maintain inventories in case of
shortage in production.
3. The speculative motive
4.3.3) Size of inventories
The dominant position of inventories in working capital of Bokaro Steel Plant makes it
relevant to throw light on each component of inventory at BSL.The size of inventory and
percentage of inventory to total current assets in BSL.is presented in the table shown:
YEAR INVENTORIES(in
crores)
TOTAL CURRENT
ASSETS(in crores)
% Of INVENTORIES
TO CURRENT
ASSETS
2008 1365.6 1826.1 74.78
2009 1185.5 1835.9 64.59
2010 1755.02 2312.02 75.87
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
2008 2009 20100
500
1000
1500
2000
2500
inventories
total current assets
Size of inventories shows a major portion of current assets consists of inventories. Inventory
in general has decreased in 2009 which because of the increase in sales of steel products.
Similar is the case in the year 2009 while in the year 2010 due to recession the sale of steel
goods declined.
4.3.4) Raw Material Inventory
Raw materials constitute a very small portion of inventories. Raw materials basically includes
coal, coke, iron ore, limestone etc.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Size of raw material to total inventories has been shown below:
YEAR RAW MATERIAL(in
crores)
INVENTORIES(in
crores)
% OF RAW
MATERIALS TO
INVENTORIES
2008 256.21 1365.6 18.76
2009 168.28 1185.7 14.19
2010 288.11 1755.02 16.41
2008 2009 20100
200
400
600
800
1000
1200
1400
1600
1800
2000
Raw Materials(in crores)Inventories(in crores)
Raw material inventory increased in the year 2010 due to increase in production of steel
goods. Due to less demand the consumption of flat products has decreased.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
4.3.5) Stores and spare inventory
Inventories of stores and spares form a sizeable portion of the total inventories. The stores
and spares inventory consists of items like mechanical spares, electrical spares, general
spares, refractory, rolls, steel etc.
YEAR STORES AND
SPARES(in crores)
INVENTORIES(in
crores)
% Of STORES AND
SPARES TO
INVENTORIES
2008 341.29 1365.6 25
2009 467.98 1185.7 39.47
2010 540.47 1755.02 30.79
2008 2009 20100
200
400
600
800
1000
1200
1400
1600
1800
2000
Stores and spares(in crores)Inventory(in crores)
The size of stores and spares inventory increased in the year 2009 because of the increase
in the production capacity of the plant. The production capacity was increased to meet the
increased demand for steel hence more stores and spares were required.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
4.3.6) Finished and semi-finished product inventory
A manufacturing firm cannot do away with this inventory. It introduces flexible business
operation which enables the firm to provide better customer service. This product consists of
pig iron, saleable steel like HR coil,CR coil,CR plate etc.Size of semi-finished inventory is:
YEAR SEMI-FINISHED
PRODUCTS(in
crores)
INVENTORIES(in
crores)
% OF SEMI-
FINISHED
PRODUCTS TO
INVENTORIES
2008 768.06 1365.6 56.25
2009 549.48 1185.7 46.34
2010 926.44 1755.02 52.78
2008 2009 20100
200
400
600
800
1000
1200
1400
1600
1800
2000
Semi-finished products(in crores)Inventories(in crores)
The similar increasing trend is seen in the year 2009 as in the case of other components of
inventories. The size of semi-finished inventory in the year 2009 was high due to increase in
demand of steel.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Inventory conversion period is the time required for the conversion of raw material into
finished goods for sale.ICP consists of RMCP, WPCP and FGCP.
RMCP or raw material conversion period is the time period for which the raw material
is generally kept in stores. It is taken care by the production department.
WPCP or work in process conversion period is the time period for which the raw
materials remain in the production process before they are taken out as finished
goods.
FGCP or finished goods conversion period refers to the time period for which the
goods remain in the stores before being sold to the customers.
4.4) Receivable Conversion Period
According to Joseph L.Woods, the purpose of any commercial enterprise is the earning of
profit. Credit in itself is utilized to increase sales but sales must return a profit.
Receivable management also termed as credit management in corporate enterprise has
gained significance on the accounts of its positive contribution towards increasing profitability
through increased turnover.
4.4.1) Objective
1. Reduction in risk due to future payments
2. Increase in profit due to increased sales
3. Maintain sufficient amount of liquidity in order to pay immediate liabilities
The purpose is to maintain optimum level of sales by keeping down the average collection
period, control over the cost of credit, default cost(inability of a customer to pay debts).
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
4.4.2) Credit policy
The important decision variable of a firm’s credit policy is credit standards, credit terms,
quality of trade accounts, length of credit period and collection effort.
4.4.3) Size of receivable
In BSL, the receivable comprises of sundry debtors ,loans and advances. The receivables
constitute a substantial portion in the current assets
YEAR RECEIVABLES(in
crores)
TOTAL CURRENT
ASSETS(in crores)
%OF RECEIVABLES
TO TOTAL
CURRENT ASSETS
2008 399.85 1826.1 22.11
2009 595.19 1835.9 21.47
2010 501.99 2312.02 32.42
2008 2009 20100
500
1000
1500
2000
2500
Receivables(in crores)total current assets(in crores)
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Size of receivables increased in the year 2009 due to the delay in the payment of cash by
the customers due to the downturn. However it was managed well in the year
2010.Receivable collection period refers to the period between the occurrences of credit
sales and collection of debtors.
The operating cycle of a firm can be shown as
4.5) Operating Cycle Period (2008-2009)
Raw Material
Holding period= (Raw material*365)/total consumption
Raw material=168.28 crores
Total consumption=3672.8crores
Holding period=(168.28*365)/3672.8
=17 days
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
RMCP WPCP FGCP
Inv conversion period Receivable collection period
Operating cycle
Work in progress
WIP=549.48crores
Cost of production=COGS-Excise duty-Freight outward-CMO Expenses
=9207.14-1660.95-168.18-63.49
=8808.56crores
Holding period =(inventory *WIP)/COPE
=(549.48*365)/8808.56
= 23 days
Finished goods
Finished goods=549.48 crores
Cost of goods sold= sales – profit
=12037.57-2830.43
=9207.14
Holding period=(Finished goods inventory*365)/COGS
=(549.48*365)/9207.14
=22 days
Company’s Policies
Credit given to customers=30 days
Credit given to suppliers = 15 days
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Operating cycle
Operating cycle=RM holding period+WIP holding period Finished goods holding period
Credit given to customers
=17+23+22+30
=92 days
Cash conversion cycle= RM holding period+WIP holding period Finished goods holding
period Credit given to customers-credit given to suppliers
=17+23+22+30-15
=77 days
4.6) Operating Cycle Period (2009-2010)
Raw Material
Holding period=(Raw material*365)/total consumption
Raw material=288.11 crores
Total consumption=5458.55crores
Holding period=(288.11*365)/5458.55
=19 days
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Work in progress
WIP=926.44crores
Cost of production=COGS-Excise duty-Freight outward-CMO Expenses
=10571.19-1394.90-143.63-7.68
=8964.98crores
Holding period =(inventory *365)/COPE
=(926.44*365)/8964.98
= 38 days
Finished goods
Finished goods=926.44 crores
Cost of goods sold= sales – profit
=11857.69-1292.78
=10571.19
Holding period=(Finished goods inventory*365)/COGS
=(926.44*365)/10571.19
=32 days
Company’s Policies
Credit given to customers=30 days
Credit given to suppliers = 15 days
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Operating cycle
Operating cycle=RM holding period+WIP holding period Finished goods holding period
Credit given to customers
=17+23+22+30
=119days
Cash conversion cycle= RM holding period+WIP holding period Finished goods holding
period Credit given to customers-credit given to suppliers
=17+23+22+30-15
=104 days
5) Comparison
PARAMETER(in
days)/YEAR
2008-09 2009-2010
RM holding period 17 19
WIP holding period 23 38
FG holding period 22 32
Debtor period 30 30
Creditor period 15 15
Operating cycle 92 119
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
5.1) Analysis
5.1.1) Operating cycle
As per the analysis shown above the operating cycle has increased from 92 days to
119 days in one financial year i.e. from the year 2008-2009 to 2009-2010.This
indicates that if we look at the operating cycle as an indicator of efficiency then
efficiency has declined in the past one year i.e. now they need 27 more days to
convert raw materials to finished goods and thus its now adding an extra burden to
their inventory cost of RM, WIP, FG.
5.1.2) Holding period
As observed in the BSL,the holding period of RM,WIP and FG have come up. This
increased holding period indicates that they are now spending more and more money
on storing, maintenance and guarding of their FG and RM. Due to the its excess
operating cycle BSL now needs more borrowing from financial institutes for its day to
day and long term operations because now the conversion to cash takes a longer
time .The demand for flat products has gone down due to the economic recession.
Hence the operating cycle and the holding period of BSL has gone up.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
5.2) Working Capital Status of BSL
PARAMETERS 2006-07 2007-08 2008-09 2009-10
(A)CURRENT ASSETS
LOANS & ADVANCES
Cash & bank balance 3790 4108 4400 4660
Raw Materials 25621 25113 16828 28811
Stores & Spare Parts 34129 37846 46798 54047
Finished/Semi-finished products 76806 77790 54948 92644
Sundry Debtors 1251 895 774 903
Loans & Advances 39118 39090 58745 49296
Other Current Assets 1896 1402 1095 841
TOTAL 182611 186244 183588 231202
(B)CURRENT LIABILITIES & PROVISIONS
Sundry creditors 30572 32507 43268 45387
Security & other Deposits 4291 6768 2369 13189
Advances received 2427 2568 10404 2789
Other liabilities 38824 38204 35706 28049
Provisions (Excluding Prov. For VRS,Gratuity &
Accumulated Leave) 9482 9151 60254 111898
TOTAL 85596 89198 152001 201312
Working Capital(A-B) 97015 97046 31587 29890
Increase/Decrease in Working Capital over Previous Year 44566 31 -65459 -1697
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
2006-07 2007-08 2008-09 2009-100
20000
40000
60000
80000
100000
120000
Working Capital of BSL(in crores)
Working Capital of BSL(in crores)
From the above graph it can be inferred that the working capital of BSL has decreased over
the previous years .The working capital of BSL in the year 2009-10 has decreased by 16.97
crores since the year 2009-09.It can be seen that there has been a increase in the current
assets as well as the current liabilities but the proportionate increase in the current assets is
less than that of the current liabilities. The increase in the current assets is due to the
increase in the inventories and the cash and bank balances while the increase in the current
liabilities is due to the increase in the security and other deposits and the provisions. The
increase in current assets can be attributed to the fact that the production in BSL is not in
accordance to the demand, there has been a decline in the demand for flat products due to
recession resulting in the piling up of inventories. The current liabilities has gone up due to
the increase in provisions for wage revision .The wage revision happens every 5 years for
non executives and every 10 years for non executives.
5.3) Working Capital of Various Units of SAIL (2009-10)
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Source: Balance Sheet of SAIL as on 31st March,2010
Looking at the various other units of SAIL, we observe that the working capital of BSL is very
high compared to the other units of SAIL . The plants ISP , RMD ,BRL have negative
working capital which shows that the account payables for these plants is very high or in
other words the working capital needs of these plants is being funded by their suppliers.
Instead of paying to the suppliers these plants reinvest the funds in the plants itself , thus
their working capital comes out to be negative. While in the case of Bokaro Steep Plant , the
working capital is very high due to the a very large inventory stock , as well as a high cash
and bank balances . BSL has to reduce these two components of current assets in order to
manage their working capital efficiently. Also the piling up of inventory has taken place due
to the less demand of flat products ( products of BSL) due to economic recession.
6) Ratio Analysis Calculations (2008-09)
6.1)Liquidity Ratios:
a)Current Ratio:
Current Assets =Rs.1835.88 crores
Total current liabilities =Rs.1520.01 crores
Current ratio=current assets/current liabilities and provisions
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
BSL ISP ASP SSP RMD VISL BRL
641.94 -115.37 303.98 694.58 -463.62 354.69 -7.93
=1835.88/1520.01
=1.21 times
b)Quick Ratio:
Inventory=Rs.1185.74 crores
Quick ratio=(total CA-inventory,balance with custom and railways)/total current liabilities
=(1835.88-(1185.74+80.34))/1520.01
=569.8/1520.01
=0.37 times
6.2)Activity Ratios:
a)Capital turnover ratio:
Net Sales=Rs.12037.57 crores
Working Capital=Total CA-Total CL
=Rs.315.87 crores
Net capital employed=Net block Working Capital(Net Block=Gross block-depreciation)
=2282.24+315.87
=Rs.2598.11 crores
Capital Turnover Ratio=Net sales/Net capital employed
=12037.57/2598.11
=4.63 times
b) Inventory Turnover Ratio:
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Net Sales = Rs.12037.57 crores
Inventory=Rs.1185.5 crores
Inventory turnover ratio=Net Sales/Inventory
=12037.57/1185.5
=10.154 times
c) Working Capital Turnover Ratio:
Net sales=Rs.12037.57 crores
Working Capital=Rs.315.87 crores
Working Capital turnover ratio=Net sales/WC
=12037.57/315.87
=38.11 times
d) Fixed Asset Turnover Ratio :
Net sales=Rs.12037.57 crores
Net fixed assets=Rs.2658.77 crores
Fixed asset turnover ratio=Net sales/Net fixed assets
=12037.57/2658.77
=4.52 times
6.3)Profitability Ratios:
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
a)ROI(Return on investment):
PAT=2830.43 crores
Capital employed=Net fixed assets+WC
=2658.77+315.87
=Rs.2974.64 crores
ROI=PAT/capital employed
=2830.43/2974.64
=0.476
b) Gross Margin:
Gross margin=Net profit+depreciation+Interest
=2830.43+246.7+40.41
=Rs.3077.17 crores
c) Net Profit Margin:
PAT =Rs.2830.43 crores
Net Sales=12037.57 crores
Net profit margin=PAT/Net sales
=2830.43/12037.57
=0.12 =12%
7) Ratio Analysis Calculations (2009-10)
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
7.1)Liquidity Ratios:
a) Current ratio:
Current assets =Rs.2312.02crores
Total current liability =Rs.2013.12crores
Current ratio =current assets/total current liabilities
=2312.02/2013.12
=1.14 times
b) Quick Ratio:
Inventory =Rs.1755.02crores
Quick ratio = (total CA-inventory, balance with custom
and railways)/total current liabilities
=[2312.02-(1755.02+47.25)]/2013.12
=0.25 times
7.2)Activity Ratio:
a) Capital Turnover Ratio:
Net sales =Rs.11857.69crores
Working capital =total CA-total CL
=Rs.298.90crores
Net capital employed=Net block + Working capital
=2245.71+298.90
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
=Rs.2544.61 crores
Capital turnover = Net sales/Net capital employed
=11857.69/2544.61
=4.65 times
b)Inventory Turnover Ratio:
Net Sales = Rs.11857.69 crores
Inventory=Rs.1755.02 crores
Inventory turnover ratio=Net Sales/Inventory
=11857.69/1755.02
=6.75 times
c) Working Capital Turnover Ratio:
Net sales =Rs.11857.69crores
Working capital =Rs 298.90crores
Working capital turnover ratio=Net sales/WC
=11857.69/298.90
=39.67 times
d ) Fixed Turnover Ratio:
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Net sales =Rs.11857.69crores
Net fixed assets =Rs.3424.67crores
Fixed turnover ratio=Net sales/Net fixed assets
=11857.69/3424.67
=3.46 times
7.3)Probability Ratio:
a) ROI (Return on investment)
PAT=292.72 crores
Capital employed=Net fixed assets + W.C
=3424.67 + 298.9
=Rs.3723.57crores
ROI =PAT/Capital employed
=1292.78/3723.57
=0.173
b) Gross Margin:
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Gross Margin =Net profit + Depreciation + Interest
=1286.50 + 246.74 + 52.77
=Rs.1586.01 crores
c) Net Profit Margin:
PAT=1292.78 crore
Net sales=Rs. 11857.69
Net profit margin =PAT/Net sales
=1292.78/11857.69
=0.054=5.4%
8) Comparative Analysis (with previous years figures)
The financial statement analysis of BSL has been shown for two consecutive years. Ratio
analysis has been used adopted as an analytical tool and following ratios have been
analyzed.
PARAMETER/YEAR 2008-09 2009-10
A)LIQUIDITY POSITION
Current ratio 1.21:1 1.14:1
Quick Ratio 0.37:1 0.25:1
B)ACTIVITY RATIO
Capital Turnover Ratio 4.63:1 4.87:1
Inventory Turnover Ratio 10.154 6.75
Working Capital Turnover 38.11:1 39.67:1
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Ratio
Fixed Asset Turnover Ratio 4.53:1 3.46:1
C)PROFITABILITY RATIO
ROI 0.476:1 0.176:1
Gross Margin 3077.2 1586.01
Net Profit Margin 0.12:1 0.054:1
Liquidity position: It shows the ability of the firm to pay its obligations as and when they
become due for payments.
Current Ratio: The current ratio for the year 2009-10 has decreased due to the increase in
the provisions which has increased the total current liabilities. The current ratio shows a
decrease in the year 2009-10 due to the increase in the liabilities ( increase in security
deposits and provisions).A current ratio greater than 1 indicates that the company holds a
good liquidity position from the bank’s point of view.
Quick Ratio: The quick ratio also shows a decline due to the increase in the current
liabilities and due to the increase in the inventories.The low status of the most liquid assets
is not a major concern as it is centrally managed by the mother unit SAIL.
Activity Ratio: The activity ratios suggest that the number of times inventory turns over has
decreased to almost 6 times clearly indicating the fact that the goods of BSL are in less
demand and have been piled up. Similar is the case with working capital turnover ratio and
capital turnover ratio.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Profitability Ratio: The profit of the company has decreased from 2830.43 crores to
1292.78 crores in the year 2009-10 .This has happened due to the economic slowdown
which is a matter of concern.
9) Comparative Analysis (with its competitors)
Investment policy (2009-10)
BSL Essar
Steel
Tata Steel
GWC 1237.48 2587.05 4580.03
Net Sales 10376.62 11,717.40 24,348.32
GWC/Net Sales 0.119257 0.22078703 0.188104559
From the above table we can see that BSL ,SAIL follows a conservative investment policy
as compared to its competitors .
Financing policy (2009-10)
BSL Essar Steel Tata Steel
STF 0 993.77 23,033.13
Current assets 1237.48 2,587.05 4,580.03
.3* current assets 371.244 776.115 1374.009
STF/.3*current
assets
0 1.28044169 16.76344915
From the above table , it can be concluded that BSL,SAIL has a conservative financing
policy as compared to the industry average.BSL has conservative investment as well as
financing policy. This may be due to the to the effect of the economic recession which has
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
made the market more unpredictable and has increased the risk. Hence the creditors are
less averse in giving credit Also, due to the less demand and hence less production the
inventory stock has decreased leading to a conservative financing policy.
BSL, SAIL depends more on long term financing to support its working capital needs as its
STF is 0.Thus it pays higher interest rates. This makes ROA of the company high thus
decreasing the profits as is evident from the previous calculations.
Liquidity Analysis (2009-10)
BSL SAIL Essar
Steel
Tata Steel
Current Ratio 1.14 1.82 0.71 0.91
Quick Ratio 0.25 1.24 0.62 0.57
Inventory Turnover
Ratio
6.54 5.86 8.69 9.36
Number of Days in
Working Capital (in
crores)
48.54 -4.56
Operating cycle 119 days
Cash Conversion Cycle 104 days
Profitability
Current Ratio: A current ratio of 1.14 in BSL and 1.82 in SAIL states that the working capital
status of the two plants is good .They have a good amount of current assets to meet any
contingent liabilities .Also this ratio is good from the bank’s point of view. While the current
ratios of Essar Steel and Tata Steel are less than 1 which suggests that these companies
have higher current liabilities than their current assets.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Quick Ratio: BSL has a quick ratio of 0.25 because of its high inventory stock while SAIL
has a better quick ratio of 1.24 which states that it has sufficient amount of the most liquid
assets i.e. cash and receivables. Its competitors on the other hand have a low quick ratio
due to less inventory .It also states that these two companies have high current liabilities.
Inventory Turnover Ratio: The inventory in BSL turns over 6.54 times every year i.e BSL
currently has a stock sufficient for 1.83 months. Similarly SAIL turns its inventory every 2
months in s year. Among its competitors , Tata Steel has the highest turnover ratio i.e.
products move out every 1.28 months .This indicates that Tata Steel maintains a low
working capital .The above scenario states that the steel industry is a highly competitive
sector in India and none of the companies have a monopoly in the market .
Number of Days in Working Capital: Looking at the number of days in working capital, we
find that Tata Steel has a negative working capital which states that it may not be having
sufficient funds to meet its contingent liabilities. Secondly its working capital needs are
funded by its suppliers. While
10) Conclusion and Recommendation
During the year 2008-09, Bokaro Steel Plant notched the impressive gain of 2830.43 crores.
But in the year 2009-10 BSL earned a profit of only 1286.50 crores which shows a loss of
1543.93 crores as compared to the previous year .It was mainly due to the recession which
slowed the demand for flat products.
In the view of the analysis and with the changes in the industry scenario it is felt that the
company should reconstruct its policies for the betterment. The cost of raw materials as
incurred by the Bokaro Steel Plant is very high which has to be brought down through
incorporating better technologies and plants .The price of most important raw material coal
went up which has badly effected the profits of BSL.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
The study of working capital management in Bokaro Steel Plant was limited to the study of
inventory, receivables, cash and payables. Although no default from the customers or
suppliers side was found during the study, the loyalty of the customers and suppliers could
be increased by giving them proper trade discounts which would increase the goodwill of the
company and hence would prove to be helpful in the long run for the company.
Working capital is managed well in BSL although there has been a net decrease in the net
working capital which has happened due to the increase in the current liabilities (increase in
security and other deposits).There has been a large increase in the security and other
deposits i.e. 456% increase since the previous year .Also there has been an increase of
around 85 % in provisions (excluding provisions for VRS, gratuity and accumulated leave)
since the previous year.
From the ratio analysis it can be seen that the current ratio of BSL is 1.14 which is good
enough. Also there has been a decline in the quick ratio of BSL mainly due to the increase in
inventory of finished goods which are lying in the stockyards due to less demand .This low
quick ratio suggests that there is high current liabilities. However in this case low current
assets is not a major concern since the mother unit of BSL i.e. SAIL is the major provider of
finance .Funds are centrally managed in SAIL .
Declining cost of the products due to stiff competition from China accompanied with the
rising cost of inputs, particularly that of imported coking coal is likely to erode the profit
margin of BSL in the current financial year. The management would try to make up for the
loss by technology up gradation, improvement in coking rate and reduction in the cost of
production.
However the 17.6% growth in the industrial sector with the manufacturing sector growing at
19.4% sector fed by an eye popping 72.8% rise in the capital goods might affect the working
capital status of BSL in a good way. This might improve the working capital of BSL.
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
11) Bibliography
www.sail.co.in
www.bokarosteel.com
www.moneycontrol.com
www.money.livemint.com
www.money.rediff.com
www.nse.com
www.etintelligence.com
Books and articles referred
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
12) List of Abbreviations
SAIL – Steel Authority of India Limited
BSL- Bokaro Steel Limited
ISP-Indian Iron and Steel Company Steel Plant
ASP – Alloy Steel Plant
SSP –Salem Steel Plant
RMD –Raw Material Division
VISL –Visvesvaraya Iron and Steel Limited
BRL- Bharat Refractories Limited
SMS-Steel Melting Shop
CCS-Continuous Casting Shop
CRM-Cold Rolling Mill
HRM – Hot Rolling Mill
CR – Cold Rolled
HR- Hot Rolled
GP – Galvanised Plate
GC - Galvanised Coil
MIS- Management Information System
CMO- Central Marketing Organisation
ICP- Inventory Conversion Period
RMCP-Raw Material Conversion Period
WPCP-Work in Progress Conversion Period
FGCP-Finished Goods Conversion Period
COGS- Cost of Goods Sold
GWC- Gross Working Capital
STF-Short Term financing
13) Annexure 1
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
BOKARO STEEL PLANT ,Balance sheet as at 31st March,2010
SOURCES OF FUNDS
Shareholders' Fund
Share Capital 0.00
Reserves and Surplus
17480.3
2
17480.3
2
Loan Funds
Secured Loans 89.26
Unsecured Loans 0.00
89.26
Inter Unit Current Account 4538.70
Deferred Tax Liability ( Net ) 0.00
22108.2
8
APPLICATION OF FUNDS
Fixed Assets
Gross Block 7226.17
Less: Depreciation 4980.46
Net Block 2245.71
Capital Work-in-Progress 1178.96
Fixed Assets (net) 3424.67
Investments 0.10
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Current Assets, Loans & Advances
Inventories 1755.02
Sundry Debtors 9.03
Cash & Bank Balances 46.60
Other Current Assets 8.41
Loans & Advances
Subsidiary Companies 0.00
Others 492.96
2312.02
Less:Current Liabilities & Provisions
Current Liabilities 1066.36
Provisions 2512.13
3578.49
Net Current Assets
-
1266.47
Miscellaneous Expenditure 0.00
(to the extent not written
off or adjusted)
Profit & Loss Account 0.00
Inter Unit Current Account
19949.9
8
22108.2
8
0.00
Profit and loss account for the year ended 31st March,2010
INCOME
Sales
Less : Excise Duty
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Policy Profit (+) / Loss(-)
Interest earned
Other revenues
Provision no longer required
written back
Stock transfer to other units
EXPENDITURE
Accretion(-)/Depletion to stock
Raw materials consumed
Purchase of semi/finished products
Employees Remuneration & Benefits
Stores & Spares Consumed
Power & Fuel
Repairs & Maintenance
Freight outward
Other expenses
Share of expenditure over income
-Corporate Office
-CMO
-CCSO
Interest & finance charges
Depreciation
Total
Less: Transferred to Inter
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Account Adjustments
Net Expenditure
Profit/Loss(-) for the year
Adjustments pertaining to
earlier years
Add/Less: Extra Ordinary Items
Profit/Loss(-)
Less : Provision for taxation
Less : Provision for Fringe Benefit tax
Less : Provision for Deferred taxation
Provision(+)Refund(-)of Income tax of earlier years
Profit/Loss(-) after tax
Amount tfd from Bond Redemption Reserve
Less: Extraordinary items
Amount transferred on amalgamation of Bharat Refractories Limited
Impact of merger of BRL with SAIL
Balance of Profit and Loss Account as on 31st March 2008
Profit earned during 2008-09
Profit earned during 2009-10
Income tax benefit on account of amalgamation of Bharat Refractories
Limited
Less:
Write off of advances to employees
Provision for wage revision
Profit/Loss(-) B/F from previous year
Amount Available for Appropriation
Add(+)/Less(-)
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Appropriation
Appropriations during the quarter Jan-Mar'09
Trnsfd.to Bonds Redemption Reserve
Trnsfd.to General Reserve
Interim dividend
Proposed dividend ( Final )
Tax on Interim dividend
Tax on Proposed dividend Final
Balance carried over to Balance Sheet
Notes on accounts 3
Schedules 2 and 3 annexed form part of the Balance Sheet.
half year profit
3rd quarter profit
IBMR GURGAON (INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)