CHAPTER - 1

INTRODUCTION
WORKING CAPITAL CONCEPTS

1.1 Business activity

Business activity is dynamic in character and subject to wide fluxions.

The movement from working capital to income and profits and back to
working capital is one of the most important characteristics of
business administration. This operation is concerned with the
deployment of funds with the hope that they will generate returns,
rendering an additional amount called profit. If the operations of an
enterprise are to run smoothly, proper relation ship between fixed
capital and current capital must be maintained. Its main aim is to use
business funds in which a manner that earning are maximized.
Financial Management provided a framework for selecting a proper
course of action and deciding a viable commercial strategy. This
objective can be achieved by :-

a) Profit maximization
b) Wealth maximization

Funds are needed for short-term as well long term purposed. In

short term we say current operation of the business. For a
manufacturing unit payment for raw materials and wages and for
meeting routine expenses. All the goods. Which are manufactured in
a given time, may not be sold in the period. Naturally funds are
blocked in inventory. It is also the fact that all goods may not be sold
against ready cash. Some of the goods may be sold on credit basis.
The capital is closely related to the term funds and has two meaning.
It is used to mean current assets minus current liabilities. In simple
words it is the investment needed for carrying out day-to-day
operations of the business smoothly.

It may be clear that objective of working capital management is to

maintain a satisfactory level of working capital. In other words, the
current assets should not be sufficient enough to cover the current
liabilities but at the same time it should also ensure the reasonable
amount of safety margin. This is possible only when the different
components of working capital are properly balanced.

Working Capital Concepts

There are two concepts of working capital
 i. Gross concept
ii. Net concept

Gross working capital concept

The term gross working capital, also refers to as working capital,
means the total assets that can be converted into cash within an
accounting tear and include short-term securities, cash, bills
receivables and stock.

Net working capital concept

Net working capital refers to the difference between current assets
and current liabilities. Current liabilities are those claims of outsiders,
which are expected to mature for payment with in an accounting year.
Networking capital can be positive or negative. A negative working
capital means a negative liquidity and may prove to be harmful for the
company. It occurs when current liabilities are in excess of current
assets. It may be due to mismanagement of current assets.
In summary it may be emphasized that gross and net concepts
of working capital are two facets of working capital management. The
data and problems of each firm is different, so it should be analyzed
to determine the amount of working capital and timely action should
be taken by management to improve the liquidity position of the firm.

Objective of working capital Management

The object of working capital management is in the two folds :
i. Maintenance of working capital and
ii. Availability of ample funds at the times of needs.
 The basic goal of working capital management is to manage
each of the firm’s current assets and current liabilities in such a way
that an acceptable level of net working capital is always maintained in
the business. As a matter of fact, a business cannot survive in the
absence of a satisfactory ratio between its current liabilities.
Management in selling policies with respect to general operation,
purchasing, financing, expansion and dividend must work the
limitations set by the working capital position.

Thus the objective is to ensure the maintenance of satisfactory level

of working capital in such a way that is neither inadequate nor
excessive. It should not only be sufficient to cover the current
liabilities but should ensure a reasonable margin of safety also.

Determinant of working capital

Working capital management is an indispensable function area of
management. The large number of factor influences the total working
capital requirements of the firm. It may be however be added that
these keeps varying from tome to time. In general the determinants of
working capital. Which are common to all organization can be
summarized as under:

Nature and size of Business

One of the basic factors influences the working capital requirements
of any unit is the general nature of the business. Many industries are
there. Where all the units require a very heavy working capital,
whereas the units in some other industries require comparatively
lesser amount of working capital.

Production Cycle
Another factor, which has a strong bearing on the quantum of the
working capital, is the production cycle. The term “Production or
Manufacturing Cycle” refers to the time lag between the purchase
and procurement of raw material into finished product. During this
process of converting the raw materials some and the completion of
finished product, some funds are inevitably locked up. The longer the
time span in the production cycle, the larger shall be the requirement
of funds and vice-versa.

Business Cycle
The working capital requirements are also effected to a large extent
by the nature of the business cycle. The seasonal and cyclical
variations tremendously influencing the working capital requirements
of the organization especially the shorts term temporary
requirements. These variations may be in two direction:
i. Upward movement during the boom conditions, and
ii. Downward movement, when the economic activity is on
Decline

Production Policy
Another important factor that has a consider influence on the
quantum of working capital is the production policy of the firm. In case
of certain industries having seasonal demand for their products that
have two options before them.

Credit Policy
The credit policy of any unit always influences its working capital
requirements from two angles:
a. Credit terms extended by the business unit to its
customers/buyers of goods; and
b. Credit terms available to the unit from its creditors.

Growth and Expansion

Generally a larger company needs the larger amount of working
capital as compared to small company is the similar trade. This can
also be logically taken to imply that as a Company grows or expands,
its need for working capital will also grow or expands accordingly.
However it is difficult; to determine precisely the relationship between
the growth of a company in terms of its volume and the increase in its
working capital. But there is no denying the fact that other things
remaining same, growing industries require more amount of working
capital than those, which are static.

Proper availability of raw materials

The regular availability of key raw materials without any interruption is
very necessary for any business unit. If there are some materials,
which are not easily available or there supplies are irregular, the
business may be forced them for in excess of its genuine production
needs to ensure smooth working. This will not only lead to an
excessive holing of such materials but also result in increased
requirement of working capital.

Profit level
The profit generation capabilities differ from unit and so are their
profits. In fact the profit generation capabilities of a business firm
depend on number of factors such as nature quality of the product,
marketing arrangement and hold on the market i.e. monopolistic
conditions or otherwise etc. A firm having quality product and
enjoying monopoly in the market is definitely likely to earn more
profits than a product of average quality in competitive market. High
profit margins contribute to the working capital funds of the unit
because the amount of net profit is always a source of working capital
to the extent: it has been earned in cash.

Corporate Taxes
Corporate taxes are unavoidable and are required to be paid out of
profits as per the rules. Therefore adequate provisions must be made
and paid; whenever required to be paid out of profits as per the rules.
Therefore adequate provisions must be paid, whenever required. In
other words this is short-term liability payable in cash and therefore
an important ingredient in the working capital planning. The higher
the tax liability, the higher is the working capital requirement and vice-
versa. However lot of savings can be made by proper tax planning
and making it an integral part of working capital planning.

Dividend Policy
Dividend policy of a firm also has an important bearing on the working
capital requirements of the unit. Dividends are paid out of cash
resources of that unit and therefore are a crunch on working capital
funds. Therefore some of the units prefer to issue the bonus share by
retaining the cash resources of that unit whereas some other units
have the policy of paying dividends to satisfy the expectations of the
investors. Dividend policy is thus, a significant component in
determining the level of working capital in any business firm.

Above all the amount of working capital that a firm would need is
affected not only by the factors associated with the firm itself but is
also affected by the economic, monetary and general business
environment.
A)COMPANY PROFILE
A) COMPANY PROFILE

1. Steel Authority of India Limited (SAIL)-

Steel Authority of India Limited (SAIL) is the leading steel-making
company in India. It is a 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.
Ranked amongst the top ten public sector companies in India in
terms of turnover, SAIL manufactures and sells a broad range of steel
products, 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 Company's
iron ore, limestone and dolomite mines.
SAIL's wide ranges of long and flat steel products are much in
demand in the domestic as well as the international market. SAIL’s
own Central Marketing Organisation (CMO) and the International
Trade Division carry out this vital responsibility. CMO encompasses a
wide network of 38 branch offices and 47 stockyards located in major
cities and towns throughout India.
SAIL has a well equipped Research and Development Center for Iron
and Steel (RDCIS) at Ranchi, which helps to produce quality steel
and develop new technologies for the steel industry. Besides, SAIL
has its own in-house Center 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 in Calcutta. The Environment Management Division and
Growth Division of SAIL operate from their headquarters in Calcutta.
Almost all our plants and major units are ISO Certified.

2. SAIL’s Background and History

A Rich Heritage
The Precursor
SAIL traces its origin to the formative years of an emerging nation -
India. After independence the builders of modern India worked with a
vision - to lay the infrastructure for rapid industrialization of the
country. The steel sector was to propel the economic growth.
Hindustan Steel Private Limited was set up on January 19, 1954. The
President of India held the shares of the company on behalf of the
people of India.

Expanding Horizon (1959-1973)

Hindustan Steel (HSL) was initially designed to manage only one

plant that was coming up at Rourkela. For Bhilai and Durgapur Steel
Plants, the preliminary work was done by the Iron and Steel Ministry.
From April 1957, the supervision and control of these two steel plants
were also transferred to Hindustan Steel. The registered office was
originally in New Delhi. It moved to Calcutta in July 1956, and
ultimately to Ranchi in December 1959.

A new steel company, Bokaro Steel Limited, was incorporated in

January 1964 to construct and operate the steel plant at Bokaro. The
1 MT phases of Bhilai and Rourkela Steel Plants were completed by
the end of December 1961. The 1 MT phase of Durgapur Steel Plant
was completed in January 1962 after commissioning of the Wheel
and Axle plant. The crude steel production of HSL went up from .158
MT (1959-60) to 1.6 MT. The second phase of Bhilai Steel Plant was
completed in September 1967 after commissioning of the Wire Rod
Mill. The last unit of the 1.8 MT phase of Rourkela - the Tandem Mill -
was commissioned in February 1968, and the 1.6 MT stage of
Durgapur Steel Plant was completed in August 1969 after
commissioning of the Furnace in SMS. Thus, with the completion of
the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at
Durgapur, the total crude steel production capacity of HSL was raised
to 3.7 MT in 1968-69 and subsequently to 4MT in 1972-73.

Holding Company
The Ministry of Steel and Mines drafted a policy statement to evolve a
new model for managing industry. The policy statement was
presented to the Parliament on December 2, 1972. On this basis the
concept of creating a holding company to manage inputs and outputs
under one umbrella was mooted. This led to the formation of Steel
Authority of India Ltd. The company, incorporated on January 24,
1973 with an authorized capital of Rs. 2000 crore, was made
responsible for managing five integrated steel plants at Bhilai,
Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant and
the Salem Steel Plant. In 1978 SAIL was restructured as an operating
company.

Since its inception, SAIL has been instrumental in laying a sound

infrastructure for the industrial development of the country. Besides, it
has immensely contributed to the development of technical and
managerial expertise. It has triggered the secondary and tertiary
waves of economic growth by continuously providing the inputs for
the consuming industry.

SAIL Today

SAIL today is one of the largest industrial entities in India. Its strength
has been the diversified range of quality steel products catering to the
domestic, as well as the export markets and a large pool of technical
and professional expertise.

Today, the accent in SAIL is to continuously adapt to the competitive

business environment and excel as a business organization, both
within and outside India.

3. IMPORTANCE OF STEEL

Steel has had a major influence on our lives, the cars we drive, the
buildings we work in, the homes in which we live and countless other
facets in between. Steel is used in our electricity-power-line towers,
natural-gas pipelines, machine tools, military weapons-the list is
endless. Steel has also earned a place in our homes in protecting our
families, making our lives convenient, its benefits are undoubtedly
clear.

Steel is by far the most important, multi-functional and most

adaptable of materials. The development of mankind would have
been impossible but for steel. The backbone of developed economies
was laid on the strength and inherent uses of steel.

The various uses of steel which in turn is a measure of adaptability of

steel can be judged from the following characteristics of steel :
- Hot and cold formable
- Weldable
- Suitable machinability
- Hard, tough and wear resistant
- Corrosion resistant
- Heat resistant and resistance to deformation at high temperatures.
Steel compared to other materials of its type has low production
costs. The energy required for extracting iron from ore is about 25 %
of what is needed for extracting aluminum. Steel is environment
friendly as it can be recycled. 5.6 % of element iron is present in
earth's crust, representing a secure raw material base . Steel
production is 20 times higher as compared to production of all non-
ferrous metals put together

The steel industry has developed new technologies and has strived
hard to make the world's strongest and most versatile material even
better. There are altogether about 2000 grades of steel developed of
which 1500 grades are high grade steels. There is still immense
potential for developing new grades of steel with varying properties
.The large number of grades gives steel the characteristic of a basic
production material
Steel has enjoyed an important position in our lives and will continue
to do so in the years to come. However, the degree to which it
maintains its dominant position will depend on if steel can exploit its
potential by developing new higher grades and adaptable grades .
This can be achieved by refining the structure and applying alloying
techniques and thus furthering its utility value. We will have to find out
ways to use steel and be ready to face a stiff competition from
Aluminium in the future.

4. MAJOR UNITS OF SAIL :

Integrated Steel Plants
● Bhilai Steel Plant (BSP) in Chhattisgarh
● Durgapur Steel Plant (DSP) in West Bengal
● Rourkela Steel Plant (RSP) in Orissa
● Bokaro Steel Plant (BSL) in Jharkhand
● IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

● Alloy Steels Plants (ASP) in West Bengal
● Salem Steel Plant (SSP) in Tamil Nadu
● Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiaries
● Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

Joint Venture

SAIL has promoted joint ventures in different areas ranging

from power plants to e-commerce.
● NTPC SAIL Power Company Pvt. Ltd
Set up in March 2001, this 50:50 joint venture between SAIL
and the National Thermal Power Corporation (NTPC) operates
and manages the Captive Power Plants-II of the Durgapur and
Rourkela Steel Plants, which have a combined capacity of 240 .

● Bokaro Power Supply Company Pvt. Limited

This 50:50 joint venture between SAIL and the Damodar Valley
Corporation formed in January 2002 is managing the 302-MW
power generation and 1880 tones per hour steam generation
facilities at Bokaro Steel Plant.
 ● Bhilai Electric Supply Company Pvt. Limited
Another SAIL-NTPC joint venture on 50:50 basis formed in
March 2002 manages the 74 MW Power Plant-II of Bhilai Steel
Plant which has additional capacity of producing 150 tones of
steam per hour.
UEC SAIL Information Technology Limited
This 40:60 joint venture between SAIL and USX Engineers &
Consultants, a subsidiary of the US Steel Corporation,
promotes information technology in the steel sector.

● Metaljunction services Private Limited

A joint venture between SAIL and Tata Steel on 50:50 basis,
this company promotes e-commerce activities in steel and
related areas.

● SAIL-Bansal Service Center Ltd.

SAIL has formed a joint venture with BMW industries Ltd. on
40:60 basis to promote a service center at Bokaro with the
objective of adding value to steel.

● North Bengal Dolomite Limited

A joint venture between SAIL and West Bengal Mineral
Development Corporation ltd on 50:50 basis was formed for
development of Jayanti Dolomite Deposit, Jalpaiguri for supply
of Dolomite to DSP and other plants.
● Romelt-SAIL (India) Ltd
A joint venture between SAIL, National Mineral Development
Corporation (NMDC) and Russian promoters for marketing
Romelt Technology developed by Russia for reducing of iron
bearing a material, which is carried out with carbon in single
stage reactor with the use of oxygen.

5. 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.

Share holding Pattern of SAIL (% of Equity) :

Government of India à 85.82 %

Financial Institutions à 4.37 %
Banks à 0.11 %
Mutual Funds à 0.39 %
Foreign Institutional Investors (FII’s) à 4.23 %
Global Depository Receipts (GDRS) à 0.05%
Companies (including Trusts and clearing members ) à 1.17 %
Individuals (including Employees and NRIs) à 3.86 %

6. MANUFACTURING PROCESS

Some of the technological options for converting iron ore to steel

products is schematically shown below. Hot metal and crude steel
process are also inter linked among themselves as represented by
arrows.
7. INTRODUCTION OF BHILAI STEEL PLANT

INTRODUCTION

Mr. J.L. Nehru “Jewel in the crown of SAIL” described Bhilai

Steel Plant. For production of steel an MOU (Memorandum of
Understanding) was signed with the Russian government for setting
up of the Bhilai Steel Plant. The first phase of 1 MT was completed in
1959 and subsequently capacity was expanded to 2.5 MT and 4 MT

Five time winner of prime Minister’s Trophy for best integrated

steel plant in the country, Bhilai Steel Plant (BSP) is India‘s sole
producer of rails and heavy steel plates and major producer of
structural with an annual production capacity of 3.153MT of saleable
steel, the plant also specialized in other products such as wire rods
and merchants products. All saleable products of Bhilai Steel Plant
are under the ISO umbrella as per BSP’s accreditation with ISO9001-
2000 quality management system standard. The Plate Mill. Dalli
Merchandized Mines, Rails Mill and Wire Rod Mill have also received
ISO: 14001 certified for their environment management system.

Now, Seven times Winner, Bhilai Steel Plant made history in

production in the last financial year 2005-06 by becoming the first
plant in the country to surpass the 5 million tones (MT) mark in hot
metal production and the only steel plant to cross the 5MT mark in
crude steel production .The plant has provided 260 meters, long rails
to the Indian Railways and special steel plates for manufacture of
aircrafts carriers for the Indian Navy. BSP has also developed and
supplied corrosion resistant rails to Railways for coastal areas and
plates for manufacturing water pipelines for Godavari & Krishna water
projects in Andhra Pradesh.

HISTORY AND PRESENCE OF BHILAI STEEL PLANT

An agreement was signed in New Delhi on February 2nd 1956

between the Government of India and Soviet Union to set up an
integrated Steel Plant at Bhilai

With a capacity of 1MT of ingot steel. The plant began its

operation on January 31st 1959 when coke battery No 1 was
commissioned.

Production of pig iron at Bhilai Steel Plant began on Feb 4th

1959 by the commissioning of its 1st Blast Furnace. At the beginning
its capacity was 1MT and expands to 2.5 MT ingot steel in year 1967
and currently expended to 4.0 MT stage.
Initially Bhilai Steel Plant was working under the Hindustan Steel Co.
Ltd., but after formation SAIL ON January 24th 1973 Bhilai become
one of the unit of SAIL.

Bhilai Steel Plant was the first plant to produce wide (3600mm)
Heavy Plates in India. A major exporter of Steel Products. Bhilai
specializes in long products, such as Heavy rails. Heavy Structures,
Merchant Product and Wire Rods. This is the only plant producing
Rails in India. Bhilai Steel Plant is a big unit of SAIL having 40,000
trained manpower. It has its own township where more than 25,000
employees are accommodated. Bhilai Steel Plant has its own captive
Mines for raw materials Rajhara Iron Ore Complex is one of the best
Iron Ore Mines in India situaited 100 KM in south direction of Bhilai
Steel Plant Rajhara IOC is producing about 10 MT raw material per
year to full fill the requirement of Bhilai Steel plant other two mines
i.e. Nandini Mines for lime stone & Hirri Mines for Dolomite are also
captive mines of BSP. All mines are having their own township and
about 7000 trained manpower involved to fulfill requirement of raw
materials for Bhilai Steel Plant.

PLANT LAYOUT

And the unit of the plant have been laid in sequential formation
according to technological interrelationship so as to ensure un –
interrupted flow of process material like coke, slag etc. and to
minimize the length of various inter plant connection utilities and
services.

RAW MATERIALS:

BSP is primarily an ore based plant. The requirement of principal of

raw material except coal and manganese ore is met from the captive
mines of the plant. The plant owns and manages the mechanized and
manual iron ore mines at Dalli Rajhara, situated about 100 Kms away
from plant. The plant owns quarries at Hirri, Chhattisgarh (for
Dolomite).

Over a million tones of minerals of mines annually from the captive

mines.

SERVICES & UTILITES

BSP is an integrated steel plant which requires various from of

energy like electricity, fuel (solid, liquid and gaseous), stream,
oxygen, compressed air, chilled water, air blast, etc.

Electricity power is supplied by BESCL (Bhilai Electricity

Supply Company Limited) a joint venture between National Thermal
Power Corporation and SAIL from Korba 250 km away from Bhilai.

Water supply comes from a well-constructed system of water

works of the state government- Tandula reservoirs (Maroda Tank 1 &
2) through a well-laid canal, 60km long from BSP.

The other utility like gaseous liquid and solid fuels, chilled
water, stream, oxygen and compressed air are provided at plant by
centralized utility services.

There exists an extensive communication system at work

place, which includes an auto telephone exchange, dispatch
communication system, gas and fire alarm signal, yard
communication and automatic signal, yard communication and
automatic signaling and blocking system of plant, rail transport facility
and shop floor loudspeaker system.

MANAGEMENT

Initially BSP was under the administrative control of the

ministry of Iron and Steel with powers delegated to the chief of the
Plant. Later Hindustan Steel Ltd. controlled the management, which
was formed on 19th January 1954 to manage Rourkela Steel Plant.
Bhilai Steel Plant became the constituent of Hindustan Steel Ltd.,
with the formation of Steel Authority of India Limited on 24th January
1973.

In the organization of BSP, the Managing Director is the

top most authority responsible for overall control. There are six
Executive Directors in following manner.

Executive Directors - Personal & Administration

Executive Directors - Material Management

Executive Directors - Project

Executive Directors - Finance & Accounts

Executive Directors - Works

Executive Directors - B.S.P.

Director - Medical & Health Services

They have under then General Manager, DGM, AGM, and

Sr.Manager & Manager. Executive Director has the most important
function of the second rung, in view of the fact that he is in the entire
charge of the plant and is directly responsible in their fields.

Also, GM (Marketing & Strategic Planning) reporting to MD

directly has the sole responsible of Marketing of various main steel
products &secondary products through CMO and BSP.

THE QUALITY POLICY OF BSP

● Attaining market leadership through enhancing customer

satisfaction.

● Achieving continual improvement in productivity, quality and

salability of our products.
 ● Active involvement of all our people in achieving our goals,
objectives and targets.

● Adherence to a quality management system based on USO:

9001:2000 and its periodic review for continue effectiveness.

ORGANIZATION OBJECTIVE

To enhance customer satisfaction through

● Improvements in productivity and product quality.

● Skill enhancement of our people by competence, commitment

and culture building.

● Production as per Customer Requirement.

8. MAIN PRODUCTS OF BHILAI STEEL PLANT

Steel from BSP have always played a prominent role in functioning of

ideal engineering industries, small scale steel marker, roller,
foundries and forged shops, large scale fabrications, builders, the
construction industries and Railways.

BSP is putting on the market a wide range of rolled products and

in some of the products enjoys the status of monopoly. Bhilai has all
along maintained its position as the most productive of India’s
integrated steel plants its different product mix is as follows:

The following are various units/mills of Bhilai Steel Plant with their
Products is shown against it :
1. Blast furnace- Hot Metal slag (as a bye product)
 2. PCM (Pig casting moulds)- Pig Iron
3. (A) Steel Melting Shop – Crude Steel (By Twin Hearth
Process)
(B) Converter Shop – Crude Steel (By L.D. Process)
4. Coke Owen – Coke, Bye – Products – (Sulfuric Acid,
Ammonium Sulphate, Benzol, tar, Naphthalene ball, toluene
etc.)
5. Rail & Strl. Mill – Rail, Heavy Structurals Like Angle, Beam,
Channel
6. Wire Rod Mill – Wire Rod (5.5 mm to 12mm).
7. Merchant Mill- Merchant Products (rounds up to 75mm.
Channels up to 200mm. Angles up to 200mm etc)
8. Plate mill- Plates up to 3600mm in width (from 5mm to
200mm thick)
9. Bloom Billet Mill – Blooms and Billets.
10. Cont. Casting Shop – Blooms and slabs
11. Foundry Shop – Various Casting of steel as per drawings
12. Oxygen Plant – Oxygen gas
13. Acetylene Plant – Acetylene gas
Power Plants- Electric Power Generation

ENVIRONMENT POLICY

Bhilai Steel Plant (BSP), Steel Authority of India Limited is an

integrated steel plant with an annual production capacity of 4.0 MT of
steel specializing in production of Rails, Heavy Structural Wire Rod &
Plates. Bhilai Steel Plant collective reaffirms it commitment to protect
environment and shall strive to:
Introduce sound environmental management practices for minimizing
pollution and its impacts on air, water and land.

Conduct operation in an environmentally responsible manner for

complying with legislation and regulation related to its environment
aspects.

Conserve and optimally utilize raw materials, energy, water and other
resources.

Minimize waste generation and promote its recovery, recycling and

reuse.

Achieve continual improvement performance by setting and reviewing

the objectives and targets periodically.

Enhance environment awareness amongst employees and interested

parties.

Communicate environmental policy to the persons working for or on

behalf of the organization and make it available to public on demand.

AWARDS

National Energy Conversation Award-99 from honorable Minister of

power Mr.S.Prabhu.

Best Pollution Control Implementation Gold Award – Institute of Lal

Bahaduer Shastri Memorial National Awards for excellence
industries.

Best performance award to Dalli Mechanized Mines.

PM’s Shram Vir Award – 200 to Shri J.S.William, Sr. Operator, CCS,
by Hon’ble Prime Minister on 4.02.02 at New Delhi.

PM’s Shram Bhushan Award – 2001 to a group of 5 employees from

Blast Furnace
Vishwakarma Rastriya Purushkar – 99 to employees of the plant on
17th Sep. 2001.

National Level Coal India Productivity award to Shri Hemant Kumar

Desai Additional Chief Industries Engineer.
4 Collective & Individual Awards – for the year 1999 to BSP on Safety
Health and environment in Steel Industry.

PRIME MINISTER TROPHY BEST INTEGRATED STEEL PLANT

AWARD:

1992-93, 1993-94, 1995-96

1997-98, 2003-04, 2004-05

Recipient of the PM Trophy for seven times out of 13 declared result

2004-05 from honorable Prime Minister Dr.Manmohan Singh on 20th
May 2006.

B. WORKING CAPITAL MANAGEMENT AT

BHILAI STEEL PLANT

1. Forecasting of working capital at Bhilai Steel

Plant

Bhilai Steel Plant is the major unit of SAIL. The prime object of every
organization is to make profit, whether or not this is accomplished in
most business depends largely on the manner in which heir working
capital is managed. No doubt the finance department of B.S.P. is
doing best possible manner in working capital management. Working
capital management usually is considered to involve the
administration of current assets of a firm namely, cash marketable
securities, account receivable and inventories.

Component of management of working capital

The management of working capital encompasses the following
problems:-
To decide the optimum levels of investment in various current assets
namely, cash, accounts receivables and inventory, etc., determining
the size of working capital.
To decide the optimal mix of short-term funds in relation to long-term
capital and To locate the appropriate means of short –term financing.

Forecasting
Bhilai Steel Plant A major unit of SAIL has been generating
continuous profits as compared to previous year with current year.
Finance Department of Bhilai Steel Plant and various individual units
decides the amount of funds required during the preparation of
operation budget, and then requirement of fund is intimated to
corporate office. Cash inflows and outflows are estimated in budget.
The marketing of all SAIL’S prime products are done by the central
marketing organization and the receipts of sale are directly sent into
the inner unit current account which is centrally controlled by the
corporate office and the corporate office allocates the funds as per
intimation to individual units. Besides coordinating with the central
marketing organization, the cash realization is also done by the plant
itself through the sale of products, defectives and scrap.

2. Monitoring of working capital management:-

All the aspects of working capital are monitored separately and accurately in
Bhilai Steel Plant.

Cash
A transparent system for cash has been adopted by cash section of Bhilai Steel
Plant. Cash is monitored every day and intimated to the top management as well
as fortnightly to the company. The daily cash report includes the details of cash
inflows and outflows. Finally the annual cash budget is made and reported to its
corporate office. In the total cash flow, 12% is from the plant and rest 88% is from
that of inter unit account.

Inventory
The main aim of Inventory management in B.S.P. is avoided excess and
inadequate levels of inventory and to maintain sufficient inventory for smooth
production and sales operation. Inventory is monitored differently for raw
material, work in progress, finished goods and stores. Monthly inventory report is
sent to chairman through the finance department to corporate office. Obviously
the inventory report is prepared to plant level. Production planning and control
department gives the data of closing stock of raw material, finished goods as well
as the work in progress.

Receivables
At a plant all finished good are sold cash and in advance payment but
the major portion of debtors are delt by central marketing
organization. It is considered as an essential marketing tool.

Payables
The supplier credit is referred to as Account payable, Trade credit,
and Trade bill. Trade acceptance. But now and pay later facility is
provided by suppliers depends up on a variety of factors such as
natures, quality and volume of items to be purchased, the creditors of
coal are monitored by corporate office and the individual creditors are
monitored by the concerned departments i.e. the raw material, stores
& spares and the operations accounts department which look after
the contracts.

To summaries, working capital at a plant level mainly involves

forecasting and monitoring of different components which is done
systematically. Major portions of important components of working
capital is bills payables and borrowing of funds monitored by
corporate level.

3. Management of Inventory
Inventory constitutes the principal items in the capital of the majority
of trading any industrial companies. In inventory the stores of raw
material, stock finishing goods, work in progress and other
accessories and included to maintain the continuity in the operation of
business to regulate the size of the investment if good carried in stock
and turnover rates. The purpose of inventory management is to
ensure available of material in sufficient quality as and when required
and also minimize investment in inventory.

Motives for Holding Inventories

The transaction motive, which emphasizes the need to maintain
inventories to facilitate smooth production and sales operations.
Precautionary motive, which necessities holding of inventories to
guard against the risk of unpredictable changes in demand and
supply forces and other factors. Speculative motives, which influence
the decision to increase or reduce, inventory levels to take
advantage of price fluctuations.

Objective of Inventory Management

To maintain a large size of inventory for sufficient and smooth
production and sales operations.
To maintain a minimum investment in inventories to maximize
profitability.

Inventory Management at Bhilai Steel Plant

Inventories are stock of a company, which is manufacturing for sale
of component that make up the product. Inventory means “a schedule
of items held at a particular point of time”.
In managing inventories the objective of SAIL is to determine
and maintain optimum level of inventory investment. The optimum
level of inventory lies between two danger points of excess and
inadequate inventories.

Raw Materials
Raw materials is those basic inputs that are converted into finished
products through the manufacturing process. Raw material inventory
are those, which have been purchased and are stored for future
production. In Bhilai Steel Plant, raw materials central procurement
unit of central marketing organization as per the requirements of the
Individual steel plant. The bulk purchase are procured and send to
the place of need. Basic objective in holding raw materials inventory
is torn separate purchase and production activities. If raw materials
inventories were not held, purchase would have to be made
continuously at the usage rate in production.

Semi Finished / Finished Products

Semi finished products are semi manufacturing products. They
represent products that need more work before they became finished
products for sale and finished goods inventories are those completely
manufacturing products, which are ready for sale. Stock of finished
goods is required for smooth marketing operations.
Semi finished products are valued at lower of cost or net realizable
value of the respective paints. Raw materials are valued at lower of
cost and net realizable value. Iron scrap and steel scrap at the
integrated plant are valued 75% and 90% respectively of previous
year’s realizable value of pig iron. The stock of week scrap lying
unconsummated at the plant and mixed coke and middling/rejects,
are valued at the estimated net realizable value.
In the case of special products, which have a realizable value at the
finished stages only the realizable value of process material is arrived
at by applying the ratio of finished products realizable value and its
costs, to the cost up to the stage of process.

Stores and spares

Stores and spares include stock of all stores and spares for operation
and maintenance like consumable stores, explosive, oil, diesel,
petrol, Lubricants, electrodes, refectories, rolls. Ingots moulds, bottom
plates, casting, capital assets temporarily kept in general stores
pending transfer to concerned mills/shops stock with fabricators for
operational purposes spares lying unused at shop floor etc. at year
end.
Stores and spares are valued at cost of stores and spares declared
obsolete/surplus and also those, which have not moved for five years
more provision is made at 75% and 10% respectively of the book
value and charged to revenue.
Here the inventory is classified into:
1. ABC analysis
2. XYZ ANALYSIS
3. Non moving inventory
4. Surplus inventory
ABC analysis – Items, which constitutes to 70% of total consumption
(of stores and spares) value when arranged in descending order of
consumption value will be termed as ‘A’ class items. Next 20% of
total consumption value will be termed as ‘B’ class items and the rest
10% as the ‘C’ class items.
XYZ analysis – Items which constitute top 70% of total stock of stores
and spares holding value when arranged in descending order of stock
holding will be termed as ‘X’ class items next 20% of total stock
holding will be termed as ‘y’ class items and the rest 10% and the ‘z’
class.
Non-moving inventory – Items, which has not been issued for the last
3 to 5 years shall be non-, moving items.
Surplus inventory – Out of the above non moving inventory when
there is issue made to various shops asking for the requirement of
the inventory and if there’re also it is not needed then transferred to
another steel plant and it again not needed there also then sent for
disposal through auction sale.

Placement of Order
Material planning department of Bhilai Steel Plant determines when
and how much to order. This is determined by calculating the reorder
point. The reorder point is that inventory level at which an order is
placed to replenish the inventory. This department scrutinizes that the
order made are specifically as per requirement and there is sufficient
capital to make purchase.

Procurement
After the purchase order is of delivery whether through rail/road,
Nature of sharing taxes, the inspection time the terms and document
needed with the material all the formalities are finalized. Received
material is examined by visual survey. Then whole lot is sent to the
central store, which takes into account the whole lot is sent to the
central store, which takes into account the whole documentation
process. The detail of material stored and stores are given below.

Bulk material Bulk atore

Silicon manganese Central Plant Store cell
Capital items Borea stores
Spare items Plant Spare store

After receiving the material consignment control number is

provided and when the identification of material with the purchase
order is done then the R. number is given. Here, again the
inspection takes place and if the quantity received is accepted
then receipt is prepared and accounting is done and if the quantity
is rejected then no receipt is prepared again there is a clause that
if the quantity rejected is accepted to the acceptable level by
Material Review Board. Then new certificate prepared by MRB.

The goal of budgeting control in B.S.P. is to maximize the total

cost budgeting section monitors the shop wise procurement
budgets for indents raised by the shop. The amount sanctioned is
utilized for the items and quantities. The Material Management
Department monitors the receipt budget on monthly basis and
control the daily receipts separate funds are being allocated to the
products.

The analyst of Inventory Department in B.S.P. estimates the

different expenses with varying inventory levels and choose the
level with the lowest total cost. The lowest total cost considers
both the caring cost and ordering costs.

4. METHOD OF VALUATION OF INVENTORIES

According to international Accounting Standard 2(IAS 2), the

inventories should be valued at the time of “historical cost” and
“net realizable value”.

Historical cost :-
Historical cost of inventories is the aggregate of cost of purchase,
cost of conversion and other cost incurred in bringing the
inventories to their present location and condition. Thus historical
cost include not only price paid for making them fit for use in
production or for sale, e.g. transportation costs, duties, insurance
in transit , manufacturing expenses incurred for converting raw
material into finished product etc. selling expenses such as
advertisement expenses or storage costs should not be included.

Net Realizable Value :-

According to International Accounting Standard 2(IAS2),the net

realizable value means “the estimated selling price in the ordinary
course of business less cost of completion and less cost of
necessarily to be included in order to make the sale”. Thus net
realizable value is to be calculated after taking into consideration
all expenses. which might have to be incurred for making sales.
For the example, ,if the seller will have to pay a commission of 2%
on sale, the net realizable value of an article having a selling price
of Rs.10 should be taken as only Rs.8.

Inventories are to be valued at cost or net realizable value which

ever Is less. The ascertainment of net realizable value of different
item and it comparison with he historical costs can be done by any
of the following.
 Aggregate or total inventory method :-

According to this method of the total cost prices of the different

items of the inventories are calculated. The total so calculated is
compared with the total of the net at a price which is lower of the
two.

Group method :-

According to this method, groups are formed of homogeneous items

are inventories. The cost and the net realizable value of the each
group so formed are found out. The lower cost of cost or net
realizable value of each group of items is taken for valuation of
inventories.

Item by item method :-

According to this method ,the cost and net realizable price of each
item of inventory are found out . Each item is valued at a price, which
is lower of the cost or net realizable value.
A major objective of accounting for inventory is the paper
determination of the income through the process Of matching
appropriate costs again revenue. It required assigning of proper cost
to inventory as well as goods sold.

However, it should be noted that assigning of each cost, need not

conform to the physical flow goods.

The various method for assigning historical costs of inventory of raw

material and goods are explained below:

Specific identification method :-

According to this method each item of inventory is identified with its

costs. The total of the various cost so identified constitute the value of
inventory. This method is generally used when the materials or goods
have been purchased for a specific job or customer. Such materials
or goods when received are earmarked for the job or customer
whenever demanded.

This technique of inventory valuation can be adopted only by a

company,which is handling a small number of item. In case of
manufacturing company having number of inventory item it is
impossible to identified the cost of each individual item of inventory.
Thus this method is inappropriate in the most cases on account of
practical consideration moreover the method open door to income
manipulation when like item are purchased at different price.

First in first out method (FIFO) :-

 Under this method,it is assumed that the materials or goods first
received are first to be issued or sold. Thus according to this
method .the inventory on a particular date is presumed to be
composed of the item, which were acquired most recently.

Advantage:-

It value nearer to current market price since stock is presumed to be

constituting of the recent purchases.

It based on cost and therefore, no unrealized profit enter into financial

account of the company.

The method realistic since it takes into account the normal/ procedure
of utilizing or selling those material or goods which have been longest
in stock.

Disadvantage :-

It involves complicated calculation and hence increase the possibility

of clerical error.
Comparison between different jobs using the same type of material
becomes sometimes difficult. A job commenced a few minutes after
another job may have to bear an entirely different charge for material
because the first job completely exhausted the supply of the of
materials of the particular lot.

Last in First out method (LIFO) :-

This method is based on the assumption that last item of materials of

goods purchased are first to be issued or sold. Thus according to this
method ,inventory consists of items purchased at the earliest cost.

Advantage :-

It takes into account the current market condition while valuing

materials issued into different jobs or calculated the cost of the goods
sold.
This method is based on the cost and therefore, no unrealized profit
or loss is made on account of use of this method.

This method is most suitable for materials which are of a bulky and
non-perishable type.
Highest in First out method (HIFO) ;-

According this method, the inventory of materials or goods should be

valued at the lowest possible price. Materials or goods purchased at
the highest price are treated as being first issued irrespective of the
date of purchased. This method is very suitable when the market is
constantly fluctuating because cot of heavily priced material or goods
is recovered form the production or the sales at the earliest. However
the method involves too many calculation as in the case of LIFO
method. The method has ,therefore ,not been adopted widely.

Base Stock Method :-

The method is based on the contention that each enterprise

maintains all the times a minimum quality of material or finished
goods in its stock. This quality is termed as base stock. The base
stock is demanded to have been created out of the first lot purchased
and therefore its always valued at this price and is carried forward as
a fixed asset. Any quality over and above the base stock is valued in
accordance with any other appropriate method. As this method aim at
matching current cost to current sales, the LIFO method will be most
suitable for valuing stock of materials or finished goods other than the
base stock. The base stock method has the advantage of charging
out materials / goods at actual cost. Its other material or demerit will
depend on the other method which used for valuing material other
than the base stock.

Next in first out method :-

The method attempts to value material issue or goods sold at an

actual price which is as near as possible to market price. Under the
method the issues are made of cost of goods sold to taken as the
next price. i.e. the price of material or goods have been order but not
yet received. In other word issues or goods for further processing or
sale at the latest price at the company has been committed even
through they have not yet been physical received. This method is
better than market price method under which every time when goods
are issued their market have to be ascertain. Incase of this method
goods will be issued at the price at which new order have been
placed at this price will gold goods all future issues till next order is
placed.
For example 100 units of material A purchased Rs. 1 per unit are
lying in sore and an order for another 100 units Rs.1.25 has already
been placed. If a requisition of another 50 units for a department is
made, they will issue to the department at Rs1.25 Per units.

The value of inventory on particular data is ascertained by deducting

the cost of material issued or goods sold from the total value of
material or goods purchased.

Calculations of issued price are complicated in this method and

therefore the method is not widely used.

Weighted Average Price Method :-

This method is based on the presumption that once the materials are
put into a common bin, they lose their identity. Hence the inventory
consists of no specific batch of goods. The inventory is thus period on
the basis of advantage prices paid for the goods weight according to
the quality purchased at each price.
Weighted Average Price method is very popular on account of its
being based on the total quality and value of material purchased
besides reducing number of calculation. As a matter of fact the
average price is to be calculated only when a fresh purchased of
material is made in placed of calculating it every now and than as it
the case of FIFO, LIFO, NIFO, or HIFO methods .However, in case of
this method different price of materials are charged from production
particularly when the frequency of purchased and issued /sales is
quite large and the concern is following perceptual inventory system.

Retail Inventory Method:-

This is also termed as adjusted selling price method .It is widely used
in business where the inventory comprises items individual costs of
which are not readily ascertainable. Calculating it in the first instance
at selling price and then deducing an amount equal to the estimated
gross margin of profit on such stock estimated the historical cost of
inventory.

5. Management of Cash

Cash is a medium, of exchange to purchase the goods and

services and to discharge the liabilities. In business enterprise, it
includes cash in hand cash in hand, cash at bank, and ready
marketable securities. Thus cash is the most important current
asset for the smooth operations of the business. Now-a-days
liquidity and solvency maintenance has become the main task of
financial executives. Moreover, cash management assumes more
importance than other current assets because cash is the most
significant and the least productive asset that a company holds.
Cash balance is an unproductive investment also. Idle cash
produces nothing. Therefore, the aim of cash management may be
said to maintain adequate cash position at one hand and to use
excess cash in some profitable way on the other hand.

Objectives of Cash Management

1. To minimize the amount of funds as cash balance.
2. To meet the cash disbursement needs as per payment
schedule.
Management of Cash at Bhilai Steel Plant
Cash section is an important section of Finance and Accounts
department. It deals with the employees, Contractors and
suppliers for their payment. Corporate office plays a dominant role
in cash management. The corporate office allocates different
amount of cash to different steel plant as per its requirement.
Corporate office acts as a linkage between the B.S.P. and main
bank the state Bank of India. Corporate office has determined the
credit facility for every unit of SAIL. Number one unit of SAIL can
get the credit facility more than the limit, which is permitted to any
one. The credit is known as rolling cash limit, which is subject to
change from year to year depending up to company position,
transactions, profitable and inventory position.
Although corporate office provides credit limit facility, yet B.S.P. is
not fully dependent on the corporate office. The sale of scrap
materials of defectives at plant level generates the cash. Thus at a
time plant can also pay its liabilities and then the balance amount
is only intimated to the corporate office. B.S.P. gives priority in
cash payment, which is urgent and sends the report to its
corporate office.
Fund Allocation
Here the initial allocation for mines and B.S.P. unit is done by
corporate office and all supplementary requirements are to look by
B.S.P itself. The corporate office allocates the funds for all steel
plants and particularly about Bhilai Steel Plant the fund is allocated
keeping in view that there are three mines i.e. Rajhara – Iron ore,
Nandini – Lime stone, Hirri – Dolomite which are owned by B.S.P.

Fund Utilization
Bhilai Steel Plant operates an annual ‘Cash Budget’ and a rolling
‘Cash Plan’ drawn up every month. Although specific forecasting
technique is used, funds are deployed to different transaction is
prepared by cash section to keep a track of all payments made in
the days work. Every month cash transaction report is sent to
corporate office showing all the transactions of cash (inflow and
outflow) actual utilization of cash and allocation of fund, then the
plant has to justify its more utilization and if the justification is not
found satisfactory then the letter of improvement is given by the
corporate office.
Cash budget is most significant device to plan for and control the
cash receipts. Cash budget is a summary statement of B.S.P’s
expected cash in flows and outflows. Again this cash budget is
broken in to month wise budget where allocation of cash on month
wise it becomes easier to allocate the amount. The information of
expected cash flows and cash balance helps to financial manager
of Bhilai Steel Plant to determine the future cash needs of the firm,
plan for the financing of these need and exercise control over the
cash and liquidity of B.S.P.

Bhilai Steel Plant needs cash to Cary out the day-to-day functions
of business just as the level of operations affects working capital
requirements it affects the need for cash. These days the direct
sales of billets and merchant products are increasing cash. Cash
has been receiving from customers and has been providing for
adequate cash for their liabilities.

As the corporate level the 100% accuracy in cash forecasting is

not possible, corporate office provides adequate cash for
contingencies. If suddenly a major customer does not pay its bill,
the cash inflow will be reduced below the forecasted level. It has
also been seen the supplier of coaking coal has offered a large
discount for cash purchasing of material and SAIL has gained of
this opportunity by importing low cash high quality coaking coal is
imported from Australia.

6. Management of Account Receivables

An account receivables represent the amount due from its
customers to whom the company has extended the credit. When a
firm sells its products and services and does not receive cash for it
immediately, the firm is said to have granted trade credit to
customer and the customers from whom receivables or took debt
have to be collected in future are called trade debtors.

Objectives of Receivables Management

1. To take a sound decision as regards to investments in debtors.

2. To promote sales profit until that point is reached where the
return on investment in future funding of receivables is less
than the cost of funds raised to finance the additional credit.

Management of Receivables in Bhilai Steel Plant

Although managing the receivables is done by corporate office, yet

central marketing organization directly deals with it. Three years
ago when market was declining, they used the receivable
accounting to maintain the market share, at that time the credit
policy of corporate office helped to retain old customers and create
new customers. Now the situation is opposite of that there is a
growing demand of steel products not only in our country but also
in abroad, the credit policy is helping to increase the firms market
share. Obviously the minor part of receivable management dealt at
the Bhilai Steel Plant. Which consists of the recovery of the direct
sales and scrap and defectives and employee related matters.
Mostly the whole of sundry debtors and the third party like
shopkeepers. The shopkeepers are one to whom the B.S.P.
quarters and shops are given from the money is recovered and the
credit facility given is one month for the interest matter which are
basically got from house building advantages given where one
month recovery is done.
Thus we can say that the management of receivables is dealt
major part by corporate office and minor part by the finance
department of Bhilai Steel Plant.

7. Management of Account Payables

Management of account payable is as much important ad

management of accounts receivable. Whereas the underlying
objective in case of account receivables is to maximize the
acceleration of the collection process, the objective in case of
account payable is to slow down the payments process as much
as possible. But it should be noted the delay in payment of
accounts payable may result in saving of some interest cost but it
can prove very costly to the firm in the form of loss of credit in
market. The finance manager has therefore, to ensure that the
payments to the creditors are made at the stipulated time periods
after obtaining the best credit terms possible.

Management of accounts payables at Bhilai Steel Plant

The creditors are managed at plant level only. Mostly the creditors
comprises of contractors to whom payments are to be given and
the capital works. This is basically done as per terms and
conditions with the respective parties. In the case of small
industries it is done with in 30 days if the dues are above 1 lakh.
There is also a scheme of Earnest Money Deposits for the
registered small scale industries. The scheme allows to have a
security deposit, which is refundable at the end of contract. In case
of statutory payments i.e. the income tax etc, whereby one month
due is provided.
 CHAPTER - 2

OBJECTIVE OF THE
STUDY
Objective of the Study
The objective of the study is to examine the extent of use of
permanent working capital & variable w/c. Comparision of change in
working capital from previous years to the years of examination and
liquidity position.
Knowledge of the working capital will help us in interruption of
financial terms and measure to be taken to improve the health of the
companies in the steel industry can be suggested.
1. To study the working capital concept.
2. To study the working capital management process in Bhilai
Steel Plant.
3. To know the legal aspects of managing the working capital in
Bhilai Steel Plant.
4. To study the inventoty management process in Bhilai Steel
Plant.
5. To compare the performance of working capital for a particular
year with the previous year.
6. Suggesting ways to improve the current situation in working
capital management.
 CHAPTER - 3

RESEARCH
METHODOLOGY
WHAT IS RESEARCH?
Research in common parlance refers to a search
for knowledge. It is a scientific and systematic search for pertinent
information on a specific topic. In fact, research is an art of scientific
investigation. It is important in solving various operational and
planning problems of business and industry. It is equally important for
social scientist in studying social relationships and in seeking answer
to various social problems.

WHAT IS RESEARCH METHODOLOGY?

Research methodology is a way to systematically solve
the research problem. It may be understood as a science of studying
how research is done scientifically. In it we study the various steps
that are generally adopted by a researcher in studying his research
problem along with the logic behind it. Research methodology
consists of:
3.1 SOURCE OF DATA

The data for study is both primary and secondary data. For
primary data selection respondent has been approached.

PRIMARY DATA:

Data collected by the researcher itself for the purpose of

research is primary data. It directly benefits the research problem.

SECONDARY DATA:

Data which has already been collected and analyzed by

someone else is secondary data. It means data that has already
collected.

3.2 Methods Adopted for Data Collection

In order to collect data we have used secondary sources. In
order to get sufficient information the following sources of data
collection has been adopted :-
àThrough Articles and magazines.
àThough manuals.
àThrough books.
àThrough Detailed Project report.
àThrough personal interviews.
àThrough websites.

3.3 RESEARCHER INSTRUMENT

.
 This research design is based on descriptive research and this
descriptive research focus on discover of ideas which is generally
based on secondary data. It is a primary investigation which does not
have rigid design because reseacher gets engaged in an descriptive
study.

3.4 Tools and Techniques of analysis :

Coding operation is usually done at this stage through which the

categories of data are transformed into symbols that be tabulated and
counted.
Editing is the procedure that improves the quality of the data for
coding. With coding the stage is ready for tabulation.
Tabulation is a part of the technical procedure wherein the classified
data are put in the form of tables
Pie chart is a part of technical procedure to differenciate different
groups.
 CHAPTER - 4

DATA ANALYSIS
&
INTERPRETATION
Data Analysis

WORKING RESULTS OF B.S.P. for the Financial Year 2005-06 :

1) CURRENT RATIO:
Current Assets = Sundry Debtor + Cash and bank balances+ other
current asset + loan and advances + Total Inventory

= 20.53 + 33.81+ 16.55 + 218.44 + 1505.76

= 1795.09

Current liabilities= Sundry Creditor + Security deposits + other

liabilities +provision

= 518.08 + 42.13 + 289.95 + 29.36

= 879.52

Current Ratio = current asset / current liabilities

= 1795.09/879.52

= 2.04

In the same way C.R. (Current Ratio) of the rest have been
calculated below:-

Year Ratio

2004-05 1.31

2003-04 0.93

2002-03 1.54

2) LIQUID RATIO or QUICK RATIO or ACID TEST Ratio:

Quick Assets = Sundry Debtors +Cash and Bank balance +Interest

Receivable Loans and Advance + Other(-) inventories.
 = current assets – total inventories

=1795.09 – 1505.09

=290

Liquid Ratio = Quick Assets/ Current Liabilities

= 290 / 879.52

= 0.33

In the same way Liquid Ratio of the rest of year have been calculated
below:-

Year Ratio

2004-05 0.26
2003-04 0.21
2002-03 0.47

3) GROSS SALES TO WORKING CAPITAL RATIO:

Working Capital (W.C.) = Current Assets –Current Libilities

= 1795.09 – 879.52
 = 915.75

Gross Sales to Working Capital Ratio

= (Gross Sales/ Working Capital)

= (9564.63 / 915.75)

= 10.44 times

In the same way Gross Sales to Working capital Ratio of the rest of
the years have been calculated below :-

Year Ratio

2004-05 37.2

2003-04 -96

2002-03 13.6

4) WORKING CAPITAL TURNOVER RATIO:

Average Net Working Capital
= (Opening Balance of w.c. + Closing Balance of w.c.) / 2

= (308.67 + 915.75) / 2

= 612.21

Working Capital Turnover Ratio

= Net Sales / Average Net working Capital

= 9564.63 / 612.21

=15.622 times

In the same way Working Capital turnover ratio of the rest of thr year
have been calculated below :-

Year Ratio
2004-05 92.75

2003-04 19.11

2002-03 11.25

5) CURRENT ASSETS TURNOVER RATIO:

Average Current Assets
=(opening current assets + Closing current assets) / 2

=(1297.22 + 1795.09) / 2

= 1546.16

Cost of goods sold = net sales – profit after tax

= 9564.63 – 2781.07

= 6783.56

Current Asset Turnover Ratio

= Cost of goods sold / Average Current Assets

= 6783.56 / 1546.16

= 4.39 times

In the same way current asset Turnover Ratio of the year have been
calculated below :-

Year Ratio

2004-05 4.72

2003-04 4.38

2002-03 3.65

6) INVENTORY HOLDING PERIOD:

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

= (1041.68 + 1505.76) / 2

= 1273.72

Inventory turnover ratio = Cost of goods sold/ Average Inventory

= 6783.56 / 1273.72
= 5.33 times

Now,
Inventory Holding Period = 360/ Inventory Turnover

= 360 / 5.33

=68 days

In the same way Inventory Holding Period of rest of the year have
been calculated below ;-

Year Days

2004-05 60

2003-04 60

2002-03 70
7) WORKING IN PROCESS (w.i.p.) INVENTORY TURNOVER PERIOD:

Average inventory of finished and semi finished goods

=( 385.73 + 734.15)

= 559.94

Work in process (w.i.p.) inventory turnover

Cost of Production
= -------------------------------------------------------
Average Work in process inventory

= 4450 / 559.94

= 7.95

Work in process (w.i.p.) inventory turnover in days

= 360 / work in process turnover

= 360 / 7.95

= 46 days

In the same way work in process Inventory turnover period of the rest
of the year have been calculated below :-

Year Days

2004-05 24

2003-04 27

2002-03 35
8) SEMI FINISHED / FINISHED GOODS STORAGE PERIOD :

Average inventory of finished and semi finished goods

=( 385.73 + 734.15)

= 559.94

Where,
Semi Finished / Finished goods inventory turnover ratio is
Cost of goods sold
= ------------------------------------------------------------------------
Average inventory of finished and semi finished goods

= 4450/559.94

= 7.95 times

Semi Finished /Finished goods storage Period

= 360 / 7.95
= 46 days

In the same way Semi finished /finished goods storage period of the
rest of the year have been below :-

Year Days

2004-05 24

2003-04 26

2002-03 34
9) DEBTOR COLLECTION PERIOD:

Average debtors = (19.48 + 20.53)/2

= 20.01

Net credit Sales

Debtor turnover Ratio = ------------------------------------
Average debtors

= 9564.63 / 20.01

=478

Hence,
Debtor Collection Period = 360 / Debtor Turnover

= 360 / 478

= 1 days

In the same way Debtor Collection Period of the rest of the years
have been calculated below ;-

Year Days

2004-05 1

2003-04 4

2002-03 7
10) CREDITORS PAYMENT PERIOD:

Average Trade Credit

=(opening Sundry Creditors + Closing Sundry Creditors)

=(581.26 + 518.08) / 2

= 549.67

Average of trade credit Purchased /day

= (Raw material purchased including semi /finished products +
Stores & spares + power & fuel) / 360

= (4214.30 + 896.48 + 801.69) / 360

= 5912.47 / 360

= 16.42

Credit Payment Period

Average Trade Credit
= ----------------------------------------------------------
Average of trade credit Purchased /day

= 549.67 / 16.42

= 34 days

In the same way Credit Payment Period of the rest of the year have
been calculated below:-

Year Days

2004-05 43

2003-04 47
 2002-03 54

CHAPTER – 5
LIMITATION

LIMITATIONS :-

1). Descriptive research is totally based on secondary data therefore

futher modification is not possible.
2). Every research contain the chance of standard error.
3). The study was limited for the period of 60 days.
CHAPTER - 6

FINDINGS
RESULT AND DISCUSSION

The Working Capital Ratio or Current Ratio of B.S.P. is in favorable

trend, which means there is a correlation between changes in current
assets with that of current liabilities. The Current Ratio was low in the
year 2005 - 06 which was mainly due to the high inventory and cash
blockages.
The Liquid Ratio of B.S.P. is in a favorable trend, which is due to
existence of high level of inventory turnover and non moving stock
the higher the ratio, the higher the business level of liquidity, which
usually corresponds to its financial health. Here in this case it has
improved from 0.26 in the year 2004 - 05 to 0.33 in the year 2005 -
06, which indicates that the business is capable to pay off its debts
quickly, if that becomes necessary.
The Gross Sales to Working Capital Ratio which shows the
efficiency by which working capital is being used by the business and
we can see that there was a decrease by -96 times in the year 2003-
04 which was mainly due to the negative working capital balance
which resulted due to the payment of wage revision which took place
that year and then it increased to 37.2 times in the year 2004-05
which again shows working capital is supporting sales. In 2005-06 it
is 10.44 times.
Working Capital Turnover is in a increasing trend and we can see a
decrease in the year 2005-06 (15.62 times) as compared to the year
2004-05 (92.75 times) which is mainly due to the increase in the
average net working capital.
The current assets turnover ratio is increased from 3.65 times in
the year 2002-3 to 4.72 times in the year 2004-05 that shows that
there was an increase of 1.07 times, which indicates the efficiency by
which the firm uses all its current assets to generates sales. In 2005 –
06 it is 4.39 times.
The Inventory Holding Period decreased from 70 days in the year
2002 – 03 to 60 days in the year 2004 – 05 which shows the sign of
higher efficiency which indicates that the inventory is quickly utilized
in the production process and not being piled up. It is 68 days in 2005
-06.
The Work in Process Inventory Turnover period and semi finished /
finished goods period decreases from 2002-03 to 2004-05 due to
implementation of effective production and operation techniques in
use, whereby optimum utilization of resources is taking place.
The Debtor Collection Period is in a decreasing state that is from 7
days in the year 2002-03 to 1 day in the year 2005 -06 which shows
that there chances of bad debts and also depicts that B.S.P. is
following a strict and efficient credit policy, and as a result there is a
prompt collection of receivables taking place.
The Creditor Payment Period is showing a decreasing trend from
54 days in the year 2002 -03 to 34 days in the year 2005-06 which
shows that the time lag in the bills payables period has came down
which indicate a prompt payment of all the payables is taking place,
which is a healthy sign for any firm.
Company’s policy relating to collection of debt is in a sound position.
Which shows that B.S.P. has allowed the credit facility it its
customers and are realizing it in timely manner.
Regarding the temporary working capital, which is for the day to day
management, the plant generates a large amount of temporary
working capital by sale of scrap, defectives, and cuttings material
wastages to small industries. And receives remittances of cash from
some malicious receipts.
The marketing of all SAIL’S prime products are done by the Central
Marketing Organization (CMO) and the receipts of sale are directly
sent into the inner unit current account which is centrally controlled by
the corporate office at New Delhi.
 CHAPTER-7

RECOMMENDATION
S
RECOMMENDATION :-

1). The company should try as far as possible to maintain its

current ratio 2:1.
2). Inventory management should be properly in time.
3). The company should allow a short collection period of its
receivables

CHAPTER-8

CONCLUSIONS
Conclusion

Bhilai Steel Plant a major unit of SAIL has been generating

continuous profits as compared to previous year with current year. To
summaries, working capital at a plant level, this mainly involves
forecasting and monitoring of different components, which is done
systematically. Whereby major portions of receivables are managed
by central marketing organization for all plants level. Other important
components of working capital are bill payables and borrowing of
funds monitored by corporate level.

Finance Department of Bhilai Steel Plant and various individual units

decides the amount of funds requirement during the preparation of
operation budget, and then requirement of fund is intimated to
corporate office. Cash inflows and outflows are estimated in budget.
The marketing of all SAIL’s prime products are done by the central
marketing organization and the receipts of sale are directly sent into
the inner unit current account which is centrally controlled by the
corporate office and the corporate office allocates the funds as per
intimation to individual units.

Cash is monitored every day and intimated to the top management as

well as fortnightly to the company.

Inventory is monitored differently for raw material, work in progress,

finished goods and stores. Monthly inventory report is sent to
chairman through the finance department to corporate office, but the
major portion of debtor are dealt by central marketing organization.

While analyzing the data, I found that all most all the ratios calculated
above shows a favorable trend which shows that B.S.P. is working
efficiently and it is having a sound liquidity, and at the same time the
duration of operating cycle has been decreased from year 2002 -03
to 2004-05 which shows an favorable trend and as a result which
indicates that it will require less working capital in the years to
come.Which it self shows that the efficiency of working capital
management in Bhilai Steel Plant.

CHAPTER-9

BIBLIOGRAPHY
BIBLIOGRAPHY

1. Functional Finance & Accounts Manual.

2. Finance year book.
3. SAIL journal.
4. SAIL news magazine.
5. BSP news magazine.
 6. Steel Scenario Journal.
7. http:// www.sail.co.in// (WEBSITE)

STATEMENT SHOWING CHANGES IN WORKING CAPITAL

WORKING CAPITAL 2003-04 2004-05 2005-06

C.A – C.L (in crores) (in crores) (in crores)
CURRENT ASSETS 1223.50 1297.22 1795.09
CURRENT 1316.64 988.55 879.52
LIABILITIES
WORKING CAPITAL -93.14 308.67 915.57

This decrease can be due to the increase in the current assets and
rise in the working capital requirement. The current assets in this year
are proportionately more then the current liabilities.
 CURRENT ASSETS Vs LIABILITIES

YEAR 2003-04 2004-05 2005-06

(in crores) (in crores) (in crores)
CURRENT 1223.50 1297.22 1795.09
ASSETS
CURRENT 1316.64 988.55 879.52
LIABILITIES

This graph shows that there is a gradual increase in the current

assets and gradual decrease in liability.

A
Project Report
on
“WORKING CAPITAL MANAGEMENT WITH
SPECIAL REFERENCE TO INVENTORY
MANAGEMENT”

Under the guidance of Submitted By

 MR.Milton Ray Prakash Verma
Sr.Manager (MBA 3rd Sem)
Bhilai Steel Plant

A project report submitted in partial fulfillment of

the requirements for
Master of Business Administration (2007-2008)
Shri Shakaracharya Institute of Management &
technology
Junwani, Bhilai (C.G.)

DECLARATION

I am a student of Master of business Administration from

Chhattishgarh Swami Vivekanand Technical University, Bhilai for the
session 2006 - 2008, hereby declare this project report prepared, in
lieu of a compulsory paper for the partial fulfillment of Management in
Business Finance, is my original work, which I have submitted in
Bhilai Steel Plant, to my guide Mr. Milton Ray Sr. Manager.
All the information and data given in my project are
authentic to the best of my knowledge and taken from reliable
sources.

Place: Bhilai Prakash Verma

Date: MBA IIIrd Sem

 PREFACE

There's a little bit of SAIL in everybody's life…

"Steel is the basic framework which has built nations, and it is on
this strength that nations stand apart. This man-made metal has an
extraordinary quality of contributing to every aspect of life. While it
keeps the wheels of industry turning, it also lends ever-lasting quality
to all kinds of structures and infrastructure."
This project has been undertaken to study the operation budget &
management accounting system practiced in an integrated steel plant
like BSP.
In the present era of cut-throat competition, the need to have an
integrated operation budget system is growing very fast.
Management accounting helps to provide information to management
to take effective & efficient decision regarding pricing, product-mix,
cost control, ascertainment of profitability & internal & external
reporting.
BSP is ideally suited for this purpose since it is one of the largest
Integrated Steel Plants of our country and is been awarded for its
appreciating step of cost reduction by Institute of Cost & Work
Accountants of India. Other than this BSP is the maximum profit
making unit & also is the highest steel producing unit of Steel
Authority of India Limited (a NAVRATNA PSU). Various units of BSP
closely resemble the flow of material / information throughout the
plant, which helps in a better understanding of the entire operation on
an overall basis. It helps to gain a better understanding of the process
of Iron and Steel Making and helps us in appreciating the effort and
dedication involved in the successful working of a huge integrated
steel plant.
 ACKNOWLEDGEMENT
Acknowledgements are not the full expression of one’s
gratitude towards the person whose help is acknowledged. Though
language is an inadequate medium to express one’s sentiments, it is
the only way one can record one’s grateful indebt ness to one’s guide
and benefactor.
I would like to take this privilege to thank Dr. R.M Shingh (Director of
NDIM, New Delhi) who has given me opportunity to do this project.
I also express my deep sense of obligation to the
management of Steel Authority of India Ltd (Bhilai) for giving me an
opportunity to undergo field training in their esteemed organization
and Mr. P.Madhusudan (D.G.M, Finance & Accounts), who provided
this great help to me with his kind co-operation.
I express my profound sense of respect and deepest gratitude
to my guide Mr. Milton Ray, Mr. N.K.Yadav, Mr. Rajiv Mahendru for
their kind cooperation and help.
I also thanks to Human Resource Development department
Mr.Anil Sharma (DGM-HRD),Mr. S.Dubey(DGM-HRD), Mr.
S.M.Singh (GM-HRD) and Mr.D.K.Jadhav(Sr.MGR.-HRD).
I am specially thankful to respected Mr.Namdeo Barange
(Training coordinator V.T. Section-HRD) and Mr.A.K. Shukla (AGM-
SED), who gave the opportunity for summer traning in Bhilai Steel
Plant. I also express my sincere debt of gratitude to the Finance &
Accounts, Human Resource and Administration Departments in
providing me with all the necessary information in carrying out my
project study. I also extend my thanks to the officers and staff
members of the Finance & Accounts Department, who directly and
indirectly helped me while undergoing the project work.
Lastly, I am thankful to all those people and others whose efforts and
contribution now escape my memory.
Prakash Verma
TABLE OF CONTENTS

CHAPTER
Chapter 1. Introduction
(a) Company profile
(b) Working capital management at B.S.P.

Chapter 2 Objective of the study

Chapter 3. Research Methodology

3.1 Source of Data

3.2 Method of data collection
3.3 Researcher instrumentation
3.4 Tools and Techniques analysis

Chapter 4. Analysis and Interpretation of Data

Chapter 5. Limitation

Chapter 6. Findings

Chapter 7. Recommendation

BIBLIOGRAPHY
Appendix - QUESTIONNAIRE