REVIEW OF

LITERATURE
WORKING CAPITAL - Meaning of Working Capital

Capital required for a business can be classified under two main categories via,

1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment and to carry out

its day- to-day operations. Long terms funds are required to create production facilities

through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments

in these assets represent that part of firm’s capital which is blocked on permanent or fixed

basis and is called fixed capital. Funds are also needed for short-term purposes for the

purchase of raw material, payment of wages and other day – to- day expenses etc.

These funds are known as working capital. In simple words, working capital

refers to that part of the firm’s capital which is required for financing short- term or

current assets such as cash, marketable securities, debtors & inventories. Funds, thus,

invested in current assts keep revolving fast and are being constantly converted in to cash

and this cash flows out again in exchange for other current assets. Hence, it is also known

as revolving or circulating capital or short term capital.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those

Assets which can convert in to cash within a short period normally one accounting year.

CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances.

5) Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

 d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net working capital

is the excess of current assets over current liability, or, say:

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets exceeds the

current liabilities are more than the current assets. Current liabilities are those liabilities,

which are intended to be paid in the ordinary course of business within a short period of

normally one accounting year out of the current assts or the income business.

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.
 4. Bank overdraft.

5. Provision for taxation , if it does not amt. to app. Of profit.

6. Bills payable.

7. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net

working capital is an accounting concept of working capital. Both the concepts have their

own merits.

The gross concept is sometimes preferred to the concept of working capital for the

following reasons:

1. It enables the enterprise to provide correct amount of working capital at correct

time.

2. Every management is more interested in total current assets with which it has to

operate then the source from where it is made available.

3. It take into consideration of the fact every increase in the funds of the enterprise

would increase its working capital.

4. This concept is also useful in determining the rate of return on investments in

working capital. The net working capital concept, however, is also important for

following reasons:
 It is qualitative concept, which indicates the firm’s ability to meet to its operating

expenses and short-term liabilities.

 IT indicates the margin of protection available to the short term creditors.

 It is an indicator of the financial soundness of enterprises.

 It suggests the need of financing a part of working capital requirement out of the

permanent sources of funds.

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:

o On the basis of concept.

o On the basis of time.

On the basis of concept working capital can be classified as gross working capital and

net working capital. On the basis of time, working capital may be classified as:

 Permanent or fixed working capital.

 Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current

assets. Every firm has to maintain a minimum level of raw material, work- in-process,

finished goods and cash balance. This minimum level of current assts is called permanent

or fixed working capital as this part of working is permanently blocked in current assets.

As the business grow the requirements of working capital also increases due to increase

in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is required

to meet the seasonal demands and some special exigencies. Variable working capital can

further be classified as seasonal working capital and special working capital. The capital

required to meet the seasonal need of the enterprise is called seasonal working capital.

Special working capital is that part of working capital which is required to meet special

exigencies such as launching of extensive marketing for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense that is

required for short periods and cannot be permanently employed gainfully in the business.

IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL

 SOLVENCY OF THE BUSINESS: Adequate working capital helps in

maintaining the solvency of the business by providing uninterrupted of

production.

 Goodwill: Sufficient amount of working capital enables a firm to make prompt

payments and makes and maintain the goodwill.

 Easy loans: Adequate working capital leads to high solvency and credit standing

can arrange loans from banks and other on easy and favorable terms.

 Cash Discounts: Adequate working capital also enables a concern to avail cash

discounts on the purchases and hence reduces cost.

 Regular Supply of Raw Material: Sufficient working capital ensures regular

supply of raw material and continuous production.

 Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It

leads to the satisfaction of the employees and raises the morale of its employees,

increases their efficiency, reduces wastage and costs and enhances production and

profits.

 Exploitation Of Favorable Market Conditions: If a firm is having adequate

working capital then it can exploit the favorable market conditions such as

purchasing its requirements in bulk when the prices are lower and holdings its

inventories for higher prices.

 Ability To Face Crises: A concern can face the situation during the depression.
 Quick And Regular Return On Investments: Sufficient working capital enables

a concern to pay quick and regular of dividends to its investors and gains

confidence of the investors and can raise more funds in future.

 High Morale: Adequate working capital brings an environment of securities,

confidence, high morale which results in overall efficiency in a business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run its

business operations. It should have neither redundant or excess working capital nor

inadequate nor shortages of working capital. Both excess as well as short working

capital positions are bad for any business. However, it is the inadequate working

capital which is more dangerous from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING

CAPITAL

1. Excessive working capital means ideal funds which earn no profit for the

firm and business cannot earn the required rate of return on its investments.

2. Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.

3. Excessive working capital implies excessive debtors and defective credit

policy which causes higher incidence of bad debts.

 4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks

and other financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working capital

arises due to the time gap between production and realization of cash from sales. There is

an operating cycle involved in sales and realization of cash. There are time gaps in

purchase of raw material and production; production and sales; and realization of cash.

Thus working capital is needed for the following purposes:

 For the purpose of raw material, components and spares.

 To pay wages and salaries

 To incur day-to-day expenses and overload costs such as office expenses.

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

 To provide credit facilities to the customer.

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

spares and finished stock.

For studying the need of working capital in a business, one has to study the business

under varying circumstances such as a new concern requires a lot of funds to meet its

initial requirements such as promotion and formation etc. These expenses are called

preliminary expenses and are capitalized. The amount needed for working capital

depends upon the size of the company and ambitions of its promoters. Greater the

size of the business unit, generally larger will be the requirements of the working

capital.

The requirement of the working capital goes on increasing with the growth and

expensing of the business till it gains maturity. At maturity the amount of working

capital required is called normal working capital.

There are others factors also influence the need of working capital in a business.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working is very limited in public

utility undertakings such as electricity, water supply and railways because they offer

cash sale only and supply services not products, and no funds are tied up in

inventories and receivables. On the other hand the trading and financial firms requires

less investment in fixed assets but have to invest large amt. of working capital along

with fixed investments.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement

of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating

inventories it will require higher working capital.

4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw

material and other supplies have to be carried for a longer in the process with

progressive increment of labor and service costs before the final product is obtained.

So working capital is directly proportional to the length of the manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires

larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes

one cycle determines the requirements of working capital. Longer the cycle larger is

the requirement of working capital.

7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the

question of working capital and the velocity or speed with which the sales are

affected. A firm having a high rate of stock turnover wuill needs lower amt. of

working capital as compared to a firm having a low rate of turnover.

8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its

product / services on cash requires lesser amt. of working capital and vice-versa.
9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is

need for larger amt. of working capital due to rise in sales, rise in prices, optimistic

expansion of business, etc. On the contrary in time of depression, the business

contracts, sales decline, difficulties are faced in collection from debtor and the firm

may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require

large amt. of working capital.

11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning

capacity than other due to quality of their products, monopoly conditions, etc. Such

firms may generate cash profits from operations and contribute to their working

capital. The dividend policy also affects the requirement of working capital. A firm

maintaining a steady high rate of cash dividend irrespective of its profits needs

working capital than the firm that retains larger part of its profits and does not pay so

high rate of cash dividend.

12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital

requirements. Generally rise in prices leads to increase in working capital.

Others factors: These are:

 Operating efficiency.

 Management ability.

 Irregularities of supply.
  Import policy.

 Asset structure.

 Importance of labor.

 Banking facilities, etc.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting

to manage the current assets, current liabilities. The basic goal of working capital

management is to manage the current assets and current liabilities of a firm in such a way

that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor

excessive as both the situations are bad for any firm. There should be no shortage of

funds and also no working capital should be ideal. WORKING CAPITAL

MANAGEMENT POLICES of a firm has a great on its probability, liquidity and

structural health of the organization. So working capital management is three dimensional

in nature as

1. It concerned with the formulation of policies with regard to profitability, liquidity

and risk.

2. It is concerned with the decision about the composition and level of current assets.
3. It is concerned with the decision about the composition and level of current

liabilities.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business. Adequate

amount of working capital is very much essential for the smooth running of the business.

And the most important part is the efficient management of working capital in right time.

The liquidity position of the firm is totally effected by the management of working

capital. So, a study of changes in the uses and sources of working capital is necessary to

evaluate the efficiency with which the working capital is employed in a business. This

involves the need of working capital analysis.

The analysis of working capital can be conducted through a number of devices, such as:

1. Ratio analysis.

2. Fund flow analysis.

3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique of ratio

analysis can be employed for measuring short-term liquidity or working capital position

of a firm. The following ratios can be calculated for these purposes:

1. Current ratio.
 2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from

which additional funds were derived and the use to which these sources were put. The

fund flow analysis consists of:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working

capital) business enterprise between beginning and ending of the financial dates.

3. WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and polices to be

pursued in the future period time. Working capital budget as a part of the total budge ting

process of a business is prepared estimating future long term and short term working

capital needs and sources to finance them, and then comparing the budgeted figures with

actual performance for calculating the variances, if any, so that corrective actions may be

taken in future. He objective working capital budget is to ensure availability of funds as

and needed, and to ensure effective utilization of these resources. The successful

implementation of working capital budget involves the preparing of separate budget for

each element of working capital, such as, cash, inventories and receivables etc.

ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF

LIQUIDITY

The short –term creditors of a company such as suppliers of goods of credit and

commercial banks short-term loans are primarily interested to know the ability of a firm

to meet its obligations in time. The short term obligations of a firm can be met in time

only when it is having sufficient liquid assets. So to with the confidence of investors,

creditors, the smooth functioning of the firm and the efficient use of fixed assets the

liquid position of the firm must be strong. But a very high degree of liquidity of the

firm being tied – up in current assets. Therefore, it is important proper balance in regard

to the liquidity of the firm. Two types of ratios can be calculated for measuring short-

term financial position or short-term solvency position of the firm.

1. Liquidity ratios.
 2. Current assets movements ‘ratios.

A) LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and

when these become due. The short-term obligations are met by realizing

amounts from current, floating or circulating assts. The current assets should

either be liquid or near about liquidity. These should be convertible in cash for

paying obligations of short-term nature. The sufficiency or insufficiency of

current assets should be assessed by comparing them with short-term liabilities.

If current assets can pay off the current liabilities then the liquidity position is

satisfactory. On the other hand, if the current liabilities cannot be met out of the

current assets then the liquidity position is bad. To measure the liquidity of a

firm, the following ratios can be calculated:

1. CURRENT RATIO

2. QUICK RATIO

3. ABSOLUTE LIQUID RATIO

1. CURRENT RATIO
 Current Ratio, also known as working capital ratio is a measure of general liquidity and

its most widely used to make the analysis of short-term financial position or liquidity of

a firm. It is defined as the relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

The two components of this ratio are:

1) CURRENT ASSETS

2) CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors,

inventories and work-in-progresses. Current liabilities include outstanding expenses, bill

payable, dividend payable etc.

A relatively high current ratio is an indication that the firm is liquid and has the ability to

pay its current obligations in time. On the hand a low current ratio represents that the

liquidity position of the firm is not good and the firm shall not be able to pay its current

liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets

double the current liabilities is considered to be satisfactory.

2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be

defined as the relationship between quick/liquid assets and current or liquid liabilities. An

asset is said to be liquid if it can be converted into cash with a short period without loss

of value. It measures the firms’ capacity to pay off current obligations immediately.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES

Where Quick Assets are:

1) Marketable Securities

2) Cash in hand and Cash at bank.

3) Debtors.

A high ratio is an indication that the firm is liquid and has the ability to meet its current

liabilities in time and on the other hand a low quick ratio represents that the firms’

liquidity position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if

quick assets are equal to the current liabilities then the concern may be able to meet its

short-term obligations. However, a firm having high quick ratio may not have a

satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm

having a low liquidity position if it has fast moving inventories.

3. ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are generally more liquid than

inventories, yet there may be doubts regarding their realization into cash immediately or

in time. So absolute liquid ratio should be calculated together with current ratio and acid

test ratio so as to exclude even receivables from the current assets and find out the

absolute liquid assets. Absolute Liquid Assets includes :

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

B) CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to make sales and earn profits. The

efficiency with which assets are managed directly affects the volume of sales. The better

the management of assets, large is the amount of sales and profits. Current assets

movement ratios measure the efficiency with which a firm manages its resources. These

ratios are called turnover ratios because they indicate the speed with which assets are

converted or turned over into sales. Depending upon the purpose, a number of turnover

ratios can be calculated. These are :

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

 3. Creditors Turnover Ratio

4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high

amount of debtors due to slow credit collections and moreover if the assets include high

amount of slow moving inventories. As both the ratios ignore the movement of current

assets, it is important to calculate the turnover ratio.

1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO :

Every firm has to maintain a certain amount of inventory of finished goods so as to meet

the requirements of the business. But the level of inventory should neither be too high nor

too low. Because it is harmful to hold more inventory as some amount of capital is

blocked in it and some cost is involved in it. It will therefore be advisable to dispose the

inventory as soon as possible.

INVENTORY TURNOVER RATIO = COST OF GOOD SOLD

AVERAGE INVENTORY

Inventory turnover ratio measures the speed with which the stock is converted into sales.

Usually a high inventory ratio indicates an efficient management of inventory because

more frequently the stocks are sold ; the lesser amount of money is required to finance

the inventory. Where as low inventory turnover ratio indicates the inefficient

management of inventory. A low inventory turnover implies over investment in

inventories, dull business, poor quality of goods, stock accumulations and slow moving

goods and low profits as compared to total investment.

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

2. INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO

3. DEBTORS TURNOVER RATIO :

A concern may sell its goods on cash as well as on credit to increase its sales and a

liberal credit policy may result in tying up substantial funds of a firm in the form of trade

debtors. Trade debtors are expected to be converted into cash within a short period and

are included in current assets. So liquidity position of a concern also depends upon the

quality of trade debtors. Two types of ratio can be calculated to evaluate the quality of

debtors.

a) Debtors Turnover Ratio

b) Average Collection Period

DEBTORS TURNOVER RATIO = TOTAL SALES

 AVERAGE DEBTORS

Debtor’s velocity indicates the number of times the debtors are turned over during a

year. Generally higher the value of debtor’s turnover ratio the more efficient is the

management of debtors/sales or more liquid are the debtors. Whereas a low debtors

turnover ratio indicates poor management of debtors/sales and less liquid debtors. This

ratio should be compared with ratios of other firms doing the same business and a trend

may be found to make a better interpretation of the ratio.

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

4. AVERAGE COLLECTION PERIOD :

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

The average collection period ratio represents the average number of days for which

a firm has to wait before its receivables are converted into cash. It measures the quality of

debtors. Generally, shorter the average collection period the better is the quality of

debtors as a short collection period implies quick payment by debtors and vice-versa.

Average Collection Period = 365 (Net Working Days)

 Debtors Turnover Ratio

5. WORKING CAPITAL TURNOVER RATIO :

Working capital turnover ratio indicates the velocity of utilization of net working

capital. This ratio indicates the number of times the working capital is turned over in

the course of the year. This ratio measures the efficiency with which the working

capital is used by the firm. A higher ratio indicates efficient utilization of working

capital and a low ratio indicates otherwise. But a very high working capital turnover is

not a good situation for any firm.

Working Capital Turnover Ratio = Cost of Sales

Net Working Capital

Working Capital Turnover = Sales

Networking Capital
COMPANY
PROFILE
SREE RAYALASEEMAGREEN STELOY LTD:-

Sree Rayalaseema industries ltd(SRIL) is incorporated for the purpose of

established mini integrated steel plant at kurnool, In the 1st phase of implementation along

with waste heat recovery boiler of 10 ton capacity are being installed at a total project

cost of over rs.19 crores, In this term of rs.12.60 crores was sanctioned by syndicate

bank, Nandyal. The major raw material required is iron ore, coal and dolomite. Iron ore is

available in veldurthy mandal and Bellary, Coal is available with singareni collieries and

imported cola from Chennai port. Dolomite is available locally.

Technology for the plant is sourced from industrial projects and services, popular

consultants and HIQ power Associates ltd with when the group has been associated since

last 5 years.

During the manufacturing of sponge iron in the kiln (main equipments) waste

gases are released to the tune of amount 22000 to 26000 NM3 per hour at a temperature

of 950c to the 1000c. Normally these gases ate being cooled and are let out into

atmosphere involving substantial costs. The same gases are passes through a waste heat

recovery bler that generates steam and the gases will be cooled. The steam from the waste

heat recovery boiler can be used for further requirements. SRIL proposes to sell the steam

generated to SREE RAYALASEEMA GREEN STELOY LTD by which SRIL would

earn additional revenue of rs.650 to 700 per ton of sponge iron produced totaling to

rs.2.58 crores in year of operation costs for cooling the gases.

Major utility in SRIL is power which is available in adjacent SRGEL as the unit

was setup adjacent to Sree Rayalaseema Green Steloy ltd. If a green field power

generation unit is to be set up for waste heat recovery gases an amount of rs.10 crores
would have to be additionally invested. Apart from other major formalities like having

power purchases agreement with power buyers etc,,would have to be compiled further, it

would be unavailable to operate a 2MW power plant as the investment per MW is almost

double and the operation and maintenance cost of generation are almost equivalent to that

of an operation and maintenance cost of independents power produces with much higher

capacity. The additional cost of waste Heat recovery boiler systems is just 1/3 rd of cost of

a new power plant without any operation cost the revenue earned is equivalent to that

installing a power plant. Apart from this existing infrastructure of Sree Rayalaseema

Green steloy limited can be used for sree Rayalaseema industries limited

KPS GROUP PROFILE

The KPS group of industries of Gooty, Anantapur district , Andhrapradhesh includes oil

milling, power generation, plantation, sugar manufacturing and transformers

manufacturing. The group have their solvent extraction plants and like refinery plants

located in Gooty. Biomass power plant at kurnool, plantation projects at pattikonda and

sugar plant at Nandyal-Kurnool districts and transformers manufacturing unit at Gooty-

Anantapur district.

The group companies has industrial track record of over 40 years which has

started its carrier as a small like millet and has established the biggest oil complex in

rayalaseema region first being ITC Agrotech limited, The group has established seed

decorticators, oil mills, edible oil refining plant and two solvent extraction plants. It is an

accepted phenomena that the margins in the edible oil industry are very thin, the risks of

price fluctuation is very high and is subjected to various government controls and
seasonal factors. Further no other commodity has so many substitutes as the oil industry

has with so many negative features, the group has sustained continuous growth and

meticulous commitment towards financial institutions/banks. It has been successfully

competing with cheap imports of de-oiled cake in the region. It has effectively

encountered many crises.

The various corporate organizations of the group and their capability is as under.

 SREE BALAJI TMT ROD MILLS PRIVATE LTD

 SREE RAYALASEEMA INDUSTRIES LTD

 M/S MADHU SOLVENT EXTRACTIONS PVT LTD

 M/S VENKATESHWARE INDUSTRIES LTD

SREE BALAJI TMT ROD MILLS PRIVATE LTD.

SREE BALAJI TMT ROD MILLS PRIVATE LTD is a part of KPS

group of industries. A group with a strong foundation, good ideals driven towards a better

tomorrow.

Making the mighty steel for the magnificent constructions is the mission of Sree

Balaji Tmt rod mills private ltd. An ISO certified 9001:2000 for quality management and

the product is registered with Beuarue of Indian standards for ISI marking. The mission

got accomplished by setting state of the art facilities with high quality measures and with

the people who are driven by clear vision.

TMT (thermex) bar is the new latest generation steel with high strength, different

from traditional bar. Its manufacturing is different from other traditional bars in its
combination of properties. This specially designed and made for construction of products.

Presently operating from its state of the art manufacturing unit, based at Kurnool.

TMT PROCESS

Thermo mechanical treatment involves the simultaneous application of heat and

deformation process to an alloy in order to change its size and refine the micro

structure .Thus hot rotting of metals, a well established industrial process is a thermo

mechanical treatment which plays an important role in the processing of many steels

from low carbon mild steels to high alloyed stainless steels.. The traditional

manufacturing route involves the casting of ingots from 1 to 30 tons which are soaked at

very high temperature (120c-1300c) then progressively, hot rolled to billets, bars and

sheets. Thus leas to the breaking down of the original coarse cast structure by repeated

recrystallisation steel while in the austenitic condition and by the gradual reduction of

homogeneities of composition caused by segregation during casting. Also the inevitable

non metallic inclusions .i.e., oxides, silicates aluminates and sulphides are broken up

deformed and distributed throughout the steel in a more uniform manner.

Mechanical treatment involves the simultaneous application of heat and

deformation process to an alloy in order to change its shape and refine the microstructure.

Thus, hot rolling of metals, a well established industrial process is a thermo mechanical

treatment which plays an important part in the processing of many steels from low carbon

mild steels to high alloyed stainless steels.

PROCESS OF THERMOMECHANICALLY TREATED RODS

There are three important stages in TMT manufacturing process.

 1. Quenching: - Rapid water cooing applied on the bar with high accuracy thermex

system produces very rapid cooling in the bar surface to form martensite surface layer.

2. Tampering: - Rapid cooled martensite surface rod is exposed to air for tempering. This

ensures ductility while maintaining high yield stress.

3. Final cooling: - In the precisely calculated cooling bed further cooling takes place for a

semi iso thermal transformation of the still untransformed austenite in the core of the bar.

The bar cross section consist a peripheral layer of martensite mixed bainitic inner layer

and the core of pearlite-ferrite.

QUALITY ASSURANCE

The company believes in implementing high quality standards with the state of the art

facilities in the plant. Since it is integrated steel plant, they take utmost care in raw

material in both sponge and billet to produce TMT rods. To ensure the high quality

standards, the process is monitored at every stage of the production.

ECO-FRIENDLY FACILITY

Sree Balaji Tmt rod mills private ltd – to reduce the impact of green house effect gases is

manufacturing BUL TMT rods with zero emission by putting up a state of the art gasifier

to produce gas furnace to reheat the billets. The project is first of its kind funded by

IREDA out of 2nd line credit of the World Bank. This contributes in saving of precious

natural resources, foreign exchange and cost, apart from stupendous job of zero emission.

FEATURES OF BUL TMT BARS

 Higher strength, ductility and toughness.

 More elongation than ctd bars.

 Adequate corrosion resistance.

 High thermal stability.

 Excellent weldability.

 Earth quake proof due to higher elongation.

 Deeper ribs for blinding strength.

 Lower consumption because of higher strength.

 Admirable straightness.

CUSTOMER BENEFITS: They always derive pleasure by satisfying their

customers by ensuring better quality products and timely dispatches. They take strict cost

cutting measures in process to deliver value to the customer.

SREE RAYALASEEMA GREEN ENERGY LIMITED:

Sree rayalaseema green energy limited (SRGEL)is a 5.5 MW biomass power plant,

promoted by KPS group situated in Kurnool of Andhra Pradesh. The unit is first of its

kind in the region.

The unit has been put into operation in a record time of 9 months against projection of 18

month gestation and industry norm of 24 months. The unit has started its operation from

2001 and every since commencement of its operation, the unit has recorded a plant load

factor (PLF) of more than 95%.The following are the PLfs achieved during the last 3

years of operation and fuel consumptions per annum.

PLF (%) Fuel consumption (M.Ts)

 2001-02 95.40% 56613

2001-03 97.20% 59087

2003-04 99.00% 52427

Being situated on riverbank of Hundri, the unit is blessed with abundant water source.

Unlike most of other Biomass power, plants, the unit is having potentiality of multi

biomasses availability like paddy husk,GN shell, sunflower waste, jowar husk, castor

shell, Bengal gram husk, cotton and chilly stalk etc,. The unit is having the advantage of

III party sale and wheeling its power to private parties by achieving better realization.

The unit is financed by IREDA with 1500 lakhs of term loan has commenced and

installments of RS 53.00 lakhs have been as scheduled. The company has been regular in

payment of interest and installments.

Being situated in rural areas where various agri wastes are either burnt for

disposal at cost by farmers, the unit has provided an opportunity to farmers to earn

additional money by way of selling their biomass. Apart from this, the unit has generated

employment opportunities to 200 members directly and to 150 members indirectly.

SREGL is a thermal power plant using biomass as fuel against coal or oil as in

case of convention power plants. Biomass means agri wastes and is renewable source of

energy which is normally disposed by the farmers and agro industries by burning it, The

biomass burnt with improper combustion could result of carbon monoxide The

conventional fuels like coal and oil used in power generation also release carbon

monoxide which is a major cause for the green house effect. But biomass used as fuel in

the power plants is fired under proper combustion; hence carbon dioxide is released in

place of carbon monoxide. SREGL has installed steam generating unit of 5.4MW
capacity and turbo Generator of 7.5 MW capacity. In boiler biomass fuels are burnt and

steam is generated which is used for rolling the Turbine and thereby power is generated.

There is a 2.1 MW spare capacity in turbine SREGL is envisaging to establish a sponge

Iron plant, there by this spare capacity of Turbine can be utilized to the extent of 100%.

The following are the advantages for SREGL on establishing Sponge Iron plant

with waste heat recovery boiler system.

1) A.100 TPD sponge iron plant with waste heat recovery boiler system would

generate 9 tons of steam per hour which is sufficient for generating 2 MW power.

2) As there is spare capacity in Turbine, steam from Sree Rayalaseema Industries

would be directly connected to the Turbine along with SREGL steam that would

generate 2 MW of additional power without incurring any major capital

expenditure. This would led to substantial decrease in overall cost of power of

generation.

3) Alternatively, purchase of fuel from the market can be reduced by 40% thereby

having better bargaining capacity and sustaining capability during off season.

SREE RAYALASEEMA SUGARS AND ENERGY LIMITED:

Sree rayalaseema sugars and energy limited is a company floatd by KPS group on,

acquition of Nandyal co-operative sugars limited, nandyal, a 1600 TCD sugar plant

spread over 125 acres of prime land at nandyal. The unit was under co-operative sector

and closed for the last 7 years before acquition by SRSEL. This is the first sugar unit that

is revived after private acquition among the co-operative that were privatized
The unit being an existing unit on bank of K.C canal is blessed with best infrastructure

like water, transportation, power etc., and major irrigation sources like K.C canal, telugu

ganga canal, SRBC the unit is having very good potentiality for cane development in and

around 50 KMs radius. Apart from this, the unit has special allocation of 1 TMC of water

from velugodu balancing reservoir through special canal viz., sugar cane canal. With

respect to the power requirements, one 1.8 NW co-generation plant is existing with the

plant to meet the entire power requirements of the plant.

The first season of operation has been completed in the year 2003. The acquisition

formalities were completed in October 2003 and immediately the unit was brought into

operation out of the cane that were grown with the support of SRSEL since 2002. In the

first year of operation 70,000 Mts of cane was crushed with 9% recovery and quality of

sugar was comparable to the best unit of the industry. As there is no other sugar mill in

the region, sugar realization has been highest compared to that of any sugar mill with in

Andhra Pradesh and Karnataka. Apart from this the surplus bagasse of SRSEL will be

supplied to its sister concern sree Rayalaseema Green Energy limited where bagasse is

used as fuel to boiler. SRSEL is envisaging crushing 100000 MTS of sugar cane in 2004-

05 seasons with a recover between 9.5% to 10.00%.

On reviving the unit, SRESL has created employment opportunities to around 1500

people directly and indirectly to around 1000 people, thereby a substantial contribution to

rural development in the region.

The project was financed by syndicate bank, Nandyal with a term loan of RS.311.00

lakhs out of total project cost of 925.84 lakhs and 250 lakhs cc limits.
SREE RAYALASEEMA GREEN ENERGY LIMITED- TRANSFORMERS

DIVISION

Having its origin and base from the multi resource self sourcing company sree

rayalaseema green energy ltd transformers division of SREGL is achieving very good

results.

The unit, situated in Gooty, Anantapur District of Andhra pradhesh. Two main

highways NH-7 and NH-32 passes through the town. The unit was setup in an area of 10

acres facilitating stock of materials as well as finisehed gooks with al amenities available.

The unit having the capacity to manufacturing 500 transformers per month of various

from 10 KVA to 160 KVA.

The unit was has successfully completed 4000 No’s of 15 KV distribution

transformers under HVDS systems to APSPCDCl. The unit has bagged an order from

APNPDCL to supply 3300 NOs of 25 distribution transformers and has already supplied

1500 no’s to them. The unit also bagged another order from APNPDCL to supply 1000

no’s of 25 KVA transformers. The unit has no term loan and has only SOD of 100 lakhs

and bills discounting facility of 88 lakhs from syndicate bank, nandyal.

In tiny town of Gooty where neither industrial development nor agricultural

development, the unit has created employment opportunities to more than 250members

thereby contributed substantially to the society.

M/S MADHU SOLVENT EXTRACTIONS PVT LTD

 MSEPL has established a 125 TPD solvent extraction at Gooty in 1991 with a

total capacity outlay of rs.200 lakhs. The plant was successfully commissioned in 1991

and thereafter exported its procedure of deoiled cake to various middle-east countries.

M/S VENKATESHWARA INDUSTRIES LTD

VIL is an in house developed solvent extraction plant of 50 TPD which runs on

the surplus consumables of Madhu solvent extractions pvt ltd. The plant was established

in 1996 with total capital outlay of rs.125.00 lakhs.

INDUSTRY PROFILE

SPONGE IRON INDUSTRY

 The story of sponge iron also known as Direct Reduce Iron (DRI) industry is vey

interesting as for as India goes. The three-decade old, this industry came into existence all

on sudden when mini steel plants were looking out for raw materials randomly. Since,

India has adequate coal deposits, its utilization for steel plant was considered of prime

importance. Production of coal based sponge iron in the beginning was taken as vital

option. Sponge iron industry grew at slow speed till the mid of 1980 due to

government restrictive licensing. The year 1985 proved as a historical for the industry in

general and the steel industry in particular. In this year the DRI production was de-

licensed and since then the industry started growing rapidly to reach today’s level. DRI is

a high quality metallic product obtained form iron-ore, pellets etc as a feed stock in the

Electric Arc Furnaces (EAF), blast furnaces (BF) as well as other iron and steel making

process.

INDUSTRY GROWTH:

Since 1980, the sponge iron industry took a “U” turn and the players of the

industry were very reluctant to contribute significantly for steel making looking at bright

prospects of the steel industry in India and neighboring countries. Keeping the growth

momentum in the iron and steel sector, India has emerged as the largest producer of

sponge iron. Sponge iron India ltd was outcome of player’s enthusiasm who accepted the

challenge for DRI production. This was the first sponge iron plant in the country which

was setup at palvancha in Andhra pradhesh with a capacity of 0.039 MTPA in 1980.

Between 1980 and 1988, there was only three plants setup namely Orissa sponge iron ltd-

capacity of 0.1 MTPA and sunflag iron steel ltd- capacity of 0.09 MTPA Ipitata sponge

iron ltd- capacity of 0.09 MTPA. In 1989, the first merchant sponge iron plant is Bihar
sponge iron ltd with a capacity of 0.15MTPA was setup. In the late eighties, domestic

producers were enthused by the discovery of large reserves of natural gas, started setting

up gas based sponge iron plants. The first one was set up by Essar steel ltd at Hazira in

Gujarat in 1990. Jindal steel and power ltd is the largest producer of coal based sponge

iron in Asia and second largest in the world.

QUANTUM: It is hard to reach a particular figure which indicates the total number on

sponge iron units exists in India because 60% of the sponge iron units are coming from

small scale industries. Many of them are from unorganized sector too. There are certain

unreported fly by night companies, hence, it is quite impossible to ascertain the total

number.

OUTPUT: The installed production capacity of sponge iron in India has increased from

1.52 MTPA in 1990-91 to over 7 MTPA in 2003-03. The country produced 9.37 million

tone of sponge iron in 2004 as compared with 7 million tones in 2003.

Venezuela produced – 8.09 million tone

Mexico produced - 6.65 million tone

Iran produced - 6.4 million tone

Thus industry grew approximately at the rate of 30 percent. All these point out to the

substantial growth in the demand of sponge iron in the country.

RAW MATERIALS: The major raw materials required for production of sponge iron

are oxides of iron in the form of lump iron, pellets, non-coking coal and fluxes ( lime

stone and dolomite). Some precaution is necessary in selecting the iron reliability for easy

reduction. Use of high purity of lump are, pellets with low phosphorus at and economic

price helps in the cost effective production of sponge iron. As far as chemical
composition for sponge iron goes for maximum yield, the metallic iron content sulphur

and phosphorus as low as possible. The gauge content should preferably be with 2

percent and silica less than3% to ensure lower slag volume, less power consumption and

for achieving higher productivity.

LAND MARKS: India became the largest producer in the world in 2002; a performance

repeated two tears in succession with an output of 6.53 MT. According to an expert of

industry, a few new steel ventures in the secondary sector are coming up with combined

installed capacities of about 6 MTPA. The indigenous demand for sponge iron has been

estimated to reach the level of 17.77 MT. India has once again emerge as the largest

producer of sponge iron in the world for the year 2003 with a record production of 77

million tones, showing a significant growth of 17.5%. The world production of sponge

iron too has risen from 45.10 million tones to 49.45 tons.

INCONVINIENCE FACED BY THE INDUSTRY: The sponge iron industry in India

is facing tremendous problems or which mounting cost of basic inputs, high cost of

capital are of primary importance. The demand was in recession in the immediate past

years, however it has recovered now and the industry is enjoying healthy demand for the

last few months. But the industry is afraid of continuing the scenario in future as steel

scrap imports is increasing voluminously. High quality iron ore are supplied to them.

Premium grade iron ore which has more than 60% of iron content is preferably exported.

High prices of natural gas in India as compared to the global market are increasing the cot

of production of the gas based producers.

POWER GENERATION: Power generation through waste gases at very low cost is one

of the biggest advantages, the sponge iron industry is enjoying with. This provides power
at the low cost per unit which helps the unit to generate more profit than the sale of

sponge iron in real sense. That means electrical power could become prime product with

sponge iron. And as tariff for power to near by high, these units can sell the power to near

by small industries at lower rates and can earn revenue from power. Although globally

iron ore is the major feedstock for blast finance, steel making through which is an early

process currently producing 57% of the world crude steel. The steel technologist found

sponge iron as a suitable charging material for the EAF’s

ON THE GLOBAL FRONT: The steel industry globally using about 25% of the

alternative iron sources like DRI/HRI, merchant pig iron and hot metal to produce high

quality steels in the EAF’s. the global supply of sponge iron is expected to reach

55MTPA at present liquid hot metal and solid pig iron would also be used to a large

extent. At the same time, the quality scrap is not like to show any major improvement in

future. The developing countries lead the race with Mexico, Venezuela, India and Iran

together produce over 50% of the total production of DRI in the world. India was the

third largest producer of sponge iron in the world in 1998 went one step ahead to grab the

second position in 1999, slipped to third position again in 2000, but left all countries

behind to reach the top in 2001.

FUTURE: Sponge iron an steel making industries go hand in hand, hence, its quite

difficult to assume the future of sponge iron industry without steel and vice versa

Therefore, the future of sponge iron depends on steel demand coupled with the

availability of substitute ie, steel scrap producing this material saves a lot of revenue loss

in the form of high foreign currency demand and long gestation period to obtain

subsequently. Hence, these producers are lobbying from liabilities and overheads.
NON-COMPLAINCE WITH POLLUTION CONTROL NORMS:

Kiran kumar, assistant environmental officer of the Karnataka state pollution control

Board (KSPCB) based at the office of the District Pollution control Board (DPCB) in

Bellary, explains that around a year and a half ago, none of the sponge iron units had any

pollution control equipment like electrostatic precipitating devices (ESP). These are

highly efficient filtration devices that remove fire particulate matter like dust from the air

stream. Persuasion by the board resulted in just four units operating within the hospet

road area to regularly run ESP’s. Kumar says, “I have been trying to convince the

KPSCB to compel the units to install an interlocking system between the power supply

and the kiln. This mechanism will ensure the regular use of pollution control equipments

it automatically disconnects power supply if ESP is off.

According to pollution control norms, sponge iron units are supposed to carry out

ambient air quality checks every month, for 24 hours and forward the data to the

pollution control board via testing centers. But there are always delays in submitting

reports, which when they finally reach the office, are outdated. To avoid delays in

monitoring, the DPCB came up with a facility allowing online reporting of air quality.

But even this does not appear to be working,. thanks to conventional mindset to the

industry. There is simply no interest being displayed by the sponge iron units to try and

help control pollution.

“First of all they do not submit reports, even if they do, the actual concentration of

suspended particulate matter is never brought out in the reports submitted.” Says a senior

official. He adds “we all know the concentration level is very high, any one can feel it.
But the reports show that everything is fine with air quality.” The only testing lab in the

area is in dharwad where the ambient air quality standard data is sent.

Illegal iron ore mining

Hospet and Sandur are hotspots of illegal mining; they supply cheap iron ore to

the sponge iron units in Bellary. During a raid on illegal iron ore mines, in the month of

June, an investigating team comprising the deputy commissioner of the DPCB and other

officials, also inspected Bellary Steel on Anantpur Road. The unit failed to produce a

purchase invoice for the iron ore found lying around the plant’s compound. Most sponge

iron units thrive on buying illegal iron ore in the open market. Some industries, mainly

large ones like Jindal Steel Works, carry out captive mining in collaboration with the

state mining corporation. In the raid, the deputy commissioner highlighted the fact that an

estimated Rs 230 crore was being lost to roads that were destroyed due to heavy transport

being used to carry the illegally mined ore.

Ahiraj, an activist and newspaper correspondent, says: “Since July 2006, there have been

221 iron ore crushers in the district. The report of a taskforce investigation, set up by the

state government on illegal mining, highlighted the fact that the crushers operate without

permission on agricultural land, and without proper machinery. Moreover, the overall

iron ore feed source of these crushers is from illegal mining. The taskforce report

declared that 150 crushers had violated the rules, and suggested their shutdown. Today,

they operate in Malappangudi, in Andhra Pradesh, just 10 km from Bellary.”

The taskforce report may also have impacted political equations in the district and the

state. The portfolios of the revenue ministry as well as the ministry of tourism and

infrastructure development were shuffled in the May 2008 state assembly elections, says

Ahiraj.

LOCAL IMPACT OF INDUSTRY: Professor satyanarayan, a retired English professor

and ex-KPSCB member, is a concerned man. “The city of Bellary is finished. The air has

become heavy due to extreme pollution from the sponge iron plants. Earlier, we were

fighting against unregulated iron ore mining. Now the sponge iron industry has become

big menace. Black smoke, dust, road accidents, fat depleting greenery and excessive use

of water just the tip of ice berg.’

The village of Halkundi is situated just 10 km from the city centre, on the Bangalore-

Mumbai highway (NH4). More than 13 sponge iron units operate here, barely a kilometre

from the highway; one can in fact see a sea of coal dust from the highway. Environmental

activist Santosh Martin says: “Most of the land in this village close to the plant has been

bought by industrialists and put to industrial use without changing the status of land use

from agriculture to industrial use. Excess land is being used as a dumping ground for raw

and waste material. Moreover, none of the plants use the main stack to release air

emissions but use ABC chambers (bypass pipes) that divert the emissions towards the

ground, with the help of ID fans that diffuse the smoke. This serves two purposes -- one,

it saves power and cost; two, it helps avoid the use of ESPs. But the pollution remains.”
Dr.Arvind patil, a general physician with a passion for tree planting, claims that the

sponge iron industry’s green area development record has been abysmal. The KPSCB’s

condition of maintaining five rows of trees inside and outside the boundary wall of the

unit is not being seriously followed. “Regular attempts to convince the units to allot us to

plant tress have proved unsuccessful simply because they are not interested.” Dr. patil

adds. He explains that the health of workers in the units is dismal. Their lungs are al but

destroyed and their life expectancy low.

Ground water extraction is an important issue. Due to units coming up within city limits,

water scarcity has become the norm. each sponge iron unit has three to five bore wells.”

Now, even the sponge iron plants are finding it difficult to get water because the number

of plants has increased recent years.” Says Kotresh Deputy environmental officer,

Bellary. “They wee managing water supply through bore wells and tanker water, but it is

becoming expensive to buy tanker water for all the units.” The district sponge iron

industries association has come up with a plant o allocate sewage water to the sponge

iron units after it is treated. But the irrigatin department is taking its time deciding on the

matter as, in recent years, this has been a major source of water allocated to agriculture.

Kumar explains that, until recently, plants were using power from the Karnataka Power

Transmission Corporation (KPTC), and generators. But after recent guidelines from the

Central Pollution Control Board (CPCB), plants with a capacity of over 200 tonnes per

day are going ahead with their own captive power plants. The CPCB guidelines will only

enhance their profits as they will now sell the extra power to other industries. All plants

in the district are coal-based; they import coal from South Africa. Kumar adds: “The

game is played around money and political power only. We wanted to shut these SIUs on
grounds of pollution and violation of norms, since we have a case against every operating

unit. But political pressures work better than us.”

NO LET UP IN ENVIRONMENTAL NORMS: It is worth noting that the growth

scenario in the sponge iron industry has not changed despite repeated threats of closure.

Because of its pollution impact the sponge iron industry falls in the red category in the

ministry of environment and forests list of industries.

Protests against the industry have sprung up across the country in the past five years. On

june 2 2008 a meeting of concerned citizens and the member of the CPCB was held. The

CPCB accepted the fact that the owners of sponge iron units had been unsuccessful in

controlling pollution. But, irrespective of strong evidence and studies done on the issue

by various pollution control boards, the CPCB has been unable to tackle the issue of

restrictions in its official mandate. Moreover, the guidelines for pollution control were

notified only in may this year, after a delay of three years. And still they are not the same

as were earlier proposed. They have been so badly diluted that they are now too weak to

be of any use. Earlier amendments, in 2006, to the Environmental impact Assessment

notification had already taken away the space for public participation in environmental

clearances.

Against this back drop, and considering India’s slack environmental norms and

absence of strict pollution control guidelines, it is extremely hard to believe that the

country chairs the Inter Governmental panel on climate change (IPC) at international

level.
DATA ANALYSIS

AND

INTERPRETATION
1. Current ratio = Current assets

Current liabilities

YEAR Current assets Current liabilities Current ratio

2006 203446820 48120459 4.22
2007 296208269 28300605 10.46
2008 397664869 69145258 5.75
CURRENT RATIO

12

10

6
current ratio
4

0
2006 2007 2008

Interpretation:-

As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the

company for last three years it has increased from 2006 to 2007 and decreased in 2008

The current ratio of company is more than the ideal ratio. This depicts that company’s

liquidity position is sound. Its current assets are more than its current liabilities.

2. QUICK RATIO = Quick assets

Current assets
YEAR 2006 2007 2008
Quick assets 161130158 262094156 36616734
Current assets 28300605 48120459 69145258
Quick ratio 5.693 5.446 5.295
QUICK RATIO

5.7
5.6
5.5
5.4
5.3 Quick ratio

5.2
5.1
5
2006 2007 2008

Interpretation :

A quick ratio is an indication that the firm is liquid and has the ability to meet its

current liabilities in time. The ideal quick ratio is 1:1. Company’s quick ratio is more

than ideal ratio in the year 2006 this shows company has no liquidity problem. But it

decreased from the year 2007.

3. ABSOLUTE LIQUID RATIO: = Absolute liquid assets

Current liabilities

YEAR 2006 2007 2008

Absolute liquid 60860384 70590384 94827967
assets
Current liabilities 28300605 48120459 691456258
Absolute liquid ratio 2.150 1.466 1.371

2.5

1.5
Absolute liquid ratio
1

0.5

0
2006 2007 2008

Interpretation:

These ratio shows that company carries a small amount of cash. But there is nothing

to be worried about the lack of cash because company has reserve, borrowing power &

long term investment. In India, firms have credit limits sanctioned from banks and can

easily draw cash. Here absolute liquid ratio is decreased constantly from the year 2006.

4. INVENTORY TURNOVER RATIO: = Cost of goods sold

Average stock

YEAR 2006 2007 2008

Cost of goods sold 137188885 27710404.5 4.95
Average stock 374073409 59373438.5 6.300
Inventory turnover 311040021 5778817825 0.053
ratio

7
6
5
4
3 Inventory turnover ratio

2
1
0
2006 2007 2008

Interpretation :

This ratio shows how rapidly the inventory is turning into receivable through sales.

In 2007 the company has high inventory turnover ratio but in 2008 it has reduced. This

shows that the company’s inventory management technique is less efficient as compare to

last year.

5. INVENTORY CONVERSION PERIOD: = No. of working days

Inventory turnover ratio

YEAR 2006 2007 2008

No. of working days 365 365 365
Inventory turnover 4.95 6.30 0.05

ratio
Inventory 73.73 57.93 73.00

conversion period
 80
70
60
50
40 Inventory conversion
30 period
20
10
0
2006 2007 2008

Interpretation:

Inventory conversion period shows that how many days inventories takes to convert

from raw material to finished goods. In the company inventory conversion period is very

good. This shows the efficiency of management to convert the inventory into cash.

6. DEBTORS TURNOVER RATIO = Sales

Debtors

YEAR 2006 2007 2008

Sales 125298245 386616349 313423033
Debtors 33275599 6201772 1279286
Debtors turnover 3.765 62.33 244.998

ratio
 250

200

150
Debtors turnover ratio
100

50

0
2006 2007 2008

Interpretation:

This ratio indicates the speed with which debtors are being converted or turnover into

sales. The higher the values the higher is the turnover into sales. The higher the values of

debtors turnover, the more efficient is the management of credit. In the company the

debtor turnover ratio is increasing year to year. This shows that company is utilizing its

debtors efficiently. Now their credit policy becomes liberal as compare to previous year.

7. AVERAGE COLLECTION PERIOD: = No. of working days

Debtor turn over ratio

Year 2006 2007 2008

Days 365 365 365
Debtor Turnover Ratio 3.765 62.33 244.998
Average Collection Period 96 5 days 1 days
 100
90
80
70
60
50 Average collection
40 period
30
20
10
0
2006 2007 2008

Interpretation :

The average collection period measures the quality of debtors and it helps in

analyzing the efficiency of collection efforts. It also helps to analysis the credit policy

adopted by company. In the firm average collection period is increasing year to year. It

shows that the firm has Liberal Credit policy. These changes in policy are due to

competitor’s credit policy.

8. WORKING CAPITAL TURNOVER RATIO: = Cost of goods sold

Net working capital

Year 2006 2007 2008

Cost of goods sold 137188885 374073409 311040021
Networking Capital 146845616 19967351 259374353
Working Capital Turnover 0.9342 1.8706 1.199
 2
1.8
1.6
1.4
1.2
1 Working capital turnover
0.8 ratio
0.6
0.4
0.2
0
2006 2007 2008

Interpretation :

This ratio indicates low much net working capital requires for sales.

This ratio is fluctuating throughout from year to year. This ratio is helpful to

forecast the working capital requirement on the basis of sale and cost of goods

sold.

BIBILOGRAPHY

I.M.PANDEY FINANCIAL MANAGEMENT

KHAN AND JAIN FINANCIAL MANAGEMENT

S.M.D MAHESWARI FINANCIAL MANAGEMENT

WEBSITES

www.studyatfinance.com
www.financeprinciples.com

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