EXECUTIVE SUMMARY

The two principal sources of finance for a company are equity and debt. Capital
expenditure is the mix of the various types of debt and equity capital maintained by a firm.
Any firm tries to plan an optimum capital structure for itself. . The optimum capital
expenditure is one that maximises the market value of the firm

Capital structure decision is the most crucial decision for any organization.
Structuring the capital of any organization in one way or other plays a major role in the
growth of any company. The optimal capital structure is the one that strikes a balance
between risk and return to achieve our ultimate goal of maximizing the price of the stock. A
number of factors influence the capital structure decision of a company. The Financial
Manager who is going to form capital structure for any particular company, be it small firm
or large organization, has to look upon every little aspect very carefully. Lots of ratios,
calculations have to be carefully examined before coming out with any particular output.

Thus, capital structure analysis is a very interesting as well as very important field to
work upon. The main objective of the study of capital structure analysis is to know about
various factors- ratios, trends, and other calculations- that are used for making any prediction
about capital structure of any organization. Weve also focussed upon factors that affects the
growth prospect of any organization in terms of choosing its finance between Equity or Debt.

The methodology that has been used for the study is mainly depending upon
secondary datas. Reference from various books has been taken regarding the calculations, and
prediction about the company. Companys data has been mainly taken from companys
Annual Report of last five years, and based upon that various analysis has been done.

Page 1
 INTRODUCTION OF
CAPITAL EXPENDITURE
INTRODUCTION

Capital expenditure or Capital Expense is an expense where the benefit continues over
a long period.Such expenditure is of a non-recurring nature and results in acquisition of
permanent assets.It is thus distinct from a recurring expense.

USAGE

CAPEX are used by a company to acquire or upgrade physical assets such as

property,industrial buildings or equipment.In the case when a capital expenditure constitutes
a major financial decision for a company,the expenditure must be formalized at an annual
shareholders meeting or a special meeting of the Board of Directors.In accounting,a capital
expenditure is added to an asset account,thus increasing the assets basis (the cost or value of
an asset adjusted for tax purposes).CAPEX is commonly found on the cash flow statement
under Investment in Plant,Property,and Equipment or something similar in the Investing
subsection.

ACCOUNTING RULES

For tax purpose,CAPEX is a cost which cannot be deducted in the year in which it is
paid or incurred and must be capitalized.The general rule is that if the acquired propertys
useful life is longer than the taxable year,then the cost must be capitalized.The capital
expenditure costs are than amortized or depreciated over the life of the asset in
question.Further to the above,CAPEX creates or adds basis to the asset or property,which
once adjusted,will determine tax liability in the event of sale or transfer.In the US,Internal
Reveune Code $$263 and 263A deal extensively with capitalization requirements and
exceptions.

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 DEFINITION OF CAPITAL STRUCUTURE

Capital Structure refers to the way a corporations finances itself through some
combination of equity sales, equity options, bonds, and loans. Optimal capital structure refers
to the particular combination that minimizes the cost of capital while maximizing the stock
price. . A capital structure that is leveraged more has a greater proportion of debt versus
equity. Capital structure refers to a mixture of a variety of long term sources of funds and
equity shares including reserves and surpluses of an enterprise.

The two principal sources of finance for a company are equity and debt. Capital
structure is the mix of the various types of debt and equity capital maintained by a firm. The
more debt capital a firm has in its capital structure, the more highly leveraged the firm is
considered to be. The permanent long term financing of a company, includes long- term debt,
common stock and preferred stock, and retained earning. It differs from financial structure,
which includes short term debt and accounts payable. It is the mix of long-term debt and
equity used to finance or capitalize a business enterprise. This may include long-term debt,
common stock, preferred stock, warrants, pension, and lease liabilities. It hardly takes in its
structure, all the complex quantitative factors as well as qualitative attributes affecting
investment decisions. One of the key issues in the capital structure decision is the relationship
between the capital structure and the value of the firm. The capital structure or financial
leverage decision is examined from the point of view of its impact on the value of the firm.
The optimum capital structure is one that maximizes the market value of the firm.

Capital structure is the mix of long-term debt and equity used to finance or capitalize
a business enterprise. This may include long- term debt, common stock, preferred stock,
warrants, pension, and lease liabilities. A capital structure that is leveraged more has a greater
proportion of debt versus equity. The permanent long-term financing of a company, including
long-term debt, common stock and preferred stock, and retained earnings. It differs from
financial structure, which includes short-term debt and accounts payable.

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 Capital structure is by definition the cumulative outcome of past financing decisions.
Past financing decisions are known to depend on past market valuations. Therefore it is
possible that capital structure itself depends on the historical path of market valuations. We
find this to be the case. We find that unlevered firms tend to be those that raised funds when
their market valuations were high, as measured by the market-to-book ratio. Levered firms
tend to be those that raised funds when their market valuations were low.

FACTORS AFFECTING CAPITAL STRUCTURE

Firms can choose whatever mix of debt and equity they desire to finance their assets,
subject to the willingness of investors to provide such funds. And, there exist many different
mixes of debt and equity, or capital structures - in some firms, such as Chrysler Corporation,
debt accounts for more than 70 percent of the financing, while other firms, such as Microsoft,
have little or no debt.

A firm should attempt to determine what its optimal, or best, mix of financing should
be. Determining the exact optimal capital structure is not a science, so after analyzing a
number of factors, a firm establishes a target capital structure it believes is optimal, which is
then used as a guide for raising funds in the future. This target might change over time as
conditions vary, but at any given moment the firm's management has a specific capital
structure in mind, and individual financing decisions should be consistent with this target. If
the actual proportion of debt is below the target level, new funds will probably be raised by
issuing debt, whereas if the proportion of debt is above the target, stock will probably be sold
to bring the firm back in line with the target debt/assets ratio.

Capital structure policy involves a trade-off between risk and return. Using more debt
raises the riskiness of the firm's earnings stream, but a higher proportion of debt generally
leads to a higher expected rate of return; and, we know that the higher risk associated with
greater debt tends to lower the stock's price. At the same time, however, the higher expected
rate of return makes the stock more attractive to investors, which, in turn, ultimately increases
the stock's price. Therefore, the optimal capital structure is the one that strikes a balance
between risk and return to achieve our ultimate goal of maximizing the price of the stock.

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FOUR PRIMARY FACTORS INFLUENCE CAPITAL STRUCTURE
DECISIONS:

1. The first is the firm's business risk, or the riskiness that would be inherent in the firm's
operations if it used no debt. The greater the firm's business risk, the lower the amount
of debt that is optimal.

2. The second key factor is the firm's tax position. A major reason for using debt is that
interest is tax deductible, which lowers the effective cost of debt. However, if much of
a firm's income is already sheltered from taxes by accelerated depreciation or tax loss
carry- forwards, its tax rate will be low, and debt will not be as advantageous as it
would be to a firm with a higher effective tax rate.

3. The third important consideration is financial flexibility, or the ability to raise capital
on reasonable terms under adverse conditions. Corporate treasurers know that a steady
supply of capital is necessary for stable operations, which, in turn, are vital for long-
run success. They also know that when money is tight in the economy, or when a firm
is experiencing operating difficulties, a strong balance sheet is needed to obtain funds
from suppliers of capital. Thus, it might be advantageous to issue equity to strengthen
the firm's capital base and financial stability.

4. The fourth debt-determining factor has to do with managerial attitude (conservatism

or aggressiveness) with regard to borrowing. Some managers are more aggressive
than others; hence some firms are more inclined to use debt in an effort to boost
profits. This factor does not affect the optimal, or value- maximizing, capital
structure, but it does influence the target capital structure a firm actually establishes.

These four points largely determine the target capital structure, but, operating
conditions can cause the actual capital structure to vary from the target at any given
time.

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EMPIRICAL DETERMINANTS - CAPITAL STRUCTURE

There is a direct kinship between the debt equity ratio of a firm and the
collateralization of its debt. Since all projects are seldom collateralized, firms often go in for
equity finance rather than borrowed capital. The issue of debt buttressed by assets with
known values, do away with the costs associated with the issue of new shares. A firm can
maximize the value of its equity by disposing secured debts to unsecured creditors. At a
higher debt level a firm that is exposed to the threat of bankruptcy is burdened with rising
agency costs. This cripples its ability to garner additional funds. The collateral value attribute
is captured by the ratio of intangible assets to total assets, and the ratio of inventory (plus
gross plant and equipment in money terms) to total assets. The first ratio is negatively related
to the collateral value of assets while the second is positively related to it.

Enterprises with large tax benefits relative to their expected cash inflows, prefer less
debt in their capital structure. When a levered firm prospers, owing to its increasing agency
costs, its growth will have a negative relationship with the long term debt. To mitigate the
effect of bulging agency costs, when enterprises mobilize short term debts, growth will
cultivate a positive relationship with it. Convertible debentures can also cut agency costs to
size. Hence growth will assume a direct relationship with convertible debt ratios. Capital
expenditure to total assets, and the increase in total assets measured by its percentage change,
can also be indicators of growth. Since progressive enterprises earmark more funds for R&D
to innovate and generate new investment opportunities, the ratio of the above to sales too can
be a proxy for growth..

Firms manufacturing specialized products to meet the specific needs of the customers
normally go for equity financing. In such cases a negative relationship between equity and
debt is plausible. In certain empirical studies the ratios of selling expenses to sales and R&D
to sales are treated as proxies for uniqueness of a firm. Larger firms with greater degree of
diversification are less prone to bankruptcy and liquidation. Such firms are hence highly-
levered. The size of a firm is often gauged by the natural log of sales. Some financial analysts
believe that the optimum debt level is a decreasing function of the volatility of earnings. Such
firms prefer more equity and less debt. The Standard Deviation of the percentage of change in
operating income can capture this attribute.

Page 6
 When debt level is low at higher profitability, promising firms rely more on equity
and less on debt for their expansion and diversification, since they can easily mobilize equity
funds on attractive terms. Even debt on a massive scale with soft terms can knock at their
doors. The relationship between profitability and debt hence can be both direct as well as
indirect. Profitability is measured by the ratio of operating income to sales, and operating
income to assets. Thus determinants of capital structure of a firm are governed by a myriad of
factors which make the identification of optimal capital structure an uphill task.

OPTIMUM CAPITAL STRUCTURE

Theoretically, the financial manager should plan an optimum capital structure for his
company. The optimum capital structure is one that maximises the market value of the firm.
There are significant variations among industries and among companies within an industrry
in terms of capital structure. Since a number of factors influence the capital structure decision
of a company, the judgement of the person making capital structure decision plays a crucial
part. Two similar companies may have different capital structures if the decision- maker
differ in their judgement of the significance of various factors.

The Board of Directors or the Chief Financial Officer (CFO) of a company company
should develope an appropriate or target capital structure, which is most advantageous to the
company. This can be done only when all those factors, which are relevent to the companys
Capital structure decision, are properly analysized and balanced. The capital structure should
be planned generally keeping in view the interests of the equity shareholders and the financial
requirements of a company. The equity shareholders, being the owners of the company and
the providers of risk capital ( equity), would be concerned about the ways of financing a
companys operations. However, the interests of otgher groups, such as employees,
customers, creditors, society, and government, shopuld also be iven reasonable consideration.
When the company lays down its objective in terms of the shareholders wealth maximization
it is generally compatible with the interest of other groups. Thus, while developing an
apprpriate capital structure for its company, the financial manager should inter- alia aim at
maximizing the long term market price oer share.

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ELEMENTS OF CAPITAL STRUCTURE

A company formulating its long term financial policy should, first of all, analyse its
current financial structure. The following are the important elements of the companys
financial 6structure that need proper scrutiny and analysis.

CAPITAL MIX

Firms have to decide about the mix of debt and equity capital. Debt capital can be
mobilized from a variety of sources. The firms and analysts use debt ratios, debt service
coverage ratios, and the fund flow statements to analyse the capital mix.

MATURITY AND PRIORITY

The maturity of securities used in the capital mix may differ. Equity is the most
permanent capital. Within debt, commercial paper has the shortest maturity and public debt
longest. Similarly, the priorities of securities also di=ffer. Capitalize Debt like lease or hire-
purchase finance is quiet safe from the lender;s point of view and the value of assets backing
the debt provides the protection to the lender. Colleteralised or secured debts are relatively
safe and have priority over unsecured debt in the event of insolvency. A firm may obtain a
risk- neutral position by matching the maturity of assets and liabilities; that is, it may use
current liabilitries to finance current assets and short- medium and long- term debt for
financimg the fixed asstes in that order of maturities. In practice, firms do not perfactly match
the sources and uses of funds. They may show preference for retained earnings. Within debts,
they may use long- term funds to finance current assets and assets with shorter life. Some
firmas are more aggresive, and they use short- term funds to finance long- term assets.

TERMS & CONDITIONS

Firms have choices withregard to the basis of interest payments. They may obtain
loans either at fixed or floating rates of interest. In case of equity, the firm may like to return
income either in the form of large dividends or large capital gains. The firms choice of the
basis of payments indicates the managements assessment about the future interest rates and
the firms earnings.

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CURRENCY

Firms in a number of countries have the choice of raising funds from the overseas
markets. Overseas financial market provide opportunities to raise large amount of funds.
Accessing capital internationally also helps company to globalize its operations fast.
Because international financial markets may not be perfact and may not be fully integrated,
firms may be able to issue capital overseas at lower costs than in the domestic markets.

FINANCIAL INNOVATIONS

Firms may raise capital either through the issues of simple securites or through the
issues innovative sercurities. Financial innovations are intended to make the security issue
attractive to investors and reduce cost of capital. A firm can issue varieties of option- linked
securities; it can also issue tailor- made securities to large suppliers of capitals.

Page 9
 COMPANY PROFILE

INDIAN RAILWAYS (WEST CENTRAL RAILWAY)

12-West Central Railway

Locale Madhya Pradesh & Rajasthan
Dates of Operation 2003
Predecessor Parts of Central Railway & Western Railway
Track gauge Mixed
Length 2911km
Headquarters Jabalpur Railway Station
The West Central Railway, one of the 16 zones of the Indian Railways, came into
existence on 1 April 2003.Its headquartered at Jabalpur.

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 RAILWAY DEPARTMENT

Indian Rail wa ys, is the st ate -owned rail wa y compan y of India, which
owns and operat es most of the count r y's rail transport. It is overseen b y the
Ministr y of Rail wa ys of the Government of India.

Indian Rail wa ys has more than 64 ,015 kilometres (39,777 m illion) of

track and 6,909 st at ions. It has t he world's fourth l argest railwa y network
aft er that of the Uni ted Stat es, Russi a and China. The railwa ys traverse the
length and breadth of the countr y and carr y over 20 million passeng ers and
2 million tons of freight dail y. It is one of the world's l argest comm ercial or
utilit y emplo yers, with more t han 1.6 million em plo yees. As t o rolling
stock, IR owns over 200,000 (frei ght ) wagons, 50,000 coaches and 8,000
locomotives.

Page 11
 Railwa ys were first introduced to Indi a in 1853. B y 1947, t he year of
India's independence, there were fort y -two rail s ystems. In 1951 the s ystems
were nationalised as one unit, becomi ng one of the l argest networks in the
world. IR operat es both long distance and suburban rail s yst ems on a multi -
gauge network of broad, met re and narrow gauges. It also owns locomotive
and coach production facilities.

Indian Rail wa ys is a departm ent owned and cont rolled b y the

Government of Indi a, vi a the Minist r y of Rail wa ys. As of December 2010,
the Rail wa y Mi nistry is headed b y Mam ata Banerjee, the Union Minister for
Railwa ys , and assi sted b y two minist ers of State for Railwa ys. Indian
Railwa ys is admini stered b y the R ail wa y Board, which has a financial
commissioner, five member s and a chairman.

Page 12
 EVOLUTION OF INDIAN RAILWAY

The first railwa y on Indi an sub -continent ran over a st retch of 21

miles from Bomba y to Thane. The idea of a rail wa y to connect Bomba y with
Thane, Kal yan and with the Thal and Bhore Ghats inclines first occurred to
Mr. George Clark, t he Chi ef Engineer of the Bomba y Government, during a
visit to Bhandup in 1843.

The form al inauguration ceremon y was perform ed on 16th April 1853,

when 14 railwa y carriages carr ying about 400 guests l e ft Bori Bunder at
3.30 pm "amidst the loud applause of a vast multitude and t o the salut e of
21 guns." The fi rst passenger train st eamed out of Howrah station destined
for Hooghl y, a dist ance of 24 miles, on 15th August, 1854. Thus the fi rst
section of the East Indi an Rail wa y was opened to public traffic,
inaugurating the beginni ng of railwa y t ransport on the East ern si de of the
sub-continent.

In south the fi rst li ne was opened on Ist Jul y, 1856 b y t he Madras

Railwa y C ompan y. It ran between V yasarpadi Je eva Nil a yam
(Ve yas arpand y) and Walajah Road (Arcot), a distance of 63 miles. In the
North a length of 119 miles of line was laid from All ahabad to Kanpur on
3rd M arch 1859. The first section from Hathras Road to Mathura
Cantonment was opened to t raffi c on 19t h October, 1875.

These were the smal l beginnings whi ch i s due course developed i nto a
network of rail wa y lines all over the countr y. B y 1880 the Indian Rail wa y
s yst em had a rout e mileage of about 9000 miles. IND IAN RAILWAYS, the
premi er t ransport org anization of the countr y is the largest rail network in
Asia and the world's second l argest under one management.

Page 13
ORGANIZATION STRUCTURE OF RAILWAY
DEPARTMENT

Page 14
 INTRODUCTION OF

WEST CENTRAL RAILWAY :JABALPUR

West Cent ral Railwa y is one of the si gnificant rail wa y zones of the
Indian R ailwa ys. The office of this railwa y zone is headquart ered at
J abalpur and it is comprises of two divisional headquart ers including
J abalpur Division and Bhopal Division.

Initiall y Jabalpur was part of the cent ral R ailwa y and Bhopal was
under Kota Divisi on. West Cent ral R ailwa y st ret ches in the West -East
direction from Khandwa to Manikpur. It covers Bina in the North -Sout h
direction. In addition to handl e increasi ng passeng er t raffi c smoothl y, West
Central Railwa y is also prominent as a vital frei ght corridor.

Page 15
 West Cent ral R ailwa y zone is serving the 39 dist ricts of Madh ya
Pradesh, Raj asthan and Utt ar Pradesh. The zone embraces 2911 kilomet ers
of railwa y t racks i nvolving 1328 kilom eters of the el ect rifi ed tracks. Chi ef
tourist sit es covered b y West C entral Railwa y zone comprises of Bi rd
sanctuar y of Bharatpur, The hill station of Panchm arhi and National Reserve
Forests of R antham bore, Bandhavgarh and Kanha -Kisli

Im port ant railwa y stations belongs t o t he West C entral R ailwa y are

Bhopal, Kot a, Jabalpur, Ganjbasoda, Hoshangabad, Habi bganj, Vidisha,
Harda, Guna, Katni, Bharatpur, It arsi, and Bina. This zone West maintai ns
excellent equilibrium of passenger and frei ght t raffi c.

J abalpur Division covers region which have a l arge number cem ent
plants and Satna -Rewa cluster is noteworth y for l arge scal e cement
shipment. In addit ion to cem ent ot her item s which are frequentl y
transport ed via Jabalpur and Bhopal division arelim est one, bauxite,
LPG,dolomite, et c

Approximat el y 75 million passengers travel b y western cent ral

railwa y ever y year which generates the passenger earni ngs of about Rs 386
crores for the railways. The total annual earning of west ern cent ral railwa y
is Rs. 1269 crores consideri ng the ot her coachi ng earni ngs like parcel
traffic of Rs. 25.64 crores.

West Central R ailwa y possesses t wo ke y m arshalling yards at New

Katni J unction and Itarsi Junction. It contains t hree el ect ric loco sheds with
a entire fl eet of 349 electri c locomotives. It also cont ains two diesel loco
sheds with an enti re fleet of 349 di esel locomotives. This i s to ensure the
smooth management of railwa y traffic al ong the western rail wa ys t racks.

Page 16
STRUCTURE OF RAILWAY DEPARTMENT

Page 17
 BOARD OF MEMBERS

WEST CENTRAL RAILWAY

General Manager

H.C. Joshi

Genl. Admn. Commercial Medical Safety

&Vigilance
S.V. Ingale Dr. S.P. Shukla B.Devasingh
Ram Gopal
CCM CMD CSO
SDGM & CVO

General Admin Electrical Mechanical Security

Umesh Balonda Man Singh P.K. Singh Mahim Swami

SECY to GM CEE CME CSC

General Admin Engineering Operating Signal & Telecom

Piyush Mathur C.P. Tayal K.L. Pandey Ajay Vijayvergiya

CPRO
PCE COM CSTE

General Admin Finance Personnel Stores

Ajay Shrivastava Hemant B Godbole B.N. Meena R.L. Pawar

DGM
FA & CAO CPO COS

Bhopal Division Jabalpur Division Kota Division

Ghanshyam Singh S.K. Luthra Madhukar Meshram

Divl Rly Manager Divl Rly Manager Divl Rly Manager

Page 18
 INVESTMENT PLANNING AND WORK BUDGET

INVESTMENT PLANNING & WORKS PROGRAMME SECTION

Investment decision relating to the eructation, acquisition and replacement of assets

on the Railways are processed through the Annual Works, Machinery and Rolling Stock
Programme. On the basis of the estimate of plan funds requirement for the ensuring year, the
Railway Board lay down the financial limits under various plan head within which the
Railway Administration are required to make out their programme for the following years
duly vetted by the Financial Advisor and Chief Accounts Officer for submission to the
Railway Board by a specified date.

The various stages of investment planning and preparation and of the final works
programme are given below:-

1. Formulation of schemes as a part of advance planning.

2. Submission of major schemes for advance security and clearance by the Railway Board
for selection of project to be taken in the following year.

3. Preparation of the Preliminary works Programme within the financial ceiling laid
down by the Railway Board and.

4. Discussion with the Railway Board and submission of the final works programme.

Page 19
ADVANCE PLANNING

The Chief Engineer of the Railway will be premilarily responsible for ensuring that
the proposals prepared by the various departments are complete in all respects and are
correctly prepared .

The overall priorities within the ceilings given by the Board will also be fixed by him
in consultation with the General Manger and other Heads of Departments. He will be
responsible for the preparation and timely submission of the Priminary and the Final work
Programme.

Each investment proposal should be accompanied by a detailed plan showing the

scheduling of the project to match the traffic requirements and the financial outlay proposed
for the year should be in accordance with this project schedule to enable the Railway Board
to arrange for a realistic funds allocation for implementation of the programme.

The preparation of the annul works programme of a Railway is not an isolated

exercise for the year. But is a part of continuous planning process from the level of the
Division Officer upwards.

Investment proposals emanating from the Division would be those which are intended
to effect improvement proposals emanating from the Division would be those which are
intended to effect improvement in operation or remove bottleneck etc., within the Division
itself. Major investment proposals which benefit a Zonal Railway system of the Indian
Railway as whole should be co-ordinated and planned at the level of the Railway
Headquarters or the Railway Board where necessary.

Page 20
SCRUTINY OF SCHEMES BEFORE PREPARATION OF PRELIMINARY WORKS
PROGRAMME.

All schemes costing Rs. 20 Lakhs or above should be worked out comprehensively
and sent to the Board along with full details of (i) the technical features (ii) Cost break-up
(iii) Benefit expected to accrue and (iv)Financial implications. A sketch map of each proposal
should also be sent. The Railway Administration must clearly bring out the purpose of each
scheme and confirm that the proposal meets the object fully and that the scope and cost of the
project have been arrived at after the fullest possible investigation including assessment of
the financial implications. After the schemes have been scrutinized by the Board. The
Railway Administrations should be advised of the acceptance with or without any
modifications for inclusion in the Work Programme.

Track renewal proposals costing Rs. 20 Lakhs and above are initially scrutinized by
the Board, keeping in view the availability of permanent way materials, progress of the

work already sanctioned and other technical factors. For this purpose the Railway
Administrations should send all tracks renewal proposals costing Rs. 20 lakhs and above
together with technical data like traffic density, age, conditions of track components etc., in
the form prescribed by the Board to reach the Board office by the stipulate date. After the
proposals are screened by the Board, guidelines are issued to the Railway Administrations to
reface their proposals for inclusion in the Work Programme.

FINAL WORK PROGRAMME

After having examined the individual Railway Programme and discussion with the
General Managers, the Railway Board will decide the works which should be undertaken
during the following year and which should be included in the Final Works Programme. The
Railway Administration will then modify their works programme as a result of the Board's
decision and send their Final Work Programme to the Railway Board by the stipulated date.

Page 21
DEMAND FOR WORKS GRANTS

The proposal of Government in respect of sums required to meet the expenditure from
the Consolidated Fund of India are to be submitted in the form of Demands for Grants to the
Parliament.

The Demand shall for gross expenditure the credits or recoveries (refer to para 335 of
India Railway Financial code) being shown in the form of footnotes to demands.

The Demand for Grants for the Work Budget is:-

Assets-Acquisitions, Constructions and Replacements.

FINANCIAL OF WORKS BUDGET

Works chargeable to Demand No.16- Assets-Acquisitions Constructions and

Replacements are financed from railway revenue when it is charged to OLWR or financed
from Capital. Depreciation, Expenditure budgeted under "Capital" involves increase in the
Capital-at-Charge of the Railways and hence in the liability for payment of dividend to
General Revenue subject to the relief/exemptions granted by the Convention Committee.
"Works Expenditure" of the Railway is thus financed from Revenue. Railways Funds and
Capital provided by the General Revenues. The Railways Funds are Depreciation Reserve
Fund, Development Fund and Accident Compensation Safety and Passenger Amenities Fund.
For Details regarding the operation of the funds, reference may be made to Chapter III of the
Indian Railway Financial Code. In the event of the railway revenue surplus not being
adequate to fully meet the requirements of Development Fund Expenditure. the budgetary
support from the General Revenues would also include temporary loans to finance
expenditure from the Development Fund.

The Expenditure under works Budget of the Railways is, therefore, determined by the
resource allocation under various Plan Heads.

Page 22
CAPITAL ESTIMATES
THE ABSTRACT ESTIMATE
An abstract estimate is prepared in order to enable the authority competent to give
administrative approval to the expenditure of the nature and the magnitude contemplated, to
form a reasonably accurate idea of the probable expenditure and such other data sufficient to
enable that authority to gauge adequately the financial prospects of the proposal. Abstract
estimates avoid the expense and delay of preparing estimates for works in detail at a stage
when the necessity or the general desirability of the works proposed has not been decided
upon by competent authority. An abstract estimate should contain a brief report and
justification for the work, specifications, and should mention whether funds are required in
the current year and to what extent. It should also show the cost subdivided under main heads
and sub-heads or specific items, the purpose being to present a correct idea of the work and to
indicate the nature of the expenditure involved. The allocation of each item as between
Capital Development Fund, Open Line Works-Revenue, Depreciation Reserve Fund and
Revenue should be indicated.
NOTE.-
(1) Administrative approval to a work or scheme should be accorded by the authority
competent to do so ( vide paragraph 748 ), after a thorough examination as to its
necessity, utility and financial prospects. See also rules in Chapter II of Indian Railway
Financial Code.
(2) In regard to works which are specified in the sanctioned budget of a year (i.e. in the
Works Machinery and Rolling-stock Programmes accompanying the Budget Orders
paragraph 629), the total estimated cost shown against each work should be regarded as
the Abstract Estimate. The inclusion of a work in the sanctioned budget should be
deemed to carry with it the administrative approval of the Railway Board except that in
the case of structural works, other than track renewal works, costing more than Rupees
one crore each, the administrative approval of the Railway Board should be obtained
by the submission of separate Abstract Estimates not withstanding their specific
inclusion in the sanctioned budget; however, estimates costing over Rs. 50 lakhs and
upto Rs. 1 crore will be certified and sanctioned personally by the FA & CAD and GM
respectively.

Page 23
Form E- 702
ABSTRACT ESTIMATE

Department .........................Division................Station.......................

Estimate No.............................................

Framed by.....................................Division.......................................

Description of Work.........................................................

Plan No................................................

Reference...........................................

Cost Capital D.F. D.R.F. OLWR Ordy. Deposit Misc. Total

Rev. Advance

1 2 3 4 5 6 7 8
Existing
sanctioned
estimate (if any)
present estimate

Total

Cost of Stores........................ To be purchases Rs...............................

To Stock Rs..............................
Funds
Report and Justification-
Specification-
Enclosed- Details of cost with allocation (form E-704) Sub-Estimates
Has Account Officer agreed to the proposed allocation?
Station.................................. Signature...............................
Date.................................... Designation...........................

Page 24
DETAILED ESTIMATES-

On receipt of administrative approval to a project or scheme other than for which

construction estimate in Form E 553 is prepared conveyed through the sanction to the abstract
estimate relating thereto detailed estimates for various works should be prepared and
submitted for technical sanction of the competent authority. It should be prepared in
sufficient detail to enable the competent authority to mike sure that the abstract estimate
sanctioned by a higher authority is not likely to be exceeded. No work included in an abstract
estimate should be commenced till a detailed estimate for the same is prepared and
sanctioned and adequate funds are allotted by the competent authority. The detailed estimate
of an open line work will comprise (i) statement is showing details of estimated cost and (ii)
an outer sheet giving the abstract of cost of work, the report, the financial justification and
the allocation.

Note: Technical Sanction

The sanction of the competent authority to the detailed estimate of a work is called
the technical sanction.

(1) The authority according technical sanction should satisfied itself that (i) that the details
of the scheme as worked out are satisfactory, (ii) the method proposed for the
execution off the work are adequate; and (iii) the cost has been estimated from reliable
data and likely to be reasonably accurate.

(2) In the case of works within his power of sanction, the General Manager may, in lieu of
the procedure of preparing Abstract Estimates for administrative approval, prescribe
that both the administrative approval and the technical sanction should be accorded on
the detailed estimates.

Page 25
Form E- 702

...............RAILWAY

ENGINEERING DEPARTMENT

STATMENT SHOWING DETAILS OF ESTIMATED COST

Name of Work.............................................................

Department...............................Division................Station...................

S.No. Description Quantity Rate Unit Cost

Cash Stores Total

Rs.
Purchase Stock

1 2 3 4 5 6 7 8 9

Allocation

Capital DF D.R.F. OLWR Ordinary Deposit Misc. Total Remark

Reveneue Adv.

10 11 12 13 14 15 16 17 18

Office/Station................................ Signature...............................
Date.................................... Designation...........................

Page 26
Form No.- E-705

Detail and Cost of One Kilometer way Material required for Renewal from Km.............. to
Km..............

Item Description Quantity Rate

no.
No. Weight At Per
Rails.........Kg./m............meters in
1 length

Fish-plates.................................
2

Fish-bolts and nuts.............Kg.

3

Bearing plates..............at........... per rail

4 length

Spikes................at.............per inter
5 sleeper and ....................... per joint
sleeper

Sleepers.............at per rail

6 length............... and so
on......................................

Page 27
The Outer Sheet of open line estimates giving the abstract of cost of work. report justification
and the allocation may be in the following form:-Form

Form E- 706

ABSTRACT OF COST OF WORK

Department ......................... Office................................

Estimate No.......................... of 19......................................
Framed by..................................... Designation........................
Region..............................Division..............Station of K.M..................
Name of work............................................
Plan No......................... ................... Reference...........................

Estimate Cost

Sub Head Work Stores Store to Total Ordy. Deposit Misc. Total
of Work Material in be Rev. Advance
Stock purchased

Original Allocation
total in case
of revised Capital DF DRF OLWR Ordinary Deposit Misc. Total
estimate Advance
Revenue

Funds...................... to be provided from budget for...........................Item no........... direct or

by reappropriation.
Report and Justification-
Specification-
Drawings and Annexure
Signature...............................
Designation...........................

Page 28
 A supplementary estimate should be prepared for any item of work, which ought to
have been included in the first instance in an estimate already sanctioned but has not been so
included, or which it is found later, should be considered as being a part or a phase of an
estimate already prepared and sanctioned, if it cannot be met out of contingencies. Such a
supplementary estimate.

Should be prepared in the same form and the same degree of details as the main
estimate and for all purposes be treated as a part of the main estimate.

REVISED ESTIMATE.

As soon as it becomes apparent that the expenditure on a work or Project is likely to

exceed the amount provided therefore in the detailed estimate or construction estimate a
revised estimate should be prepared and submitted for the sanction of the competent

AUTHORITY-

It should, unless otherwise ordered by the sanctioning authority, be prepared in the

same form and the same degree of detail as the original estimate, and should be accompanied
by a comparative statement showing the excess or saving under each sub-head of account
against the latest sanction. In cases where a supplementary estimate or a previous revised
estimate has been sanctioned by the Railway Board, it should be made clear how the original
sanction has been modified by such further sanctions.

THE PROJECT ABSTRACT ESTIMATE-

The abstract estimate of a Construction project should be submitted for the approval
of the Railway Board on Form E. 554 Abstract cost of Railway accompanied by (i) an
abstract estimate of junction arrangements, (ii) a narrative report explaining the salient
features and major items of expenditure (iii) detailed estimates on Form E. 553 prescribed for
a construction estimate under the following heads"

Page 29
THE CONSTRUCTION ESTIMATE-

When it is decided to undertake the execution of a new line gauge conversion or

doubling of lines, a final location survey should be made; and based on the information
collected in that survey detailed estimates of all the works included in the project as a whole
should be prepared (cf.Paragraph 540). These detailed estimates are collectively called the
Construction Estimate of the project. It should be prepared after a careful examination of the
various details of construction involved in the project. It should be in such detail as to render
it possible to dispense with working estimates or any other further estimating after the
construction estimate has been sanctioned (except when supplementary or revised estimates
are necessary). It should provide for the buildings and equipment of the railway up to a
standard that will be sufficient for working such traffic as may be expected during the first
year or two after opening of the line. It is the basis on which technical sanction to the various
works included in the construction of a project is accorded.

In special cases where works are required to be commenced before the earliest date by
which detailed estimates for the project as a whole could be prepared and sanctioned, part
estimates for sub- works may be prepared. To enable the commencement of work on such
works forming a part of the project, part estimates for the following sub-works may be
sanctioned progressively by the authority

competent to sanction the detailed estimate for the whole project:

(i) Preliminary works including final location survey etc.

(ii) Setting up of project offices and organisation including office accommodation,

construction equipment minimum vehicles and provision for gazetted and non-gazetted
staff etc.

(iii) Land acquisition.

(iv) Formation and bridge works for whole or part of the project where survey has been
done and alignment determined.

Page 30
(v) Minimum service buildings in case of new line works required to meet immediate
needs of construction organisation and subsequently required for operation of the
project.

(vi) Minimum residential quarters required to meet immediate needs of construction staff.
The number and location of quarters should be within the overall requirement of Open
Line for operation of the project.

Before forwarding part estimates duly concurred by FA & CAO and approved
by General Manager for sanction to the Rly. Board, it should be certified that no works
included in the part estimates are likely to become
redundant when estimate for the whole project is prepared. TheConstruction Estimate
of project should be prepared in Form E. 553 prescribed for the purpose. It should be
divided into convenient sections in accordance with the following principles.

(a) When, as is usually the case, certain works within the limits of a junction station are
incidental to the project, these works should form a distinct section.

(b) When a project comprises a main line and a branch, the branch should form at
least one distinct section.

(c) Where the country traversed by a line is such that it may readily be divided into tracts
of distinctive topographical character, the length through each class of country may
comprise a section or a project may be divided into engine runs or into lengths
suitable for construction divisions.

(d) Where there is likelihood of different sections of a project being opened to traffic at
different intervals, the estimate for each such section should be kept distinct.

(e) When an estimate for any alternative alignment of importance is included, the estimate
for the alternative alignment and for the length which it would supersede, if adopted,
should each be comprised in a distinct section.

Page 31
ESTIMATE OF JUNCTION ARRANGEMENTS-

Except where the new line is of a different gauge and has entirely its own
arrangements, the estimate for the junction arrangements should be prepared in consultation
with the open line administration of the connecting system, and a separate abstract estimate
of the cost of the additions and alterations necessary for effecting the junction should be
appended to the construction estimate:

(i) amount of sanctioned estimate;

(ii) actual expenditure on all works up to the date of the construction estimate;

(iii) commitments on that date;

(iv) anticipated further outlay;

(v) total estimated cost; and

(vi) difference between the sanctioned estimate and the estimated cost.

An abstract of the completion estimate showing the above particulars against the
various heads of capital classification should be submitted for information or sanction, vide
paragraph 1703 to the Railway Board together with brief explanations for excesses of not less
than Rs. 10,000 or 10 per cent over the provision under sub-heads of account and for savings
of 20 per cent or one lakh, whichever is less, occurring under any main head of account.
Provision for further outlay should be made in completion estimate only for those works
which are in progress or completed on the date of closing of the construction estimate. All
works not started on that date should be dealt with separately as open line works both as
regards estimate and expenditure. In forwarding, therefore, estimates for sanction for works
in connection with new lines opened, it should be clearly indicated whether the cost of work
is chargeable to Capital Construction or Open Line Capital.

Note: The completion estimate of an unremunerative construction project chargeable to

Development fund will be prepared in the same detail as the original construction
estimate using the various heads of capital classification for the purpose.

Page 32
 OBJECTIVE OF THE STUDY

1. Review large program expenditure transaction & assess the internal control
framework applicable to those transactions.
2. Assess the accuracy of accounting [classification of transactions] for large
transactions.

3. Evaluate the appropriateness of the delegated authorities of positions which approved

these payments.

4. Analyse & validate the post or pre-payment verification process for selected large
transaction

Page 33
 RESEARCH METHODOLOGY
STUDY OBJECTIVES :-
a) To study the nature of working capital, concepts and definition of working
capital.
b) To examine the effectiveness of working capital management practices of the
firm.
c) To find out how adequacy or otherwise of working capital affects commercial
operations of the company.
d) To prescribe remedial measures to encounter the problems faced by the firm.
e) To study the working capital financing or means of financing of the company.

SCOPE OF THE STUDY :-

f) Planning of working capital management
g) Working capital finance

METHODS OF DATA COLLECTION :-

A) PRIMARY DATA:
Basic information collected from the local sources as well as from the
company staff like managers, accountants and officers. Moreover information
gathered through practically preparing the data for working capital.

B) SECONDARY DATA:
1. From the B/S of the company
2. From CMA proposal report
3. From internet
4. From books

Page 34
 LIMITATIONS OF THE STUDY

As my training period clashed with the firms quarterly auditing period the concerned
person in Finance and Accounting Department were busy with auditing work and thus
were not able to provide more time to during the training period.

Moreover the data for the years before 2006-07 where not available and thus taken in
approximate figures.

The management of the firm is very busy and was found reluctant to provide off
balance sheet information.

Operating cycle is not found to be uniform and the same was found to be varying
from one period to another due to several inherent problems in production and
distribution system/delivery system/logistic system prevailing in the organization

Non availability of necessary and relevant data for assessing working capital
requirements due to Retirement of the key personnel and there was vacuum and lack
of proper interface between the firm and me.

Financial analyses are based on historical data and information

Page 35
 DATA ANALYSIS

Q1. Since How many years you have been working with railway department ?

SL NO PARTICULAR NUMBER OF RESPONDENTS PERCENTAGE

1 0-5 years 18 36

2 5- 10 years 29 58

3 10- 15 years 3 6

4 More than 15 years 0 0

Total 50 100

70
58
60

50

40 36

30

20

10 6
0 0
0
Highly Satisfied Netural Dissatisfied highly
Satisfied Dissatisfied

INTERPRETATION

The table shows that 58% of the respondents are satisfied with the support they are
getting from the HR department.

Page 36
Q2. What is your Annual income ?

a) Below 100000

b) 100000- 150000

c) 150000-250000

d) 250000_350000

e) 350000-above

Chart Title
Series1 Series2 Series3 Series4

30% 20% 10% 10% 20%

0
1 2 3 4 5 6

INTERPRETATION:

40% of the people annual income are 150000-250000 rest 20% are 250000-3000000
and 300000-350000,and rest go for above 3500000.

Page 37
Q3. How much Risk are you willing to work in railway department.?

a) High

b) Low

c) Moderate

Chart Title

Moderate
20%
High
50%

Low
30%

INTERPRETATION:

Among the 100 respondent, 50% people are willing to take high risk ,rest 30% take
moderate risk ,and the rest 20% take low risk.

Page 38
 FINDINGS

By analyzing the annual report of the company we can conclude that,

From the Liquidity Ratio we can recommend that the Liquidity of the company is
Very Good.

The Current ratio is increases every year. The Current Assets should be at least twice
the Current Liabilities for a comfortable liquid position.

Here we can see that interest to be paid has been cut very well, which is good for the
company in the future.

SUGGESTION

Controlling the expenditure of that money which elected in pin book estimate system is not

sufficient then hence, The Railway administration should use the performance budget also for

controlling the expenditure because In performance budget the money invest is co-related with the

work performance.

Page 39
 CONCLUSION
Estimate the recruitment procedure of capital expenditure in INDIAN RAILWAY,

analyzing the respondents answer, opinion survey and date analysis the research came to a

conclusion the capital expenditure is very long process and modify the various departments

like Civil Engineering, Mechanical Department, Signal and Telecommunication Department

and Electrical Department etc.

The expenditure of railway is carried on in a very scientific manner. In the saturation

point of work performance it need not waste the time to diversify into the another business.

At the time of difficulty the Railway Board it takes necessary action to solve the problem.

Page 40
 BIBLIOGRAPHY
BOOKS :-
K ASWATHAPPA (4TH year), Human Resource and Personnel Management, MC
Graw Hill company limited Page No. 180- 197
Prof PK Gupta (2010) Human Resource Management, Dremtech Press. Page No.
225- 260
CR Kothari (2014) Research Methodology Methods and Techniques, New age
international Publishers.(3rd edition) Page No. 50-89

JOURNAL :-
HRM Revies, Vol xi no 10 (October 2012) IUP Publication.
Business Strategy, Vol xii no. 3 (june 2015); IUP Publication.
SR Excels research update Vol I- no- I (October 2015) SR Excel education society
Organizational Behaviour Vol xii- no 3 (July 2013) IUP Publication

MAGZINES :-
Human Capital Vol 17 No 10 (March 2014)
Human Capital Vol 17 No 7 (December 2013)

WEBSITES :-
www.google.com
www.marutisuzuki.com
www.wikipedia.com
www.scribd.com

Page 41
 ANNEXURE

1) Employee name (name optional):

2) Designation:
3) Department:
4) Qualifications: Grad ____________ PG __________________
Any others (please specify): __________________
5) Service Completed: ________ years
6) Age (please tick):

a) Below 25 b) 25-35 c) 35-45 d) Above 45

7) Marital status: a) Married b) Unmarried

8). Since How many years you have been working in this organization ?

9). Is Management is interested in motivating the employees

10). The type of incentives motivates you more

11). Are u Satisfied with the present incentives scheme ?

12). The company is eagerness in recognizing and acknowledging employees work

13). Periodical increase in salary

14). Job Security existing in the company.

15). Good relations with the co-workers.

16). Effective performance appraisal system.

17). Effective promotional opportunities in present job,

18). Good safety measures existing in the organization.

19). Support from the co-worker is helpful to get motivated

20). Performance appraisal activities are helpful to get motivated.

Page 42