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EXECUTIVE SUMMARY
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It gives me greatT pleasure to present this project report on working
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capital finance at FACOR STEELS LIMITED, NAGPUR. The project was
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carried out from 1st June 2010 to 31st July 2010.
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The main objective of the project was to study various types of
working capital finance required by companies. To know details the
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procedure of assessment
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Procurement of fund is one of the important functions in business
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enterprises and utilizes it for maximization of business profits.
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Business enterprisesE need funds to meet their different types of
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requirements, E
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i. Long-term requirement
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ii. Medium-term requirement
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iii. Short-term requirement
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Working capital requirement is the short-term requirement. Working
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capital is the investment needed for carrying out day-to-day operations of
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the business smoothly. A Bank is one of the important sources of working
capital requirement. BankS gives various facilities to the borrowers.
In this project IHhave considered various banking facilities for the
working capital finance to the industries. It covers almost important
aspect relating to assessment & follow up of working capital finance.
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CONTENT
Part “B”
• Corporate profile
• Introduction of FACOR
STEELS LIMITED
Chapter IV: -
• Findings
• Suggestion
• Conclusion
Chapter V: - Bibliography
Working capital comprises current assets which are distinct from other
assets. In the first instance, current assets consist of these assets which
are of short duration.
1. Fixed Assets.
2. Current Assets
Fixed assets are those which yield the returns in the due course of time.
The various decisions like in which fixed assets funds should be invested
and how much should be invested in the fixed assets etc. are in the form
of capital budgeting decisions. This can be said to be fixed capital
management.
Net working capital refers to the difference between current assets and
current liabilities. The term current assets refers to those assets held by
the business which can be converted into cash within a short period of
time of say one year, without reduction in value. The main types of
current assets are stock, receivables and cash. The term current liabilities
refer to those liabilities, which are to be paid off during the course of
business, within a short period of time say one year. They are expected to
be paid out of current assets or earnings of the business. The current
liabilities mainly consist of sundry creditors, bill payable, bank overdraft or
cash credit, outstanding expenses etc.
OPERATING CYCLE
3. Sale of the product either for cash or on credit. Credit sale creates
book debts for collection.
working capital requirement should be financed for the long term &
GOODWILL
Sufficient amount of working capital enables a firm to make prompt
payments and makes and maintain the goodwill.
EASY LOANS
CASH DISCOUNTS
HIGH MORALE
expenses.
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.
NATURE OF BUSINESS:
Some businesses are such, due to their very nature, that their
requirement of fixed capital is more rather than working capital. These
businesses sell services and not the commodities and not the
commodities and that too on cash basis. As such, no funds are blocked in
piling inventories and also no funds are blocked in receivables. E.g. Public
utility services like railways, electricity boards, infrastructure oriented
projects etc. Their requirement of working capital is less. On the other
hand, there are some business like trading activity, where the requirement
of fixed capital is less but more money is blocked in inventories and
debtors. Their requirement of the working capital is more.
In very small companies the working capital requirements are quite high
overheads, higher buying and selling costs etc. As such, the medium sized
companies positively have an edge over the small companies. But if the
business starts growing after a certain limit, the working capital
requirements may be adversely affected by the increasing size.
PROFITABILITY
The profitability of the business may vary in each and every individual
case, which in its turn may depend upon numerous factors. But high
profitability will positively reduce the strain on working capital
requirements of the company, because the profits to the extent that they
are earned in cash may be used to meet the working capital requirements
of the company. However, profitability has to be considered from one
more angles so that it can be considered as one of the ways in which
strain on working capital requirements of the company may be relieved.
And these angles are:
TAXATION POLICY
How much amount is required to be paid by the company towards its tax
liability?
DIVIDEND POLICY
How much of the profits earned by the company are distributed by way of
dividend?
TYPES OF WORKING CAPITAL
The extra working capital, needed to support the changing production and
sales activities is called fluctuating, or variable or temporary, working
capital. Both kinds of working capital – permanent and temporary- are
necessary to facilitate production and sale through the operating cycle,
but temporary- working capital is created by the firm to meet the liquidity
requirements that will last temporary. As far as financing of the fixed or
permanent needs of working capital are concerned, these needs should be
met out of the long term sources of funds, Own generation of funds, out of
the profits earned, shares or debentures.
As far as financing of the variable or temporary needs of working capital
are concerned, these needs can be met from the various sources:
C].What should be the security that should be obtained for extending the
working capital assistance?
AMOUNT OF ASSISTANCE
To obtain the bank credit for meeting the working capital requirements,
the company will be required to estimate the working capital requirements
and will be required to approach the banks along with the necessary
supporting data. On the basis of the estimates submitted by the company,
the bank may decide the amount of assistance which may be extended,
after considering the margin requirements. This margin is to provide the
cushion against the reduction in the value of security. If the company fails
to fulfil its obligations, the bank may be required to realize the security for
recovering the dues. Margin money is meant to take care of the possible
reduction in the value of security. The percentage of margin money may
depend upon the credit standing of the company, fluctuations in the price
of security or the directives of Reserve Bank of India from time to time.
FORM OF ASSISTANCE
In case of Non-Fund Based Lending, the lending bank does not commit any
physical outflow of funds. As such, the funds position of the lending bank
remains intact.
BANK GURANTEE
LETTER OF CREDIT
The non-fund based lending in the form of letter of credit is very regularly
found in the international trade. In case the exporter and the importer are
unknown to each other. Under these circumstances, exporter is worried
about getting the payment from the importer and importer is worried as to
whether he will get the goods or not. In this case, the importer applies to
his bank in his country to open a letter of credit in favour of the exporter
whereby the importer’s bank undertakes to pay the exporter or accept the
bills or drafts drawn by the exporter on the exporter fulfilling the terms
and conditions specified in the letter of credit.
In case of Fund Based Lending, the lending bank commits the physical
outflow of funds. As such, the funds position of the lending bank gets
affected. The Fund Based Lending can be made by the banks in the
following forms-
LOAN
In this case, the entire amount of assistance is disbursed at one time only,
either in cash or by transfer to the company’s account. It is a single
advance. The loan may be repaid in instalments, the interests will be
charged on outstanding balance.
OVERDRAFT
CASH CREDIT
PACKING CREDIT
A unit needs working capital funds mainly to carry current assets required
the industry experts and feed-back received on the interim report. Banks
assets for being supported by banks’ finance. Banks may also consider
The Tandon Study group had suggested the following alternatives for
Bank can work out the working capital gap. i. e. total current
current assets out of long-term funds, i.e. owned funds and long
term borrowings. A certain level of credit for purchases and other
long term funds would be 25 per cent of the working capital gap under the
FIRST METHOD OF LENDING and 25 per cent of total current assets under
LIABILITES:
current assets & current liabilities. All illustrative lists of current assets &
furnished below;
Current assets: -
j. Prepaid expenses
consumable stores
Current Liabilities:
b. Unsecured loans
d. Sundry creditors (trade) for raw material & consumer stores &
spares
h. Statutory liabilities
Dividends
WORKING CAPITAL
banks, it is necessary to call for the data from the borrowers regarding
their net worth, long term liabilities, current liabilities, fixed assets, current
assets, etc. the Reserve Bank prescribed the forms in 1975 to submit the
information have also been simplified in 1991 for reporting the credit
sanctioned by banks above the cut-off point to reserve bank under its
the nature of the borrowers’ activities & their financial position. The data
also the term loan facilities availed of from the term lending
with the limits now requested & the limits actually utilized during the
last 12 months.
The data relating to last sales, net sales, cost of raw material, power
proceeds.
form. The details of current liabilities, term liabilities, net worth, current
assets, other non-current assets, etc. are given in this form as per the
This form gives the details of various items of current assets and
given in this form should tally with the figures given in the form III
where details of all the liabilities & assets are given. In case of
(FORM V)
On the basis of details of current assets & liabilities given in form IV,
In this form, fund flow of long term sources & uses is given to
indicate whether long term funds are sufficient for meeting the long
(CMA) the database forms have been recognized as CMA database. The
committee of directions have come into use from 1st April 1991.
database from all borrowers including SSI units enjoying working capital
limits of Rs. 50 lacs and more from the banking system should be
obtained.
The revised sets of forms have been separately prescribed for industrial
under: -
It contains data relating to gross sales, net sales, cost of raw material,
power and fuel, etc. It gives the operating profit and the net profit figures.
current years estimate and following years projection are given in this
form.
CURRENT LIABILITES
Details of various items of current asset and current liabilities are given.
The figures in this form must tally with those in form III.
Form 5: - COMPUTATION OF MAXIMUM PERMISSIBLE BANK
The calculation of MPBF is done in this form to obtain the fund based
It provides the details of fund flow from long term sources and uses to
indicate weather they are sufficient to meet the borrowers long term
requirements.
SECURITY
Banks need some security from the borrowers against the credit facilities
various ways. Banks provide credit on the basis of the following modes of
of the owner of the goods i.e. the borrower. The rights of the banks
depend upon the terms of the contract between borrowers and the lender.
Although the bank does not have the physical possession of the goods, it
has the legal right to sell the goods to realize the outstanding loans.
PLEDGE: The goods which are offered as security, are transferred to the
that the goods are in the custody of the bank. Pledge creates some kind of
liability for the bank in the sense that ‘Reasonable care’ means care,
which a prudent person would take to protect his property. In case of non-
payment by the borrower, the bank has the right to sell the goods.
LIEN: The term lien refers to the right of a party to retained goods
belonging to other party until a debt due to him is paid. Lien can be of two
types viz. Particular lien i.e. A right to retain goods until a claim
pertaining to these goods are fully paid, and General lien, Which is
applied till all dues of the claimant are paid. Banks usually enjoyed
general lien.
BANKING ARRANGEMENTS
arrangements;
RBI till 1997 made it obligatory for availing working capital facilities
financial requirement of big projects by banks and also share the risks
Bank with maximum share of the working capital limits usually takes the
meeting agree on the ratio of sharing the assessed limits. Lead bank
the lead role. Most borrowers are shifting their banking arrangement to
MARKETS CATERED
FACOR steel produces and sells high quality stainless steels and speciality
steels that meet a variety of demands. We design our product mix to cater
to almost all leading automobile and engineering industries. Our products
withstand the extreme environments in which they are used. Our people
are attentive to customers' needs in an increasingly complex business
environment. Industries being catered to by
FACOR today are -
(1) FORGING INDUSTRY
(2) AUTO COMPONENT INDUSTRY
(3) FASTNERS INDUSTRY
(4) RAILWAY SPRINGS
(5) BRIGHT BAR INDUSTRY
(6) CHEMICAL AND CORROSION INDUSTRY
(7) SURGICAL EQUIPMENT INDUSTRY
(8) VALVE INDUSTRY
(9) BOILERS
FACOR also supply special steel for critical applications like Aerospace,
pressure equipments etc. and have successfully developed over 500 steel
grades in plant over period of time.
To cater the growing demand from auto sector and heavy engineering
sector for forged rounds, FACOR STEELS LTD. has set up a modern forging
unit at its existing plant and the commercial production has
started from 10th July, 2009 onwards. The company with its enhanced
capacity of ingot production and capability to provide higher diameter
forged rounds is ready to fulfil the global and domestic demand in Non-auto
sectors like sugar Mill, Cement Plants, Heavy machinery units etc. There is
a huge supply-demand gap in this sector and FACOR STEELS LTD. is rightly
poised to cater to this segment.
MARKET SHARE
Through innovative technologies FACOR Steel meets customer
requirements, both in terms of quality and deliveries, which has helped us
to improve our share in Auto & Engineering industry. Our customers as on
date number more than 150 reputed manufacturers throughout the length
and breadth of the country.
STRENGTH
Our inherent strengths lie in meeting the requirements of critical grades,
even in smaller quantities of say 1 to 1.5 MT, in our wide product range in
shortest possible time of 4 to 6 weeks. We can adapt to rapid changes in
domestic as well as global market by careful adjustment in product mix.
BOARD OF DIRECTORS
Sr.No Name
Shri Narayandas D. Saraf
1.
( Chairman & Whole Time Director)
Shri Murlidhar D. Saraf
2.
(Vice Chairman & Managing Director)
Shri Vinod V. Saraf
3.
(Managing Director)
Shri Anurag M. Saraf
4.
(Joint Managing Director)
Shri P. K. Kukade
5.
(Director)
Shri Anand S. Kapre
6.
( Director )
Shri Mahendra B. Thaker
7.
(Director)
Mr. Arye Berest
8.
(Director)
Shri P K S Nair
9.
(Nominee Director, Bank of India)
Shri Ashim R. Saraf
10.
(Alternate Director to Mr. Arye Berest)
Shri Vibhu Bakhru
11.
(Director)
Certificates
ISO/TS 16949:2002
We Facor Steels Ltd. has accreditation of IRQS and awarded ISO/TS
16949:2002 certification in 2008. The scope of approval is for
manufacture Carbon, Alloy, Stainless & special Steels. The certification no
IRQS/0850766 is valid till 2011. We first achieved ISO certification in 1994
and ISO 9001:2000 in 2004. We are maintaining the system and our
certification since then.
TUV NORD System Gmbh& co
banks.
studies.
STATEMENT OF LIMITATION
business secrecy.
SOURCES OF DATA