A PROJECT REPORT ON

WORKING CAPITAL MANAGEMENT

A CASE STUDY OF

ROURKELA STEEL PLANT

ROURKELA, SUNDERGARH, ODISHA

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 CERTIFICATE

This is to certify that SUBHASHREE JENA student of IIPM –SCHOOL OF

MANAGEMENT has completed her field work at ROURKELA STEEL PLANT,
SAIL on the topic of ―WORKING CAPITAL MANAGEMENT and has
submitted the field work of eport in partial fulfilment of 2 years full time course MBA-
FM of college for the academic year 2016-2018. She has worked under our guidance and
direction. The said report is based on bona fide information.

Mr. Gaurav Arora

Senior Finance Manager

ROURKELA STEEL PLANT

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 DECLARATION

I hereby declare that the project titled ― WORKING CAPITAL

MANAGEMENT. It is an original piece of research work carried out by
me under the guidance and supervision of Mr. Gaurav Arora and department
of finance, IIPM kansbahal.

. The information has been collected from

genuine & authentic sources. The work has been submitted in partial
fulfilment of the requirement of MASTER IN BUSINESS
ADMINISTRATION .

Place: Rourkela Name: SUBHASHREE JENA

Date:

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 CONTENTS

CHAPTER PAGE NO

1. Introduction……………………………………………… 07
a. History of the steel industry............................................................ 07-08
b. Present status of the steel industry.................................................. 08-10
c. Way forward for the Indian steel industry………………………… 10-11
d. Structural weakness of the steel industry………………………….. 11-12
e. Strengths of the Indian steel industry………………………………. 12

2. Profile…………………………………………………………. 13

a. Industry profile…………………………………………………….. 13-14

b. Company profile…………………………………………………… 15-17
c. Literature review………………………………………………….. 17
o Working capital management………………………………… 17
o Definition of working capital………………………………… 17
o Working capital concept……………………………………… 17-20
o Classification of working capital on the basis of time………. 20-22
o Objective of working capital management…………………… 22-23
o Determinants of working capital……………………………… 23-24
o Elements of working capital………………………………….. 24-26
o Factors to be considered while estimating working………….. 26-27
Capital requirement
o Finance of working capital…………………………………… 27
o Sources of working capital…………………………………… 27-29
o Sources of additional working capital………………………... 29-30

3. Research design………………………………………. 31

a) Research………………………………………………………. 31
b) Data type……………………………………………………… 31
c) Need of the study……………………………………………… 31-32
d) Objectives of the study………………………………………... 32

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 e) Tools used for project…………………………………………. 32
f) Scope of the study…………………………………………….. 32
g) Period of the study……………………………………………. 32
h) Area of the study……………………………………………… 33
i) Limitation of the study……………………………………….. 33
j) Analysis of the work…………………………………………. 33-52

4. Findings & Suggestions..................................................... 53-54

5. Conclusion……………………………………………… 55

6. Bibliography…………………………………………… 56

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 ACKNOWLEDGEMENT

“The satisfaction Euphoria that accompanies the successful completion of any work would be
incomplete unless we mention the name of the person, who made it possible, whose constant
guidance and encouragement served as a beckon of light and crowned our efforts with
success.” I consider it a privilege to express through the pages of this report, a few words
of gratitude and respect to those who guided and inspired in the completion of this project
of WORKING CAPITAL MANAGEMENT

Hence with a sense of profound humility, I first extend my sincere gratitude to

Mr.Gaurav Arora , for providing mean opportunity to carry out my summer training at
this esteemed organization, and whose support and guidance helped me in converting my
theoretical conception into visualization and also for continuous guidance throughout the
project.

Furthermore I would be grateful to express gratitude to

(internal guide) and all the faculty members.

I would specially thankful to SAMBALPUR UNIVERSITY for their special curriculum

course which has given us an opportunity to work on a case study and analysis, which
gives a light to the students and immense knowledge hereby.

Last but not the least; I am indebted to my family and friends for giving me constant
support and encouragement.

SUBHASHREE JENA

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 CHAPTER-1
INTRODUCTION
ABOUT INDIAN STEEL INDUSTY

1.1 HISTORY OF THE INDUSTRY:

The Indian Steel industry is almost 100 years old now. Till 1990, the Indian Steel
industry operated under a regulated environment with the insulated Markets and large scale
capacities reserved for the public sector. Production and prices were determined and
regulated by the government, while SAIL and TATA STEEL were the main producers, the
latter being the only private player. In 1990, the Indian Steel industry had a production capacity
of 23 MT. In 1992 Saw the onset of liberalization and the Indian economy was opened to the
world. Indian steel sector also witnessed the entry of several domestic private players and large
private investments flowed into the sector to add fresh capacities.

Steel Industry in India is on an upswing because of the strong global and domestic demand.
India’s rapid growth and soaring demand by sectors like Infrastructure, real estate and
automobiles, at home and abroad, has put Indian Steel industry on the global map. According
to the latest report by International Iron and Steel Institute (IISI), India is the seventh largest
steel producer in the world.

The origin of the Indian steel industry can be traced back to 1953 when a contract for the
construction of an integrated steelworks in Rourkela, Odisha was signed between the Indian
government and the German companies Fried Krupp and Demag AG. The initial plan was
an annual capacity of 500,000 tonnes, but this was subsequently raised to 1 million tonnes.
The capacity of Rourkela Steel Plant (RSP), which belongs to SAIL (Steel Authority Of
India LTD) group, is presently about 2 million tonnes. At a very early stage the former
USSR and a British consortium also showed an interest in establishing a modern steel
industry in India. This resulted in the Soviet-aided building of a steel mill with a capacity of
1 million tonnes in Bhilai and the British-backed construction in Durgapur of a foundry
which also has a million tonne capacity.

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The Indian steel industry is organized in three categories i.e., main producers, other
major producers and the secondary producers. The main producers and other major
producers have integrated steel making facility with plant capacities over 0.5 MT and utilize
iron ore and coal/gas for production of steel. The main producers are TATA STEEL, SAIL,
and RINL, while the other major producers are EESAR, ISPAT and JVSL. The secondary
sector is dispersed and consists of:

1. Backward linkage from about 120 sponge iron producers that use iron Ore and non coking
coal, providing feedstock for steel producers;
2. Approximately 650 mini blast furnaces, electric arc furnaces, induction furnaces and
energy optimizing furnaces that use iron ore, sponge iron and melting scrap to produce
steel; and
3. Forward linkage with about 1,200 re-rollers that roll out semis into finished products for
consumer use.

PRESENT STATUS OF THE STEEL INDUSTRY IN INDIA

1) Indian economy growing @ 8 to 9 %, is one of the fastest growing economies in the

world.
2) Industrial production showing encouraging trends. Index of industrial production for
Capital goods is showing @ 8.4% CAGR and growth in index for consumer durables
was @ 10.5% CAGR during 2005-06.
3) The 10th plan (2002-03 to 2006-07) investment in infrastructure has been
envisaged at around Rs.880,550 crores.
4) The major sector wise anticipated investment is likely to be Rs.292000 crores in
power, Rs.145000 crores in Roads & Bridges, irrigation Rs.111000 crores.
5) During 11th plan (2007-08 to 2011-12), the projected investment towards
infrastructure is likely to be Rs.2027000 crores, an increase of 180% over 10th plan.
6) Per capita steel consumption at 35 kg low as compared to world average of 150 kg and
300 kg for china.
7) National Steel Policy, as formulated by Indian Ministry of Steel envisage the following
–
 Crude steel production of 110 million tonnes by 2019-20 at CAGR of

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 7.1% from 2004-05.

 The demand of steel by 2020 is likely to be 90 million tonnes at CAGR of 6.9% from
2004-05.

 Steel exports by 2020 are likely to grow at CAGR of 13.3% from2004-05 to

26 million tonnes.

 Steel imports to the country by 2020 shall grow at CAGR of 7.1% from 2004-05 to
6 million tonnes.

8) Steel consumption has increased by nearly 3%, in 2016-2017, the steel minister
urged the industry to ensure that the rate of growth goes up to 4% in the current year 2017-
18.

9) As per the newspaper reports (Eco. Times dt.14-11-07), steel Minister has
projected India’s steel production to be around 127 million tonnes by 2012 and a capacity
of around 275 million tonnes by 2019-20.

10) During the year 2006-07, India produced around 49 million tonnes of finished
steel which was higher by 11% over 2005-2006.

11). Imports at 4.1 million tonnes during 2006-07 were higher by 6.5%. Exports at
4.7 million tonnes grew by 6.1% during 2006-07.

12) During 2005-06 Iron ore exports at 84 million tonnes was almost at the Previous
year’s level of 87 million tonnes.

. 13) During April – Sept.’07 following has been the performance-

 Crude steel production at 25.7 million tonnes, exhibited a growth of

5% over corresponding period last year.

 Exports at 2.6 million tonnes shows an increase by around 8% over the

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 same period of last year.

 Imports were around 3.2 million tonnes which was an increase by 63%

over April-Sept’06.

14.) Due to infrastructure focus, production of long products is gradually increasing and
ratio of flat to long products is narrowing.

15) During April-Sept’07 non flat steel produced at 12.4 million tonnes showed an
increase of around 9% over April-Sept’06.

16) In case of flat products production during April-Sept’07 at 12.2 million Tonnes was
almost at same level of last year.

17) Apparent Consumption of steel during April-Sept’07 was 22 million tonnes which
was an increase by 11% over April-Sept’06. While long products (excel. Semis) at 12.3
million tonnes registered a growth of 9% , the flat products consumption at 12.5 million
tonnes indicated an Increase of 12%.

18) With due focus on infrastructure development and strong economic indicators, the
demand for steel in India shall continue to remain robust.

1.3 WAY FORWARD FOR THE INDIAN STEEL INDUSTRY

“We still have a number of persons in our country in SAIL, TISCO and other big and small
steel plants who have the capabilities. They have the will to excel and transform the country,
given a long term vision.”

“We should be ready to complete in outside markets.....If our steel industry gears up in
about 3 to 4 years, Indian steel can be both in Indian and foreign markets. Our vision should
be towards this.”

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-Indian 2020: A vision for the new millennium by APJ Abdul Kalam and YS
Rajan

The Government envisions India becoming a developed nation by 2020 with a per capita
GDP of $1540. For a nation that is economically strong , free of the problems of
underdevelopment and plays a meaningful role in the world as benefits a nation of over
one billion people, the groundwork would have to begin right now. The Indian Steel
Industry will be required and is willing to play a critical role in achieving this target.

With abundant iron ore resources and well-established base for steel production in the country,
steel is poised for growth in the coming decades. Production has increased from 17 MT in
1990 to 36MT in 2003 and 66 MT is targeted for 2011 While steel will continue to have a
stronghold in traditional sectors such as construction, housing, ground transportation, special
steels will be increasingly used in hi-tech engineering industries such as power generation,
petrochemical fertilisers etc. Steel will continue to be the most popular, versatile and dominant
material for wide ranging applications. While India may not become a leader in world steel
market, it can become a powerful force.

1.4STRUCTURAL WEAKNESSES OF INDIAN STEEL INDUSTRY

Although India has modernized its steel making considerably, however, nearly 6% of
its crude steel is still produced using the outdated open hearth process.
Labour productivity in India is still very low. According to an estimate crude steel
output at the biggest Indian steelmaker is roughly 144 tonnes per worker per year,
whereas in Western Europe the figure is around 60 tonnes.
India has to do lot of catching in the production of stainless steel, which is primarily
required by the plant and equipment, pharmaceutical and chemical industries.
Steel production in India is also hampered by power shortages.
India is deficient in raw material required by the steel industry. Iron ore deposits are
finite and there are problem in mining sufficient amounts of it. India’s hard coal
deposits are of low quality.

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 Insufficient freight capacity and transport infrastructure impediments too hamper the
growth of Indian steel industry.

1.5 STRENGTHS OF THE INDIAN STEEL INDUSTRY

 Low labour wage rates.

 Abundance of quality manpower.
 Mature production base.
 Positive stimuli from construction industry.
 Booming automobile industry.

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 CHAPTER 2

PROFILE

2.1 INDUSTRY PROFILE

The steel industry is of the most important industry in India. During 2014-2015,
India was the 3rd largest producer of raw steel in the world. The industry produced 91.46
million tonnes of total finished steel and most of the steel is produced from iron ore. The
Indian Ministry of Steel is concerned with the coordination and planning of the growth and
development of the iron and steel industry in the country, both in the public and private
sectors, formulation of policies with respect to production, pricing, distribution, import and
export of iron and steel, Ferro alloys and refractory’s, and the development of input industries
relating to iron ore, manganese ore, chrome ore and refractory etc., required mainly by the
steel industry.

As the steel is the crucial to the development of any modern economy and is considered
to be the backbone of human civilization. The level of per capita consumption of steel is
treated as an important index of the level of socio economic development and living
standards of the people in any country. It is a product of a large and technologically complex
industry having strong forward and backward linkages in terms of material flows and income
generation. All major industrial economies are characterized by the existence of a strong
steel industry and the growth of many of these economies has been largely shaped by the
strength of their steel industries in their initial stages of development.

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 India’s economic growth is contingent upon the growth of the Indian Steel
industry. Consumption of steel is taken to be an indicator of economic development. While
steel continues to have a stronghold in traditional sectors such as construction, housing and
ground transportation, special steels are increasingly being used in engineering industries
such as power generation, petrochemicals and fertilizers. India occupies a central position
on the global steel map, with the establishment of new state-of-the-art steel mills, acquisition
of global scale capacities by players, continuous modernization and up gradation of older
plants, improving energy efficiency and backward integration into global raw material sources.

India is currently the world’s 4th largest producer of crude steel and is expected to
become the 2nd largest producer by 2020. Steel production in India has increased from 81
million tonnes in 2013-14 to 88 million tonnes in 2014-2015 with the capacity being increased
from 100 million tonnes in 2013-2014 to 110 million tonnes in 2014-2015. The steel sector
contributes nearly 2% of the country’s GDP and employs over 6 lakh people. The per capita
consumption of total finished steel in the country has risen from 51 kg in 2009-10 to about 60
kg in 2014-15

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 2.2 COMPANY PROFILE

Rourkela Steel Plant (RSP), is the first integrated steel plant in the public sector in India, was
set up with the German collaboration with an installed capacity of 1 million tonnes.

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Subsequently, its capacity was enhanced to 2 million tonnes of hot metal, 1.9 million tonnes
of crude steel and 1.67 million tonnes of saleable steel. After implementing a massive
modernisation and expansion, Rourkela Steel Plant has enhanced its capacity to 4.5 million
tonnes of Hot Metal and 4.2 Million tonnes of crude steel.

Pre – Expansion Post – Expansion

Hot Metal 2 4.5
Crude Steel 1.9 4.2
Saleable Steel 1.67 3.9

RSP was the first plant in India to incorporate LD technology of steel making. It is also the
first steel plant in SAIL and the only one presently where 100% of slabs are produced
through the cost-effective and quality-centric continuous casting route. It is SAIL’s only
plant that produce silicon steels for the power sector and high quality pipes for the oil & gas
sector. Its wide and sophisticated product range includes various flat, tubular and coated
products.

Modernisation and Expansion of Rourkela Steel Plant:

Rourkela Steel Plant has completed a massive modernization and expansion Programme
that is truly historic. With this the Steel Plant has doubled its capacity and augmented it

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to the level of 4.5 MTPA (Million Tonne per annum) of Hot Metal from the previous level
of 2 MTPA. The crude Steel making capacity has simultaneously increased from the level
of 1.9 MTPA to 4.2 MTPA and production of Saleable Steel is all set to zoom from the level
of 1.671 MTPA to 3.99 MTPA.

It is worth mentioning here that, apart from increasing the volume the other benefits
envisaged from this phase of modernisation and expansion are increased economy
of scale, enlarged customer base, enhanced quality, reduced cost of production, better
market compatibility, improved labour productivity, stricter to environment norms and
superior Techno-economic.

2.3 LITERATURE REVIEW

Working capital management

One of the most important areas in day to day management of firm deals with the
management of working capital, which is defined as all the short term assets used in daily
operations. These consists primarily of cash ,marketable ,securities ,account receivable,
inventories. Some of the decisions taken in working capital management are:

 An adequate supply of raw materials.

 Cash to meet the operation payment.
 The ability to grant credit to customers.
 The capacity to wait for market for its finished products.
 Investment in various current assets.
 Appropriate sources of fund to finance current assets.
 Proportion of long term and short term funds to finance current assets.

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

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

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Definition of Working Capital: Working capital (WC) is a financial metric which
represents operating liquidity available to a business, organization or other entity, including
governmental entity. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital

WORKING CAPITAL CONCEPT: There are two types concepts of working

capital.
A. Balance sheet concept
B. Operating cycle or circular flow concept

Balance sheet concept-There are two interpretations of working capital under the balance
sheet concept:

 Gross concepts
 Net concepts

 Gross working capital concept: Simply called as working capital refers to the
firms investment in current assets are the assets which can be converted into cash
within an accounting year and include cash short term securities, debtors, bill
receivables and stock.

 Net working capital concept: Net working capital refers to the differences between
current assets and current liabilities. Current liabilities are those claims of outsiders
which are expected to mature for payment with in an accounting year. Networking
capital can be positive or negative. A negative working capital means negative
liquidity and may be prove to the harmful for the company .It occurs when current
liabilities are in excess if current assets. It may be due to mismanagement of current
assets.
Current asset-current liabilities

In summary it may be emphasized that gross and net concepts of working capital are two
important facts 0f working capital management. The data and problems of each firm is
different, so it should be analyzed to determine the amount of working capital and timely
action should be taken by management to improve the liquidity position of the firm.

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 OPERATING CYCLE CONCEPT: The duration or time required to complete the sequence
of events right from the purchase of raw materials for cash to the realization of sales in cash
is called operating cycle or working capital cycle. The operating cycle consists of three
phases:-

Phase 1:-Cash gets converted into inventory. This would include purchase of raw materials,
conversion of raw materials into work-in-progress, finished goods & terminate in the transfers
of the goods to stock at the end of manufacturing process. In the case of trading organization,
this phase would be shorter as there would be no manufacturing activity & cash will be
converted into inventory

There are two types of operating cycle:

1. GROSS OPERATING CYCLE:

The total of inventory conversion period & debtor conversion period is referred
to as gross operating cycle. Formulae of calculating of gross operating cycle as
under:

GROSS OPERATING CYCLE=RMCP+WIPCP+FGCP+RCP Where,

1. RMCP = Raw Material Conversion Period.

2. WIPCP = Work-in-progress Conversion Period.

3. FGCP = Finished goods Conversion Period.

4. RCP = Receivable Conversion Period.

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FORMULAE OF GROSS OPERATING CYCLE

1. RMCP = Average stock of Raw Material / Raw Material consumption per day

2. WIPCP = Average Work-in-Progress / Total Production per day

3. FGCP = Average stock of finished goods / Total Cost of Sales per day

4. RCP = Average Account receivables / Credit Sales per day

2. NET OPERATING CYCLE

The number of days it takes a company to generate revenues with assets. It also called a cash
conversion cycle. Formulae of calculating net operating cycle are:

NET OPERATING CYCLE=GROSS OPERATING CYCLE-PAYABLE DEFERRAL

PERIOD

Where, Payable deferral period = Average Payables / Credit purchase per day

CLASSIFICATION OF WORKING CAPITAL ON THE BASIS OF TIME: There are

three kinds of working capital on the basis of time:

1. Permanent or fixed working capital

2. Temporary or variable working capital
3. Semi variable working capital

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 ON THE BASIS OF TIME

TIME(WC)

PERMANENT WC TEMPORARY OR SEMI VARIABLE WC

VARIABLE WC
WORKING CAPITAL

REGULAR WC SEASONAL WC

WORKING CAPITAL

RESERVE WC SPECIAL WC

WORKING CAPITAL
1. Permanent working capital: It is also known as Fixed Working Capital. It is the

capital; the business concern must maintain certain amount of capital at minimum level at
all times. The level of Permanent Capital depends upon the nature of the business.
Permanent or Fixed Working Capital will not change irrespective of time or volume of
sales. It represents the minimum level of raw materials, work-in-progress, finished
goods, stores, accounts receivables & cash which are in circulation to ensure continuity
of production.
It is divided into two parts: regular working capital & reserve working capital. The
portion of fixed working capital which is utilized to carry out the cyclical operation of
current assets in the form of conversion of liquid cash into raw materials, raw materials
into finished goods, finished goods into debtors & debtors into liquid cash in a continuous
manner is known as regular working capital. On the other hand, the portion of fixed working
capital, which is preserved for meeting uncertain & emergent working needs are known as
reserve working capital.

PERMANENT WORKING CAPITAL

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AMOUNT OF
WORKING
CAPITAL

TIME Fig. Permanent Working Capital

2. Temporary Working Capital: It is also known as variable working capital. It is

the amount of capital which is required to meet the Seasonal demands and some special
purposes. It can be further classified into Seasonal Working Capital and Special Working
Capital. The capital required to meet the seasonal needs of the business concern is called
as Seasonal Working Capital. The capital required to meet the special exigencies such as
launching of extensive marketing campaigns for conducting research, etc.
Seasonal working capital: The additional working capital required by a concern to carry
out its operating activities in busy season of high markets demands is known as seasonal
working capital. Some examples of seasonal business are: ice- creams, cold drinks, wool
etc.

Special working capital: The portion of working capital that is needed by a concern to
meet the extraordinary requirements of special situations is known as special working
capital. This is called special situations & not in normal circumstances.

3. Semi Variable working capital: Current amount of Working Capital is in the field
level up to a certain stage and after that it will increase depending upon the change of sales
or time.

SEMI VARIABLE

WORKING CAPITAL
AMOUT
OF
WORKIG
CAPITAL

TIME

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 Fig. Semi Variable Working Capital

Objective of working capital management:

To minimize the amount of capital employed in financing the current
assets. This will also lead to an improvement in Return On Capital Employed”.

To manage the current in such a way that the marginal return on investment in these assets is
not less than the cost of capital acquired to finance them. This will ensure the maximization
of the value of business unit.

To maintain a proper balance between the amount of current asset and current liabilities in
such a way that a firm is always able to meet its financial obligations whenever due. This will
ensure smooth working of the unit without any production held ups due to paucity of funds.

Thus ,the objective is to ensure the maintenance of satisfactory level of

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

Determinants Of Working Capital

To determine the amount of working capital needed by a firm, the number of factors may be
included in analysis.

 Nature and Size of business

 Availability of credit
 Attitude toward Risk
 Operating Efficiency
 Manufacturing Cycle

Nature and Size of business: Trading and financial firms require a large sum of money to be
invested in working capital. Some manufacturing businesses like tobacco manufacturing and
constructions firms also have very limited need for working capital. Their working capital
requirements are nominal because they have cash sales only.

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 Size of business also has an important impact on its working capital. A firm with longer
scale of operation will need more working capital than a small operation firm.

Availability Of Credit: Availability of credit from bank also influences the working capital
needs of the firm .A firm, which can get bank credit easily on favourable conditions, will
operate with less working capital than a firm such a facility.

Attitude toward risk: The greater the amount of capital, lower need of working capital.
Most firms seek to maintain sufficient working capital to meet their needs for liquidity.

Manufacturing Cycle: Longer the manufacturing cycle larger will be the firm’s working
capital requirements. Manufacturing cycle stands with the purchase and use of raw materials
and completes with the production of finished goods. In order to minimize their investment in
working capital, some firms like manufacturing industrial products, have a policy of asking
for advances payment from their customers.

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

Elements of working capital: The study of structure of working capital is the study of the
element of current assets and current liabilities. . Current assets consist of inventory, bills
receivable, cash is hand, stores, bank balance and others liquid resources like short term or
temporary investment. Current liabilities consist of bills payable, creditors, unpaid
dividend, unpaid taxes and other such things which are payable within a year. This study
of working capital is another name for study of elements of current assets over current
liabilities.

Current Assets:

(I) Inventory:
Inventory is the major term for current assets. Inventory frequently constitutes very
important portion of the current assets. Because of very large investment in inventory and
it’s importance in meeting customer's needs its management becomes important.
Maintaining inventories also requires investment of capital. However, it should be adequate
i.e. proper. Excess and inadequacy of capital both are very harmful for any company. A
reduction i.e. inadequacy many times lead to slow down the firm's production and also halts

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its operation. Excess investment in inventory lowers the return on total assets and inventory
turn over ratio. According to Harold and Dyckman. "The establishment of optimal inventory
level is one part of determining the current asset portfolio and is one of the more important
decision of the firm taken on a continually basis in relation to its operation."

(II) Cash:
Cash is one of the most important tools of day-to-day operations, because it is a form of
liquid capital, which is available for assignment to any case. It is often the primary
factor, which decides the course of business destiny, the decision to expand a business
may be determined by the availability of cash and the borrowings of funds will frequently
be dictated by cash position. Cash in hand however is a non-earning asset. The optimum
level of idle resources depends upon various factors such as manufacturing cycle, the sale
and collection cycle, age of bills and its maturity date. It also depends upon its liquidity
of other current assets and the matter of expansion. It is an important component also
because it is the cash, which keeps the business going. It is always in the form of liquid
funds including bank balances, which may be used for any purpose and at any time. Cash
is both the means and end for a firm. Return on capital generally makes the payment
of cash, dividends imperative and in case of liquidation cash becomes the final means
of payment. There is not a single movement in the life of a business firm when cash is
not important. Cash therefore, occupies a central place in the structure of working capital.
It has now become a practice with business enterprise to avoid too much redundant cash by
investing a portion of their earning in assets, which are susceptible to easy conversion
into cash. Such assets include Govt. Securities bonds debentures and shares that are known
to be readily marketable and they may liquidate at any movement as and when needed.

(III) Receivables:
The present popular practice of acquiring commodities and services in exchange for a promise
of future payment rather than exchange of goods desired in ancient time. The best form of
debt is 'book debt'. It is in fact an inter-firm debt. From the seller point, it is trade debtors
an asset and from the purchaser point of view, it is trade creditor as a liability. It may also
be true that the extension of credit by the firm to its customers may reduce the variability
of sales over time. Customer confined to cash purchases may tend to purchase goods
when cash is available to them. Even if the customers do obtain credit elsewhere, they must
incur additional cost of search in arranging for a loan cost that can be estimated when credit

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is given by a supplier. Therefore extension of credit to customer may well smooth out the
pattern of sales and cash inflows to the firms over time since customer need not wait for
some inflows of cash to make a purchase. The extension of credit by firms may act to
increase near term sales. Customer need not wait to accumulate necessary cash to purchase
an item but can acquire it immediately on credit.

The determination of the amount of investment in receivable is a function of the volume

sales and longer the terms of credit granted, the more will be the investment in receivables.

(IV) Marketable Securities:

In modern time, it has become a practice with business enterprise to avoid too much extra
cash by investing a portion of their earnings in assets, which are susceptible to easy
conversion into cash. Such assets may be in form of cash, Govt. Securities, debentures, bonds
or shares known as readily marketable securities. Corporate shares also come in this category.

Current Liabilities: It is another main aspect of working capital:

(i) Current trade creditors: These debts are payable in cash within a short period of a
year or less. Until this liability falls due for payment it serves as a short-term source of
finance.

(ii) Current Provisions: These are arising in normal course of business operation such
as for taxation, dividends, interest etc. and mature for payment within a short period.

(iii) Short-term borrowings: These are actually borrowed from certain persons from
time to time for short period of time.

FACTORS TO BE CONSIDERED WHILE ESTIMATING

WORKING CAPITAL REQUIREMENT

 Total costs incurred on materials, wages & overheads.

26 | P a g e
  The length of time for which raw materials remain in stores before they are
issued to production.

 The length of the production cycle or work-in-progress, i.e., the time taken for
conversion of raw materials into finished goods.

 The length of the sales cycle during which finished goods are to be kept waiting for
sales.

 The average period of credit allowed to customers.

 The amount of cash required to pay day-to-day expenses of the business.

 The average amount of cash required to make advance payments, if any.

 The average period of credit to be allowed by suppliers.

 Time-lag in the payment of wages & other overheads.

 The average amount of advances received, if any.

FINANCING OF WORKING CAPITAL

The working capital requirements of a concern can be classified as:

a) Permanent or Fixed working capital requirements.

b) Temporary or Variable working capital requirements.

In any concern, a part of the working capital investments are as permanent investments in
fixed assets. This so because there is always a minimum level of current assets which are
continuously required by the enterprise to carry out its day-to-day business operations
and this minimum cannot be expected to reduce at any time. This minimum level of
current assets gives rise to permanent or fixed working capital as this part of working
capital is permanently blocked in current assets.
Similarly, some amount of working capital may be required to meet the
seasonal demands and some special exigencies such as rise in prices, strikes, etc. This

27 | P a g e
proportion of working capital gives rise to temporary or variable working capital which
cannot be permanently employed gainfully in business.

The various sources for the financing of working capital are as follows:
Sources of working capital:-

Permanent or Fixed Temporary or Variable

Shares Commercial Banks

Debentures Indigenous Bankers

Public deposits Trade Creditors

Ploughing back of profits Installment Credit

Loans from Financial Institutions. Advances

 Long Term Sources (Permanent or Fixed Sources):

Source of fixed working capital are of permanent nature and may be both external and
internal. Among the internal sources the retained earnings and depreciation are more
explicit. Retained earnings represent undistributed profit and are considerably depending
upon factors like rate of taxation and dividend policy. Generally this source is used for
expansion but can also be used, as working capital depending upon how much it is available.
The depreciation is the part of cost of production and is recovered subsequently in cash.
Depreciation has greater chance to be utilized as a source of working capital for relatively
longer period.
Retained earnings and the depreciation funds may prove to be the best source of working
capital relatively for longer period. These are normally not available in die initial stage of
an enterprise. Among the external sources the share capital, debentures and long term
loans from financial institutions are more explicit. Issue of shares could be one way to
raise the equity base. The probability of a successful issue of debentures seems to be
rather meager. In the Indian Capital Market, issue of debentures has still to gain popularity.

28 | P a g e
 The mode of raising funds by issuing convertible debentures/ bonds is also considered,
which may attract a number of investors. Loans from financial institutions and commercial
banks are also the source of working capital. Externally, a large part of the working capital
may be arranged in the form of loans from banks and financial institutions. These loans
may take the form of unsecured or secured loans. The units may take overdrafts facilities
from the commercial banks. Secured loans are the loans protected by the pledge of certain
securities, which are normally inventories.

The issue of shares is likely to prove more advantageous than the sale of debentures because
in the former case the management is relieved of the anxiety to return the amount on
some fixed maturity date.

 Short Term Sources (Temporary or Variable Sources):

These sources may also be internal or external. Among the internal sources a reference
may be made to tax provisions and dividend provisions. The deferred payment of taxes can
be a. 6. Long term loans source of variable working capital. Taxes are not paid from day to
day but the accrued liability therefore, is indicated by reserves.

"Internal short terms funds are generated as equal to need of the business activities in the
form of outstanding wages, salaries shares of the owner of the business in the profit of the
firm and tax liabilities etc. There is always a time gap between the incurring of such short-
term liability and it's selling. During this interval the short-term sources provide funds.
The internal short-term funds are also termed as spontaneous sources of short term credit."

External short-term sources of funds can be divided into open account trade credit and short-
term borrowing. Trade credit is available for a short period and ultimately at any one
point of time during the year credit is fully liquidated. However, this is not true for all
industries except in the case of seasonal industries. Trade credit goes on being renewed with
the receipt of fresh supplies and, is one of the major sources of funds to inventories. The
period and volume of this type of credit varies from company to company. The terms of
trade credit are so determined that as far as possible, it is not utilized for other purpose, but
if a concern fails to avail itself of the discount offered, it is comparatively costlier than
others.
Short-term borrowing includes bank credit, public deposit and funds from other misc.

29 | P a g e
Sources such as selling of commercial papers and issuing of short-term promissory notes.
Bank provides business unit with short-term funds to finance.

SOURCES OF ADDITIONAL WORKING CAPITAL

Sources of additional working capital include the following-

1. Existing cash reserves

2. Profits (when you secure it as cash)

3. Payables (credit from suppliers)

4. New equity or loans from shareholders

5. Bank overdrafts line of credit

If we have insufficient working capital and try to increase sales, we can easily over stretch
the financial resources of the business. This is called overtrading. Early warning signs
include:

 Pressure on existing cash

 Exceptional cash generating activities. Offering high discounts for clear cash payment

 Bank overdraft exceeds authorized limit

 Seeking greater overdrafts or lines of credit

 Part paying suppliers or there creditor.

 Management pre occupation with surviving rather than managing.

30 | P a g e
 CHAPTER-3
RESEARCH DESIGN

RESEARCH
Research is the process of finding solutions to a problem after a thorough study and analysis
of the situational factors. Research comprises of defining & redefining problems,
formulating hypothesis or suggested solutions, collecting, organizing & evaluating data,
making deductions and reaching conclusions. In research design we decide about:

 Type of data
 From whom to get data
 How to analyze data
 How to make report

DATA TYPE: The data which I have collected for making this project is combination
of both primary and secondary.

 Primary data
Data observed or collected directly from first-hand experience. This data had been
collected through meeting with managers and employees of the Rourkela steel Plant at the
time of visiting of plants to see various process of manufacturing of steel.
 Secondary data
It is the data that have been already collected by and readily available from other sources.
Such data are cheaper and more quickly obtainable. This data will collected from the annual

31 | P a g e
 reports of the Rourkela Steel Plant at the time of training from my corporate guide.

NEED OF STUDY
Working Capital typically means the firm's holdings of current or short-term assets such as
cash, receivables, inventory and marketable securities. Much academic literature is
directed towards gross working capital i.e. total current or circulating assets. These
items are referred to as "circulating assets" because of their cyclical nature. In retail
establishment, cash is initially employed to purchase inventory, which in turn sold on credit
and results in accounts receivables. Once the receivables are collected, they become cash.
Part of which is reinvested in additional inventory and part goes to profit.

OBJECTIVES OF THE STUDY

 To assess the liquidity of the firm.

 To know firm’s operating efficiency.
 To understand effects of the credit policy on working capital.
 To understand how working capital contributes profit maximization.
 To understand significance of working capital in the company.

TOOLS USED FOR PROJECT

At the time of making the project various tools were used. These tools helped in doing
work easily. These are:

 Microsoft Excel.
 Microsoft Word.
 Various analysis tools like Graphs, Tables etc.

SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published in the annual reports
of the company every year. The analysis is done to suggest the possible solutions. The
study of working capital is based on tools like Ratio Analysis, Working capital leverage,

32 | P a g e
Operating cycle etc. Further the study is based on previous three years Annual Reports
of the Rourkela steel plant.

PERIOD OF THE STUDY

In this summer internship project report I have analyzed the management of working
capital of Rourkela Steel Plant for past financial year 2016-2018.

AREA OF THE STUDY

In this project report I have prepared the report entitled “Working Capital
Management of Rourkela Steel Plant”. The area of study is as follows:

 Measuring the working capital

 Analysis of working capital with respect to inventory, debtor and creditor
 Ratio analysis
 Analysis of operating cycle

LIMITATION OF THE STUDY

 The study is based on only secondary data.

 The analysis ignores time value of money.
 The data used in the study have been taken from financial statement of the
company as per requirement and necessity some data are grouped and sub-grouped.
 The period of study was 2016-2018 financial years only.

33 | P a g e
CHAPTER 4

ANALYSIS OF THE WORK

WORKING CAPITAL OF ROURKELA STEEL PLANT (Rs. in

crore)

PARTICULARS 2015-2016 2016-2017 2017-2018

A. CURRENT ASSETS

Cash and Bank Balances 25.79 27.76 30.35

Raw materials 340.44 305.09 541.80

Stores and spares 464.53 312.68 435.13

Finished products 2087.76 1859.47 1357.82

Trade receivables 6.22 2.91 2.07

Short-term loans 12.99 10.36 9.14

Other current assets 99.07 144.48 182.19

TOTAL(A) 3036.8 2662.75 2558.5

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 B. CURRENT
LIABILITIES
Trade payables 425.23 446.98 553.25

Other financial liabilities 1785.96 2050.26 1968.63

Others 318.45 265.65 364.45

Short-term 315.99 393.91 356.86

provisions(Gratuity,
Accrued Leave,
Others)
TOTAL(B)
2845.63 3156.8 3243.19

WORKING CAPITAL(A- 191.17 -494.05 -684.69

B)

3500

3000

2500

2000
ca
1500
cl
1000
wc
500

0
2015-2016 2016-2017 2017-2018
-500

-1000

INTERPRETATION:-
The working capital of RSP were decreasing and increasing in the preceding 3 year. It
happened due to change in assets and liabilities position of the plant in which the major
form are the various assets of RSP, which accumulating large amount of fund is inventory.
The working capital of RSP increased Rs.191.17 crore in the year 2015-16 during the

35 | P a g e
 study period. In last one year the current assets are more than current liabilities,
which avoids the risk of meeting negative working capital. But in the year 2016-2017
and 2017-2018 there is negative working capital Rs -494.05 and Rs-684.69, because
of excess of liabilities over assets. Which may results various types of problems like
growth opportunity missed, investors and bankers don’t find it worth investing, lost
trade discount, bad financial reputation etc. Negative working capital occurs due to
poor management for which the company lost its liquidity position.

RATIO ANALYSIS :-

LIQUIDITY RATIO
A liquidity ratio is an indicator of whether a company’s current assets will be sufficient to
meet the company’s obligations when they become due. It includes current ratio and quick
ratio. To measure the liquidity of RSP, the following ratios are being determined.

CURRENT RATIO OR WORKING CAPITAL RATIO:

Current ratio may be defined as the relation between current assets and current
liabilities. This ratio, also known as working capital ratio is a measure of general
liquidity and is most widely used to make analysis of short term financial position
or liquidity of a firm. Current ratio should be 2:1 for sound liquidity. The ratio
is considered as a safe margin of solvency due to the fact that if the current assets
are reduced to half then also the creditor will be able to get their payments in full.

Current Ratio = Current Assets / Current Liabilities

2015-2016 2016-2017 2017-2018

CURRENT ASSTES (Rs. 3174.03 2657.48 2639.79

in crore)

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 CURRENT 2816.27 3151.18 3245.26
LIABILITIES (Rs. crore)

CURRENT RATIO 1.127 0.84 0.813

1.2

0.8

0.6

0.4

0.2

2015-2016
2016-2017
2017-2018

current ratio

INTERPRETATION:-
After analyzing the current ratio of RSP, it shows that in the last three years, the ratio is
gradually decreasing due to increase in current liabilities. As it is a steel industry it
doesn’t follow the thumb rule 2:1 because it takes long time for the completion of
production process. The company’s liquidity position is satisfactory as it is over 1:1 ratio
because of low cash and the cash & bank balances part is carried out by the corporate office.
Therefore the company meets its short-term obligations with its most liquid assets.

QUICK RATIO OR ACID TEST RATIO:

Quick ratio may be defined as the relationship between quick liquid assets and current
liabilities. It ignores inventories and pre-paid expenses from current assets. As a
convention quick ratio 1:1 is considered satisfactory. The quick ratio measures a
company's ability to meet its short-term obligations with its most liquid assets. The
higher the quick ratio, the better the position of the company.
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 Quick Ratio = Quick Assets / Current Liabilities

Note: - Quick Assets = Total Current Assets – Inventories

2015-2016 2016-2017 2017-2018

QUICK ASSETS 227.82 288.95 305.04
(Rs. in crore)
CURRENT 2855.73 3154.39 3245.26
LIABILITIES (Rs.
in crore)
QUICK RATIO 0.079 0.091 0.093

quick ratio
0.095

0.09

0.085

quick ratio
0.08

0.075

0.07
2015-2016 2016-2017 2017-2018

INTERPRETATION:-According to thumb rule, quick ratio maintains 1:1 or more than

1:1, then it is said firm is in good position which maintains it liquidity and can meet its
short term debt obligations with no stress. Here in the above table and chart shows value of
quick ratio is more than 1:1.

CASH RATIO:
Cash ratio measures the pure liquidity of a business concerned. It
establishes the relationship between cash and its equivalents with the current
liabilities.
Cash ratio = Cash and Bank Balances / Current liabilities

38 | P a g e
 2015-2016 2016-2017 2017-2018
Cash and bank balances 25.54 27.51 30.35
Current liabilities 2855.73 3154.39 3245.26
Cash ratio 0.008 0.008 0.009

cash ratio

0.009
0.0088
0.0086
0.0084
cash ratio
0.0082
0.008
0.0078
0.0076
0.0074
2015-2016 2016-2017 2017-2018

INTERPRETATION:- After analyzing the cash ratio shows that company carries a
small amount of cash. But there is nothing to worried about the lack of cash because the
company has reserve, borrowing power & long term investment. The cash ratio is
comparatively less in the year 2015-16 & 2016-17 to 2017-2018. The cash ratio in the
year 2015-16 and 2016-2017 is equal.
ACTIVITY RATIOS OR TURNOVER RATIOS

These ratios indicate how efficiently the working capital and stock is being used to
obtain sales Turnover means the number of times assets are converted or turned
over into sales. Higher turnover ratios indicate the better use of capital or resources
and in turn lead to higher profitability. The ratios are:

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  INVENTORY TURNOVER RATIO

Inventory turnover ratio measures of inventories in the store. Inventory turnover ratio is
divided into Ra material turnover ratio, Work-in-Progress turnover ratio and Finished goods
turnover ratio.

Raw material turnover ratio

Raw material turnover ratio = Raw material consumed / Average raw material
inventory

2015-2016 2016-2017 2017-2018

Raw material consumed 4068.11 4858.31 6382.98

Average raw material 364.32 322.765 423.445

inventory
Raw material turnover 11.166 15.052 15.073
ratio

Raw material turnover ratio

Raw material turnover ratio

15.052 15.073
11.166

2015-2016 2016-2017 2017-2018

40 | P a g e
 INTERPRETATION

After analyzing the raw material turnover ratio of RSP, in the year 2015-2016,2016-2017 and 2017-
2018 the ratio is 11.166, 15.052 & 15.073 respectively. The ratios are increased due to increase in
Raw material consumption.

Work-In-Progress turnover ratio

Work-In-Progress turnover ratio = Cost of production / Average work-in-progress

inventory

2015-2016 2016-2017 2017-2018

Cost of production 9301.69 10089.79 12045.73
Average work in progress 676.32 602.8 544.42
inventory
Work in progress turnover ratio 13.75 16.73 22.12

Work in progress turnover ratio

cost of production Avg.work in proress Work in progress turnover ratio

13.75 16.73 22.12

602.8 544.42
676.32

10089.79 12045.73
9301.69

2015-2016 2016-2017 2017-2018

INTERPRETATION:-

After analyzing the above ratio of RSP, the ratio increased from the year 2015-2016 to
2017-2018. In 2015-16 to 2016-18 , the work-in-progress inventory was down ward for
which the ratio inclined. In the year 2015-16 the work-in-progress is very high, so the
ratio is declined to 13.75.

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Finished goods turnover ratio
Finished goods turnover ratio = Cost of goods sold / Average finished goods
inventory
Cost of goods sold=cost of production +change in inventory

2015-2016 2016-2017 2017-2018

Cost of goods sold 9488.96 10293.03 12337.77
Average finished 1530.47 1371.06 1064.47
goods inventory
Finished goods 6.20 7.50 11.59
turnover ratio

Finished goods turnover ratio

Cost of goods sold Avg. finished goods Finised goods turnover ratio

12337.77
10293.03
9488.96

1530.47 1371.06 1064.47

6.2 7.5 11.59

2015-2016 2016-2017 2017-2018

INTERPRETATION:-
After analyzing the above ratio of RSP, the ratio indicates that it become times in 2015-16 to
2016-2018 it gradually increased. There is a growth in market conditions that is why the
sales were gone in sluggish in which inventories of finished goods is lower than previous
year and as well as finished goods turnover ratio also increase to 11.59.

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 DEBTORS TURNOVER RATIO

Debtor Turnover Ratio examines the velocity or movement of debtors. It takes the net credit
annual sale and the average debtors as determinants for the measurement of debtor
turnover ratio.
Debtor Turnover Ratio = Net Credit Annual Sale /Average Debtors

Note: - Net Credit Annual Sale=15%of Net Sales

Average Debtors = Opening Debtor + Closing Debtor / 2

2015-2016 2016-2017 2017-2018

Net credit 1038.7155 1308.969 1803.9675
annual sale
Average debtors 4.92 4.565 2.49
Debtor turnover 211.121 286.740 724.484
ratio

Debtors turnover ratio

Debtors turnover ratio

211.121 286.74 724.484

2015-2016 2016-2017 2017-2018

Interpretation:-
After analyzing the debtor turnover ratio of RSP, the ratio shows the company makes all
its credit sales through CMO (Central Marketing Organization), which consists of about
15% of company’s sales. The debtor turnover ratio in RSP has increased from times in
2015-16 to 2017-2018. From the table and chart it states that the most of the sales are
carried out by CMO in which there are large no of debtors for the company. It implies
that the company is managing its debtors efficiently.

43 | P a g e
 CREDITORS TURNOVER RATIO

The creditor turnover ratio is a liquidity ratio that shows a company's ability to pay off its
accounts payable by comparing net credit purchases to the average creditors during a
period. In other words, the creditor turnover ratio is how many times a company can pay
off its average creditors balance during the course of a year.

Creditor Turnover Ratio = Net Credit Annual Purchase / Average

Creditors Note: - Net Credit Annual Purchase = 60% of Cost of
production

Average Creditors = Opening Creditor + Closing Creditor / 2

2015-2016 2016-2017 2017-2018

Net credit annual purchase 6511.183 7062.853 8432.011

Average creditors 390.06 433.87 497.88

Creditor turnover ratio 16.69 16.27 16.93

Creditors turnover ratio

Creditors turnover ratio

16.69 16.27 16.93

2015-2016 2016-2017 2017-2018

44 | P a g e
 Interpretation:-
After analyzing the creditor turnover ratio of RSP, the ratio shows the company makes
all its credit purchase which consists of about 70% of company’s cost of production.
Generally higher the ratio, more liquid is the position of the company and vice-
versa. In the year 2015-16 and 2017-18 the creditor turnover ratio increased from 16.69
to 16.93 as compared to 2016-17 having ratio of 16.27. It implies that the company
is managing its creditors efficiently. This ratio indicates the relationship between sales
& working capital. Higher the ratio lower is investment in working & higher is the
profitability & a low working capital ratio indicates that the working capital is not
efficiently utilized. In the year 2016-17 the annual credit purchase is more, so that the
creditor turn over ratio is low which indicates the companies liquid position is less.

WORKING CAPITAL TURNOVER RATIO:

Working capital refers to investment in current assets. This is also known as gross concept
of working capital. There is another concept of working capital known as net working capital.
Net working capital is the difference between current assets and current liabilities. Analysis
intended to establish a relationship we are attempting to see that one rupee blocked by the
organization in net working capital is generating how much sales. Higher the ratio better it is.

Working Capital Turnover Ratio = Sales / Working Capital

In recent years for operating an industry have not only become scarce, But
also costly in the wake of macro level policies on credit squeeze an increase in interest rate.
So, the working capital can be defined either as a gross working capital, which include
funds invested in all current assets, or as net working capital, which denotes the difference
between the current assets current liabilities of an Organization.

2015-2016 2016-2017 2017-2018

sales 7693.32 9683.32 12210.22

Working capital 191.17 -494.05 -684.69

Working capital 40.24 -19.599 -17.83

turnover ratio

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 50
40.21
40

30

20

10

-10 2015-2016
2016-2017
-20 2017-2018
-19.599
-17.83

WC turnover ratio

Interpretation:

From above table and graph it is concluded that it follow the uneven trend in these three
years study. Working capital ratio has been the highest in the year in 2015-16 after it
decline in 2016-2017 and it again decreased in 2017-18 and even there is a negative
amount of working capital turn over ratio which indicates current liabilities is more than
current assets. The company needs to make better utilize of its working capital to get the
higher profit. A high ratio indicates efficient utilization of the working capital.

46 | P a g e
 ANALYSIS OF OPERATING CYCLE RATIO

OPERATING CYCLE:-
The operating cycle is the average period of time required for a business to make an initial
outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange
for the goods. This is useful for estimating the amount of working capital that a company
will need in order to maintain or grow its business.
The following are all factors that influence the duration of the operating cycle:

 The payment terms extended to the company by its suppliers. Longer

payment terms shorten the operating cycle, since the company can delay paying
out cash.
 The order fulfillment policy, since a higher assumed initial fulfillment rate
increases the amount of inventory on hand, which increases the operating cycle.
 The credit policy and related payment terms, since looser credit equates to a
longer interval before customers pay, which extends the operating cycle.
From this we can know the time required to complete the various stages in the business
activity. It includes six elements. They are as follows:

 Debtor

 Cash

 Raw material

 Work in progress

 Finished goods

 Sale

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 To assess the working capital of RSP, let us analyze the operating cycle of the firm.

1. RAW MATERIAL CONVERSION PERIOD

Raw material conversion period = (Average stock of raw material / Raw material consumed) x
365

2015-2016 2016-2017 2017-2018

Average Raw material 340.44 305.09 541.80

inventory(in crore)
Raw material consumed(in 4068.11 4858.31 6382.98
crore)
Raw material conversion period 30.514 22.89 30.95

RAW MATERIAL CONVERSION PERIOD

35

30

25
Axis Title

20

15

10

0
2015-2016 2016-2017 2017-2018
RAW MATERIAL CONVERSION
30.514 22.89 30.95
PERIOD

Interpretation: The above table and graph shows that after how many days the
company consumes raw material after bringing raw material from the supplier. Raw
material conversion period should be lowest. From the given table and chart it is clear
that the raw material conversion period has increased from 30.51 days to 30.95 days
in 2015-16 to 2017-18 and in 2016-17 it decreased to 22.89 days. Which is positive
sign for company, the production department has maintain the raw material properly.

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2. WORK-IN-PROGRESS CONVERSION PERIOD

Work-in-progress conversion period = (Work-in-progress Inventory / Cost of production) x

365

2015-2016 2016-2017 2017-2018

Average WORK-IN- 676.32 602.8 544.42

PROGRESS
INVENTORY (Rs. in crore)
COST OF PRODUCTION 9301.69 10089.79 12045.73
(Rs. In crore)
CONVERSION PERIOD 26.53 21.79 16.46
(Days)

WORK IN PROGRESS CONVERSION

PERIOD
30
Axis Title

20
10
0
2015-2016
2016-2017
2017-2018

2015-2016 2016-2017 2017-2018

WORK IN PROGRESS
26.53 21.79 16.46
CONVERSION PERIOD

Interpretation: Work-in-progress conversion period should be lowest. From the

given table and graph it is clear that the work-in-progress material conversion period
has gradually decreased from 26.53 days to 16.46 days in 2015-16 to 2016-2018. This
happened due to in the year 2015-16, the work-in-progress inventory increased to Rs.
676.32 crore as compared to Rs.544.42crore in the year 2017-18.

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3. FINISHED GOODS CONVERSION PERIOD

Finished goods conversion period = (Finished goods Inventory / Cost of goods sold) x
365
2015-2016 2016-2017 2017-2018

Average Finished goods 1530.47 1371.06 1064.47

inventory(in crore)
Cost of goods sold(in 9488.96 10293.03 12337.77
crore)
Finished goods 58.76 48.61 31.46
conversion period

60

50

40
Axis Title

30 FINISHED GOODS CONVERSION

PERIOD
20

10

0
2015-2016 2016-2017 2017-2018
Axis Title

Interpretation: Generally a high stock velocity indicates efficient

management of inventory because more frequently the stocks are sold and
lesser amount of money is required to finance the industry. Here in the
above table and graph shows after how many days finished goods are
taken for sale. In 2015-16, the number of days is highest because
production of steel was more in that year in comparison to 2016-17 &
2017-18years that’s why there may be delay in sale of large amount of
finished goods. But, in 2016-17 the number of days decreased from 48.61
days to 31.46 days in 2017-18.

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4. DEBTOR CONVERSION PERIOD

Debtor conversion period = (Trade receivables / Net Credit Sales) x 365

2015-2016 2016-2017 2017-2018

Average Trade receivables 4.92 4.565 2.49

Net credit sales 1038.7155 1308.969 1803.9675

Debtor conversion period 1.46 1.24 0.47

1.6

1.4

1.2

1
Axis Title

0.8
DEBTOR CONVERSION PERIOD
0.6

0.4

0.2

0
2015-2016 2016-2017 2017-2018
Axis Title

Interpretation: In the above table and graph, the conversion period shows decreases
from 1.46 days to 0.47 days between 2015-16 to2017-18. In 2015-2016 there was in
increment in the period 1.46 days as compared to 2016-2017year.

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 5.PAYABLE DEFERRAL PERIOD

Payable Deferral Period = (Trade Payables / Net Credit Purchase) x 365

2015-2016 2016-2017 2017-2018

Average trade payables 390.06 433.87 497.88

(in crore)

Net credit purchase(in crore) 6511.183 7062.853 8432.011

Payable deferral period 21.535 22.265 21.535

Chart Title

100%
80%
Axis Title

60%
40%
20%
0%
2015-2016 2016-2017 2017-2018
payable deferral period 21.535 22.265 21.535
net credit purchase 6511.183 7062.853 8432.011
avg. trade payables 390.06 433.87 497.88

Interpretation:
In the above table and graph it shows in 2016-17 that the payable deferred period of company
increases compared with 2015-16 which indicates that company takes very less time to pay its
creditors. .

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Summary of operating cycle

Particulars(days) 2015-2016 2016-2017 2017-2018

1.Inventory conversion period

A. Raw materials 30.514 22.89 30.95

B. Work in goods 26.53 21.79 16.46

C. Finished goods 58.76 48.61 31.46

2.Debtor conversion period 1.46 1.24 0.47

3.Gross operating cycle(1+2) 117.264 94,53 79.34

4.Payable deferral period 21.535 22.265 21.535

Net operating cycle(3-4) 95.729 72.265 57.80

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 CHAPTER-5
FINDING:

By the study of the whole data I find some facts which are as follows:

 As it is a steel industry its production process time is long in which it manages

the current ratio over 1:1 which is satisfied.
 Quick ratio is not as par to the standard norms but due to steel industry for which the
cash part is not handled by the company in which it varies from the 0.07 to 0.09
but it is satisfactory for the company.
 Debtors of the company were satisfactory because sales part is carried out by CMO;
they were in an even trend but it is increased from the last two years.
 Debtors turnover ratio is in an even trend but it is increased from the last two years
which is beneficial for the company because as ratio increases the number of days
of collection for debtors decrease.
 Inventory turnover ratio is in an uneven trend because of sluggish demand of sales.
 Working capital turnover ratio is decreasing but it is increased from this year which
needs to improve in the future for betterment in profitability.
 Creditor turnover ratio is satisfactory for the company.
 Current assets of the company were utilized on an average every year.
 The company can manage on an average of converting its inventories into sales.
 The company has high current liabilities it means they have utilize the credit facilities
by the creditors but it was decline from last year.
 The company had increased their consumption by this year and they are trying to
decrease holding periods which will increase their profitability.
 Since the company is a large organization its working capital requirement is more.
And that‘s why it maintains huge amount of working capital.

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SUGGESTIONS:
From the study of all the data the following recommendations are as follows:

 Even trend in holding periods of work-in-progress and finished goods is a problem

and this is affecting the liquidity of the company.
 Loans & advances has increased year by years it shows that the plant is engaged
in the modernization of machinery & extending the ability to increase their
production for more profits.
 The company will concentrate on Just-in-Time technique of manufacturing. This
will help in minimizing the blockages of funds.
 The company should try to increase their quick assets so that they will be able to
pay their short term liabilities.
 The company should try to fix a standard in respect of holding period of raw
materials. This will reduce the blockage of funds in raw materials & improve the
liquidity of the company. The company should take into accounts the irregularities
of supply in raw materials.

 The company tries to invest the excess cash balance after keeping the required
amount because holding of cash as idle is unproductive for the plant.
 The plant must make efforts to decrease their current liabilities keeping the turnover
in mind. It is liabilities lower the better.
 The company should try to increase the debtors by sales on credit by this they
will increase their working capital to use in day to day activities.
 Company should stretch the credit period given by the suppliers.

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 CHAPTER-6
CONCLUSION:

Rourkela Steel Plant has not only addressed itself to the country’s need for self sufficiency
in steel, but has also given the country, the technology edge producing strategic material.
Besides being the leader in the domestic primary steel market excluding the semi-finished
products, the company has also earned a good name in the domestic market in
manufacture of crude steel. With its consistent track record in capacity utilization,
technology absorption, quality assurance export performance, servicing of loans, internal
source generation and posting of profits, the company has chartered a course of confidence
among its stake holders.

Rourkela Steel Plant is a well known public sector unit in the steel sector in India. It shows
how a well managed company achieves the mission of the company and gives much more
profit. Just as circulation of blood is essential in human body for maintaining life like that
working capital is also an important aspect and can be a main contributor to a company’s
profit if managed efficiently.

Rourkela Steel Plant is a profitable organization and it is making a continuous profit over
five years, which comes under “MAHARATNA COMPANY”. It helps in providing
maximum benefit to the whole organization and also to the society. Since it is public
sector unit of the decision making process which is quite slow, because of Government
interference. However every year profit is increasing as well as to the production capacity.

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 BIBLIOGRAPHY:

BOOKS:

 Financial Management by Shashi K. Gupta, R.K. Sharma, Neeti Gupta

 Financial Management by Khan & Jain

 Financial Management by Prasanna Chandra

 Financial Management by I.M. Pandey

SOME OF THE WEBSITES SUCH AS:

a. http://www.sail.co.in

b. http://en.wikipedia.org/wiki/Rourkela_Steel_Plant

REPORTS AND MANUALS:

Annual Reports of Rourkela Steel Plant

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 THANK YOU

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