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Submitted By
CH. PADMA
1
DECLARATION
2
CERTIFICATE
This is to certify that this project report entitled “A STUDY ON STRATEGY RED
OF HINDUSTAN COCO COLA BEVERAGES PVT LTD” With
Respective to Ameenpur Depot is a bonafide work done under my guidance
and direction in partial fulfillment for the award of the post graduation PGDM, during
summer internship for 45 days.
3
ACKNOWLEDGEMENTS
I would like to express my heartful thanks to Prof. Ram Mohan Rao, Head
of the department, Gitam institute of management, Gandhi institute of
management and technology, visakhapatnam for the necessary cooperation
extended to me in doing my project work.
Ch.Padma
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CONTENTS
PAGE NO.
Chapter 1: THEORETICAL FRAMEWORK 8-35
BIBLOGRAPHY 113
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LIST OF TABLES
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LIST OF GRAPHS
7
CHAPTER – I
THEORITICAL FRAMEWORK:
8
them in a profitable manner and controlling them to maintain economy and
profitability. Working Capital Management helps to establish a proper
balance among risk, liquidity and profitability.
Session Objectives:
Current assets are those assets that, in ordinary course of business, can be
converted into cash within one year without undergoing any diminution in
value. The major current assets are cash, marketable securities, accounts
receivable, and inventory.
In contrast to this, fixed assets are those assets that are permanent in nature
and are held for use in business activities. For example, land, building,
machinery etc.
Current liabilities are those liabilities that are obligations that have to be
paid in a single accounting period. Examples of current liabilities are:
accounts payable, bills receivable, bank over-draft and outstanding
9
expenses. Long-term liabilities, on the other hand, are obligations that can
be repaid over a period greater than a single accounting period. Examples
of long-term liabilities are: share capital, debentures, long-term loans etc.
Net working capital indicates the liquidity position of the firm. It also
reflects the extent to which the working capital needs should be
financed by long-term sources of funds.
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1. Determining the level of working capital to be maintained:
Once the appropriate level of working capital is chosen, the next decision
pertains to determining the finance-mix for current assets. Some of the
sources that are used to finance current assets are:
11
a. Spontaneous liabilities: Short-term liabilities such as sundry
creditors, accrued expenses, etc. and provisions that arise during
the normal course of business serve as non-interest bearing source
of financing current assets.
The decision regarding the financing of current assets using the above
sources of finance depends on the attitude of the company towards risk.
The financing policy opted by the firm can be classified into two
categories based on its risk attitude:
12
But following a conservative policy would imply a higher cost of
financing since:
i. Equity has the highest cost of capital and it does not have the
advantage of tax-deductibility that exists in the case of debt
capital.
ii. The interest on debentures has to be paid irrespective of the
fluctuating needs for financing current assets.
As per the static view, working capital can be defined in two ways:
13
Net working capital: It is the difference between current assets and
current liabilities (including provisions). It can be also described as that
part of a firm’s current assets which is financed with the help of long-
term funds. The net working capital of a firm helps in comparing the
liquidity of the same firm over a period of time. The liquidity of a firm
can be defined as the ability of the firm to satisfy short-term obligations
as they become due.
The static view of working capital lays more emphasis on the level of
current assets compared to the level of current liabilities.
-Short-term bank borrowings that are used for financing current assets
are shown separately under the heading of secured loans and not as a part
of current liabilities.
14
The reasons mentioned above lead to a miscalculation of the amount of
working capital.
15
Depending on the nature of process technology used, the firm should
decide the required level of work-in-process inventory. The level of
work-in-process inventory will be higher in case of firms where the raw
material has to pass through several stages during the process of
production.
-Seasonality of demand.
The degree of competition in the industry and the general attitude of the
competitors towards credit sales are two major factors that determine the
credit policies of the firm. Apart from these factors, the credibility of the
customer is also crucial in deciding the credit policy.
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- Credit period extended to customers.
The current assets and current liabilities flow round in a business like
an electric current. The working capital plays the same role in the business
as the role of the heart in the human body. Just as the heart gets blood and
circulated the same in the body, in the same enterprise, adequate amount of
working capital is pre-requisite. The adequacy of cash and current assets
together with their efficient handing virtually determine the survival or
demise of a concern. Inadequate working capital is a business ailment as
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compared to the availability of excess working capital may lead
carelessness.
18
(2) Principle of Cost of Capital:
(ii) Current assets as a percentage of total sales. While deciding about the
composition of current assets, the financial manager may consider the
relevant industrial averages.
19
To sum up, working capital management should be considered as an
integral part of corporate management. In the words of Louse Brand, “We
need to know when to look for working capital funds, how to use them and
how to measure, plan and control them”. To achieve the above mentioned
objectives of working capital management, the financial manager has to
perform the following basic function.
CASH MANAGEMENT
Cash budget is a vital tool used for planning and controlling cash receipts
and payments. A cash budget is a summary statement about the firm’s
expected cash inflows and outflows over a short period of time. With the
help of the information given in the cash budget, the finance manager can
estimate the timing and magnitude of the expected cash flows and can use
20
it to determine the future needs of the firm; for planning the sources of
finance for these needs and for exercising control over the cash and
liquidity of the firm. The time horizon for which the cash budget is
prepared varies from firm to firm.
Cash Reports:
Cash reports are prepared in situations where cash inflows and outflows do
not fluctuate much and the collection and payment patterns are stable.
21
They help in comparing the actual figures with forecasted figures and in
controlling the deviations that exist. If the fluctuations in the cash position
are high, then the reports are prepared on a weekly and sometimes even on
a daily basis. The important categories of cash reports are:
2. Daily Treasury Report: A daily cash report does not indicate the
position of accounts receivables, accounts payables and marketable
securities. The daily treasury report fulfils the requirement of presenting a
comprehensive statement about the opening, the closing and the net
balances of cash, marketable securities, accounts receivable and accounts
payable.
3. Monthly Cash Report: It shows the cash receipts and payments over
an entire month.
Need for Internal Control System: Internal control system is needed for
accounting and controlling the deviations of actual cash flows from the
expected cash flows. With an increase in the size of the organization, it is
not possible to scrutinize all aspects of the business. There are various
risks that a large company faces like entry of counterfeit documents into
the accounting system, careless attitude on behalf of the management,
inaccuracy in recording or reporting transactions, loss of vital documents,
etc. In order to prevent the occurrence of such events, it is necessary to
implement an efficient internal control system. The existence of internal
control systems will help in controlling the actions of fraudulent people, as
they will be aware of the fact that their actions are being monitored.
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Formulation of Internal Control System: The formulation of an internal
control system depends on the size of the firm. The treasury department,
audit staff or an outside consultancy can be helpful in framing the design
of an internal control system. The following points should be taken care of
while formulating the internal control system:
The system should ensure that jobs are assigned to suitable personnel
on the basis of their qualifications, interest and experience. The treasurer
and controller should list some basic skills that are required for a particular
type of job. Companies should also try to conduct training programs to
familiarize its employees with latest business practices and latest
technology.
Internal audit:
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1. Internal audit assesses the effectiveness and adequacy of the control
measures implemented in the areas of accounting, treasury and operations
of the firm. The audit staff should also perform a cost-benefit analysis of
the internal control system.
3. Internal auditors should ensure that the rules and regulations of the
organization are being adhered to. The internal auditors should also try to
identify the flaws existing in the rules and regulations of the firm.
4. Internal audit should also ensure that liabilities have been incurred for
legitimate purpose of the business.
1. Totality: Totality implies that the internal audit should consider all the
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4. Objectivity: Besides ensuring the accuracy and reliability of the
records, the internal audit system should also be able to safeguard the
assets.
2. Inefficiency creeps into the records if they are not reviewed in time by
the internal audit staff.
3. Proper internal audit will not be performed if the internal audit staff is
assigned other functions of the company.
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WORKING CAPITAL ANALYSIS
26
Working capital is one of the most difficult financial concepts to
understand for the small business owner. In fact, the terms means a lot of
different things to a lot of different people.
The main determinants that affect the working capital of a firm are:
CURRENT ASSETS
Current assets are those which can be converted into cash as and
when needed, i.e., those assets which can turn to cash as per the
requirement of the business within the accounting period.
SUNDRY DEBTORS
Debtors are those to who products are supplied on credit basis. These
amounts are collected within the accounting period. Therefore, they are
converted into cash as per requirement, hence they are considered under
current assets.
INVENTORIES
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Closing stocks or inventory includes raw materials, work in progress
and finished goods, which are needed for the smooth running of the
organization. Generally inventory is maintained by every organization,
which is bound to meet its demand in the market. The amount of inventory
maintained by the firm represents its profitability position. The quality must
not be in excess or inadequate, it must be according to the requirement. The
quality stores must be able to meet the market demand.
CURRENT LIABILITIES
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Current liabilities are those which are payable during an accounting
year. These are paid out of current assets like cash. When current assets
availability is present there exist the current liabilities but current assets
must always be in excess to current liabilities. This provides the
organization to be in a good position.
SUNDRY CREDITORS
PROVISION
29
Consequently, working capital financing is needed. This shortfall is
typically covered by the net profits generated internally or by externally
borrowed funds or by a combination of the two. Most businesses need
short-term working capital at some point in their operations. For instance,
retailers must find working capital to fund seasonal inventory buildup
between September and November for Christmas sales. But even a business
that is not seasonal occasionally experiences peak months when orders are
unusually high. This creates a need for working capital to fund the resulting
inventory and accounts receivable buildup. Here are the five most common
sources of short term working capital financing:
EQUITY:
If your business is in its first year of operation and has not yet become
profitable, then you might have to rely on equity funds for short-term
working capital needs. These funds might be injected from your personal
resources or from a family member, friend or third party investor.
TRADE CREDITORS:
FACTORING:
30
Factoring is another resource for short term working capital
financing. Once you have filled an order, a factoring company buys your
account receivable and then handles the collection. This type of financing is
more expensive than conventional bank financing but it is often used by
new businesses.
LINE OF CREDIT:
While your new business may not qualify for a line of credit from a
bank, you might have success in obtaining a one-time short-term loan (less
than a year) to finance your temporary working capital needs. If you have
established a good banking relationship with a banker, he or she might be
willing to provide a short-terms note for one order or for a seasonal
inventory and/or accounts receivable buildup. In addition to analyzing the
average number of days it takes to make a product (inventory days) and
collect on an account (account receivable days) Vs. the number of days
financed by accounts payable, the operating cycle analysis provides one
other important analysis. From the operating cycle, a computation can be
made of the dollars required to support one day of accounts receivables and
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inventory and the dollars provided by a day of accounts payable. Working
capital has a different impact on cash flow in a business.
CHAPTER – II
METHODOLOGY
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NEED FOR THE STUDY:-
Working capital is the difference between the current assets and the
current liabilities. This working capital must also be adequate (i.e.,) not too
high, neither too low. An optimum level of working capital is a good
significance for the progress of the organization. This study of working
capital management would give me the insight about the level of working
capital required in this organization.
33
The study was conducted in the BAJRANGBALI ALLOYS
PRIVATE LIMITED in ORISSA. The aim of the study is to analyze the
working capital management of the firm.
34
Management is determined by the efficient administration of its various
components.
35
Any financial survey collects data systematically and analyses it to
meet the objectives. The data can be broadly classified into two types, i.e.,
Primary data and Secondary data.
The secondary data was collected through journals and annual reports
of the unit and published and unpublished records of Unit BAJRANBALI
ALLOYS PRIVATE LIMITED in ORISSA.
Time factor is the most crucial one. The study was conducted
within a short period of one month.
The final and foremost thing is that very often the organization
secrecy stands on the way to find out the organizational
information regarding some aspects of the study. But in spite
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of these limitations, attempts have been taken to make the
study a scientific and reliable one.
Chapter 2 : Deals with the introduction need for the study, objectives,
methodology and limitation of the study.
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CHAPTER – III
ORGANISATION PROFILE:
INDUSTRY PROFILE:
INTRODUCTION
Steel is the metal of the new millennium. It is the world's most useful,
economical & suitable building material. Icon Steel, with its continuous
improvement in the production process, modernization and introduction of
state-of-the-art technology, has evolved as a supplier of choice who profits,
cares and promises for a safer, stronger and better tomorrow. It is one of
those few prestigious steel producing companies of the country to obtain the
ISO 9002 certification. The combination of superior technology, quality
control and experienced workforce has helped (he company develop value-
added steel which caters to residential as well as industrial requirement and
at the same time maintains customers' i. At Icon Steel, the quest for
excellence is not just a process, but a way of life….
1. Over the last few years, there has been a great deal of change in the
Indian economic scenario which has concomitant impact on
industries. From a protected, inward looking economy, with an
inefficient and highly protected industrial sector, it has quickly
become a market driven and internationally competitive economy.
Under the spell of liberalization, the Indian steel industry has
witnessed a rapid growth. Fortunes of this industry started to look up
from late 1993, with a revival in demand and prices, strong growth in
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end user industries such as constructive, infrastructure, automobiles
and white goods have been responsible for this upsurge.
the years. The term loans of both Union Bank of India & SIDBI have
been fully repaid within the scheduled time. The company availed a
STWC loan of Rs.50 lace from SIDBI in January 2004 & has, so far,
repaid the monthly installment(s) amounting Rs.8.40 lac. Working
capital; loan facility to the tune of Rs.125.lac has been extended by
Union Bank of India who has security charge over the assets of the
induction furnace division. SIDBI has security charge over the Re-
Rolling Mill division assets.
39
TMT Section, Angles, and Channels & Sections in their re-rolling
mill. The additional raw material. That may be required for this
activity shall be met either from internal production or from open
market.
MARKET:
Located on the banks of river Birupa besides National Highway -5 & about
12 km* away from the Silver city Cuttack, the Icon Steel manufacturing
plant facilitates a melting shop, a double drive ten stand steel mill, double
roller bearing water cooled driving rolls, natural cooled cooling bed with
necessary processing line - all integrates through automated control
systems.
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Advanced Level-1 and two semi-automated systems, AC main drive & AC
auxiliary drive control are provided for fully semi-automatic process with
The objective of achieving strict tolerance for nominal sizes, shapes, length
and strength The setup function is designed to perform the rolling strategy
over a wide range of products using mathematical module and semi-
autoadaptive algorithms. Hydraulic conveyor is developed to reach high
performances under all rolling conditions. Data exchange with production
planning, melt shop and semi-automation completes the system in all
respects.
41
varying from 8mm dais to 20 mm dais having an installed capacity of
10,200 M.T./P.A. with effect from 19.10.98. And with the setting up of a
sponge iron unit in collaboration with another relative entrepreneur, the unit
is now producing the re-rollable M.S. items from iron ore; thereby assuring
the best quality to the ultimate consumers.BAPL, thus, takes pride in being
the 1st unit of this type in the state of orissa to convert iron ore to sponge
iron to ingots &then to M.S rod &tor. The present project envisages
installation of a Thermo Mechanical Treatment plant in the unit which shall
be the 1st of its kind in the state of Orissa for better mechanical properties of
the product manufactured. Bajrangbali Alloys (p) ltd. is promoted by two
groups of established & renowned business houses & is now handling the
following Promoter directors.
1.Mr.Rajendra Prasad Agarwal.
2.Mr.Dindayal Agarwal.
3.Mr.Deepak Agarwal.
4.Mr.Dinesh Agarwal.
Situated on the side of N.H5 on the bank of the river “Birupa”, the unit is
12k.m.away from the silver city of Cuttack quite away from inhabitant area
& thus does not pos any problem to the populace. The regd.office of the
company is at Malgodown,Cuttack-753003.
OUR VISION:
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satisfaction. We are committed to providing quality products at affordable
prices and customer service round the clock.
Apart from the above our aim is to expand out supply network so as to
make our products available at each and every corner of urban as well as
rural areas.
INDUSTRY AT A GLANCE
Date : 03.09.1993
6.Govt.consent : OBTAINED.(EXISTING)
10,200 TPA.
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8. PRODUCT : TMT BARS, ANGLES,
CHANNELS & SECTIONS
44
PARTICULAR AMOUNT[IN LACS]
Contingency 9.27
Total 376.10
17.FINANCIAL PARAMETER :
DSCR 2.03
18. PROFITABILITY
45
RETAINED EARNINGS AFTER TAX 315.49
ADD.DEPRECIATION 99.84
415.33
CORE VALUES :
Strategic Intent
46
Consolidation: A continuous streamlining of capacity and product in core
business area.
Brand Building
Product-mix rationalization
Increasing capacities
47
Sound Investments
Extending ‘Touch-Points’
Corporate Milestones
LOCATIONAL ADVANTAGE:
Bajrangbali Alloys Pvt.Ltd is an existing unit with its factory location at the
side of N.h-5, Manguli Choudwar Cuttack . it has Started Operation Initially
with a 3.5 Ton capacity Induction furnace in the Year 1995 . Subsequently,
Forward integration in the shape of Setting up of a rolling Mill with a 5
MT/hour capacity was installed at the site which started production during
1998. It has now been Proposed to enhance the capacity of the Rolling Mill
& add TMT bar, angles Channels & section.
48
The new location of the plant has been considered in the State of Orissa.
Orissa is endorsed with rich mineral deposits like Iron Ore, Bauxite, and
Manganese Ore, Chromites etc. which has enabled the State to have Core
Industries like steel Plant, Aluminum Smelter, Charge Chrome Plants, and
Sponge Iron Plants etc.
Power Situation in Orissa is aloes Fair. Power being one of the prime
movers of the economy, State Government has been endeavoring
substantial investments in Power Sector to step up generating capacity in
the state.
The Plant is situated at an approximate distance of 12km from the silver
city of Cuttack towards Balasore. The Plant site is very close to the coal and
iron ore mines, by which the company is able to save a lot towards
transportation cost. Labour is being available cheaply. The Finished Product
is being sold to units inside & outside orissa without any transportation
problem. Since the unit is in operation since last 5/6 years it has all location
advantages.
49
History and Background:
The promoters of the project are highly experienced in business and are also
financially sound. They are capable enough to bring-in their equity
50
& run the project successfully. The brief bio-data of each promoter is given
here after.
FINANCIAL ASSISTANCE.
The initial term loan availed from union bank of India has been fully
Liquidated. However; the company enjoys a working capital term loan of
RS.125.00 lac from the said bank. The company had availed a term loan of
RS.65.75 lac from SIDBI during January,1998 to March,1999 which has
since been prepaid by November,2003.All the institutional loan dues were
paid regularly & on before the due dates. Mean while, BAPL has availed a
short term working capital loan of RS.50.00 lac from SIDBI& the
installments are being paid regularly with the interest dues. The outstanding
in this account is RS.41.60 lac as on date.
Electrical/ Controls:
Power
The Company draws electricity from the 33 KV feeders at Tangi-Choudwar
sub-station. The company is playing a monthly electricity charge of around
Rs. 35.00 lac to Rs. 40.00. lac on an average.
The total connected load for operation of Blast Furnace, Pig Casting
Machine, pumps, Compressors, E.O.T. Crane ventilation and air
conditioning system, plant lighting etc is estimated as 1500kw with the
maximum demand of 1700 KVA. Power will be drawn at 33KV from
CESCO and necessary step down facilities have been provided in estimate.
Electricity supply system shall comprise switchgear, transformer with
substation and distribution line and circuit breaker has been provided in the
project cast estimate.
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Power supply and distribution:
The power requirement of the proposed plant is estimated at 350 KVA on
30 mm maximum demand with an annual energy consumption of 1.95
million KWH. Power would be tapped from Orissa State Electricity Board
[OSEB] grid at 33 KV and stepped down to 415 V in the substation to be
installed inside the plant premises. A DG set of 5QO KVA rating would be
provided to cater to the emergency power requirement of critical equipment
of the plant requiring uninterrupted power supply.
Shop Electricals:
AC motors will normally be used in the plant. Drives requiring variable
speed like to kiln / cooler would be with AC motors with variable controls.
Motor control centers have been planned m different areas.
SOCIAL ACTIVITIES:
The operations in all section inside the factory are taking place in a very
congenial atmosphere. The safety of the workers as also the supervisors has
been the prime focal point of the management. Safety shoes, gloves,
helmets and the likes are regularly supplied to the field personnel besides
continuous supply of drinking water, lemon/salt water during summer
season & regular health check-up.
The manufacturing operation of the factory is being done on contract basis
under the registered contractors.
The workers are covered under ESI & regular health check-ups are being
done. They are also covered under the EPF & the monthly contributions are
deposited with the appropriate authority regularly.
The management is very much serious on the pollution aspect & anti
pollution equipments have been installed besides plantation of trees inside
52
the factory premises and the periphery areas. The unit has obtained
necessary certificate from State Pollution Control Board
REGISTRATION ETC:
The unit is registered with the Directorate of Industries, Orissa, under the
factories Act & other Govt. agencies as per the provision. The products
manufactured confirm to B.I.S.specification under IS 1786:1985 having the
licence no. CM/L – 5136050. BAPL has been certified as on ISO-9001 :
Company by M/S.NQA Quality System Registrar Ltd for manufacture &
supply of cold twisted deformed bar. The quality policy of the company is
to satisfy the customers by supplying qualitative C.T.D bar conforming to
the agreed specification at all the times.The company is having a web site
with the address as www.info_steel.com.
RAW MATERIALS:
As has been explained earlier, ingots were manufactured from heavy &
commercial scrap at the initial period. After setting up of the sponge iron
unit near Byree as a sister concern, the unit now manufactures the re-
rollable items mostly from iron ore directly. BAPl had also imported quality
scrap from the United Kingdom during 2001-02 to the tune of RS.121.64
lac & is now planning to import further scrap from foreign countries.
PLANT ARCHITECTURE:
53
⇒ SF6 Breaker, coupled with 33KV power system fitted with air
circuit breaker of L & T make assembled with automatic power
factor controllers.
⇒ Medium frequency induction furnace of ABB make having twin
crucibles {1500KW] with digital regulators for refinement sponge
iron of maximum 85%.
⇒ 3x4 size Ingot caster with capability to produce Ingots up to 60"
length.
⇒ Reheating tunnel-type double row pusher furnace of 20ft width and
80 ft length with a heating capacity upto 1200oC temperature and
output capacity of 10 MT per hour.
⇒ Ten stand double drive mill coupled with reduction gear, pinion
stand, roll-cooling system and online roll grinding.
⇒ Hot flying shear (drum-type rotary) for end cutting and sizing.
⇒ Natural-cooled cooling bed having transfer capacity of 5 MT per
hour with maximum bed length of 150 ft..
MARKET.
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districts of Mayurbhanj , Keonjhar , all the areas of the undivided districts
of Balasore , Cuttack ,puri , Dhenkanal & Ganjam through numerous retail
trading outlets. From July-August, 2003, BAPL is supplying bulk quantities
of their product to the four southern states viz:Andhar Pradesh, Tamil Nadu,
Karnatak & Kerala where the product have received & high demand.
AWARDS :
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Bhubaneswar at saheed Bhawan & Sri Ramchandra Bhawan. The event ,
which was spread over 3 days , attracted a large no. enthusiastic budding
citizens to come out with their hidden talents.
TECHNICAL SPECIFICATIONS
Here are some of the grades that Icons Steel Specification in:
Sizes: 3, 10,12,16, 20, 25, 28 & 32mm Sizes:8, 10,12, 16, 20, 25, 28 &
32m
56
Organization & Manpower:
Capital costs:
The estimated capital cost of the proposed plant is Rs.545.68 lakhs. The
break-up of the capital cost with details of civil construction. Main Plant &
Machinery, Electrification and Installation & Misc. Fixed assets have been
elaborated hereafter.
The capital cost is based on the prices prevailing during the First quarter of
calendar year 2004 and also takes into account any minor variations. It,
however, does not include any provision for future escalation in steel,
cement, consumables, labour etc.
57
LAND AND SITE DEVELOPMET:
The existing land of the company at Manguli Chhak is sufficient and no
additional expenditure will be incurred under this head for the purpose of
the expansion project.
BUILDING
As the unit is an existing one, it has already got a factory shed and some
other miscellaneous construction. However cost of 38.06 lacs.
PLANT AND MACHINERIES
The promoters have already finalized the suppliers of the machines. The
total cost of the plant and machinery including its accessories, misc. fixed
assets, electrical installation and auxiliary equipments is projected at Rs.
270.42 lacs. This amount includes the duties, packing and forwarding and
also the installation charges. This value has been finalized with the
suppliers after due deliberations and negotiations. The suppliers of the plant
and machinery are most reputed in this line.
PROVISION FOR PRICE ESCALATION
Considering the registration period, a nominal escalation of 5% on building
and the cost of plant and machinery including electricals & installation are
included in the project cost.
MEANS OF FINANCE
The total requirements for the project, Rs. 200.00 lacs is proposed to be
financed by way of term loan arrived at Rs. 176.10 lac. The loan component
works out to be 63% of financiable assets or 53% of the total project cost.
WORKING CAPITAL FINANCE & MARGIN
The total working capital requirement has been estimated at Rs. 171.81 for
the 1st year. For the 3rd year, when maximum capacity utilization is
estimated, the total requirement has been arrived at Rs.245.53 lac. The
promoters’ margin for the 1st year working out is to be Rs. 45.81 lacs.
58
The details of the calculation of the working capital are given in Annexure
attached to this project report.
Presently the unit is enjoying working capital limit of Rs. 125.00 lacs with
Union Bank of India, College Square Branch, Cuttack and the account is
regular. The promoters are negotiating with 2 / 3 nationalized banks for
sanction of substantial enhanced working capital limit & switch over from
the existing bank i.e. Union Bank of India. The response has very
encouraging.
PROJECT PROFITABILITY
The detailed computation of projected profitability is given in Annexure.
PROJECTED DSCR
The DSCR of the project has been estimated at 2.0 and the detailed
computation is given in Annexure.
PROJECT FUND FLOW
The projected fund flow is given in Annexure.
PROJECTED BALANCE SHEET
The project Balance-sheet is given in Annexure.
PROJECT BREAK EVEN ANALYSIS
The projected break even analysis is given in Annexure. The break even
point has been arrived at 56% of the installed capacity & 66% of the
maximum utilized capacity.
NATURE OF ACTIVITIES:
Types of Product:
All the products made by Bajrangbali Alloys (p) Ltd.,{BAPL} are made
according to the needs of the customer or the clients of the company. The
main products are:
59
a. Different sizes of Iron Rod
b. Nail
MANUFACTURING PROCESS:
The product is basically formed in different parts. Each and every part of
the final product is made at different places simultaneously. Grooving,
Sizing are the main steps in this. Then the different parts are assembled
together at the end. The manufacturing process undertaken by the company
is given below:
The Ingots is shown on 1000 c heat, and then this is placed down to
the Roll stands .which is further divided to different steps:
a. Silicon Manganese.
b. Ferro Silicon.
c. Sponge Iron
60
d. Aluminum
e. Ramming Mass
f. Boric Acid
g. Mould
MAJOR CLIENTS:
Purchase Department:
61
sends the material back to the stores department for issuing according to the
needs of the organization.
Finance Department:
Fund is maintained by the cash department of each of the four factories for
the day to day expenses incurred. Loans to the workers, emergency
payment to suppliers, emergency expenditure in case of accident, all these
expenses are taken from the account of the organization.
Marketing Department:
Inventory Department:
Iron rods being the primary raw material for the production is stored in
large quantities as orders keep on flowing. The stores department plays a
vital role as many other secondary raw materials are used in the production
process viz, nuts, bolts, screws, hammers, gloves and so on. The foreign
clients report to those warehouses (office) about their requirements and
after the production they get the delivery from those warehouses.
This department plays a vital role for the day to day working of Bajrangbali
Alloys (p) Ltd.,{BAPL}. Maintaining four manufacturing units at different
places without any hassle is not an easy task to accomplish. Bajrangbali
62
Alloys (p) Ltd.,{BAPL} has over 800 employees in all. Managing all of
them towards the positive growth of the company is a very difficult task. To
Bajrangbali Alloys (p) Ltd.,{BAPL} human capital is very important.
Training and developmental activities are a continuous process in the
organization. Dynamic professionals are recruited viz, engineers, hr
executives, front office executives, MBAs, CAs and so on. International
students from Turkey, Switzerland, Malaysia, Mexico and Singapore come
to take internship at Bajrangbali Alloys (p) Ltd.,{BAPL}.
SOCIAL RESPONSIBILITY:
OVERVIEW:
63
The outputs from one manufacturing system may be utilized as the inputs to
another. A manufacturing system is, therefore, a typical input-output
system, which produces outputs (economic goods) through activities of
transformation from inputs (raw materials).
This has received its impetus and inspiration from the Chinese management
system, wherein such manufacturing activities which do not add value to
the product are meticulously eliminated. One of the direct consequences of
this revolution has been the much greater emphasis on the simplification of
products set-ups, and the smooth flow of materials through the factory.
64
CHAPTER – IV
WORKING CAPITAL MANAGEMENT [ANALYSIS]
The time period between the purchase of raw materials and the collection
of cash for sales is referred to as operating cycle. It consists of the
following components:
where,
Average stock of
raw materials =
And Average daily consumption of raw
materials =
65
where,
Average
stock of
work-in-
process =
where, Average
stock of finished
goods =
66
Annual cost of sales = Opening stock of finished goods + Annual cost of
production + Excise Duty + Selling and Distribution costs + General
administrative costs + Financial costs – Closing stock of finished goods.
Average
balance
of
sundry
debtors
=
67
5. Average Payment Period: The average payment period is
computed as:
Average
balance of
sundry
creditors =
Insurance
68
Insuring the assets of the company also comes under the purview of the
internal control of the firm. Several companies take the assistance of
consultants who specialize in the field of insurance. The company should
make a proper analysis about the issues related to insurance of its assets
like maintaining a proper list of all the policies that the company has;
ensuring that all policy documents are safely kept; ensuring that no two
policies cover the same risk; and preparing a statement to declare that the
cover provided by the policy is adequate and not excessive. Conducting an
analysis of this kind will help the company in making the required changes
in the insurance provided for its assets.
i. Blanket Policies: These policies insure all those risks that are not covered
ii. Business Interruption Policy: This policy protects the company against
losses that occur as a result of a sudden break in the operations of the firm.
For example, financial losses caused by interruption of production due to
machinery breakdown are covered under this policy.
69
vi. Life Insurance of the Key Personnel: This policy covers the loss
arising as a result of the death of the key-personnel.
3. Accounting for the deviations: Once the actual expenses and revenue
figures are available, they are compared with the forecasted figures to
check for any deviations. The actual data is also used for future
programming and in evaluating the performance of managers of each
responsibility centre.
70
In order to measure the performance of treasury we need to analyze the
extent to which it has achieved the goals of the firm. A goal is a future
target set by an organization. In order to be effective, goals should be
challenging, attainable, specific, quantifiable, time bound and relevant.
After setting the goals, the finance managers should develop the plans to
achieve the goals. They should also analyze the costs and risks involved in
achieving the goals. In order to review the achievement of goals, the
profits generated in the current year should be compared with previous
years. The performance of the treasury can be maximized by constantly
reviewing the progress of the company’s policies.
INVENTORY MANAGEMENT
1. To avoid lost sales: If the firms do not hold adequate amount of goods,
then there is a probability that the firm might lose some business.
3. To reduce ordering costs: When the firm places fewer orders of large
quantities, the ordering costs will reduce.
Classification of Inventories:
71
Inventories may be classified into three categories.
There are three direct costs and two indirect costs that are associated with
inventories:
2. Ordering costs: Ordering costs include the entire cost of acquiring the
raw material, i.e. all the costs associated with activities like:
requisitioning, purchase ordering, transporting, inspecting and handling
costs at the warehouse for storing. Ordering costs would increase with an
increase in number of orders i.e. higher the frequency of acquiring the
inventory, greater will be the ordering costs. If the firm maintains a large
inventory, only a few orders will have to be placed and ordering costs will
72
be relatively less. Thus ordering costs decrease with an increase in the size
of the inventory.
3. Carrying costs: These are the costs that are incurred for maintaining a
given level of inventory. They include storage costs, insurance, taxes,
deterioration and obsolescence. The storage costs include cost of storage
space, handling costs and administrative costs like salaries to staff and
workers etc. Carrying costs increase with an increase in the inventory size.
73
between the ordering and carrying costs so that the costs are minimized
and the profitability is maximized.
2. Reorder-point subsystem
3. Stock-level subsystem.
Total Costs =
where,
We know that the ordering costs decrease with an increase in size of the
inventory and carrying costs increase with an increase in the size of the
inventory. This can be graphically represented as:
74
From the above graph, we can infer that the total costs will be minimum
when the ordering costs are equal to carrying costs. The point Q* at
which the total cost is minimum is known as Economic Order Quantity.
It can be derived in the following manner:
75
The EOQ model assumes that the reorder point for replenishment of stock
is when the inventory level reaches zero and the time taken to procure the
stock is zero but such a situation does not exist in reality. There is always
a time lag between the date on which the order is placed and the date on
which the order is received. Consequently the reorder point is set at a level
greater than zero so that the new goods that are ordered at this time will
reach before the firm runs out of the existing stock.
Thus, when the usage rate and the lead time for procurement are likely to
vary, the Reorder Point = Normal consumption during lead time + Safety
stock where, normal consumption = Average daily usage rate x lead time
in days If the usage rate and lead time for procurement are known with
certainty, the Reorder level = Average daily usage rate x lead time in
days.
From the above formula it can be inferred that the reorder level will be
fixed at a point where the level of inventory is just adequate to meet the
production requirements during the lead time.
Another formula that can be used for computing the reorder point is:
Reorder Point = S x L + F
76
where,
The stock out acceptance factor is based on the stock-out percentage rate
specified and the probability distribution of the usage.
Stock-level subsystem:
• Issuance of goods
It is on the basis of the reports of this sub-system that the firm will place
an order for replenishing the stock.
Inventory Planning
The level of inventory should match with the firm’s planning and
budgeting process. The inventory level should not be too high or too low
and should commensurate with the requirements of the production and
marketing side.
77
product is computed as the weighted average of the value of the
components.
ABC System
According to this technique a firm should not exercise the same degree
of control over all inventory items. It should exercise more control over
items which are more expensive while less control should be exercised
on items that are less expensive.
On the basis of the cost involved, items are classified into three
categories:
78
Receivable management:
Trade credit arises when a firm sells its products or services on credit and
does not receive cash immediately. Trade credit is used by the firm to
protect its sales from the competitors and to attract potential customers to
buy its products at favorable terms. Trade credit creates receivables or
book debts that the firm is expected to collect in the near future. The
customers from whom book debts have to be collected in the future are
known as trade debtors.
Receivables help the firm in increasing the sales level, as clients will
prefer credit sales to cash sales. It also helps the firm in maintaining the
sales at an appropriate level in situations where there is intense
competition. As credit sales comprise a high profit margin, they generate
more profit than cash sales.
investment in current assets. There is a time gap between the sale of goods
on credit and payment by the customers. During this time gap, the firm’s
funds are blocked in the form of receivables and so it will have to arrange
for additional finance for meeting its own obligations. The cost involved
in financing the additional capital can be in the form of interest payments
in case of external finance or opportunity cost of capital in case of internal
sources that could have been put to some other use. The cost associated
with the use of additional capital to support credit sales, which could have
been profitably employed in other alternatives, is a part of the cost of
extending trade credit.
79
2. Administrative costs: These are the costs related to the maintenance of
records related to receivables and also the expenses incurred for obtaining
information about the creditworthiness of the customer.
3. Collection costs: These are the costs that are incurred while collecting
4. Default costs: If the customer does not pay the dues within the
specified period, then the receivables are treated as bad-debts and have to
be written-off as they cannot be realized.
The credit policy looks at ways for a trade-off between increase credit
sales leading to increased profits and the cost of having a larger amount of
cash locked up in receivables as well as the losses due to bad debts. The
variables associated with credit policy include credit standards, credit
period, cash discount and collection program. While application of stiff
credit standards might lead to lower receivables, it also reduces sales. On
the other hand, liberal credit standards increase sales, but also have a high
incidence of bad debts.
80
Credit period refers to the time period allowed for customers to pay for
their purchases. Increasing the credit normally increases sales as well as
the incidence of bad debts and vice-versa. Cash discounts are the discounts
offered by companies to induce customers to pay much earlier than the
normal credit period. A liberal cash discount policy involves increasing
the discount percentage or lengthening the period of discount period.
Ingots produced by the electric furnace are charged into the reheating
furnace and heated up to the required specific products and grade to be
rolled. Hot ingots are driven through conveyer to the 1st stand, then moved
to the other path via repeater system When the rolled bar reaches to the
requisite nominal sizes, the head and tail of the bar can be cut at the alligator
machine. The hot materials pass through the pinch roll & allowed to cool on
cooling bed. Through the flying shear materials are cut into the desired
length and carried to the twisting yard for further process and bundle.
Moreover, automated feedback and control units ensure adherence to
specified size, shape & strength of the product and thereby total quality
control.
81
Working capital is one of the most difficult financial concepts to
understand for the small business owner. In fact, the term means a lot of
different things to a lot of different people. The need for working capital to
run the day-to-day business activities cannot be overemphasized. We will
hardly find a business firm which does not require any amount of working
capital. Indeed; firms differ in their requirements of the working capital.
Briefly, this is no precise way to determine the exact amount of gross or net
working capital for every enterprise.
Working Capital can be viewed as the amount of capital required for the
smooth and uninterrupted functioning of the normal business operation of a
company ranging from the procurement of raw material, converting the
same into finished products for sale and realizing cash along with profit
from accounts receivable that arise from sale of finished goods on credit.
The need for working capital by a typical manufacturing and selling
company becomes self-evident. In order to meet the production plans of a
company some quantity of raw materials have to be maintained in the form
of inventory as there will usually be a time lag from the moment an order is
placed for raw material with suppliers till the same is received by the
company. Absence of raw material inventory may result in stoppage of
production for want of raw material. The role of working capital plays in
supporting the normal business operation of a typical manufacturing and
trading company
82
body, in the same enterprise, adequate amount of working capital is pre-
requisite. The firm’s net working capital refers to the difference of current
assets and the current liabilities. The following table shows the net working
capital of Unit Bajranbali Alloys Private Limited of Orissa for the past five
years, i.e., from 2004-2008.
83
PARTICULARS AS ON 31ST AS ON 31ST DEFFERENCE (Rs)
MARCH, 2003 MARCH, 2004
in Rs. in Rs.
1. CURRENT ASSETS INCREASE DECREASE
The above table shows the changes in the working capital during the
financial year 2003 –2004. We can easily figure out that there is a Increase
of Rs. 19,863,982.51 which shows the application of funds in the working
capital of the firm for this particular period.
84
1. CURRENT INCREASE DECREASE
ASSETS
a. Sundry Debtors 7,554,494.32 12,757,922.07 5,203,427.75
b. Inventories 16,841,878.30 37,267,825.23 20,425,946.93
c. Cash & Bank 7,893,059.68 13,664,046.31 5,770,986.63
d. Loans & advances 11,808,712.47 38,912,724.25 27,104,011.78
Short Term
Total Current Assets 44,098,144.77 102,602,517.86
2. CURRENT
LIABILITIES
a. Liabilities & 7,821,287.07 20,566,911.08 12,745,624.01
Provisions
Total Current 7,821,287.07 20,566,911.08
Liabilities
Working Capital 36,276,857.70 82,035,606.78 58,504,373.09 12,745,624.01
Increase in 45,758,749.08 45,758,749.08
Working Capital
NET TOTAL 45,758,749.08 45,758,749.08
From the above table we can analyse change in working capital during the
financial year 2004-2005. We can easily notice out that there is an increase
of Rs. 45,758,749.08 which shows an application of funds in the working
capital of the firm for this particular period.
85
2. CURRENT
LIABILITIES
a. Liabilities & Provisions 20,566,911.08 12,277,951.92 8,288,959.16
Total Current Liabilities 20,566,911.08 12,277,951.92
Working Capital 82,035,606.78 77,791,902.88 11,594,606.51 15,838,310.41
The above table helps in analyzing the working capital during the financial
year 2002-2003. We can easily find out that there is a decrease of Rs.
4,243,703.90 which shows the sources of funds in the working capital of the
firm for this particular period.
86
a. Liabilities & Provisions 12,277,951.92 19,962,962.61 7,685,010.69
Total Current Liabilities 12,277,951.92 19,962,962.61
From the above table we can analyse working capital during the financial
year 2003-2004. We can easily analyse out that there is a decrease of Rs.
45,722,289.31 which shows the application of funds in the working capital
of the firm for this particular period.
87
Comparison of Net Working Capital
140,000,000.00 123,514,192.19
120,000,000.00
100,000,000.00 82,035,606.78
77,791,902.88
80,000,000.00
Net Working Capital
60,000,000.00 36,276,857.70
40,000,000.00
16,412,875.19
20,000,000.00
0.00
Capi
king
Wor
tal
Years
From the above graph, we can see that the Net Working Capital of the firm
was very low in 2003. The value came to negative in the year 2006, but
after that there was boom in the net working capital in 2006 & 2007.
88
TABLE NO. 4.5: CONSOLIDATED STATEMENT OF
CURRENT ASSETS :-
The table below gives us a clear view of the Current Assets of the firm.
Current Assets 2003 2004 2005 2006 2007
a. Sundry 2,199,199.30 7,554,494.32 12,757,922.07 16,063,569.42 21,539,580.61
Debtors
89
Current Liabilities 2003 2004 2005 2006 2007
a. Liabilities & 16,447,724.67 7,821,287.07 20,566,911.0 12,277,951.9 19,962,962.61
Provisions 8 2
Total Current 16,447,724.67 7,821,287.07 20,566,911.0 12,277,951.9 19,962,962.61
Liabilities 8 2
FIGURE NO.4.6
Current Liabilities
25,000,000.00
20,566,911.08
19,962,962.61
20,000,000.00
16,447,955
15,000,000.00 12,277,951.92
Current Liabilities
7,821,287.07
10,000,000.00 24.67
T (in cr)
5,000,000.00
M
O
A
U
N
0.00
2003 2004 2005 2006 2007
Years
90
Each of them is compared for a period of five consecutive financial years.
This consolidated statement of Current Liabilities helps us to know and
determine the changes in the value of the Current Liabilities over the five
financial years of the firm. We can also figure out that the value of total
Current Liabilities was not stable. The total current liabilities was
Rs.16,447,955 in the year 2003, Rs.7,821,287.07 in the year 2004, Rs.
20,566,911.08, in the year 2005, 12,277,951.92 in the year 2006 and
Rs.19,962,962.61 in the year 2007. This shows that the total current
liabilities of the firm decreased in the year 2004 and again in the year 2006.
91
COMPARISON OF SUNDRY DEBTORS
25,000,000.00
21,539,580.61
20,000,000.00
16,063,569.42
15,000,000.00
12,757,922.07
(in cr)
Sundry Debtors
10,000,000.00
M
O
A
U
N
T
7,554,494.32
5,000,000.00
2,199,199.30
0.00
2003 2004 2005 2006 2007
Years
FIGURE NO.4.7
92
The above graph shows that there was a constant rise in the value of the
sundry debtors from Rs.2.199,199.30 to 21,539,580.61 over the five
financial years. There was continuously increase in debtors between 2003-
2007.
COMPARISON OF INVENTORIES
COMPARISON OF INVENTORIES
80,000,000.00 73,541,461.76
cr) 70,000,000.00
(in
T 60,000,000.00
N
U 50,000,000.00
37,267,825.23
40,000,000.00 Inventories
O
33,425,828.28
M
A 30,000,000.00
17,010,735.18
20,000,000.00 16,841,878.30
10,000,000.00
0.00
2003 2004 2005 2006 2007
Years
93
FIGURE NO. 4.8
This graph reveals that there was always an increase in the value of the
inventories of the firm. There was a marginal drop in the level of inventory
in 2004 and 2006 to 16,841,878.30 and 33,425,828.28 respectively, but
after then the inventory level increased rapidly by 73,541,461.76.
20,000,000.00
17,637,670.12
13,664,046.31
15,000,000.00 12,961,095.04
5,000,000.002,325,864.36
(in cr)
M
O
A
U
N
T
0.00
2003 2004 2005 2006 2007
Years
94
The above graph shows the imbalanced behavior of cash and bank balances
of the firm. The balance dropped down in 2003, but recovered in the next
financial year. There was a decrease in 2006 to 12,961,095.04, as shown in
the above figure. But there after it increased rapidly in 2007 by
17,637,670.12.
45,000,000.00 38,912,724.25
40,000,000.00
30,758,442.31
35,000,000.00
27,619,362.06
30,000,000.00
25,000,000.00 Loans and Advances
T (in cr)
20,000,000.00
11,324,801.02
15,000,000.00 11,808,712.47
M
O
A
U
N
10,000,000.00
5,000,000.00
0.00
2003 2004 2005 2006 2007
Years
95
FIGURE NO. 4.10
The graph shows that the loans and advances of the firm were very high on
2005 by 38,912,724.25. This decreased during 2006 by 27,619,362.06. The
amount of loans and advances was not uniform in the five financial years,
with a continuous rise and fall in the value of it.
25,000,000.00
20,566,911.08 19,962,962.61
20,000,000.00
16,447,724.67
15,000,000.00 12,277,951.92
T (in cr)
U
N
5,000,000.00
0.00
2003 2004 2005 2006 2007
Years
96
We can gather from the above graph that the liabilities of the company were
not uniform and there was sudden drop in the liabilities during the year
2004 and 2006 by 7,821,287.07 and 12,277,951.92 respectively.
SWOT ANALYSIS
97
collection expenses.
98
⇒ Due to modernization, the life of roll can be
saved up to a minimum of 2%
99
CHAPTER V:
FINDINGS-
The net working capital of the unit has shown a gradual increase.
Only in the year 2006 the level of net working capital fell to
Rs.77,791,902.88 from Rs.82,035,606.78 in 2005. which then
increased to Rs.19,962,962.61 in 2007.
100
application of funds.
The net working capital of the firm was at a very low level during the
year 2003 was Rs.16,412,875.19 gradually it increased every year till
it reached Rs.82,035,606.78 in 2005, then on 2006 it decreased up to
Rs.77,791,902.88. There was a sudden rise immediately on 2007
where the net working capital is Rs.123,514,192,19
The level of current liabilities of the firm was not uniform. The
liabilities showed a decrease in 2004 to Rs.7, 821,287.07 and again
decline in 2006 by Rs.12, 277,951.92.
The loans and advances of the firm were very high in the year 2005
by 38,912,724.25. There was a slight decrease in 2004 and 2006 by
101
Rs.11,808,712.47 and Rs.27, 619,362.06 respectively.
SUGGESTION-
• From the analysis of working capital, the liabilities are very high
each and every year. This should be lessened so as to earn profits.
• The company sells its products on cash basis mostly whereas the
major procurements of raw materials are on 30 days credit basis. The
necessary steps have been taken by the company to reduce the inventory
holding period over the years. As a multi-national company, the
procurement planning should be made in advance. The intend for
procurement must be done in such a way so that items should be
available in minimum stock at right time. The items available should be
accessible to all through computers. All the concerned departments can
access the software on inventory of raw material and spares. So all care
should be taken to reduce unnecessary inventory holding and resultant
consequential loss to the company.
102
order is placed for raw material with suppliers till the same is received
by the company. Absence of raw material inventory may result in
stoppage of production for want of raw material. The role of working
capital plays in supporting the normal business operation of a typical
manufacturing and trading company.
• In view of the above facts, it was found that there was decrease in
liabilities and provision, loans and advances, inventories in the year
2004 and 2006. So necessary steps should be taken.
CONCLUSION-
To conclude, we can say that Unit Bajrangbali Alloys (p) Ltd ,BAPL has
continued to take on the competition, in spite of slow down in the overall
performance. However, the outstanding loans and advances recorded a
growth of 10% as against the all region average of 9%, mainly due to the
difficulties experienced by the Manufacturing industry in the past years.
The unit has a large amount of man power, which it can aim to utilize in the
best possible manner. As the Unit is not deprived of skilled labour, it should
always aim at increasing the profits of the firm.
103
Working capital management involves not only managing the different
components of current assets, but also managing the current liabilities or to
be more precise the financial aspects of current assets. It is therefore
appropriate to provide a brief description of current assets and current
liabilities.
The Unit went on increasing the production in the subsequent years. This
unit produces different quality of Manufacturing goods and Sponge iron
according to the customer specifications.
This chapter also deals with the practical part, i.e., it deals with the analysis
of the current assets and the current liabilities of the Unit for a period of
five consecutive financial years to determine the net working capital of the
Unit. The comparison of the net working capital of the firm is also
mentioned with the help of a few tables and graphs.
104
BIBLIOGRAPHY
BOOKS
Publication.
2. L.S. Porwal ,2001, Accounting Theory and Introduction, New Delhi,
Delhi,S.Chand.
WEB-SITES REFERRED
www.google.com
www.altavista.com
Annual reports of last 5 years
MAGAZINES
Business world.
Business today.
105
India today.
106