Working Capital MGMT

Analysis of Working Capital Management of BSL,SAIL
A Summer Project Proposal for
Post-Graduate Diploma in Business Management
By
Anu Satyam
Under the guidance of
Mr. Jitendra Kumar Prof. Sayush

Deputy Manager Faculty
BSL ,SAIL SIMSR
K J Somaiya Institute of Management Studies & Research

May-June 2010
K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 1

By
Anu Satyam

May-June 2010

By
Anu Satyam
Under the guidance of
Mr. Jitendra Kumar Prof.Sayush

Deputy Manager Faculty
BSL,SAIL SIMSR

May-June 2010

Certificate of Approval
We approve this Summer Project Report titled "Analysis of Working Capital Management of
BSL,SAIL" as a certified study in management carried out and presented in a manner
satisfactory to warrant its acceptance as a prerequisite for the award of Post-Graduate
Diploma in Business Management for which it has been submitted. It is understood that by
this approval we do not necessarily endorse or approve any statement made, opinion expressed
or conclusion drawn therein but approve the Summer Project Report only for the purpose it is
submitted.
Summer Project Report Examination Committee for evaluation of Summer Project Report
Name Signature
1. Faculty Examiner
2. PG Summer Project Co-coordinator

Certificate from Summer Project Guides
This is to certify that Ms. Anu Satyam, a student of the Post-Graduate Diploma in Business
Management, has worked under our guidance and supervision. This Summer Project Report
has the requisite standard and to the best of our knowledge no part of it has been reproduced
from any other summer project, monograph, report or book.
Faculty Guide Organizational Guide: Mr. Jitendra Kumar

Designation Designation: Deputy Manager
SIMSR Organization: BSL, SAIL
Address: BSL, BoKaro Steel city
Date Date: Signature

Signature:

Acknowledgement
At the very outset ,I wish to express my heartily gratitude to all those who extended their help
,guidance and suggestion and without whose help it was not possible for me to complete this
project.
I am deeply indebted to my guide Mr. Jitendra Kumar,Deputy Manager,F&A, ,BSL,SAIL without

whose support and help the would not have been possible. I also acknowledge the help
rendered by my faculty guide Prof. Sayush who constantly guided me through his ideas and
views.
I am also thankful to all the employees who provided me with practical information about the
accounting processes in SAIL
I express my deep sense of gratitude to the management of Steel Authority of India Limited
,Bokaro Steel Plant for allowing me to undertake the project as well as to study the functions of
various departments of the organization.
My project wouldn’t have been successful without the material assistance of a number of
people. I would like to acknowledge the help rendered by each of them .I express profound
gratitude to all the people who have been extremely inspirational in helping me complete this
project.

Abstract
Objective : The project aims to analyze the various components of working capital in BSL i.e.
cash , inventory , receivables and payables .It also analyzes the various ratios and also
performs a comparative analysis with the competitors and finally provided recommendations to
manage the working capital more efficiently.
Background : Working capital management has been one of the major concerns of managers
in any organization. Effective management of working capital i.e. cash, inventory , account
receivables and account payables is very important for a manufacturing concern like BSL for its
proper functioning.
Scope and methodology used : The research began with the study of finance and accounts
department in BSL, their major sections and their respective activities. It was then followed by
the study of various production plants to understand the production flow in the steel plant. The
study of various production plants gave the idea of the inventory levels maintained in these
plants.
The study was directed towards the analysis of working capital management in BSL which
included the analysis of the various components of working capital, the percentage of various
components maintained in BSL, determination of operating cycle and the cash conversion cycle,
the company’s policy towards its various suppliers and customers. The study further included
ratio analysis to determine the liquidity and profitability of the firm.
The data was collected from the following sources:
Primary sources:
• Records of previous years profit and loss statements, balance sheets and cash flow
statements
• Information provided by the senior finance executives and chartered accountants of BSL
Secondary sources:
• Secondary data was collected from the internet and various magazines, circulars issued
by SAIL and books.
Conclusion : Inventory in the steel plant consists of three parts : the raw material
inventory,storage and spare inventory and finished goods inventory .Raw material inventory
consists of the major part of the inventory section.

Bokaro Steel plant gives a credit period of 30 days to its customers which sometimes vary
between 25 – 40 days .The credit given by their suppliers is normally 15 days.
The liquidity position of BSL as analyzed by the current ratio and quick ratio says that the
company has sufficient amount of the most liquid assets to meet its contingent liabilities.
Although the company has a huge piling up of inventory due to less demand for flat products.
The quick ratio also showed a decrease from the previous year due to the increase in current
liabilities. However a low quick ratio is not a concern since funds are managed centrally by the
mother unit SAIL.
Finally a comparative of BSL was done with its major competitors i.e. Tata Steel and Essar
Steel .This analysis showed that BSL follows a conservative financing and conservative
investment policy as compared to its competitors. Tata has a negative working capital .It is
managing its inventories well, however it might face a problem in meeting its day to day
financing needs.

CONTENTS
1)SAIL Overview 12
2)Bokaro Steel Plant 14
2.1)Major Units of BSL 16
a)Raw material and Material Handling Plant 16
b)Coke Oven and By Product Plant 16
c)Blast Furnace 17
d)Steel Metling Shop 17
e)Continuous Casting Shop 18
f)Slabbing Mill 18
g)Hot Strip Mill 19
h)Hot Rolled Coil Finishing 19
i)Cold Rolling Mill 20
j)Hot Dip Galvanizing Mill 20
2.2)Revenue and Profits of BSL 20
2.3)Product Profile of BSL 23
2.4)Production Process in BSL 23
2.5)Current Market Share of BSL 24
2.6)Manpower of BSL 24
3)Role of Finance and Accounts 25
3.1)Sections in Finance and Accounts 25
3.2)Organization Chart of F&A 29
4)Working Capital Management 30
4.1)Importance of good Working Capital Management 30
4.2)Operating Cycle Period 31

4.3)Inventory Conversion Period 32
4.3.1)Inventory 32
4.3.2)Need to hold Inventories 32
4.3.3)size of inventories 32
4.3.4)Raw Material Inventory 33
4.3.5)Stores and Spares Inventory 34
4.3.6)Finished and Semi-finished Product Inventory 35
4.4)Receivable Conversion Period 36
4.4.1)Objective 37
4.4.2)Credit Policy 37
4.4.3)Size of Receivable 37
4.5)Operating Cycle Period(2008-09) 38
4.6)Operating Cycle Period(2009-10) 39
5)Comparison 41
5.1)Analysis 41
5.1.1)Operating Cycle 41
5.1.2)Holding Period 41
5.2)Working Capital Status of BSL 42
5.3)Working Capital of various units of SAIL 43
6)Ratio Analysis Calculations(2008-09) 45
6.1)Liquidity Ratios 45
6.2)Activity Ratios 45
6.3)Profitability Ratios 46
7) Ratio Analysis Calculations(2000-10) 47
7.1)Liquidity Ratios 47
7.2)Activity Ratios 48

7.3)Profitability Ratios 49
8)Comparative Analysis with previous years figures 50
9)Comparative Analysis with its competitors 51
10)Conclusion and Recommendation 53
11)Bibliography 54
12)List of Abbreviations 55
13)Annexure 56

1) SAIL – An Overview
One of the leading producers of steel in the world and the largest steel maker of the country,
SAIL occupies a prime place in the industrial scenario of India. Ranked amongst the top ten
public sector companies in India in terms of turnover, SAIL manufactures and sells a broad
range of steel product including hot and cold rolled sheets and coils, galvanized sheets,
electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other
alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants,
located principally in the eastern and central regions of India and situated close to domestic
sources of raw materials, including the companies iron ore, limestone and dolomite mines. The
company has the distinction of being India; largest producer of iron ore and of having the
country’s second largest mines network. This gives SAIL a competitive edge in terms of captive
availability of iron ore, limestone and dolomite which are input of steel making in the every
integrated plant of SAIL.
SAIL operates and owns four integrated steel plant

at Bhilai, Durgapur, Bokaro, Rourkela and three
speciality steel plants at Salem,. Durgapur and
Bhadravati.
SAIL is the single largest investment in public as on

date and is also a symbol of country’s efforts
towards indigenization.
Over the years since its inception company has grown in a strength reaching increased levels
of production. Over the years the plant has also made a definite contribution to the economy of
the country.
SAIL is the leading steel making company in India. It is fully integrated iron and steel maker
producing both basic and special steels for domestic construction, engineering, power, railway,
automotive and defense industries and for sale in export markets
SAIL wide range of long and flat steel products are much in demand in the two clients’ world-
wide domestic as well as international market. This vital responsibility is carried out by SAIL own
Central marketing network of 34 branch offices and 54 stockyards located in major cities and
towns throughout India. With technical and managerial expertise and know-how in steel making
gained over decades, SAIL has a well-equipped Research and Development Centre for Iron and
Steel at Ranchi which helps to produce quality steel and develop new technologies for steel
industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET),
Management training institute (MTI) and safety organization at Ranchi. Our captive mines are

under the control of the Raw materials division of SAIL operate from their headquarter in
Kolkata. Almost all our plants and major units are ISO Certified.
Ownership and Management
The Government of India owns about 86% of SAIL's equity and retains voting control of the
company. However, SAIL, by virtue of its ‘Navratna’ status, enjoys significant operational and
financial autonomy. SAIL has created its own Central Marketing Organization (CMO) and the
International Trade Division to take care of its international and marketing operations
The steel products manufactured by SAIL include:
• Hot and cold rolled sheets and coils

• Galvanized sheets
• Electrical sheets
• Railway products
• Plates, bars and rods
• Stainless steel and other alloy steels
Integrated Steel Plants

• Bhilai Steel plant (BSP) in Chhattisgarh
• Durgapur Steel Plant (DSP) in West Bengal
• Rourkela Steel Plant (BSL) in Jharkhand
• IISCO Steel Plant (ISP) in West Bengal
• Bokaro Steel limited (BSL) in Jharkhand

2) BOKARO STEEL PLANT
History
Bokaro steel plant brings out before one’s eyes the vision of a massive giant in the making.
Bokaro Steel Plant - the fourth integrated plant in the Public Sector - started taking shape in
1965 in collaboration with the Soviet Union. It was originally incorporated as a limited company
on 29th January 1964, and was later merged with SAIL, first as a subsidiary and then as a unit,
through the Public Sector Iron & Steel Companies (Restructuring & Miscellaneous Provisions)
Act 1978. The construction work started on 6th April 1968.
The Bokaro Steel Plant is hailed as the country’s first Swadeshi steel plant, built with
maximum indigenous content in terms of equipment, material and know-how. Its first Blast
Furnace started on 2nd October 1972 and the first phase of 1.7 MT ingots steel was completed
on 26th February 1978 with the commissioning of the third Blast Furnace. All units of 4 MT
stage have already been commissioned and the 90s' modernization has further upgraded this to
4.5 MT of liquid steel.
Bokaro Steel Plant (BSL) situated in the coal belt of the eastern region, symbolize India’s
advancement in the design, engineering & equipment suppliers & construction of steel plants. It
is the 4th integrated steel plants in the public sector conceived in 1959; it actually started taking
shapes in 1965, with the collaboration of “SOVIET UNION”. It was initially set up with a capacity
of 1.7 million tones (MT) of flat products per annum with a provision to expand up to 4 million
tones .It was incorporated as a limited company. The plant was conceived as the country’s 1st
“SWADESHI” steel plant to be built with maximum indigenization going into the equipments,
materials & know-how.

The Bokaro Steel Plant is an integrated metallurgical unit engaged in the production of ingots,
plates, sheets and coils. In the process, it also produce a number of by -products crude tar,
Ammonium sulphate, Benzene, Xylene, Toluene, Coal Tar , Cresols.
Medical Facilities
The township has a modern 1100-bed Bokaro General Hospital (BGH) with specialized units
like Critical Care Unit, Intensive Coronary Care Unit, Nuclear Medicine Laboratory, Ultra modern
operation theatre complex and eye operation theatre. The child care unit of the hospital has
been recognized as baby friendly hospital by the UNICEF. The blood bank has been given the
status of regional training center by the central government, the only one in the Jharkhand. To
take care of the employees working in plant, an occupational health service center has been
provided within the plant premises. BGH has been granted the status of one of the training
centers for students of nursing. The medical team boasts of around 200 doctors and 1000
paramedic staff.
Vision of Bokaro Steel Plant
To be a respected world class Corporation and the leader in Indian steel business in quality,
productivity, profitability and customer satisfaction.
Mission of Bokaro Steel Plant
• We build lasting relationships with customers based on trust and mutual benefit.
• We uphold highest ethical standards in conduct of our business.
• We create and nurture a culture that supports flexibility, learning and is proactive to
change.
• We chart a challenging career for employees with opportunities for advancement and
rewards.
• We value the opportunity and responsibility to make a meaningful difference in people’s
lives.
Strategic goals
• To continue in the business of steel and steel related activities
• To enhance market share in growth segments
• To improve profits by productivity improvements , cost reduction , high value added
products and customer satisfaction
• To achieve excellence in quality across the value chain
• To secure availability of key raw materials and alleviate infrastructure bottleneck which
may constrain long term growth

2.1) Major Units of Bokaro Steel Plant
(a.) Raw Materials and Material Handling Plant
The raw material and material handling plant receives blendes, stores and supplies different raw
materials to Blast Furnace. It also maintains a buffer stock to take care of any supply
interruptions.
Some 9 MT of different raw materials like iron ore fines and lumps, limestones, dolomite lumps
and chips, hard coal and manganese ore are handled every year.
(b.) Coke Oven and By Product Plants
The coke oven complex at Bokaro converts prime coking coal into quality coke for the blast
furnaces. The coke oven battery has 8 batteries with 69 ovens each, maintained in terms of
fugitive emission control, use of phenolic water and other pollution control measures.

(c.) Blast Furnace
Bokaro Steel Plant has five 2000 cubic meter Blast Furnaces that produce molten iron, hot
metal for steel making. The process of iron making is automated using PLC (Programmable
Logic Control) Charging System and Computer Controlled Supervision system. The waste
products like furnace slag and gas are either used directly within plant or processed for
recycling reuse.
(d.) Steel Melting Shops(SMS)
Hot metal from the blast furnaces is converted into steel by blowing 99.5% pure oxygen through
it in the LD converter. Bokaro has 2 steel melting shops SMS-I and SMS-II. SMS-I has 5 LD
converters of 130T capacity each. It is capable of producing rimming steel through the ingot
root. SMS-II has 2 LD converters each of 300T capacity with suppressed combustion system
and continuous casting facility. It produces various killed and semi- killed steels.

(e.) Continuous Casting Shop
The CCS has two double strand slab casting machines producing high quality slabs of width
ranging from 950mm to 1850mm. The CCS has a ladle furnace and ladle rinsing station for
secondary refining of steel. The ladle furnace is used for homogenizing the chemistry and
temperature. CCS produces steel of drawing, deep drawing, extra deep drawing, boiler and tin
plate quality.
(f.) Slabbing Mill
Slabbing Mil transforms ingots into slabs by rolling them in its 1250mm Universal Four–High
Mill. The rolling capacity of the mill is 4MT per annum. The shop has hot and cold scarfing
machines and 2800T shearing machine.

(g.) Hot Strip Mill (HSM)
Slabs from CCS and Slabbing Mill are processed in the state- of-the-art hot strip mill. The fully
automated Hot Strip Mill with an annual capacity of 3.363 million tones has a wide range of
products- thickness varying from 1.2 mm to 20 mm and width from 750 mm to 1850 mm. The
mill is equipped with state-of-the-art automation and controls, using advanced systems for
process optimization with on-line real time computer control, PLCs and technological control
systems.
(h.) Hot Rolled Coil Finishing
All the Hot Rolled Coils from the Hot Strip Mill are received in HRCF for further distribution or
dispatch. HR Coils rolled against direct shipment orders are sheared and finished to customers
required sizes and dispatched to customers. The shop has two shearing lines with capacities of
645000T per year and 475000 T per year respectively.

(i.) Cold Rolling Mill
Cold Rolling Mill at Bokaro uses state-of-the-art technology to produce high quality sheet gauge
material, tin mill black plate and galvanized products. Cold Rolling is done to produce thinner
gauge strips of very smooth and dense finish, with better mechanical properties then Hot Rolling
Mill. Rolling is done well below recrystallization temperature without any prior heating of the
material. The products of CRM are used for deep drawing purposes, automobile bodies, railway
coaches and coated steels.
(j.) Hot Dip Galvanizing Complex

The Hot Deep Galvanizing Complex integrated with the CRM produces zinc-coated cold rolled
strips resistant to atmospheric, liquid and soil corrosion. The continuous coil corrugation line in
the HDGC produces corrugative sheets and galvanized sheets.
2.2) Revenue and Profits of Bokaro Steel Plant
2009-10(in 2008-09(in crores)

crores)
Profits 2830 1345
Turnover 12038 11858

2.3) Product Profile
Products of Bokaro Steel Plant
Bokaro Steel Plant - Product Basket

Mill Capabilities
Shop Products Facility Annual Thicknes Width Length

Capacity s range range (metre)
(,000 (mm) (mm)
Tonnes)
HSM HR Coils/ Sheets/ Continuous 3955 1.6 -16 900-
Plates Mill 1850
HRCF HR Sheets/ Shearing - 5-10 1800 2.5-12
Plates Line-I
HR Sheets/ Shearing 1.6-4 1500 1.5-4.5
Plates Line-II
HR Coil Slitting Line
CRM 1660
CR Coils/ Sheets CRM-I 0.63-2.5 700-

complex 1850
CR Coils/ Sheets CRM-II 0.63-1.6 650-
complex 1250
CR Coils/ Sheets, DCR Mill 100 0.22-0.8 650-
TMBP 1040
GP Coils & HDGL 170 0.3-1.6 650-
Sheets GC 1250
Sheets
Special Grades of Steel
As per the demand of the market, Bokaro Steel Plant has the capacity to produce the
special grades of steel.
Special Steel Grades Application

SAE 1541 Automobile Industry
MC 11 Cycle Industry
SPC 370/390 Cycle Industry
C 15 Cycle Industry
API X-42, X-46, X-52, X-56, X-60 (SAILAPI) Pipe Line
SAILCOR (corrosion resistant) Railways
SAILMEDSi (Medium Silicon Steel) Heavy Electrical Winding
SAILPROP Propeller Shaft
Strapping Steel (for internal use only) Strapping Finished Products
Full-hard Galvanized Coil Extra hard roof of houses
Cold Rolled Medium Electrical Steel Transformer core
Extra-low Carbon Extra Deep Drawing (HR White goods
& CR)
DMR 249A Grade Steel Defense Research Development
Organization (DRDO) for fabrication of
Submarine parts (import substitution)
E460/E500/E550 Floating bridges for Defense. For M/S
BEML; for making. (import
substitution)
IS8500 Fe 540B high strength low alloy steel Kolkata fly-over
with UTS value in excess of 540 Mpa
Low Carbon, Low Manganese, High Structural purposes. Thermo-
Strength Structural Steel without micro mechanically Controlled Processing.
alloying (Carbon 0.10% )

2.4) Production Process in Bokaro Steel Plant

2.5) Current Market Share of Bokaro Steel Plant
(In percentage)
PRODUCT 09-10 08-09

HR coil 26.9 24.9
HR sheet 23.6 23.6
CR coil/sheet 12.1 16.7
GP/GC sheet/ coil 11.0 8.9
2.6) Manpower of Bokaro Steel Plant
EMPLOYEES As on 1st June

2010
Executives (Regular) 3390
Non-Executives 21996
(Regular)
Plant Attendant 474
Trainees (STs, JTs, 153
MTs)
Casual 109
Total 26122

2.7) Competitors of Bokaro Steel Plant
• Essar Steel
• Jindal Steel
• Saesa Goa
• Nippon denro ispat
• Usha ispat
• Lanco industries limited
3) Role of Finance and Accounts

Finance is described as ‘science of money’ and involves the process of conversion of
accumulated funds to productive use .The essence of the effective financial management is that
the income generated should be greater than the cost of procuring and processing the raw
materials by optimum utilization of the same.
In the recent changed business scenario which is the outcome of changed Indian economic
policy from command economy to free economy to integrate the Indian economy to the world
economic order .The role of financial manager has become a crucial one since the factor of
efficiency in all productivity field has become paramount.
In a multi process industry like an integrated steel plant like this one where some processes
remain involved in certain endothermic behavior of cost one finds it difficult to prepare the cost
benefit analysis ,hence in deciding the optimum level of activity because each level of activity
can be attained with the various number of alternative resources available at a particular point in
time.
F&A is an important department of BSL headed by ED .There are 34 production cost centers ,
24 service centers and 18 job costing centers of engineering shops : Cost and budget section
allows process costing systems for its production and service centers job costing method for its
engineering shops for maintaining its cost record like production and consumption of
RM,power,fuel,stores, spares etc. .In production and service cost per unit is determined upon
output and in engineering shop cost is determined upon machine hour rate .Monthly and annual

cost is prepared on actual basis and derivations are reported to higher management through
MIS report.
The reporting of actual business performance and analysis of reason for variance with planned
one is done by use of management accounting techniques like variance analysis ,ratio analysis
and sensitivity analysis .Cost reduction activity is being monitored by cost and budget section
and performance in this stage is brought to the notice of higher management.
Organizations like SAIL which have various units and subsidiaries, finance and accounts plays
an important role.
3.1) Sections in Finance and Accounts

CODE-01 PAY SECTION
It deals with the accounting of employee’s related salary slip .Basically deals with any activity
related to pay.
Loan
Bonus
Any monthly payments taken once in a year
CODE-02 MAIN ACCOUNTS SECTION
It deals with the consolation of accounts with each quarter along with the final close. It prepares
a main ledger, assets ledger, section ledger and trial balance etc..It prepares and maintains
assets register of the company .It facilitates the inter plant reconciliation , coordination with the
various auditors.
CODE-03 PURCHASE ACCOUNTS
It basically deals with the payments and accountings of all the goods against which purchase
order has been placed. Its work starts when goods are received and verified with GRN (goods
and returned notes).They receive and verify the bill.
CODE-04 CASH ACCOUNT
It deals with the disbursement and receipt of cash as per the bills passed by the officers of
various sections .Its main function includes monitoring of cash deposit ,liasioning with banks
.They generally prepare the bank reconciliation statements(BRS).They deal with Rs 350-380
crores of expenditure on monthly basis. Whereas the revenue side consists of lease, rent etc.
CODE-05 PROJECT FINANCE
It deals with the project accounting (not with the project calculation).Basically it deals with the
payments to parties related to different projects.

CODE-06 ESTATE ACCOUNTS
It deals with the accounting of IPU cases.IPU is investment in planning unit and is related to
projects.
CODE-08 STORE ACCOUNTS
It deals with the accounting and maintenance of stores ledger .receipt, balance of inventories
etc. . .Stores department has the custody of around two lakh items. The document raised by the
stores department is:
Issue notes
Material return notes
Dispatch notes
Goods receipt notes
Stock transfer voucher
Stock adjustment voucher
Provisional voucher
Book transfer voucher
CODE-09 PROVIDENT FUNDS
It deals with the accountings of employee’s provident funds along with the loans taken against
provident funds balance.
CODE-10 FREIGHT ACCOUNTS
It deals with the payments and accounting of freight bills related to raw materials .This section
generally deals with the freight inward whereas outward is dealt by the invoicing section(which
is not the part of sales accounts).
CODE-11 INSURANCE SETION
It deals with the accounting of sales tax matters which are related to steel goods
CODE -12 OPERATIONAL PAYMENTS SECTION
It deals with the payments of those expenditures which are generally not related with any
particular department like
Telephone bills

Water bills-15 crores
Township management bills
Aviation
Miscellaneous payments
City park (horticulture)
In plant scrape recovery-15 crores
Railways-10 crores
Sports
CMO
Railways-10 crores
Sports
CMO
CODE-14 SALES ACCOUNTS
It deals with the preparation of invoice and accounting thereof.
CODE-15 COST AND BUDGET
There are 77 cost centers .They prepare the budget on monthly ,quarterly and annual basis
.They deal with daily profits.They prepare the MIS reports .They make the valuation of
finished /semi finished stock of plant .Actually this section decides the rate of each output.
CODE -16 RAW MATERIAL
It deals with the accounting of raw material consumption including Ferro and non Ferro items.It
deals with evaluation of raw materials as well as payment of bills related to raw material.
CODE-17 EXCISE ACCOUNTS
It deals with the CENVAT ,Excise duty.
CODE -18 VAT
It deals with the accounting and payments of VAT to central governments.

3.2) Finance and Accounts Department
Organization Chart
ED
(F&A
)
OF,Proje GM
ct (F&A
Finance, )
A/C
admin, Pay C&B, Purchas Sales Kolkat ERP
DG
Cash A/C,PF
DGM Main
DGM e &
DGM &
DG a A/C
DGM DGM
M
A/C, &
(F& A/C,
(F&A Stores
(F&A Excise
M(F (F&A (F&A)
(F&
Insuranc Pensio
A) Stock
) A/C,RM
) ,Servic
&A) )
e&Claim n, Verific A/C, e
s, Hindi Time ation, Railway Tax
Cell,Qual Office, MIS, Freight ,Indire
ity Circle Estate Govt. & ct
& A/C, Audit Claim, Taxes
Suggesti BGHInstitute
K.J.Somaiya and
of Management Opas, –
Studies and Research,Mumbai Page 29
on Intern Direct Report
Scheme al Taxes &
4) Working Capital Management
Working Capital
The term working capital refers to the amount of capital that is readily available to the
organization. That is , working capital is the difference between the resources in cash or readily
convertible into cash (current assets) and the organizational commitments for which cash will
soon be required ( current liabilities).
Current assets are resources which are in cash or will soon be converted into cash in the
“ordinary course of business”.
Current liabilities are commitments which will soon require cash settlement in the the “ordinary
course of business”.
Thus:
Working capital = current assets – current liabilities
In a department’s Statement of Financial Position, these components of working capital are

reported under the following headings:
Currents assets include:

• Sundry debtors
• Inventories
• Interest receivable
• Cash and balances
• Loans and Advances
Current liabilities include:
• Bank overdraft
• Bill payable
• Creditors
• Outstanding expenses
• Short term loans
• Provisions(excluding provisions for gratuity ,VRS, Accumulated leave)
4.1) Importance of Good Working Capital Management
Working capital management constitutes part of the Crown’s investment department

.Associated with this is an opportunity cost to the Crown (money invested in one area may cost
opportunities in other areas).If the department is working with more working capital than is
necessary, this over investment represents an unnecessary cost to the Crown.
From a department’s point of view, excess working capital means operating inefficiencies .In
addition, unnecessary working capital increases the amount of the capital charge which
departments are required to meet since July 1, 1991.
Approaches to Working Capital Management
The approaches of working capital management is to maintain the optimum balance of each
working capital components .This includes making sure that the funds are held as cash as bank
deposits for as long as and in the largest amounts possible to meet the immediate liabilities .
Working capital can be managed in two ways:
• Ratio analysis can be used to monitor overall trends in working capital and to identify
areas requiring closer management.
• The individual components of working capital can be effectively managed by using

various techniques and strategies.

When considering these techniques and strategies, departments need to recognize that each
department has a unique mix of working capital components .The emphasis that needs to be on
each component varies according to the various departments. For example some departments
have significant inventory levels while others have little.
The working capital requirement of a firm depends to a great extent upon the cash conversion
cycle of the firm .The cash conversion cycle may be defined as the time duration starting from
the procurement of the goods and raw materials and the ending with the sales realization of the
finished product(after going through the various stages of production)
Thus the cash conversion cycle of the firm consists of the time required for the completion of the
chronological sequence of the following:
• Procurement of raw materials and services
• Conversion of raw material into work in progress
• Conversion of work in progress into finished goods
• Sale of finished goods
• Conversion of receivable into cash
Cash conversion cycle = Inventory days + Accounts receivable days – Accounts Payable days
= (inventory *365)/COGS + (Ending A/R *365)/Sales – (A/P

365)/purchases
4.2) Operating Cycle Period

Operating cycle may be defined as the sum of the inventory days and the accounts receivable
days
Operating cycle = inventory days + Accounts receivable days
= (inventory *365)/COGS + (Ending A/R *365)/Sales
4.3) Inventory Conversion Period

4.3.1) Inventory
Inventory represents one of the most important assets that most businesses posses because of
the revenue generation and subsequent earnings for the companies shareholders /owners. It
consists of raw materials ,work in progress and finished goods inventories.
Possessing a high amount of inventory for long periods of time is not usually good for a
business because there are inventory storage, obsolescence and spoilage costs .However
possessing not enough good inventory is also not good either because the business runs the
risk of losing out on potential sales and potential market share as well .

Inventory management helps in forecasting the demand and formulating strategies, such as just
in time inventory system can help minimize inventory costs because goods are created or
received inventory only when needed.
4.3.2) Need to hold inventories
Holding inventories involves tying up of company’s funds storage and handling costs .There are
generally three general motives for holding inventories:
1. The transaction motive emphasizes the need to maintain inventories to facilitate smooth
production and sales operation.
2. The precautionary motive emphasizes on the need to maintain inventories in case of

shortage in production.
3. The speculative motive

4.3.3) Size of inventories
The dominant position of inventories in working capital of Bokaro Steel Plant makes it relevant
to throw light on each component of inventory at BSL.The size of inventory and percentage of
inventory to total current assets in BSL.is presented in the table shown:
YEAR INVENTORIES(in TOTAL CURRENT % Of INVENTORIES

crores) ASSETS(in crores) TO CURRENT
ASSETS
2008 1365.6 1826.1 74.78
2009 1185.5 1835.9 64.59
2010 1755.02 2312.02 75.87

Size of inventories shows a major portion of current assets consists of inventories. Inventory in
general has decreased in 2009 which because of the increase in sales of steel products. Similar
is the case in the year 2009 while in the year 2010 due to recession the sale of steel goods
declined.
4.3.4) Raw Material Inventory
Raw materials constitute a very small portion of inventories. Raw materials basically includes
coal, coke, iron ore, limestone etc.
Size of raw material to total inventories has been shown below:
YEAR RAW MATERIAL(in INVENTORIES(in % OF RAW

crores) crores) MATERIALS TO
INVENTORIES
2008 256.21 1365.6 18.76
2009 168.28 1185.7 14.19
2010 288.11 1755.02 16.41

Raw material inventory increased in the year 2010 due to increase in production of steel goods.
Due to less demand the consumption of flat products has decreased.
4.3.5) Stores and spare inventory
Inventories of stores and spares form a sizeable portion of the total inventories. The stores and
spares inventory consists of items like mechanical spares, electrical spares, general spares,
refractory, rolls, steel etc.
YEAR STORES AND INVENTORIES(in % Of STORES AND

SPARES(in crores) crores) SPARES TO
INVENTORIES
2008 341.29 1365.6 25
2009 467.98 1185.7 39.47
2010 540.47 1755.02 30.79

The size of stores and spares inventory increased in the year 2009 because of the increase in
the production capacity of the plant. The production capacity was increased to meet the
increased demand for steel hence more stores and spares were required.
4.3.6) Finished and semi-finished product inventory
A manufacturing firm cannot do away with this inventory. It introduces flexible business
operation which enables the firm to provide better customer service. This product consists of pig
iron, saleable steel like HR coil,CR coil,CR plate etc.Size of semi-finished inventory is:
YEAR SEMI-FINISHED INVENTORIES(in % OF SEMI-

PRODUCTS(in crores) FINISHED
crores) PRODUCTS TO
INVENTORIES
2008 768.06 1365.6 56.25
2009 549.48 1185.7 46.34
2010 926.44 1755.02 52.78

The similar increasing trend is seen in the year 2009 as in the case of other components of
inventories. The size of semi-finished inventory in the year 2009 was high due to increase in
demand of steel.
Inventory conversion period is the time required for the conversion of raw material into finished
goods for sale.ICP consists of RMCP, WPCP and FGCP.
• RMCP or raw material conversion period is the time period for which the raw material is
generally kept in stores. It is taken care by the production department.
• WPCP or work in process conversion period is the time period for which the raw
materials remain in the production process before they are taken out as finished goods.
• FGCP or finished goods conversion period refers to the time period for which the goods
remain in the stores before being sold to the customers.
4.4) Receivable Conversion Period

According to Joseph L.Woods, the purpose of any commercial enterprise is the earning of profit.
Credit in itself is utilized to increase sales but sales must return a profit.
Receivable management also termed as credit management in corporate enterprise has gained
significance on the accounts of its positive contribution towards increasing profitability through
increased turnover.

4.4.1) Objective
1. Reduction in risk due to future payments
2. Increase in profit due to increased sales
3. Maintain sufficient amount of liquidity in order to pay immediate liabilities
The purpose is to maintain optimum level of sales by keeping down the average collection
period, control over the cost of credit, default cost(inability of a customer to pay debts).
4.4.2) Credit policy
The important decision variable of a firm’s credit policy is credit standards, credit terms, quality
of trade accounts, length of credit period and collection effort.
4.4.3) Size of receivable
In BSL, the receivable comprises of sundry debtors ,loans and advances. The receivables
constitute a substantial portion in the current assets
YEAR RECEIVABLES(in TOTAL CURRENT %OF RECEIVABLES

crores) ASSETS(in crores) TO TOTAL
CURRENT ASSETS
2008 399.85 1826.1 22.11
2009 595.19 1835.9 21.47
2010 501.99 2312.02 32.42

Size of receivables increased in the year 2009 due to the delay in the payment of cash by the
customers due to the downturn. However it was managed well in the year 2010.Receivable
collection period refers to the period between the occurrences of credit sales and collection of
debtors.
The operating cycle of a firm can be shown as
RMCP WPCP FGCP
Inv conversion period Receivable collection period
Operating cycle
4.5) Operating Cycle Period (2008-2009)

Raw Material
Holding period= (Raw material*365)/total consumption
Raw material=168.28 crores
Total consumption=3672.8crores
Holding period=(168.28*365)/3672.8
=17 days
Work in progress
WIP=549.48crores
Cost of production=COGS-Excise duty-Freight outward-CMO Expenses
=9207.14-1660.95-168.18-63.49

=8808.56crores
Holding period =(inventory *WIP)/COPE
=(549.48*365)/8808.56
= 23 days
Finished goods
Finished goods=549.48 crores
Cost of goods sold= sales – profit
=12037.57-2830.43
=9207.14
Holding period=(Finished goods inventory*365)/COGS
=(549.48*365)/9207.14
=22 days
Company’s Policies
Credit given to customers=30 days
Credit given to suppliers = 15 days
Operating cycle
Operating cycle=RM holding period+WIP holding period Finished goods holding period Credit
given to customers
=17+23+22+30
=92 days
Cash conversion cycle= RM holding period+WIP holding period Finished goods holding period
Credit given to customers-credit given to suppliers
=17+23+22+30-15
=77 days
4.6) Operating Cycle Period (2009-2010)

Raw Material
Holding period=(Raw material*365)/total consumption

Raw material=288.11 crores
Total consumption=5458.55crores
Holding period=(288.11*365)/5458.55
=19 days
Work in progress
WIP=926.44crores
Cost of production=COGS-Excise duty-Freight outward-CMO Expenses
=10571.19-1394.90-143.63-7.68
=8964.98crores
Holding period =(inventory *365)/COPE
=(926.44*365)/8964.98
= 38 days
Finished goods
Finished goods=926.44 crores
Cost of goods sold= sales – profit
=11857.69-1292.78
=10571.19
Holding period=(Finished goods inventory*365)/COGS
=(926.44*365)/10571.19
=32 days
Company’s Policies
Credit given to customers=30 days
Credit given to suppliers = 15 days
Operating cycle
Operating cycle=RM holding period+WIP holding period Finished goods holding period Credit
given to customers
=17+23+22+30

=119days
Cash conversion cycle= RM holding period+WIP holding period Finished goods holding period
Credit given to customers-credit given to suppliers
=17+23+22+30-15
=104 days
5) Comparison
PARAMETER(in 2008-09 2009-2010
days)/YEAR
RM holding period 17 19
WIP holding period 23 38
FG holding period 22 32
Debtor period 30 30
Creditor period 15 15
Operating cycle 92 119
5.1) Analysis
5.1.1) Operating cycle
As per the analysis shown above the operating cycle has increased from 92 days to 119
days in one financial year i.e. from the year 2008-2009 to 2009-2010.This indicates that
if we look at the operating cycle as an indicator of efficiency then efficiency has declined
in the past one year i.e. now they need 27 more days to convert raw materials to finished
goods and thus its now adding an extra burden to their inventory cost of RM, WIP, FG.
5.1.2) Holding period
As observed in the BSL,the holding period of RM,WIP and FG have come up. This
increased holding period indicates that they are now spending more and more money on
storing, maintenance and guarding of their FG and RM. Due to the its excess operating
cycle BSL now needs more borrowing from financial institutes for its day to day and long
term operations because now the conversion to cash takes a longer time .The demand
for flat products has gone down due to the economic recession. Hence the operating
cycle and the holding period of BSL has gone up.

5.2) Working Capital Status of BSL
PARAMETERS 2006-07 2007-08 2008-09 2009-10

(A)CURRENT ASSETS
LOANS & ADVANCES
Cash & bank balance 3790 4108 4400 4660
Raw Materials 25621 25113 16828 28811
Stores & Spare Parts 34129 37846 46798 54047
Finished/Semi-finished products 76806 77790 54948 92644
Sundry Debtors 1251 895 774 903
Loans & Advances 39118 39090 58745 49296
Other Current Assets 1896 1402 1095 841
TOTAL 182611 186244 183588 231202
(B)CURRENT LIABILITIES & PROVISIONS

Sundry creditors 30572 32507 43268 45387
Security & other Deposits 4291 6768 2369 13189
Advances received 2427 2568 10404 2789
Other liabilities 38824 38204 35706 28049
Provisions (Excluding Prov. For VRS,Gratuity &
Accumulated Leave) 9482 9151 60254 111898
TOTAL 85596 89198 152001 201312
Working Capital(A-B) 97015 97046 31587 29890

Increase/Decrease in Working Capital over Previous Year 44566 31 -65459 -1697

From the above graph it can be inferred that the working capital of BSL has decreased over the
previous years .The working capital of BSL in the year 2009-10 has decreased by 16.97 crores
since the year 2009-09.It can be seen that there has been a increase in the current assets as
well as the current liabilities but the proportionate increase in the current assets is less than that
of the current liabilities. The increase in the current assets is due to the increase in the
inventories and the cash and bank balances while the increase in the current liabilities is due to
the increase in the security and other deposits and the provisions. The increase in current
assets can be attributed to the fact that the production in BSL is not in accordance to the
demand, there has been a decline in the demand for flat products due to recession resulting in
the piling up of inventories. The current liabilities has gone up due to the increase in provisions
for wage revision .The wage revision happens every 5 years for non executives and every 10
years for non executives.
5.3) Working Capital of Various Units of SAIL (2009-10)

Source: Balance Sheet of SAIL as on 31st March,2010
BSL ISP ASP SSP RMD VISL BRL

641.94 -115.37 303.98 694.58 -463.62 354.69 -7.93
Looking at the various other units of SAIL, we observe that the working capital of BSL is very
high compared to the other units of SAIL . The plants ISP , RMD ,BRL have negative working
capital which shows that the account payables for these plants is very high or in other words the
working capital needs of these plants is being funded by their suppliers. Instead of paying to the

suppliers these plants reinvest the funds in the plants itself , thus their working capital comes
out to be negative. While in the case of Bokaro Steep Plant , the working capital is very high due
to the a very large inventory stock , as well as a high cash and bank balances . BSL has to
reduce these two components of current assets in order to manage their working capital
efficiently. Also the piling up of inventory has taken place due to the less demand of flat
products ( products of BSL) due to economic recession.

6) Ratio Analysis Calculations (2008-09)
6.1)Liquidity Ratios:
a)Current Ratio:
Current Assets =Rs.1835.88 crores
Total current liabilities =Rs.1520.01 crores
Current ratio=current assets/current liabilities and provisions
=1835.88/1520.01
=1.21 times
b)Quick Ratio:
Inventory=Rs.1185.74 crores
Quick ratio=(total CA-inventory,balance with custom and railways)/total current liabilities
=(1835.88-(1185.74+80.34))/1520.01
=569.8/1520.01
=0.37 times
6.2)Activity Ratios:
a)Capital turnover ratio:
Net Sales=Rs.12037.57 crores
Working Capital=Total CA-Total CL
=Rs.315.87 crores
Net capital employed=Net block Working Capital(Net Block=Gross block-depreciation)
=2282.24+315.87
=Rs.2598.11 crores
Capital Turnover Ratio=Net sales/Net capital employed
=12037.57/2598.11
=4.63 times

b) Inventory Turnover Ratio:
Net Sales = Rs.12037.57 crores
Inventory turnover ratio=Net Sales/Inventory
=12037.57/1185.5
=10.154 times
c) Working Capital Turnover Ratio:
Net sales=Rs.12037.57 crores
Working Capital=Rs.315.87 crores
Working Capital turnover ratio=Net sales/WC
=12037.57/315.87
=38.11 times
d) Fixed Asset Turnover Ratio :
Net sales=Rs.12037.57 crores
Net fixed assets=Rs.2658.77 crores
Fixed asset turnover ratio=Net sales/Net fixed assets
=12037.57/2658.77
=4.52 times
6.3)Profitability Ratios:
a)ROI(Return on investment):
PAT=2830.43 crores
Capital employed=Net fixed assets+WC
=2658.77+315.87

=Rs.2974.64 crores
ROI=PAT/capital employed
=2830.43/2974.64
=0.476
b) Gross Margin:
Gross margin=Net profit+depreciation+Interest
=2830.43+246.7+40.41
=Rs.3077.17 crores
c) Net Profit Margin:
PAT =Rs.2830.43 crores
Net Sales=12037.57 crores
Net profit margin=PAT/Net sales
=2830.43/12037.57
=0.12 =12%
7) Ratio Analysis Calculations (2009-10)

7.1)Liquidity Ratios:
a) Current ratio:
Current assets =Rs.2312.02crores
Total current liability =Rs.2013.12crores
Current ratio =current assets/total current liabilities
=2312.02/2013.12
=1.14 times
b) Quick Ratio:
Inventory =Rs.1755.02crores
Quick ratio = (total CA-inventory, balance with custom

and railways)/total current liabilities
=[2312.02-(1755.02+47.25)]/2013.12
=0.25 times
7.2)Activity Ratio:
a) Capital Turnover Ratio:
Net sales =Rs.11857.69crores
Working capital =total CA-total CL
=Rs.298.90crores
Net capital employed=Net block + Working capital
=2245.71+298.90
=Rs.2544.61 crores
Capital turnover = Net sales/Net capital employed
=11857.69/2544.61
=4.65 times
b)Inventory Turnover Ratio:
Net Sales = Rs.11857.69 crores
Inventory turnover ratio=Net Sales/Inventory
=11857.69/1755.02
=6.75 times
c) Working Capital Turnover Ratio:
Working capital =Rs 298.90crores
Working capital turnover ratio=Net sales/WC

=11857.69/298.90
=39.67 times
d ) Fixed Turnover Ratio:
Net fixed assets =Rs.3424.67crores
Fixed turnover ratio=Net sales/Net fixed assets
=11857.69/3424.67
=3.46 times
7.3)Probability Ratio:
a) ROI (Return on investment)
PAT=292.72 crores
Capital employed=Net fixed assets + W.C
=3424.67 + 298.9
=Rs.3723.57crores
ROI =PAT/Capital employed
=1292.78/3723.57
=0.173
b) Gross Margin:
Gross Margin =Net profit + Depreciation + Interest
=1286.50 + 246.74 + 52.77
=Rs.1586.01 crores
c) Net Profit Margin:

PAT=1292.78 crore
Net sales=Rs. 11857.69
Net profit margin =PAT/Net sales
=1292.78/11857.69
=0.054=5.4%
8) Comparative Analysis (with previous years figures)

The financial statement analysis of BSL has been shown for two consecutive years. Ratio
analysis has been used adopted as an analytical tool and following ratios have been analyzed.
PARAMETER/YEAR 2008-09 2009-10

A)LIQUIDITY POSTION
Current ratio 1.21:1 1.14:1

Quick Ratio 0.37:1 0.25:1
B)ACTIVITY RATIO
Capital Turnover Ratio 4.63:1 4.87:1

Inventory Turnover Ratio 10.154 6.75
Working Capital Turnover 38.11:1 39.67:1
Ratio
Fixed Asset Turnover Ratio 4.53:1 3.46:1
C)PROFITABILITY RATIO
ROI 0.476:1 0.176:1

Gross Margin 3077.2 1586.01
Net Profit Margin 0.12:1 0.054:1
Liquidity position: It shows the ability of the firm to pay its obligations as and when they
become due for payments.
Current Ratio: The current ratio for the year 2009-10 has decreased due to the increase in the
provisions which has increased the total current liabilities. The current ratio shows a decrease in
the year 2009-10 due to the increase in the liabilities ( increase in security deposits and
provisions).A current ratio greater than 1 indicates that the company holds a good liquidity
position from the bank’s point of view.
Quick Ratio: The quick ratio also shows a decline due to the increase in the current liabilities
and due to the increase in the inventories.The low status of the most liquid assets is not a major
concern as it is centrally managed by the mother unit SAIL.

Activity Ratio: The activity ratios suggest that the number of times inventory turns over has
decreased to almost 6 times clearly indicating the fact that the goods of BSL are in less demand
and have been piled up. Similar is the case with working capital turnover ratio and capital
turnover ratio.
Profitability Ratio: The profit of the company has decreased from 2830.43 crores to 1292.78
crores in the year 2009-10 .This has happened due to the economic slowdown which is a matter
of concern.
9)Comparative Analysis (with its competitors)

Investment policy (2009-10)
BSL Essar Tata Steel

Steel
GWC 1237.48 2587.05 4580.03
Net Sales 10376.62 11,717.40 24,348.32
GWC/Net Sales 0.119257 0.22078703 0.188104559
From the above table we can see that BSL ,SAIL follows a conservative investment policy as
compared to its competitors .
Financing policy (2009-10)
BSL Essar Steel Tata Steel

STF 0 993.77 23,033.13
Current assets 1237.48 2,587.05 4,580.03
.3* current assets 371.244 776.115 1374.009
STF/.3*current 0 1.28044169 16.76344915
assets
From the above table , it can be concluded that BSL,SAIL has a conservative financing policy
as compared to the industry average.BSL has conservative investment as well as financing
policy. This may be due to the to the effect of the economic recession which has made the
market more unpredictable and has increased the risk. Hence the creditors are less averse in
giving credit Also, due to the less demand and hence less production the inventory stock has
decreased leading to a conservative financing policy.
BSL, SAIL depends more on long term financing to support its working capital needs as its STF
is 0.Thus it pays higher interest rates. This makes ROA of the company high thus decreasing
the profits as is evident from the previous calculations.

Liquidity Analysis (2009-10)
BSL SAIL Essar Tata Steel

Steel
Current Ratio 1.14 1.82 0.71 0.91
Quick Ratio 0.25 1.24 0.62 0.57
Inventory Turnover 6.54 5.86 8.69 9.36
Ratio
Number of Days in 48.54 -4.56
Working Capital (in
crores)
Operating cycle 119 days
Cash Conversion Cycle 104 days
Profitability
Current Ratio: A current ratio of 1.14 in BSL and 1.82 in SAIL states that the working capital
status of the two plants is good .They have a good amount of current assets to meet any
contigent liabilities .Also this ratio is good from the bank’s point of view. While the current ratios
of Essar Steel and Tata Steel are less than 1 which suggests that these companies have higher
current liabilities than their current assets.
Quick Ratio: BSL has a quick ratio of 0.25 because of its high inventory stock while SAIL has a
better quick ratio of 1.24 which states that it has sufficient amount of the most liquid assets i.e.
cash and receivables. Its competitors on the other hand have a low quick ratio due to less
inventory .It also states that these two companies have high current liabilities.
Inventory Turnover Ratio: The inventory in BSL turns over 6.54 times every year i.e BSL
currently has a stock sufficient for 1.83 months. Similarly SAIL turns its inventory every 2
months in s year. Among its competitors , Tata Steel has the highest turnover ratio i.e. products
move out every 1.28 months .This indicates that Tata Steel maintains a low working capital .The
above scenario states that the steel industry is a highly competitive sector in India and none of
the companies have a monopoly in the market .
Number of Days in Working Capital: Looking at the number of days in working capital, we find
that Tata Steel has a negative working capital which states that it may not be having sufficient
funds to meet its contingent liabilities. Secondly its working capital needs are funded by its
suppliers. While

10) Conclusion and Recommendation
During the year 2008-09, Bokaro Steel Plant notched the impressive gain of 2830.43 crores. But
in the year 2009-10 BSL earned a profit of only 1286.50 crores which shows a loss of 1543.93
crores as compared to the previous year .It was mainly due to the recession which slowed the
demand for flat products.
In the view of the analysis and with the changes in the industry scenario it is felt that the
company should reconstruct its policies for the betterment. The cost of raw materials as incurred
by the Bokaro Steel Plant is very high which has to be brought down through incorporating
better technologies and plants .The price of most important raw material coal went up which has
badly effected the profits of BSL.
The study of working capital management in Bokaro Steel Plant was limited to the study of
inventory, receivables, cash and payables. Although no default from the customers or suppliers
side was found during the study, the loyalty of the customers and suppliers could be increased
by giving them proper trade discounts which would increase the goodwill of the company and
hence would prove to be helpful in the long run for the company.
Working capital is managed well in BSL although there has been a net decrease in the net
working capital which has happened due to the increase in the current liabilities (increase in
security and other deposits).There has been a large increase in the security and other deposits
i.e. 456% increase since the previous year .Also there has been an increase of around 85 % in
provisions (excluding provisions for VRS, gratuity and accumulated leave) since the previous
year.
From the ratio analysis it can be seen that the current ratio of BSL is 1.14 which is good
enough. Also there has been a decline in the quick ratio of BSL mainly due to the increase in
inventory of finished goods which are lying in the stockyards due to less demand .This low quick
ratio suggests that there is high current liabilities. However in this case low current assets is not
a major concern since the mother unit of BSL i.e. SAIL is the major provider of finance .Funds
are centrally managed in SAIL .
Declining cost of the products due to stiff competition from China accompanied with the rising
cost of inputs, particularly that of imported coking coal is likely to erode the profit margin of BSL
in the current financial year. The management would try to make up for the loss by technology
up gradation, improvement in coking rate and reduction in the cost of production.
However the 17.6% growth in the industrial sector with the manufacturing sector growing at
19.4% sector fed by an eye popping 72.8% rise in the capital goods might affect the working
capital status of BSL in a good way. This might improve the working capital of BSL.

11) Bibliography
 www.sail.co.in
 www.bokarosteel.com
 www.moneycontrol.com
 www.money.livemint.com
 www.money.rediff.com
 www.nse.com
 www.etintelligence.com
Books and articles referred

12) List of Abbreviations
• SAIL – Steel Authority of India Limited
• BSL- Bokaro Steel Limited
• ISP-Indian Iron and Steel Company Steel Plant
• ASP – Alloy Steel Plant
• SSP –Salem Steel Plant
• RMD –Raw Material Division
• VISL –Visvesvaraya Iron and Steel Limited
• BRL- Bharat Refractories Limited
• SMS-Steel Melting Shop
• CCS-Continuous Casting Shop
• CRM-Cold Rolling Mill
• HRM – Hot Rolling Mill
• CR – Cold Rolled
• HR- Hot Rolled
• GP – Galvanised Plate
• GC - Galvanised Coil
• MIS- Management Information System
• CMO- Central Marketing Organisation
• ICP- Inventory Conversion Period
• RMCP-Raw Material Conversion Period
• WPCP-Work in Progress Conversion Period
• FGCP-Finished Goods Conversion Period
• COGS- Cost of Goods Sold

• GWC- Gross Working Capital
• STF-Short Term financing
13) Annexure 1
BOKARO STEEL PLANT ,Balance sheet as at 31st March,2010
SOURCES OF FUNDS
Shareholders' Fund
Share Capital 0.00
Reserves and Surplus 17480.32
17480.32
Loan Funds
Secured Loans 89.26
Unsecured Loans 0.00
89.26
Inter Unit Current Account 4538.70
Deferred Tax Liability ( Net ) 0.00
22108.28
APPLICATION OF FUNDS
Fixed Assets
Gross Block 7226.17
Less: Depreciation 4980.46
Net Block 2245.71
Capital Work-in-Progress 1178.96
Fixed Assets (net) 3424.67

Investments 0.10
Current Assets, Loans & Advances

Inventories 1755.02
Sundry Debtors 9.03
Cash & Bank Balances 46.60
Other Current Assets 8.41
Loans & Advances
Subsidiary Companies 0.00
Others 492.96
2312.02
Less:Current Liabilities & Provisions
Current Liabilities 1066.36

Provisions 2512.13
3578.49
Net Current Assets -1266.47
Miscellaneous Expenditure 0.00
(to the extent not written
off or adjusted)
Profit & Loss Account 0.00
Inter Unit Current Account 19949.98
22108.28
0.00

Profit and loss account for the year ended 31st March,2010
INCOME
Sales 11857.69
Less : Excise Duty 1394.90
10462.79
Policy Profit (+) / Loss(-) 37.41
Interest earned 24.71

Other revenues 133.79
Provision no longer required 20.09
written back
Stock transfer to other units 427.03
11105.82
EXPENDITURE
Accretion(-)/Depletion to stock -392.29
Raw materials consumed 5458.55
Purchase of semi/finished products 0.00
Employees Remuneration & Benefits 1930.04
Stores & Spares Consumed 824.79
Power & Fuel 933.36
Repairs & Maintenance 120.08
Freight outward 143.63
Other expenses 400.32
Share of expenditure over income
-Corporate Office 199.23
-CMO 67.68
-CCSO 2.07
Interest & finance charges 52.77
Depreciation 246.74
Total 9986.97
Less: Transferred to Inter
Account Adjustments 167.65
Net Expenditure 9819.32
Profit/Loss(-) for the year 1286.50
Adjustments pertaining to
earlier years 6.28
Add/Less: Extra Ordinary Items 0.00
Profit/Loss(-) 1292.78
Less : Provision for taxation 0.00

Less : Provision for Fringe Benefit tax 0.00
Less : Provision for Deferred taxation 0.00
Provision(+)Refund(-)of Income tax of earlier years 0.00
Profit/Loss(-) after tax 1292.78
Amount tfd from Bond Redemption Reserve
Less: Extraordinary items

Amount transferred on amalgamation of Bharat Refractories Limited


Working Capital MGMT

Încărcat de

Informații document

Descriere originală:

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Working Capital MGMT

Încărcat de

Drepturi de autor:

Formate disponibile

Analysis of Working Capital Management of BSL,SAIL

A Summer Project Proposal for

Post-Graduate Diploma in Business Management

Under the guidance of

Mr. Jitendra Kumar Prof. Sayush

K J Somaiya Institute of Management Studies & Research

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 1

K J Somaiya Institute of Management Studies & Research

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 2

Under the guidance of

Mr. Jitendra Kumar Prof.Sayush

K J Somaiya Institute of Management Studies & Research

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 3

2. PG Summer Project Co-coordinator

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 4

Faculty Guide Organizational Guide: Mr. Jitendra Kumar

Date Date: Signature

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 5

I am deeply indebted to my guide Mr. Jitendra Kumar,Deputy Manager,F&A, ,BSL,SAIL without

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 6

Analysis of Working Capital Management of BSL,SAIL

The data was collected from the following sources:

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 7

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 8

2)Bokaro Steel Plant 14

2.1)Major Units of BSL 16

a)Raw material and Material Handling Plant 16

b)Coke Oven and By Product Plant 16

d)Steel Metling Shop 17

e)Continuous Casting Shop 18

g)Hot Strip Mill 19

h)Hot Rolled Coil Finishing 19

i)Cold Rolling Mill 20

j)Hot Dip Galvanizing Mill 20

2.2)Revenue and Profits of BSL 20

2.3)Product Profile of BSL 23

2.4)Production Process in BSL 23

2.5)Current Market Share of BSL 24

3)Role of Finance and Accounts 25

3.1)Sections in Finance and Accounts 25

3.2)Organization Chart of F&A 29

4)Working Capital Management 30

4.1)Importance of good Working Capital Management 30

4.2)Operating Cycle Period 31

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 9

4.3.2)Need to hold Inventories 32

4.3.4)Raw Material Inventory 33

4.3.5)Stores and Spares Inventory 34

4.3.6)Finished and Semi-finished Product Inventory 35

4.4)Receivable Conversion Period 36

4.5)Operating Cycle Period(2008-09) 38

4.6)Operating Cycle Period(2009-10) 39

5.2)Working Capital Status of BSL 42

5.3)Working Capital of various units of SAIL 43

6)Ratio Analysis Calculations(2008-09) 45

7) Ratio Analysis Calculations(2000-10) 47

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 10

8)Comparative Analysis with previous years figures 50

9)Comparative Analysis with its competitors 51

10)Conclusion and Recommendation 53

K.J.Somaiya Institute of Management Studies and Research,Mumbai Page 11

SAIL operates and owns four integrated steel plant