Executive summary


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Executive summary

  1. 1. Executive Summary:-Nowadays its very important for organizations to achieve corporate excellence.Every business concernirrespective of its size,nature needs funds to manage the business operations.Every business has to do dayto day expenses like purchase of raw material ,payment of wages ,working capital becomes an importantpart of business.Working capital is the life blood of business because no business can undertake its day today operations without an adequate amount of working capital.Effectiveness of an organization depends on the strength of its working capital management.Workingcapital management is the core to whole system.Working capital management of India`s steel industryholds a greater importance because steel forms the backbone of any infrastructural facility and in recentyears has become more crucial for achieving rapid economic growth of the country.In this term paperattempt is made to examine the working capital practices in SAILwith special refrence to Durgapur steelplant.The term contains the basics of working capital,procedures for analysis of working capital,ratios usedto define the working capital and the impact of shortcomings in the management.OBJECTIVES:-To find out the efficiency of working capital management inTo have knowledge about functioning of a large PSO steel plant.To study how working capital management practices plays an important role in supporting other activitiesof an integrated steel plant.To gain familiarity with various components of working capital in steel authority of india.To have solution for improvement of working capital management at Durgapur steel plant.METHODOLOGY:-I had used secondary data like:-Annual reportsCost and Budget reportsProduction reportsInventory reportsSales reportsCash reportsIn this term term paper following steel plants of SAIL have been considered:-Durgapur steel plantBhilai steel plantRourkela steel plant.Bokaro steel plantThis study will help to find the efficiency of Working capital management practices in these plants andespecially in Durgapur steel plant.Working capital of the four plants have been calculated and trend ofworking capital in past four years have been ascertained.Data of four consecutive years starting from year2004-05 have been taken.INDIAN STEEL INDUSTRY:-
  2. 2. Steel is an important indicator to analyze the economic development of a country. The steel industry ishighly scientific and technology oriented. Technological advancement is very important for the overallhealth of the steel industry.During Ancient PeriodThe history of iron and steel making in India goes back by several centuries. It dates to 480 BC whenarchers in India used arrows tipped with steel. The iron pillar of Dhar near Indore in Madhya Pradesh datesback to about 321 AD, the iron pillar of Kutab Minar near Delhi dates back to about 400 AD and the ironbeams of Sun temple of Konark in Orissa dates back to 13th century. These pillars are a testimony toancient Indias expertise in the making of steel.Before IndependenceThe roots of the Indian Steel industry in modern times can be traced to the year 1874, when a companycalled Bengal Iron works at Kulti near Asansol in West Bengal produced iron. One of the most importantlandmarks in the history of Indian steel industry was the commencement of the Tata Iron and SteelCompany at Jamshedpur in the state of Bihar in 1907.The other prominent steel manufacturers beforeindependence were Indian Iron and Steel Company (1922),Mysore Iron and Steel Works(1923) and SteelCorporation of Bengal (1937).After IndependenceIndia found it difficult to sustain development in steel sector after independence on its own due to the lackof technological development. The high cost of developing technology in this sector proved to be a majorhindrance. Thats when the government decided to go for synergy with other countries for technologytransfer. Some of the prominent steel plant set up then was in Rourkela in collaboration with WestGermany and in Bokaro in collaboration with Russia. These steel plants came under the purview of publicsector enterprises.Post LiberalizationThe post liberalization scenario in the Indian Steel industry has witnessed a monumental shift. Some of thesalient features are:The need for license for increasing capacity has been abolished.Steel industry has been removed from the list of Industries under the control of state sector.Foreign equity investment in steel has gone up to 74%.In January 1992 the price and distribution controls were removed.Policies like convertibility of rupee on trade account, freedom to mobilize resources from overseasfinancial markets and restructuring of existing tax structure have immensely benefited the industry.MilestoneThe Indian steel industry has come a long way since its humble beginnings. The takeover of the Britishsteel giant Corus steel by Tata Steel and the acquisition of Arcelor by Mittal Steel herald a new beginningfor the Indian steel industry. These events signify the fact that the Indian steel industry has acquired aglobal identity and is today extremely competitive globally.Some of the prominent steel producers today are Posco, Tata Steel, Essar, Ispat, Sail and Rinl.
  3. 3. Future trendsIt has to be said that the global recession has affected the Indian steel industry especially stainless steel, butthe steel industry is trying to offset the negative effect of the recession by focusing on transportation andconstruction projects which are usually funded by the government.India is the only country globally to record a positive overall growth in crude steel production at 1.01 percent for the period January -March 2009.It is estimated that Indias steel consumption will grow at nearly 16% annually till 2012.The National Steel Policy has forecasted the demand for steel would reach 110 million tons by 2019-2020.OVERVIEW OF STEEL AUTHORITY OF INDIA LTD:-SAIL was established as a holding co. at New Delhi on 24-1-1973 with authorized share capital of Rs.2000crores.This holding co.was formed with four public sector steel plants.It was converted into unitary co.in1978 and is now responsible for the management of five integrated steel plants atBhilai,Bokaro,Durgapur,Burnpur and Rourkela.Steel Authority of India limited is one of the leading steel manufacturing companies in India.It producesboth basic and special steel for domestic consumption,engineering power,railway,automotive and Defenceindustries and for sale in export market.It was ranked in top ten public sector companies in terms ofturnover.SAIL has a well equipped Research and development for Iron and steel at Ranchi which helps toproduce quality steel and develop new technologies for the steel industry.SAIL`s consultancy divison atNew Delhi offers services and consultancy to clients world-wide.Vision of SAIL:-The vision of SAIL is to achieve market leadership and prosper in business through satisfaction ofcustomer needs by continual improvement in quality,cost,delivery of products and services.Objectives of SAIL:-To help in rapid economic growth and industrialization of the country.To promote balanced regional development.To create the necessary infrastructure for economic development.To generate different employment avenues in the country.To assist the development of small scale and ancillary industries.DURGAPUR STEEL PLANT :-In 1955 the Colombo plan mission headed by Sir Geric Coates visited India and selected Durgapur forsetting up integrated steel plant,to be build with british collaboration.It was set up in late 50`s with an intialannual capacity of one million tones of ingot steel,which was subsequently expanded to 1.6 million tonesper year.Durgapur steel plant was incorporated into SAIL on 1-May-1978.It produced its first steel ingoton 25-April-1960.It was highly desirable location because:-Proximity to nearby coal mines.Grand trunk road.]Railway lines connecting Calcutta and New Delhi.Calcutta port.Power from Damodar valley corporation.
  4. 4. Water from Durgapur Barrage.Products of Durgapur steel plant :-Wheels,Axle and wheel sets.Skelps and strips.Blooms,Billets and Slabs.Plain rounds and TMT Bars.Angles,Channels and Joists.Billets.Pig Iron.WORKING CAPITAL MGT.-AN OVERVIEW:-Introduction:-Working capital means the investment in assets which facilitates the working of the organization.It is theamount required for day to day expenses.To run business successfully every concern should have adequateworking capital.Working capital management is the process of planning and controlling the level and mix of the currentassets of the firm as well as financing these assets.Working capital should be managed in such a way that itensure higher profitability and proper liquidity to the business concern.Concepts of W.C:-1. Balance sheet concept/Traditional concept.2. Operating cycle concept.Balance sheet concept/Traditional concept:-It shows the position of the firm at a certain point of time.There are two types of working capital i.e Grossworking capital and Net working capital.Gross working capital: - It refers to firm`s investment in current asset.The sum of the current asset is theworking capital of the businesss.Net working capital:-It is the difference between current asset and current liabilities or excess of totalcurrent asset over total current liabilities.Operating cycle concept:-The duration or time required to complete the sequence of events right from the purchase of raw materialsfor cash to the realization of sales in cash is called operating cycle.It includes conversion of cash intoinventory,conversion of inventory into receivables and collection of receivables.
  5. 5. Types of working capital:-1. Fixed/Permanent working capital:-Permanent working capital represents the min. level of raw material,work in progress,finished goods andstores,accounts receivables and cash which are in circulation to ensure continuity of production.2. Variable/Temporary working capital:-This capital is needed according to situation.To meet the growing demands of busy season business needadditional working capital.This capital is used to feed the operating cycle in busy periods.It is of two typeslike seasonal working capital and special working capital.Determinants of working capital:-Nature of business.Size of business.Operating cycle.Production cycle.Seasonal variations.Inflation.Govt. Policies.Dividend policy.Working capital ratios:-1. Current ratio = current assets2. Acid test ratio = Liquid assets3. Working capital ratio = Sales4. Stock turnover ratio = Sales5. Current assets turnover ratio=SalesCOMPARATIVE ANALYSIS OF W.C:-Inventory in SAIL composed of:- Raw material. Stores and spares. Finished and semi finished products.SHORTCOMINGS AND CONCLUSION:-1. The company has an effective short term liquidity position and it should focus more in future to improvethis.2. Due to holding of idle cash the profitability of plant is effected.3. Durgapur steel plant follows a good credit policy of debtors but a risk of bad debts is always present inhigh debtors.4. Uneven trend in holding of raw material is a problem in Durgapur steel plant and this is affecting theliquidity position of plant.
  6. 6. 5. Durgapur steel plant had increased its loans and advances this depicts that plant is engaged inmodernization of machinery.6. Working capital ratio is low in Durgapur steel plant and steps should be taken to increase this in future.7. The management of the plant is successful in timely recovery of acured interest from concerned parties.8. The holding period of finished and semi finished product in Durgapur steel plant has increased over thefour years though the turnover has grown up .This kind of situation can cause a major impact on liquidityof the company.RECOMMENDATIONS:-1. Durgapur steel plant should follow JIT (Just in time) technique of manufacturing.This will help inminimizing blockage of funds.2. The company should search for more source of raw material as it will reduce the cost of production andimproves profitability.3. The management of plant should incorporate on TQM (Total quality management).4. The company should review its credit policy at frequent intervals as it helps in reducing debtors and moneycan be used for other investment plans.5. Durgapur steel plant should try to fix a standard in respect of holding period of raw materials.6. Durgapur steel plant should try to invest the excess cash balance after keeping the required amountbecause holding of cash as idle is unproductive for the plant.BIBLIOGRAPHY:-www.sail.co.inAnnual statistics -Steel Authority of India.Financial report-Steel Authority of India(2004-05,2005-06,2006-07,2007-08)Financial management by M.Y.Khan and P.K. Jain.