A project report on working capital management patel shanti steels pvt ltd, raichur


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A project report on working capital management patel shanti steels pvt ltd, raichur

  1. 1. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR CONTENTS PAGE SL.NO PARTICUARS NO 01 Executive summery 02 Company Profile 1 03 Objectives 2-35 04 Introduction to Working Capital 36 05 Cash Management 37-49 06 Analysis and Interpretation 45-46 07 Ratio Analysis 47-50 08 Finding 51-61 09 Conclusion 63 10 Bibliography 64___________________________________________________________________ Babasabpatilfreepptmba.com -1-
  2. 2. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURINTRODUCTIONBacked by 10 years of experience in steel rolling, PATEL SHANTI STEELS PVT. LTD is theRaichur’s 1st steel production unit with an existing annual production of more than 4000 tons perannum. Production started in March-1998, initially, because of unavailability of power. Theproduction was stated by using Generator sets, using Diesel as fuel and continued for initial twoyears, after that power was available, later generator set were disposed off and regularproduction continued. Initial years of company raw material were concerned because of recession period 1998-2001. The company would get raw materials (M.S Billets) from only USP Plant and JindalVijaynagar Steel Ltd. But from 2002 onwards the above said materials got comparatively costlyand company could not afford to buy from them profitably. Hence it stated buying small T Bars.The company production steel bars has been upgraded by Thermo Mechanical Treatment(TMT)processes to the Bureau of Indian Standards(BIS). The necessary Research and Developmentfacility has been setup and clearance are being obtained. With the BIS upgradation, the company hopes to increase it production to 50% more thanthe existing level of production.___________________________________________________________________ Babasabpatilfreepptmba.com -2-
  3. 3. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUROverview of Company business:- M/s. Patel Shanti Steels Pvt Limited (the “Company”) is an private company. TheCompany is presently involved in the business of manufacturing Steel Bars, which is used in theConstruction of Multistoried Buildings, Dams, bridges, flyovers, and power plants as a basicreinforcement material. The Company is manufacturer of TMT Bars. The Company is using the“Tempcore Process”, which is the most advanced technology worldwide for manufacturingTMT Steel Bars. The Company’s products meet IS 1786-2008 specification The main manufacturing facility of the Company is situated at Bhiwadi (Karnataka). ThePlant Capacity is 4500 MetricTonnes per annum.All these plants are using US Technology which makes Steels Bars. The company has a network of more than 150 distributors and dealers spread across theState of Karnataka.___________________________________________________________________ Babasabpatilfreepptmba.com -3-
  4. 4. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURPROFILE OF THE COMPANYName of the company : PATEL SHANTI STEELS PVT LTDReg. Office Address : 12-7-77, Goushala Road Raichur-584102Factory Location : Survey No. 259/28, 8th km, Yegnoor Village, Hyderabad Road, Raichur Growth Center, Raichur-584102.PAN No. : AADCP6628HStatus : Private Limited CompanyTin No. : 29880042693___________________________________________________________________ Babasabpatilfreepptmba.com -4-
  5. 5. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURPRODUCT PROFILE TMT BARSTMT Steel BarsTMT Bars used in diversified construction requirements. Our manufactured ThermoMechanically Treated Steel Bars exhibit high bendability and re-bendability features due tolower carbon content and higher elongation. Excellent yield and ductility characteristics of ourBuilding TMT Steel Bars make them perfect to use at earthquake zones.TMT Bars are made at our state-of-the-art plant and under the close supervision of frontlineengineers and metallurgists.The Construction TMT Bars are passed through a highly controlled in-line process of hardeningand tempering during hot rolling. Prior to passing through the finishing stand, Ribbed Barsundergo specially designed water-based cooling systems. The cooling system transforms theouter surface to marten site, while the core remains comparatively hot and austenitic. Thecomposite structure has so formed high yield strength and excellent ductility characteristics.Chemical CompositionChemicals Unit IS:1786 (Fe 415)Carbon % 0.30 max.Sulphur % 0.060 max.Phosphorus % 0.60 max.S&P % 0.110 max.___________________________________________________________________ Babasabpatilfreepptmba.com -5-
  6. 6. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURMechanical CompositionMech Properties Unit IS:1786 (Fe 415)Yield Stress N/mm2 415 minTensile Strength N/mm2 10% over YSElongation %min 14.5min.TMT Bars FeaturesExcellent Bond StrengthThe rib pattern of TMT Bars has been specially designed to ensure excellent bounding betweenthe bar and the surrounding concrete. These ribs are uniform and concrete due to cutting byautomated machines. Thus the bond strength is 100-200% higher than the M.S Plain Bars andconvectional CTD Bars.Excellent Weld Ability TMT Bar has far more superior weld ability than convectional CTD Bars. Due to its low carboncontent, it can be butt- welded or lap-welded using ordinary retile coated electrodes of matchingstrength.Super Bend Ability The tough outer surface and the ductile core of I TMT Bars make it extra high ductile andbendable than reinforcement Steel Bars.Highly Resistant Against Corrosion Our premium product TMT is manufactured by thermo mechanical treatment processes with notensional residual stresses on the Bars. This results in superior corrosion resistance characteristicsthan conventional Bars.Dimensional Tolerances Argee Bar confirms to the IS: 1786 standard laid for dimensional tolerances and has sectionweight generally lower than found on other bars.More Economical___________________________________________________________________ Babasabpatilfreepptmba.com -6-
  7. 7. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURArgee manufactured TMT Bars are new generation high strength bars with usable yield strengthsin excess than required to meet Fe-415 grade and ARE - 1786 standard. It helps our Argee Barstake higher stress levels, resulting in less consumption of our Steel Bars than other conventionalBars. Thus, it helps in saving the valuable money of our clients and avoiding unnecessary loadson the structure.Standard sizes TMT Fe415 bars as per BIS Section (mm) Nominal Weight (kg/meter) 8 0.395 10 0.617 12 0.888 16 1.580 20 2.470PATEL SHANTI STEELS PVT LTD manufactures following quality of steel bars:CTD BARSCold Twisted Deformed Bars having high strength and proof stress produced by High SpeedRolling and precision cold twisting.TMT BARSOur TMT bars are Thermo-Mechanically treated for high yield strength. The process involves therapid quenching of hot bars through a series of water jets after they come out of the last rollingmill stand. The bars are cooled allowing the core and surface temperatures to equalize. The barcore cools down slowly to turn into a ferritepearlite aggregate.TMT BarsTMT bars are Thermo-Mechanically treated for high yield strength. The process involves therapid quenching of hot bars through a series of water jets after they come out of the last rollingmill stand. The bars are cooled allowing the core and surface temperatures to equalize. The barcore cools down slowly to turn into a ferrlitepearlite aggregate.___________________________________________________________________ Babasabpatilfreepptmba.com -7-
  8. 8. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURThe company is using the Tempcore Process, the most advanced technology worldwide formanufacturing TMT bars in private sector after Tata Iron and Steel Corporation Limited. Fordetermining better quality monitoring of the different layers of the TMT bars at the micro level,the company uses Micro Structure Analysis.___________________________________________________________________ Babasabpatilfreepptmba.com -8-
  9. 9. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURThe salient features of these products are: • High strength • High ductility • Bending and re-bending • Weld ability • Corrosion Resistant Characteristics • High Temperature Resistant • Dimensional Tolerance • Seismic Resistance PropertiesProduct Specifications Trademark Tempcore TMT Grades : TMT Grade Fe 415, Fe500 Diameter :8,10,12,16,20,25 mm Standard Length 5.5 meters to 13 meters.___________________________________________________________________ Babasabpatilfreepptmba.com -9-
  10. 10. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURMechanical Properties of the product and Comparison with Indian StandardPROPERTIES/COMPOSITION BIS INDIA (IS : 1786) COMPANY’sTMTFor Grade Fe-415MECHANICAL PROPERTIES Proof Stress 415 N/mm2 450 N/mm2 Tensile Strength 485 N/mm2 530 N/mm2 Elongation 14.50% 20% Bend Test Up to 22 mm-3DCHEMICAL COMPOSTION (%) Carbon 0.30 Max. 0.30 Max. Sulphur 0.06 Max. 0.06 Max. Phosphorous 0.06 Max. 0.06 Max. S+P 0.11Degree Max. 0.11Degree Max.For Grade Fe- 500MECHANICAL PROPERTIES Proof Stress 500N/mm2 30N/mm2 Tensile Strength 545N/mm2 600N/mm2 Elongation 12% 15% Bend Test Upto 22mm-4D Upto 22mm-3D___________________________________________________________________ Babasabpatilfreepptmba.com - 10 -
  11. 11. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURCHEMICAL COMPOSTION (%) Carbon 0.30 Max 0.14-0.22 Max Sulphur 0.060 Max 0.05 Max Phosphorous 0.060 Max 0.05 Max S+P 0.110 Max 0.09 Max Mn ----- 0.4 Min Si ----- 0.4 Max___________________________________________________________________ Babasabpatilfreepptmba.com - 11 -
  12. 12. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR Organization Structure:- MANAGING DIRECTOR 1ST DIRECTOR FACTORY 2ND DIRECTOR ManagerMARKETING FINANCIAL PRODUCTIO HUMAN MANAGER MANAGER N MANAGER RESOURCE MANAGER Asst. Manager Asst. Manager Asst. Manager Foreman Sales Executives Financial Executives Fitter Helper The company’s organizational chart is formed in a hierarchical way, where the hierarchy starts with the “Managing Director”. Then in the next level of hierarchy two “Directors” are there. After Director, “Factory Manager” leads to the next level which is further divided into four departments namely “Marketing Manager”, “Financial Manager”, “Production Manager”, “Human Resource Manager”. Where each department is further divided into assistant managers and helpers which helps the upper level of the organization to work effectively and efficiently. Hence the organizational chart shows the structure of the company and the flow of authority between different levels. ___________________________________________________________________ Babasabpatilfreepptmba.com - 12 -
  13. 13. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURBoards of Directors:-Managing Director : Mr. Shivji Patel1st. Director : Mr. Mohanlal Patel2nd. Director : Mr. Lalji PatelFactory Manager : Mr. ShamlalMarketing Manager : Mr. Bhim RaoAssistant Marketing Manager : Mr. MallikarjunFinance Manager : Mr. Vinay PatelAssistant Finance Manager : Mr. Mukesh VyasProduction Manager : Mr. Ravji PatelAssistant Production Manager : Mr. Punesh SolankiHuman Resource Manager : Mr. Shamlal___________________________________________________________________ Babasabpatilfreepptmba.com - 13 -
  14. 14. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURFUNCTIONS OF VARIOUS DEPARTMENTS The company consists of four departments namely Production, Finance,Administration & Marketing and Human Resource Management. The company of 48permanent staff and there are some 5-10 more who work on a daily wage basis. Every employeewho joins the company for the first time has to under go a probation period for one year. Theemployee will be under observation during this period. If the director board is satisfied with theperformance, he will be made permanent. The permanent staff members are entitled for providentfund, gratuity, employee state insurance, house rent allowance. The daily wage basis employeesare entitled for shift allowance. During the peek seasons the company works round the clock withtwo shifts. The normal office working hours are from 9.00 to 14.00 hrs and 15.00 hrs to 19.00hrs. The working shifts is of 6(six) hrs of two shifts.___________________________________________________________________ Babasabpatilfreepptmba.com - 14 -
  15. 15. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURMARKETING DEPARTMENTMARKETING DEPARTMENT Marketing occupies an important position in the organization of any business unit.Marketing functions are not limited to the functions of buying and selling but they include allfunction necessary to satisfy the customer such as financing, storage, risk bearing and after salesservices etc. Marketing is a vital connecting link between the producer and the customer.FunctionsTarget Customer Target customer are small dealers vending in Taluks and small villages and houseconstructing customers.Market Research Market Research are determined by the feedback by their dealers and walk-in customers.Present Market Situation The demand situation is slack due to general slowdown on the export front and there bydue to a slowdown general Indian economy. However due to agricultural production the ruraldemand is intact and therefore demand situation is not totally hopeless and the production issome-how seems to be picking up due to the seasonal demand.Major Competitor Major Competitor are from outside the state steel producers because there is very lessproduction as the local electricity power rate is very high, so there is minimum production alloverthe state(being electricity is the major cost in the production of steel), naturally the goods comesfrom out of the state for local demand within the state.Market Segmentation About 50% from city and other 50% from near by rural markets.Market Target___________________________________________________________________ Babasabpatilfreepptmba.com - 15 -
  16. 16. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR Target Market is our own district (Raichur), because delivery to other places involveshigher transportation charges and hence less profitable.Positioning The main strategy is to produce only economically viable production that is produce onlysuch extant which is viably saleable.Sales Promotion For sales promotion, suitable incentives in kind are being offered to the dealer and as wellas direct customer, so that the sales volume is maintained at the optimum level.Just like: 1. Quantity discount. 2. Price discount. 3. Better credit facility to credit worthy dealer and customers. 4. FOR delivery.General economic and business conditions The demand for company products is dependent on general economic conditions in Indiaand may affect if there are changes in business conditions in our country.Demand The demand for company products viz. Steel, Cement, SS Pipes and POP is a deriveddemand, meaning that it is dependent upon the state and condition of the infrastructure,construction and housing industry. Company have a very well diversified customer base whichobviates dependence on any major Customer. Company have further sought to expand companycustomer base. The prospects and earnings growth of the customers company serve will have animpact on company ability to generate sales.Competition Selling prices of company products may be affected if competition intensifies, includingas a result of increased capacity of Competitors or company competitors adopt aggressive pricingstrategies in order to gain market share or new competitors enter the markets we serve.___________________________________________________________________ Babasabpatilfreepptmba.com - 16 -
  17. 17. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURRaw Material Prices Raw materials i.e. Steel Ingots, Sponge Iron and M.S. Scrap constitute a major portion ofcompany total expenses. Fluctuations in the cost of these raw materials may alter company coststructure and affect profitability. Historically, we have been able to pass on increases in rawmaterial costs to company customers but company cannot assure you that in future also companywill be able to do so.Other Factors Company results of operations are dependent upon company success in managingcompany inventories. Company have to schedule out production process and procurementsaccording to delivery schedule of customers. Any change in schedule may affect companyoperation in short run.Demand Forecasting The company expects the demand revival in the third quarter of this year following thegovernment realized finance through various schemes for enhancing construction activities. We have appointed special representative to study the demand from various segment ofthe industry and various customers putting up houses.___________________________________________________________________ Babasabpatilfreepptmba.com - 17 -
  18. 18. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR Marketing Department Chart DIRECTOR MARKETING MANAGER ASST. MARKETING MANAGER SALES EXECUTIVES___________________________________________________________________ Babasabpatilfreepptmba.com - 18 -
  19. 19. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURHuman Resource Department Human Resource department is a department for the effective management of personnelat work. Human Resources management is the sense of planning organizing and controlling thevarious operating functions of processing, developing, maintaining and utilizing the labor processfor the purpose of contributing a lot towards the accomplishment of major goals of theorganization.FUNCTIONS 1. Recruitment & Selection. 2. Performance Appraisal. 3. Compensation. 4. Human Resource Planning. 5. Manpower Planning. 6. Maintaining Communication with Employees. HUMAN RESOURCE POLICY 1. Patel Shanti Steels recognizes that its people are the primary source of its competitiveness. 2. It will pursue management practices designed to enrich the quality of life of its employees, develop their potential and maximise their productivity.___________________________________________________________________ Babasabpatilfreepptmba.com - 19 -
  20. 20. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR 3. Patel Shanti Steels will strive continuously to foster a climate of openness, mutual trust and teamwork.___________________________________________________________________ Babasabpatilfreepptmba.com - 20 -
  21. 21. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURMANPOWER PLANNINGThe present strength of the Company is 60 employees.S.No. Name of Department Number of Employees 1. Technical & Administration Staff at 10 2. Administration ,Marketing and Finance at Registered Office 08Total 18.The Company also employs contract labour for its manufacturing facility at Raichur, KarnatakaRECRUITMENT AND SELECTIONThere is no recruitment from last few years in Patel Shanti Steels Pvt Ltd Due to heavycomputerization, mechanisms, and modern technologies. Preference is given to son(s) ofworkman.They require much lesser manpower as there is centralized management.PERFORMANCE APPRAISAL Performance appraisal assesses an individuals performance against previously agreedwork objectives. Performance appraisal is normally carried out once a year. They assess keyresult areas of their employees, workers and supervisors. Since it is a joint responsibility of theindividual and the supervisor every individual in PSSPL are co prime to each other. It also enables management to compare performance and potential between employeesand subordinates of the same rank. Rating of employees is done by their performances. It is givenas per ranks very good, average, and average to medium and below average.TRAINING AND DEVELOPMENT• Safety is a high priority area. Several movements to inculcate a culture of safety have been___________________________________________________________________ Babasabpatilfreepptmba.com - 21 -
  22. 22. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURpracticed, but the Company needs to do more to prevent accidents and improve its safetyrecord.• They are trained to know the changes in environment, market, and in steel prices.• They also get training of problem solving techniques, conflict management, etc.COMPENSATION PLANNING• It depends on financial capabilities.• Yearly increments are given.• Compensation for inflation is common for all employees. (flat rates)• It is decided by union and management where various demands are negotiated.• It is paid as per other industries.• Individual performance bonus is also given.MAINTAINING COMMUNICATION WITH EMPLOYEESCommunication is maintained through various communication channels such as:• Notices• Circulars• Calling forums• Correspondents• Functional departmental meetings, ETC.___________________________________________________________________ Babasabpatilfreepptmba.com - 22 -
  23. 23. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURFINANCE DEPARTMENTFINANCE DEPARTMENT It is finance, which brings together various segments of an organization and transformsthem into an integrated whole so that it may function smoothly and move in the direction ofachieving the organizational goal. Finance Manger is the top authority in Finance Department.He has equal rights and responsibilities as compared to the Managing Director of the Company ingeneral matters. Director himself handles finance department covering both purchase and sales as price ofsteel very volatile, changing almost every day. Therefore they have make bulk purchase at thetime of lower price and make sales as and when appropriate.Capital Structure of the Company Capital structure or composition of capital or pattern of securities or the security mix is amajor aspect of financial planning. Once the finance manager has determined the firm’s financialrequirements and his next task is to see that there are fund in hand. The capital comes in manyforms long term and short term Loans, secured and unsecured debtors, share contribution etc.The decision upon the ratio of these securities into total capitalization is to decide the capitalstructure.Working Capital Short Term Funds:- Working Capital generally taken care of by cash credit facilityextended by SBI to the extend of 1.5 corers. Long Term Funds:- Now, there been a long term slow down due to international financialcrisis, there is no proposal to invest further as of now. If economic revival takes place in future,fund can be raise through Equity, Bank funds, Private Equity.___________________________________________________________________ Babasabpatilfreepptmba.com - 23 -
  24. 24. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURFinancial Plan General financial plan is not done on a regular basis due to volatility of prices, alldecisions regarding purchases and sales is done by market on daily basis.Financial Position Current financial position of the organization is quite stable.Report to Government Agencies 1. The usual financial reports are always required for excise department, VAT department and lending Banks. 2. Report to PCB Boards(Pollution Control Boards). 3. Report to Auditors.Tax Policies and procedures Tax policies and procedures are observed with the consultant CA’s.Insurance Cover Regular insurance is covered for the value average stock held at the factory.Cost of Unit of Product Cost of product is approximately Rs. 3600 per ton inclusive of all taxes and expenses. 1. Coal – Rs. 700. 2. Power – Rs. 750. 3. Burning Loss – Rs. 700. 4. Labour – Rs. 600. 5. Administrative Expenses – Rs. 200. 6. Tax and Interest – Rs. 650.___________________________________________________________________ Babasabpatilfreepptmba.com - 24 -
  25. 25. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURFinancials As of 31st March 2008 total turnover including other income was Rs. 12.51 Corers and netprofit after tax was Rs.9.7 Lacks.Accounting Policies1. Basis of Accounting: Financial statement is prepared under the historical cost convention and on annual basis.2. Fixed Assets: Fixed Assets are stated at their historical and less accumulated depreciation there own. The cost of fixed assets comprises their acquisition cost and any attributable of bringing the asset to its working conditions. The cost of self - constructed fixed assets comprise those costs that are related directly to the specific assets and overheads consistently allocated at predetermined percentage of direct salaries and wages.3. Valuation of Inventories a. Raw Material, stores &Spares, Packing Material, Fuel, Stock in process are valued at cost b. Finished goods are valued at cost or realizable value whichever is less. c. Waste & scrap and Runner & Riser are valued at realizable value.4. Sales Sales are stated net of sales returns.5. Cenvat Cenvat claimed on Plant & Machinery is reduced from the cost of Plant& Machinery. Cenvat claimed on purchases of raw materials and other materials reduced from the cost of such materials.___________________________________________________________________ Babasabpatilfreepptmba.com - 25 -
  26. 26. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR6. Provision For Current And Deffered Tax Provision for current tax is made after taking into consideration benefits admissible under the provision of income tax Act, 1961. Deferred tax resulting from “timing difference” between book profit and taxable profit is accounted for using the tax rates and laws that have been enacted or substantively enacted as on the dare of balance sheet. The deferred tax liability is recognized and carried forward only to the extent that there is a reasonable certainty that the same will be realized in future.Company’s Future Business strategy Company has taken a conscious decision to develop and enlarge its business operationsby adopting Franchise route. The Franchisee markets the Products at its own using Marketingnetwork of PSSPL and paying the Company Royalty on sales per tone basis/per bag/percentage.Company have plans to establish our own Stock Yards at various strategic locations andmaterials required for these yards will be sourced from the nearby Franchisees, who aremanufacturers of PSSPL Steel TMT/ CTD Bars.The Company will derive following benefits of this strategy:• Company would be able to increase its profitability by increased turn-around cycle of availableresources.• Company would be able to derive benefits of handling large volumes.• Company would get Royalty payments from the Franchisees for use of PSSPL brand.. PSSPL proposes to establish the stockyards in leased properties. It is proposed to acquire land ata suitable location.Each stockyard would be managed by a team of 5-6 people.___________________________________________________________________ Babasabpatilfreepptmba.com - 26 -
  27. 27. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR Finance Department Chart Director Finance Manager Asst. Finance Manager Financial Executives___________________________________________________________________ Babasabpatilfreepptmba.com - 27 -
  28. 28. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURPRODUCTION DEPARTMENTProduction Process Chart:- Production Process Chart:- Charged in Re-heating Furnace Roughing Mil (Ingot 4’’ reduced to 2’’) Finishing Mill (2’’ to reduced to required finishing size) TMT Treatment Plant Cooling Bed Cutting and sizing Bending and Staking Finished Goods (8mm,10mm,12mm,16mm,20mm TMT Bars)___________________________________________________________________ Babasabpatilfreepptmba.com - 28 -
  29. 29. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURPROCESS FLOW CHART FOR PRODUCTION OF STEEL BARSM.S.IngotSponge iron and Mild Steel Scrap is fed into induction furnace for melting at the temp of 1550degree Celsius. Suitable quantity of Ferro Alloys i.e. Ferro Silicon, Ferro manganese aluminumsorts etc are added as per required chemical composition. The melted scrap is tapped frominduction furnace to C.I. Moulds for manufacturing M.S. Ingot by bottomTMT Tempcore Bars The Tempcore process is the best process for the production of high quality rebarsbecause it replaces costly alloy elements like Vanadium and Niobium with low cost raw material.It results in high mechanical properties, excellent weldability, excellent ductility& bendability. Itimparts high strength to the bar using the latest technique of Thermo Mechanical Treatment(TMT). Steel billets are heated in a Reheating Furnace and rolled through a sequence of rollingstands, which progressively reduce the billet to the final size and shape of the reinforcing bar.According to Tempcore process, the bar leaving the final stand is submitted to a special heattreatment involving three stages.Quenching Stage The first stage consists of a drastic water cooling applied to the bar as it leaves the lastfinishing stand. The efficiency of the water cooling equipment used at this stage has to be as highas to produce a very hard cooling, on the bar surface, faster than the critical rate to form themartensite so as to obtain a surface layer of crude martensite while core remains austenite.___________________________________________________________________ Babasabpatilfreepptmba.com - 29 -
  30. 30. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURTempering Stage In the second stage the bar leaves the water quenching line and is exposed to air. The heatflux from the still hot core reheats the quenched by conduction and the martensite formed in thefirst stage is thus subjected to selftempering giving a structure called “Tempered Martensite”which is strong and tough. The core is still austenitic at this stage.Final Cooling stage The third stage of “Atmospheric Cooling” occurs on the cooling bed, where the austeniticcore is transformed to a ductile ferrite pearlite core. Thus, the final structure consists of acombination of strong outer layer of tempered martensite and a ductile core of ferrite-pearlite.___________________________________________________________________ Babasabpatilfreepptmba.com - 30 -
  31. 31. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURStructure of Production and Operation Production Manager Asst. Production/supervisor Foreman Operation Fitter Operation Work shop Electricity Manager Mgr. Department Department Production Helpers Electricity Worker Supervisor Asst. Electrician Roughing Mill 6 Workers Turner Helper Finishing Mill 8 Workers Roller Finisher Helper Materials Store Manager Handling Raw Materials Finish Goods 4 Workers 24 Workers___________________________________________________________________ Babasabpatilfreepptmba.com - 31 -
  32. 32. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURProduction Department Chart Director Production Manager Asst. Production Manager Foreman Fitter Helper___________________________________________________________________ Babasabpatilfreepptmba.com - 32 -
  33. 33. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURSources of Raw-Materials Ingot are procured from various private manufacturers(furnaces) from different states,like Goa, Maharashtra, Andra Pradesh and within Karnataka itself.WaterWater consumption for TMT & Mill Cooling and for domestic purpose consumption is met froma bore well tube well within the factory premises. Water is recirculated and re-used.PowerThe Company sources Power from GESCOMM, through dedicated high voltage feeder lines anddo not have alternate source of electricity for manufacturing facilities.Evaluate of Suppliers Demanding upon the quality supplied by various private manufacturers and best pricesoffered by them.Suppliers Evaluation and Rating Mechanism Usually evaluation is done in-house by quality material received from him and best prizedoffered by him, these are only criteria for evaluation and rating mechanism.Usual Ordering Practice During these time of economic slowdown of lower demand, ordering is done only whenthe inventory is of minimum requirement (i.e., 10 tons.)Purchase Around 4200 tons per annum.Production Capacity Production capacity is about 6000 ton per annum; usually single shift is operated becauseof lower demand.___________________________________________________________________ Babasabpatilfreepptmba.com - 33 -
  34. 34. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURSchedule of Working Hours Schedule is from 7am to 7pm with intermittent interval of one hour after each hour ofwork for all workers, that mean effectively each worker works for only 6 hours during 7am to7pm.Typical Mechanism/ Technology Used 1. Roughing Stands Where in 7 passes are taken up for rolling down the materials from 100mm sq to 35mm sq. 2. Finishing Stands Where in 7 to 9 passes are under taken up for rolling down to finishing size of materials from 35mm sq to finishing size (i.e., 8mm, 10mm, 12mm, 14mm, 16mm, 20mm.) 3. Technology Used Jet thermo technology is used for TMT Bars.___________________________________________________________________ Babasabpatilfreepptmba.com - 34 -
  35. 35. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR SWOT Analysis(Strength, Weakness, Opportunity, Threat)Strength 1. Company is using “Tempcore Process” which is the most advanced technology worldwide for the manufacturing of the Thermo Mechanical Treatment bars. As the plants are based on the upgraded Automatic US Technology, the speed of the plant is 32 seconds for manufacturing of Thermo Mechanical Treatment Bars. 2. The company has a network of more than 175 dealers and distributors spread across the state. 3. The Thermo Mechanical Treatment bars manufactured in the factory according to standard of Indian Standard(IS) 1786:2008. In making Thermo Mechanical Treatment bars US technology is used. The company’s name is Jet Therm. 4. The company has talented, skilled and qualified man power to look after different activities at various levels in the organization. 5. The company provides adequate training to staff to keep them updated on all issues related to our Industry. 6. Raw material is locally available within the boundary of 200 kms. 7. The company has a Skilled Manpower. 8. The company has its own trading shop and has experience of 3 decades. 9. Company produces quality product at reasonable prices which has competitive of the company.___________________________________________________________________ Babasabpatilfreepptmba.com - 35 -
  36. 36. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR 10. Direct Marketing helps company to deal directly with the customers to know their needs and satisfaction.WEAKNESS 1. Fluctuation in raw material prices results in fluctuation in daily prices of the product. 2. Labour shortage and communication problem with labour. 3. High cost of production compared to giant producers like Tata, SAIL (Steel Authority of India Limited). 4. Irregularity of power supply stops the production process and leads to the idle machine time, idle workforce as there is no power backup.___________________________________________________________________ Babasabpatilfreepptmba.com - 36 -
  37. 37. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUROPPORTUNITIES 1. The major raw material is available within the boundary of 200 kms, so that company can compete easily with the bigger player as the cost of production is very less. 2. Beside the factory about 2000 acres has been allotted towards development of growth center, because of this all development activity needs heavy quantity of steel. Obviously they will buy from nearby manufacturing only. 3. Company can make use of full capacity of production by providing good maintenance of machines and proper power supply. 4. Company should create good dealers distribution network to make a good hold and a large market share for its product. 5. Company can reduce its cost of production due to high productivity.___________________________________________________________________ Babasabpatilfreepptmba.com - 37 -
  38. 38. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURTHREATS 1. Emerging big player & hence there is competition in the market. 2. Steel prices are depends globally, so sometimes it affects the availability of raw material and it is not possible to make a large stock of raw material due to daily fluctuation in price.The Company Vision To be the first choice of customers through leadership in quality and services and achievesustainable growth through backward integration.The Company Mission To constantly strive to meet or exceed customers needs and expectations by stayingahead of competition with innovative ideas and add super-value to all customers.Scope of Study Since the decision regarding working capital are of an operating nature not one timedecision, the scope of the study is geared towards identifying important areas of control and toestablish model for better control of the various components of working capital The study would also attempt to identify the various sources available for financing ofworking capital. The study gives a fair idea of improvement in efficiency of working capital managementand also to have proper control over the components of working capital and managing ofefficiency.Objectives of Study___________________________________________________________________ Babasabpatilfreepptmba.com - 38 -
  39. 39. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR • To study the efficiency of working capital management of the company • To analyze the working capital trends in the company • To study the efficiency of cash, and receivables management of the company • To understand and analyze the working capital position of PSSP Ltd. During the period of 2004-2008. • To measure the overall financial position of the organization with the help of ratio analysis.METHODOLOGYThe information of the budgetary control where obtained from • Primary Data : The information Collected from Personnel Interaction with manager and other staff • Secondary:- Annual reports of PSSPL CompanyLimitation of the study • This study deals only with the data made available. Hence the result of this study cannot judge the business of the firm in general • The study have been influenced by the limitation of the ratio analysis • The study extensively uses the data provided is the financial reports of the firm which may also have their own limited perspective • The analysis made on the working capital management is for a particular period of time the current assets and current liabilities will change for an analysis made at any other of time.___________________________________________________________________ Babasabpatilfreepptmba.com - 39 -
  40. 40. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURTheoretical backgroundIntroduction One of the vital aspects of company’s financial management is to manage its currentassets and the current liabilities in such a way that a satisfactory level of working capital ismaintained. Working capital management means administration of all aspects of working capitali.e. current assets and current liabilities. Firm has to manage it properly in order to attain its goalof wealth maximization.Meaning Working capital is that part of total capital which is used for carrying out routine businessoperations. In simple terms, working capital is the capital with which the business of thecompany is worked over. Working capital is the lifeblood of business and it is the controllingsystem of every business firm. The working capital management is concerned with the problems that arise in attemptingto manage the current assets and current liabilities and the interrelationships that exists betweenthem. This tries to evolve how much funds to be invested in each type of current assets and whatshould be the proportion of long-term funds to short-term funds and which are the sources thatare ideal for financing current assets.Concepts of working capital There are two concepts of working capital, they are; 1. Gross working capital concept 2. Net working capital concept___________________________________________________________________ Babasabpatilfreepptmba.com - 40 -
  41. 41. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURGross working capital concept Gross working capital concept refers to firm’s investments in its current assets. Currentassets are assets, which can be converted into cash within an accounting year (or operationalcycle) and includes cash, short-term securities, debtors, bills receivables and inventories. The gross working capital is a financial concept. It is also called as current capital orcirculating capital and is represented as sum total of current assets of an enterprise. The grossworking capital concept focuses attention on two aspects of current asset management: 1. Optimum investment in current assets 2. Financing of current assetsNet working capital concept Net working capital is the difference between current assets and current liabilities. It maybe positive or negative. A positive working capital arises when current assets exceeds currentliabilities and a negative working capital occurs when current liabilities exceeds current assetsNet working capital= Current assets-Current liabilities Net working capital is a qualitative concept and it indicates the: 1. Liquidity position of the firm 2. Suggests the extent to which working capital needs may be financed by permanent sources of funds. The current assets of the firm should be sufficiently in excess of current liabilities toconstituting a margin for maturing obligations within the ordinary operating cycle of thebusiness. A weak liquidity position poses a threat to the solvency position of the firm and makesit unsafe and unsound. A negative working capital may prove to be harmful for the company’sreputation. On the other hand, excessive liquidity is also bad which may lead to mismanagementof current assets. The net working capital concept also covers the question of judicious mix of long-termfunds for financing the current assets. Every firm needs a minimum amount of net workingcapital, which is permanent. Hence a portion of working capital should be financed with the___________________________________________________________________ Babasabpatilfreepptmba.com - 41 -
  42. 42. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURpermanent sources of funds such as owner’s capital, debenture, long-term debts, preferencecapital or retained earnings. Management must therefore decide the extent to which current assetsshould be financed with long-term sources. Even though both gross and net working capital concepts are the important facets ofworking capital, there is no precise way to determine the exact of gross or net working capital forevery firm. The working capital needs depends upon the business operations of the firm.Significance of working capital: To fulfill its endeavor to maximize the shareholder’s wealth, firm has to earn sufficientreturn from its operations, which needs a successful sales activity. The firm has to investsufficient funds in current assets to succeed in sales, as the sale do not convert into cashinstantaneously because of time gap between the sale of goods and actual receipts in cash. Hencethere is a need for working capital in the form of current assets to sustain sales activity duringthat period. Since cash inflows and cash out flows don’t match, firms have to necessarily keepcash or investment in short term liquid securities to fulfill its obligations as and when theybecome due. The adequate stock of inventory provides a cushion against being out of stock and help asa guard to meet the demand for its products. To be competitive, the firm must sell its products totheir customers on credit, which necessitates the holding of accounts receivables therefore anadequate level of working capital is absolutely necessary for the smooth sales activities, which inturn enhance the owner’s wealth.The working capital need arises for the following purpose: • For purchasing raw materials, components and spare parts • For paying wages and salaries • To incur day-to-day expense and overhead costs like fuel, power and office expense etc…. • To meet selling costs of packing advertising etc…___________________________________________________________________ Babasabpatilfreepptmba.com - 42 -
  43. 43. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR CLASSIFICATION OF WORKING CAPITAL WORKING CAPITAL On the basis of concepts On the basis of timeNet working Capital Gross working capital Permanent Variable working capital Working capital Seasonal working Capital Special working capital Initial working capital Regular working capital ___________________________________________________________________ Babasabpatilfreepptmba.com - 43 -
  44. 44. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR A. On the basics of Concept : 1. Net Working capital : This is the difference between current assets and current liabilities. Current liabilities arethose that are expected to mature within an accounting year and include creditors, bills payableand outstanding expenses. Working Capital Management is no doubt significant for all firms, but its significance isenhanced in cases of small firms. A small firm has more investment in current assets than fixedassets and therefore current assets should be efficiently managed. The working capital needs increase as the firm grows. As sales grow, the firm needs toinvest more in debtors and inventories. The finance manager should be aware of such needs andfinance them quickly. Current Assets can be financed through long –term and short-term sources. The ratio oflong –term to short-term source will depend on whether the firm is aggressive or conservative. Ifthe firm is aggressive then it will finance a part of its permanent current assets with short-termfunds. On the other hand , a conservative firm will finance its permanent assets and also a part oftemporary current assets with long- term financing.___________________________________________________________________ Babasabpatilfreepptmba.com - 44 -
  45. 45. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR 2. Gross Working Capital This refers to the firm’s investment in current assets. Current assets are the assets whichcan be converted into cash within a short period say, an accounting year. Current assets includecash, debtors, bills receivables, short term securities etc.B) On the Basis of Time1) Permanent Working Capital Permanent Working Capital is permanently locked up in the circulation of current assets.It covers the minimum amount requested for maintaining the circulation of current assa) Initial working capital At its inception and during the formative period of its operations a company must haveenough cash fund to meet its obligations. The need for initial working capital is for everycompany to consolidate its position.b) Regular working capital It refers to the minimum amount of liquid capital required to keep up the circulation ofthe capital from the cash inventories to accounts receivable and from account receivables to backagain cash. It consists of adequate cash balance on hand and at bank, adequate stock of rawmaterials and finished goods and amount of receivables.___________________________________________________________________ Babasabpatilfreepptmba.com - 45 -
  46. 46. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR2. Variable Working Capital It refers to the past of the Working Capital which changes with the volume of business; itmay be divided into two classes.a) Seasonal Working Capital There are many lines of business where the volumes of operations are different and hencethe amount of working capital varies with the seasons. The capital required to meet the seasonalneeds of the enterprise is known as seasonal Working capital.b) Special Working Capital The Capital required meeting any special operations such as experiments with newproducts or new techniques of production and making interior advertising campaign etc, are alsoknown as special Working Capital.Sources of Working capital: Sources of working capital can be broadly divided into two types, 1. Internal sources 2. External sourcesInternal sources: 1. Shares 2. Debentures 3. Retained earnings 4. long term loans 5. Sale of fixed assets 6. Depreciation fund 7. Using the resource meant for taxation___________________________________________________________________ Babasabpatilfreepptmba.com - 46 -
  47. 47. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR External resources: 1. Bank credit 2. Customer advances 3. short term public deposits 4. Installment credit 5. Factoring 6. Commercial papers 7. Indigenous banker 8. Trade credit 9. Outstanding expensesCASH MANAGEMENT: Cash is the liquid money, which a firm can disburse immediately without any restriction.The term “cash” includes coins, currency and cheques held by the firm and balances in its bankaccounts. Sometimes near cash items, such as marketable securities or bank time deposits arealso included in cash. The basic characteristics of wear cash assets are that they can readily beconverted into cash, and we invests it in marketable securities. The kind of the investmentcontribute some profit to the firm. Cash is often called as “non earning asset”. It is needed to pay for labor and rawmaterials, to buy fixed assets, to pay taxes, to service debts, to pay dividends and so on.However, cash itself earns no interest. Thus the goal of the firms must hold for use in conductingits normal business activities. It the same time it should have sufficient cash. 1. To take trade discounts 2. To maintain its credit rating 3. To meet unexpected cash needsThe cash management is concerned with the managing of 1. Cash flows into and out of the firm 2. Cash flows within the firm at 3. Cash balance held by the firm at a point of time by financing deficit.___________________________________________________________________ Babasabpatilfreepptmba.com - 47 -
  48. 48. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURCash management techniques or procedures: 1. Improving forecasts of cash flows 2. Synchronizing cash inflows and outflows 3. Speed up the cheque clearing process 4. Using float 5. Accelerating collections 6. Getting available funds to where they are needed 7. Controlling disbursementsCollection technique: 1. Speedy cash collections 2. Prompt payment by customer 3. Early conversion of payments into cash___________________________________________________________________ Babasabpatilfreepptmba.com - 48 -
  49. 49. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURANALYSIS AND INTERPRETATION OF DATA“Evaluating the financial performance of Patel Shanti steels Pvt ltd.”Working Capital ManagementSchedule showing working capital for the financial yearsCalculation of Gross working capital Particular 2004-05 2005-06 Increase Decrease A. Current assets • Inventories 11108491 10293700 _ 814971 • Sundry debtors 4955298 6466001 1510703 _ • Cash and bank 2115880 1466183 _ 649697 balance • Loans and advances 646872 10095831 3627103 _ Total current assets or 24648397 28321715 _ _ gross working capital B. Current Liabilities 42403714 9516509 32887205 _ (17755317) 18805206 38025011 1464488 Decreased W C 36560523 _ _ 36560523 Net working capital 18805206 18805206 38025011 38025011Interpretion As we can see increase in the table 2005-06 as compared to 2004-05. above tablecurrent assets are increases more. In current assets are llike inventeiors, bank and loan, sundrydetros.___________________________________________________________________ Babasabpatilfreepptmba.com - 49 -
  50. 50. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURCalculation of Gross working capital Particular 2006-07 2007-08 Increase Decrease A. Current assets Inventories 10293700 8244141 _ 2049560 Sundry debtors 646600 5805123 _ 660878 Cash and bank balance 1466183 1266688 _ 199495 Loans and advances 10095831 12995701 2899871 _ Total current assets or gross 28321715 28311653 2899871 2909933 working capital _ B. Current Liabilities 9516510 5474299 4042211 _ Net Working Capital 18805205 22837454 _ 4032149 Decreased W C (4032149) _ - 6942082 Net working capital 22837454 22837454 6942082As we can decreases in the above table 2006-07assets are decreases because of increases theinventories decrease bank and loan sundry debtors decreases as compare to previous years.___________________________________________________________________ Babasabpatilfreepptmba.com - 50 -
  51. 51. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURCalculation of Gross working capital Particular 2007-08 2008-09 Increase Decrease A. Current assets • Inventories 8244141 13318258 5074117 _ • Sundry debtors 5805123 30322092 24516969 _ • Cash and bank 1266688 1019325 _ 247363 balance • Loans and 12995701 4977737 _ 8017962 advances Total current assets 28311653 496377414 29591086 8265325 or gross working capital B. Current Liabilities 5474299 12616200 _ 7141901 22837354 37021314 14183860 Decreased W C 14183860 _ - 29591086 Net working capital 37031214 37021314 29591086 Interpretation As we can increases in the above table current assets 2007-08 as compared to2006-07 are decreases because of increases the inventories bank and loan sundry debtorsincreases as compare to previous years.___________________________________________________________________ Babasabpatilfreepptmba.com - 51 -
  52. 52. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHUR RATIO ANALYSISINTRODUCTION The financial statement of a company contains a lot of information about the financialperformance of the company. Financial statements mainly consist of the Balance Sheet and Profitand Loss Accounts. These statements give the overall picture of the company, but to analyseeach aspect of business extensively, financial ratios are used. The Balance Sheet and theStatement of Income are essential, but they are only the starting point for successful financialmanagement. Financial Ratio Analysis derived from Financial Statements analyses the success,failure, and progress of business. Ratio Analysis is a very powerful analytical tool useful for measuring the performanceof an organization. The ratio analysis concentrates on the interrelationship among the figuresappearing in the mentioned financial statements. The ratio analysis helps the management toanalyze the past performance of the firm and to make further projections.Note: we have used the ratio analysis in this project in order to substantiate the managing ofworking capital. For this, we used some of the ratios to get the required output.Various working capital ratios used by me are as follows: • Liquidity ratios • Turnover/activity ratios___________________________________________________________________ Babasabpatilfreepptmba.com - 52 -
  53. 53. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURI. Liquidity Ratio Liquidity ratio measures the ability of the firm to meet its current obligation (liabilities).In fact analysis of liquidity needs the preparation of cash budget and cash and fund flowstatement but liquidity ratio, by establishing a relationship between cash and other current assetto current obligation, to provide a quick measure of liquidity. A firm should ensure that it doesn’tsuffer lack of liquidity and also that it dose not have excess liquidity.The common liquidity ratios are:-1. Current Ratio Current ratio may be defined as the relationship between quick or liquid asset andcurrent liabilities. This is a measure of general liquidity & is most widely used to make analysisof short-turn financial position or liquidity of firm. It is calculated by dividing the total currentassets by total current liabilities. Current Ratio = Current Assets Current Liabilities TABLE-1.1 Current Ratio Current Current Year Ratio Assets Liabilities 2004-05 24648397 42403714 0.58 2005-06 28321715 9516509 2.97 2006-07 28311652 5474299 5.171 2007-08 49637413 12616200 3.93___________________________________________________________________ Babasabpatilfreepptmba.com - 53 -
  54. 54. A STUDY ON WORKING CAPITAL MANAGEMENT PATEL SHANTI STEELS PVT LTD, RAICHURINTERPRETATION An arbitrary standard of current ratio is 2:1 indicates that for every one rupee of currentliability two rupee of current assets is available. in the year 2004-05 Ratio was 0.58. in the year2005-06 increasing ratio 2.97. in the year 2006-07 increasing ratio 5.17. in the year2007-08decreasing 3.93. company position is favorable.___________________________________________________________________ Babasabpatilfreepptmba.com - 54 -
  55. 55. 2. Quick Ratio/Acid Test Ratio Quick ratio establishes relationship between quick or liquid assets & current liabilities.It is also known as acid test ratio. An asset is said to be liquid if it can be converted into casewithin short period of time without loss of value. The prepaid expenses and stock were excluded. Quick ratio = Quick asset Current LiabilitiesTABLE-1.2 Quick Ratio Quick Current Year Ratio Assets Liabilities 2004-05 13539906 42403714 0.31 2005-06 18028015 9516507 1.89 2006-07 20067511 5474299 3.66 2007-08 36319155 20012616 2.87
  56. 56. INTERPRETATION Table 1.2 Standard of ratio is 1:1 . in the year 2004-05 ratio was 0.31. in the year 2005-06 increasing 1.89. in the year 2006-06 increasing ratio 3.66. and in the year 2007-08 decreasingtrend 2.87. company position is favorable.
  57. 57. 3. Absolute Quick Ratio/cash Ratio Cash ratio is the strongest measurement of liquidity. Since cash is the most liquid assets, a financial analyze may examine cash ratio & its equivalent to current liabilities. Trade investments or marketable securities are equivalent of cash therefore they may be included in computation of cash ratio. To calculate absolute quick ratio we consider cash in hand, cash at bank & marketable securities. Cash Ratio = Cash + Marketable securities Current LiabilitiesTABLE-1.3 Absolute Quick Ratio Year Quick Assets Current Liabilities Ratio 2004-05 2115880 42403714 0.04 2005-06 146183 9516509 0.15 2006-07 1266688 5474299 0.23 2007-08 1019325 12616200 0.08
  58. 58. INTERPRETATIONIn the year 2004-05 ratio was 0.04 in the year 2005-06 increased o.15. in the year 2006-07increased o.23. in the year 2007-08 again decreased 0.08 . there fore company position isunfavorable.Table 1.3 reveals that absolute quick ratio is below the standard ratio i.e. 0.5:1 indicates that 50paisa worth of absolute liquidity assets are sufficient to meet one rupee worth of currentliabilities.
  59. 59. 4. Net Working capital ratio Net Working capital ratio is the relationship between net working capital to its netassets. The different between current asset & current liabilities excluding short termborrowing is called net working capital (NWC) or net current assets. NWC = Net Working Capital Net AssetsTABLE-1.4 Net Working Capital Ratio Year NWC Net Asset Ratio 2004-05 17755317 65071495 0.27 2005-06 18805206 88085255 0.21 2006-07 22837353 822771402 0.02 2007-08 36751213 98137066 0.37
  60. 60. INTERPRETATIONIn the year 2004-05 ratio was 0.02 in the year 2005-06 decreased 0.5. in the year 2006-07increased 0.26. in the year 2007-08 again increased 0.37 . there fore company position isunfavorable.Table 1.3 reveals that absolute quick ratio is below the standard ratio i.e. 0.5:1 indicates that 50paisa worth of absolute liquidity assets are sufficient to meet one rupee worth of current liabilities.
  61. 61. In Relation to Sales Gross Profit Ratio G.P.Ratio measures the relationship between gross profits & sales; it is usuallyrepresented in percentage. Thus Gross profit margin highlights the production efficiency at aconcern G.P.Ratio = Gross Profit X 100 SalesG.P.Ratio indicate the extent to which selling price of goods per unit may decline withoutresulting in losses on operations of firm. It reflect efficiency with which firm produces theproduct.TABLE-3.1 Gross Profit Ratio Year Gross Profit Sales Ratio 2004-05 3218328 125946615 2.55 2005-06 5556628 108477129 5.12 2006-07 3446889 107302000 3.212 2007-08 7459228 122909228 6.06
  62. 62. INRTEPRETATIONIn the year 2004-05 ratio was 2.55 . in the year 2006-07 increased 5.12 and in the year 2006-07decreased 3.21 and 2007-08 increased 6.06.
  63. 63. Findings:- 1) Current ratio is favorable of the company. 2) Quick ratio is below the standard of ratio so for it is unfavorable of the company. 3) Cash ratio is fluctuating year by year .there fore un favorable of the company. 4) Gross profit is increasing year by year so it favorable of the company.
  64. 64. CONCLUSION Today working capital is considered to be an important tool for progress. Working capital management techniques are playing significant role in assistant the management for design making. The study of working capital system at Patel Shanti Steel Pvt at Raichur is found to be very affective. The working capital contains the management of cash, management of receivables and management of inventory.
  65. 65. BIBOLOGRAPHY  Financial management by M.Y. Khan and P.K. Jain  Financial management by I.M. Pandey
  66. 66. ANNEXURE