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central coalfeild limited

  1. 1. CHAPTER I INTRODUCTION CENTRAL COALFIELD LIMITEDC.C.L is a subsidiary company of Coal India limited under ministry of coal and mines govt. ofIndia C.C.L is one of the 8 coal production subsidiaries of coal India limited under ministry ofcoal and mines. Company is governed by a board of directors consisting of 5 full time directorsand 6 part time directors. Full time directors are responsible for specific functions of operation,project & planning, finance and personnel. India is third largest country in the production of coal.C.C.L means Central Coalfields Limited.HISTORICAL BACKGROUNDCoal Mining first started in India in the year 1815. The private Railway Companies startedmining activities in the year 1850. The Railway Board Nationalized the coal mining in 1925. TheRailway collieries were transferred to the Coal Board in the year 1944.In 1774 Warren Hastings initiates commercial coal mining at Raniganj (West Bengal) in 1815-1820 First Shaft Mine opened at Raniganj 1835 Carr, Tagore & Company takes over the 1|Page
  2. 2. Raniganj Coal Mines 1843 Bengal Coal Company takes over Raniganj Coal Mines and others; isfirst Joint Stock Coal Company in India. Upto 1900 Minimal development; River transportationused to transport coal to Calcutta ;railway lines at Calcutta leads to expansion of Coal Productionin Early 1900s, Capacity at 6 million tonnes per annum 1955-56 Focus on Coal Industry;capacity up to 38.4 Million tonnes. In 1956 National Coal Development Corporation (NCDC)formed to explore and expand coal mining in Public Sector. In 1972 Coking Coal IndustryNationalized, Bharat Coking Coal Limited formed to manage operations of all Coking Coalmines in Jharia Coalfield. In 1973 Non-coking coal was nationalized; Coal Mine AuthorityLimited set up to manage these mines; NCDC operations bought under the ambit of CMAL. In1975 Coal India Limited formed as holding Company with 5 subsidiaries viz. Bharat CokingCoal Limited (BCCL), Central Coalfields Limited (CCL), Western Coalfields Limited(WCL), Eastern Coalfields Limited (ECL) and Central Mine Planning and Design InstituteLimited (CMPDIL) in 1985.Northern Coalfields Limited (NCL) and South Eastern Coalfields Limited (SECL) carvedout of CCL and WCL in 1992. Mahanadi Coalfields Limited (MCL) formed out of SECL tomanage the Talcher and IB Valley Coalfields in Orissa. In2007 Coal India & five of itsSubsidiaries, viz, NCL,SECL,MCL,WCL,CCL was accorded coveted "Mini Ratna" Status.COAL INDIA LIMITED ( Date of incorporation)Coal India Limited was formed as holding Company with 5 subsidiaries on 21.10.1975 (CILholds 100 % shares of its all subsidiaries companies). The company is incorporated under theCompanies Act, 1956 and is wholly owned by the Government of India (GOI). CIL is the singlelargest coal producing company in the world and the largest corporate employer with manpowerof 397,138 (as on 1 April 2010). Operating through 81 mining areas CIL, is an apex companywith 7 wholly owned coal producing subsidiaries and 1 mine planning and consultancy company.CIL‟s mining activities are spread over 8 provincial states of India. Coal India has 477 mines ofwhich 277 are underground, 165 opencast and 34 mixed mines.It encompasses the whole gamut of identification of coal reserves, detailed exploration followedby design and implementation and optimizing operations for coal extraction in its mines. Theproducing companies are:- 2|Page
  3. 3. 1) Eastern Coalfields Limited (ECL), Sanctoria, West Bengal2) Bharat Coking Coal Limited (BCCL), Dhanbad, Jharkhand3) Central Coalfields Limited (CCL), Ranchi, Jharkhand4) South Eastern Coalfields Limited (SECL), Chattisgarh5) Western Coalfields Limited (WCL), Nagpur, Maharashtra6) Northern Coalfields Limited (NCL), Singrauli, Madhya Pradesh7) Mahanadi Coalfields Limtied (MCL), Sambalpur, Orissa;8) The consultancy company is Central Mine Planning and Design Institute Limited(CMPDIL),Ranchi,Jharkhand. 3|Page
  4. 4. STRUCTURE OF CIL western coalsfield limited Nagpur south eastern coalsfield Bilaspur northern coalsfield ltd Singrauli eastern coalsfield ltdCOAL AsansolINDIALIMITED bharat coking coal ltd Dhanbad central coalfield ltd Ranchi mahanadi coalfields ltd Sambalpur cmpdi Ranchi 4|Page
  5. 5. HIGHLIGHTS OF C.C.L Central Coalfield Limited has been on the coal map the country as a public sector onOctober, 1956, under different names. In the beginning it was known as National CoalDevelopment Corporation, then Central Division of Coal mines Authority , and finally under itspresent nomenclatures at Ranchi, Jharkhand. The Central Coalfield Limited is one of thesubsidiaries of coal India Limited registered under the Company‟s Act 1956 in the year 1975.The mining and extraction of coal is entrusted to a public sector organization Coal India Limited.The Company is divided into eight subsidiaries and Central Coalfield Limited is one of them.The company presently known as CCL has a history of more than three decades. Pursuant to theIndustrial Policy Resolution of 1956, a company was formed by the names of M/S HindustanCollieries Private Limited, on 5 September, 1956. The name was changed to the National CoalDevelopment Corporation. The NCDC was formed on 01.10.1956 with 11 state railwaycollieries in Orissa and Madhya Pradesh. Like other industries and organization, the affair ofCCL too is not settled by its owner (Govt. of India). Rather the professional team of managementcalled Board of Directors (BOD) is appointed by the Govt. of India to manage the affair of CCL.It consists of chairman – cum-Managing Director, four functional Directors in charge ofoperations, personnel, finance and projects & planning. Besides part-time Directors as may beappointed by the Govt. from time to time. At present CCL have 67 collieries and 7 washeriesunder revenue production. Some of the state collieries are very old, at least one of which that inGiridih has crossed century in the year 1961. It also has seven coal washeries , a coal oven plant ,besides workshop and handling plants spread over in Hazaribagh ,Palamu , Dhanbad ,Ranchi,Bokaro , Giridih, and Chatra district. CCL is the major source of medium coking coal in India. CCL‟s other importantactivities are beneficiation of medium coking coal for steel plants through its chain of coalwasheries and manufacture of soft coke for domestic kitchen. Most of the production (88%)comes from surface mines. The productivity of underground mines and many of the surfacemines is low, but because of high priced of coking coal, the company has been making marginalprofit and losses with the recent deregulation of coking coal price the profitability of thecompany is expected to improve. The command area of CCL companies 10 coalfields namelyGiridih, East Bokaro, West Bokaro, piparwar, Ramgarh-kaitha, North Karanpura, South 5|Page
  6. 6. Karanpura, Auranga, Hutar, Daltongang and Giridih/ Jayanti. Chairman-cum-ManagingDirectors is the full time executive of the company. The collieries and washeries have beengrouped into 15 areas each headed by chief General Manager/General Manager. The coalprojects are headed by project officer.C.C.L (Central Coalfield Limited) is a subsidiary unit of COAL INDIA LIMITED. C.C.L. hasbeen awarded as the “miniratna” company for its efficient functioning. C.C.L. headquarter issituated in „Darbhanga house‟ which is in Ranchi near „rajbhawan‟. C.C.L. is a leading providerof coal in India. C.C.L provides coal to different power sectors and steel sectors in india. C.C.Lhas shown profit in three consecutive years and achieved a different platform. C.C.L. has played a major role in socio-economic growth of Jharkhand region. In 47years of its existence it has virtually brought out development in many backward areas throughits mining activities, employment opportunities and reaching basic infrastructure to severalremote and inaccessible areas. CCL also strive to help in establishing Coal based industries inthis region and also to make coal as domestic fuel for homes with an objective of improvingforest cover. CCL INFRASTRUCTURE 1. NUMBER OF MINES – C.C.L. currently has 63 mines of which 26 are underground and 37 are opencast mines. 2. WASHERIES - CCL have 4 Coking Coal washeries and 3 Non Coking Coal Washeries. Coking Coal washeries :- Kathara, Sawang, Rajrappa, Kedla Non Coking Coal washeries :- Piparwar, Gidi, Kargali 3. WORKSHOPS - 6|Page
  7. 7. 3-tier workshop infrastructure is in place for the Open cast Coal Mining Projects asbriefed below :- 1. Project / Unit workshop at every project for daily, periodic, scheduled maintenance requirements, running breakdown maintenance and replacement of spares and sub- assemblies. 2. 3 Regional Repair Shops at Jarangdih, Tapin North and Dakra for a group of Mines which cater for overhauling of sub-assemblies of HEMM, System repairs of equipment and other major repairs beyond the scope of project / unit workshops. 3. A Central Workshop located at Barkakana with full infrastructural facilities to refurbish equipments of various mines under planned capital repair, repair and maintenance of major float assemblies like Engines, Transmissions, DC / AC Motors and Generators of Shovels and Drills, manufacturing of shaft, bushes, gear cutting, fabrication of steel structures, castings and tyre re-treading. 4. RAILWAY SIDINGS- 28 sidings from which coal is dispatched to various customers located all over India. 5. POWER SUPPLY DVC is main source of power supply for CCL There are 10 nos. 33kv/11Kv, 6.6 Kv Sub-stations in CCL (40MVA, 25 MVA, 20 MVA and 10 MVA capacities). Total connected demand is 119 MVA from DVC and CCL is also taking power from BSEB where demand is 11MVA. Rajrappa, Piparwar, N.K., Kathara, Kargali, Dhori, Hazaribagh and Kuju (through BSEB) are getting power from DVC. Average energy consumption is 575 million KWH. 7|Page
  8. 8. Power cost under control through energy conservation measures ( Capacitors , Rationalization of distribution systems etc.) Adequate power supply availability is ensured for uninterrupted production. 6. ROADS Approach Road - (Double lane road connecting highway to mine site, serving general purpose which is of 250 kms length.) Heavy duty coal transport Road - (Express highway to facilitate coal dispatch to facilitate plants, rail head and consend. Total it‟s 240 kms in length in which 140 kms is operational and 100 kms is under-construction.) Haulage Road - (Road for heavy earth moving machinery for mining purpose. carriageway width up-to 45 Meters. Total surface HAUL road is of length 100 kms and inside mine is 225 kms in length7. MEDICAL Two central hospitals at Ranchi and Nai Sarai equipped with all modern facilities for testing, diagnosis and treatment. Regional Hospitals at Kargali, Dhori, Katahara, Rajhara (Daltonganj), Dakra and Kedla. Hospitals/dispensaries for immediate medical aid at each Project (Colliery). 8|Page
  9. 9. VISION AND MISSION OF CCLVision of CCL"Committed to create eco-friendly mining" Mission Of CCL"To become a World class, Innovative, Competitive & ProfitableCoal Mining Operation to achieve Customer Satisfaction .The Mission of CCL is to produce and market the planned quantity of coal and coalproducts efficiently and economically with due regard to safety, conservation and quality.The main thrust of CCL in the present context is to orient its operations towards marketrequirements maintaining at the same time financial viability to meet the resource needs. 9|Page
  10. 10. BUSINESS OBJECTIVE OF CCL Objectives Of CCL Coal Mining through efficiently operated mines. Besides fulfilling coal needs of the customer in terms of quantity, focus on quality, value addition and beneficiation to the satisfaction of the customers. Marketing of coal as main product. Production :- CCL annual production is about 48Mt. And its target is to achieve 50 Mt, in the FY2010-11. The business of CCL is to mine Coal and sell it to the customers. The mining methodsadopted for various customer of CCL are as follow: MINING METHODS 1. Opencast Generally opencast mine of the company employs operating method with Shovel andDumper combination for mining. In one of the mines namely Piparwar OcP, mobile in pit crushing and conveyingsystem with a pithead coal preparation plant has been commissioned. 2. Underground Underground Mines of the Company employs intermediate technology withLHD/SDL and conventional manual method for mining. TECHNOLOGY1. OpencastShovel-Dumper combination Mobile In pit Crushing & Conveying System2. UndergroundIntermediate technology with Load Haul Dumpers and Side Discharge Loader 10 | P a g e
  11. 11. PROJECTS:-The following projects have been taken up by C.C.L: Magadh open coal. Ashok expansion open coal. North urimali open coal. Karo open coal. Konar open coal. Amarpali open coal.SAFETY ISSUES IN C.C.L :-Safety of the man-power of C.C.L. comes under the top priorities of management. The work inmines of C.C.L. is carried out as per the provision laid in the coal mines regulation1957 underthe mines act 1952 as per the permission and guidance of director general of mines safety. C.C.L. has 3-tire system of safety committee. Unit, area and corporate level to review,formulate and suggest safety measures for mines and mining processes. In addition to supplypersonal protective equipments, free periodicals medical check-up is carried out to each workerevery five years. Safety fortnight is also organized every year and best area and best workmenare rewarded to keep them aware related to safety issues in mines. There is an Emergency Celltoo in C.C.L. for dealing with emergency cases quickly and efficiently. MAJOR PROJECTS TAKEN UP BY C.C.L. Piparwar OCP Ashoka Expansion OCP Rajrappa OCP Urimari OCP Jharkhand OCP Magadh OCP Amrapali OCPSOME FUTURE PROJECTS Karo expansion OCP Konar OCP N. Urimari OCP Purnadih OCP NOTE: OCP – open coal project. 11 | P a g e
  12. 12. ACHIEVEMENTS OF C.C.L.YEAR WORKS ACCOMPLISHED 1815 Coal mining started in India. 1850 Private railways coal mining started by Railway board. 1925 First nationalization of of coal mining by railway. 1944 Railways collieries transferred to coal board under coal commissioner. 1956 National Coal Development Corporation Limited- (N.C.D.C.) formed as the first public sector coal company under central government with 11 states railways collieries and annual production of 3.11 million tones. 1959 First coal washery at kargali setup. 1971 Nationalization of non-coking coal mines B.C.C.L formed 1973 Nationalization of non coking coal mines –C.M.A.L Formed and N.C.D.C become central division of C.M.A.L. 1975 Coal India Limited formed as holding company for Coal. Entire Coal industry under public sector Re-organized under CIL‟S central Umbrella NCDC. 12 | P a g e
  13. 13. YEAR WORKS ACCOMPLISHED1986 Reorganization of CCL, Singrauli and Talehar area2005 11 Areas, 69 mines, 07 washeries, 1 central work- shop, 5 regional workshops 3 of which are ISO- 9001 certified, Central hospital in Gandhi Nagar is also ISO-9001 Certified.2006 Recorded highest profit of Rs. 1165 crores in the history of C.C.L. and for the first time paid Rs. 291.40 crores as dividend.2007 Registered a profit of Rs. 1020 crores.2008 Registered a profit of Rs. 1035 crores. 2009 Registered a profit of Rs. 738 crores. 2010 receipt by our company of a composite score of 1.47 and rating as Excellent. 13 | P a g e
  14. 14. Administration hierarchy of C.C.L 14 | P a g e
  16. 16. CSR AND CCL Business and industry have come into existence to promote social growth and social good.Society and business are interdependent and business must take full account of socialexpectations. And CCL strongly believes in social welfare. The company is a Miniratna category1 Central PSU in the family of Coal India Limited. Once written off as a loss making CPSU thecompany has made a spectacular turnaround about 4-5 years ago and has grown to strength.CCL has played a catalytic role in the socio –economic growth of the Jharkhand region. For thelast 5 decades of its existence, it has virtually brought about a metamorphosis in many backwardareas through its mining activities by creating employment opportunities and reaching basicinfrastructure to many remote and inaccessible areas. Its CSR can be categorized as follow:-HOUSING FACILITYPermanent - 59318Temporary – 6988Total - 66306MEDICAL FACILITYHospitals – 19Dispensaries - 67Beds – 895Doctors – 340EDUCATION FACILITYDAV School fully financed- 7Kendriya vidyalaya – 3Privately managed schools- 47 16 | P a g e
  17. 17. CUSTOMERS 1. POWER SECTOR 1. State Electricity Boards (Uttar Pradesh, Punjab, Haryana and Jharkhand) 2.Delhi Vidyut Board 3. National Thermal Power Corporation (NTPC) 4. Damodar Valley Corporation (DVC) 5. Tenughat Vidyut Nigam Limited (TVNL), etc. Major customers in power sectors are: P.S.E.B H.S.E.B N.T.P.C UPRVNL J.S.E.B T.V.N.L D.V.C 2. STEEL SECTOR 1. Steel Authority of India Ltd (SAIL) 2. Indian Iron and Steel Co. 3. Rashtriya Ispat Nigam Limited (RINL), etc.3. CORE INDUSTRIES 1. Heavy Engineering Corporation (HEC 2 . Kalyanpur Cement Company 3. Association Cement Company (ACC) 4. Lemo Cement Company 5. Bihar Sponge Iron Limited (BSIL) 6. Tata Sponge Iron Limited(TSIL) 7. Indo Ashahi Glass Company (IAGO) 8. Indian Aluminium Company Limited 9. National Fertilizer Limited, etc.4. NON –CORE INDUSTRIES 1. SSF Manufacturers 2. Sodium Silicate Manufacturers 3. Brick Manufacturers 4. Textile Manufacturers 5. Paper Manufacturers, etc. 17 | P a g e
  18. 18. SOCIAL SIDE OF BUSINESSCCL has played a catalytic role in the socio-economic growth of the Jharkhand region. For thelast 5 decades of its existence, it has virtually brought about a metamorphosis in many backwardareas through its mining activity by creating employment opportunities and reaching basicinfrastructure to many remote and inaccessible areas. Mining has turned out to be a main sourceof earning for the State Exchequer of Jharkhand.  Major Contributor to Basic Infrastructure:  Spend over Rs. 1042 crores on social overhead onwards 1998.  Constructed over 160 kms. of heavy duty coal transportation roads, 300 kms of approach road and equal length of colony roads, 6 major bridges on river Damodar (2 under construction), 59455 permanent houses, 19 hospitals, besides water supply schemes covering over a population of 5.02 lakhs.  Grant in aid & infrastructure facilities to 195 educational institutions.  Building permanent road link “COAL TRUNK ROAD” of about 196 kms length linking its areas and various districts.  Major Employer:  62827 (as on 1.11.2006) directly employed (35% belonging to scheduled caste & scheduled tribes).  Sources of indirect employment to over 2, 00, 000 people in loading, transportation, civil construction, small industries, coke ovens, manufacturing agencies, ancillaries etc.  Major Contributor to State Exchequer:  State central Exchequer have earned over Rs. 2811.56 crores of royalty and other taxes from CCL‟s mining activities after formation of Jharkhand state. (2000-01 to 2005-06) 18 | P a g e
  19. 19. Community DevelopmentCCL has been contributing to community development and tribal welfare by augmentingdrinking water facilities, health care, education, rural and link roads, besides promoting tradesfor self-employment opportunities in around 500 villages adjacent to its areas of operation.Community Development Programme was initiated in 1981 and since then it has spent over Rs.18 crores on these activities.ENVIRONMENTEco-friendly mining techniques concept are being followed to keep our environment safe. CCLis adopting concurrent reclamation for projects like Piparwar, Ashoka, KDH and Parej East OCP.In other projects decoaled area is reclaimed through internal dumping and subsequently planted.Plantation is also being done on external dumps. A green belt is also created around quarry,CHPs etc. by planting rows of trees to arrest fugitive dust as well as the noise. In addition to this,regular water spraying on haul roads by mobile water sprinklers are being done to suppress airpollution. In some of the fields fixed water sprinkles are also provided. Company is providingdomestic gas to our workmen in lieu of coal to avoid air pollution. Not only this, regularmonitoring of ambient air and water, quality of each mines are being carried out to checkenvironment.  CCL‟s Coal Consumers  More than 20 thermal Power stations including those in Jharkhand.  Five Steel Plants.  Five Fertilizer Plants.  20 Cement Plants.  Around 600 Industrial units Large, Medium and Small Scale. 19 | P a g e
  20. 20.  Products  Raw Coal  Washed Non-Coking Coal  Washed Medium Coking Coal  Hard Coke  Coal Tar MEANS OF TRANSPORTThe primary mode of transportation is Rail; CCL uses Rail as a medium to transport coal to itscustomers. Since its customers are electricity boards, steel companies and other core and nonecore industries, and also they are thousands of kilometers away from its mines, so thereforeRailway is the only way to transport coal to its customers. 20 | P a g e
  21. 21. CHAPTER II WORKING CAPITAL Capital required for a business can be classified under two main categories via,1) Fixed Capital2) Working Capital Every business needs funds for two purposes for its establishment and to carry out its day-to-day operations. Long terms funds are required to create production facilities through purchaseof fixed assets such as p&m, land, building, furniture, etc. Investments in these assets representthat part of firm‟s capital which is blocked on permanent or fixed basis and is called fixedcapital. Funds are also needed for short-term purposes for the purchase of raw material, paymentof wages and other day – to- day expenses etc.These funds are known as working capital. In simple words, working capital refers to that part ofthe firm‟s capital which is required for financing short- term or current assets such as cash,marketable securities, debtors & inventories. Funds, thus, invested in current assts keeprevolving fast and are being constantly converted in to cash and this cash flows out again in 21 | P a g e
  22. 22. exchange for other current assets. Hence, it is also known as revolving or circulating capital orshort term capital.CONCEPT OF WORKING CAPITALThere are two concepts of working capital:1. Gross working capital2. Net working capitalThe gross working capital is the capital invested in the total current assets of the enterprisescurrent assets are those assets which can convert in to cash within a short period normally oneaccounting year.CONSTITUENTS OF CURRENT ASSETS1) Cash in hand and cash at bank2) Bills receivables3) Sundry debtors4) Short term loans and advances.5) Inventories of stock as:a. Raw materialb. Work in processc. Stores and sparesd. Finished goods6. Temporary investment of surplus funds.7. Prepaid expenses8. Accrued incomes. 22 | P a g e
  23. 23. 9. Marketable securities.In a narrow sense, the term working capital refers to the net working. Net working capital is theexcess of current assets over current liability, or, say:NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.Net working capital can be positive or negative. When the current assets exceeds the currentliabilities are more than the current assets. Current liabilities are those liabilities, which areintended to be paid in the ordinary course of business within a short period of normally oneaccounting year out of the current assts or the income business.CONSTITUENTS OF CURRENT LIABILITIES1. Accrued or outstanding expenses.2. Short term loans, advances and deposits.3. Dividends payable.4. Bank overdraft.5. Provision for taxation , if it does not amt. to app. Of profit.6. Bills payable.7. Sundry creditors.The gross working capital concept is financial or going concern concept whereas net workingcapital is an accounting concept of working capital. Both the concepts have their own merits.The gross concept is sometimes preferred to the concept of working capital for the followingreasons:1. It enables the enterprise to provide correct amount of working capital at correct time. 23 | P a g e
  24. 24. 2. Every management is more interested in total current assets with which it has to operatethen the source from where it is made available.3. It take into consideration of the fact every increase in the funds of the enterprise wouldincrease its working capital.4. This concept is also useful in determining the rate of return on investments in workingcapital. The net working capital concept, however, is also important for following reasons:· It is qualitative concept, which indicates the firm‟s ability to meet to its operating expensesand short-term liabilities.· It indicates the margin of protection available to the short term creditors.· It is an indicator of the financial soundness of enterprises.· It suggests the need of financing a part of working capital requirement out of the permanentsources of funds. 24 | P a g e
  25. 25. CLASSIFICATION OF WORKING CAPITAL Kinds of Working Capital On the On the Basis of basis of Concept timeGross Working Net Working Variable Fixed 25 | P a g e
  26. 26. Capital Capital Working working Capital Capital Special Seasonal Reserve Regular Working Working Working Working Capital Capital Capital CapitalWorking capital may be classified in to ways:o On the basis of concept.o On the basis of time.On the basis of concept working capital can be classified as gross working capital and networking capital. On the basis of time, working capital may be classified as:Ø Permanent or fixed working capital.Ø Temporary or variable working capitalPERMANENT OR FIXED WORKING CAPITALPermanent or fixed working capital is minimum amount which is required to ensure effectiveutilization of fixed facilities and for maintaining the circulation of current assets. Every firm hasto maintain a minimum level of raw material, work- in-process, finished goods and cash balance.This minimum level of current assts is called permanent or fixed working capital as this part ofworking is permanently blocked in current assets. As the business grow the requirements ofworking capital also increases due to increase in current assets.TEMPORARY OR VARIABLE WORKING CAPITAL 26 | P a g e
  27. 27. Temporary or variable working capital is the amount of working capital which is required tomeet the seasonal demands and some special exigencies. Variable working capital can further beclassified as seasonal working capital and special working capital. The capital required to meetthe seasonal need of the enterprise is called seasonal working capital. Special working capital isthat part of working capital which is required to meet special exigencies such as launching ofextensive marketing for conducting research, etc.Temporary working capital differs from permanent working capital in the sense that is requiredfor short periods and cannot be permanently employed gainfully in the business.IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITALØ SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining thesolvency of the business by providing uninterrupted of production.Ø Goodwill: Sufficient amount of working capital enables a firm to make prompt paymentsand makes and maintain the goodwill.Ø Easy loans: Adequate working capital leads to high solvency and credit standing canarrange loans from banks and other on easy and favorable terms.Ø Cash Discounts: Adequate working capital also enables a concern to avail cash discounts onthe purchases and hence reduces cost.Ø Regular Supply of Raw Material: Sufficient working capital ensures regular supply of rawmaterial and continuous production.Ø Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads to thesatisfaction of the employees and raises the morale of its employees, increases their efficiency,reduces wastage and costs and enhances production and profits. 27 | P a g e
  28. 28. Ø Exploitation Of Favorable Market Conditions: If a firm is having adequate working capitalthen it can exploit the favorable market conditions such as purchasing its requirements in bulkwhen the prices are lower and holdings its inventories for higher prices.Ø Ability To Face Crises: A concern can face the situation during the depression.Ø Quick And Regular Return On Investments: Sufficient working capital enables a concern topay quick and regular of dividends to its investors and gains confidence of the investors and canraise more funds in future.Ø High Morale: Adequate working capital brings an environment of securities, confidence,high morale which results in overall efficiency in a business.EXCESS OR INADEQUATE WORKING CAPITALEvery business concern should have adequate amount of working capital to run its businessoperations. It should have neither redundant or excess working capital nor inadequate norshortages of working capital. Both excess as well as short working capital positions are bad forany business. However, it is the inadequate working capital which is more dangerous from thepoint of view of the firm.DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL1. Excessive working capital means ideal funds which earn no profit for the firm and businesscannot earn the required rate of return on its investments.2. Redundant working capital leads to unnecessary purchasing and accumulation ofinventories.3. Excessive working capital implies excessive debtors and defective credit policy whichcauses higher incidence of bad debts.4. It may reduce the overall efficiency of the business. 28 | P a g e
  29. 29. 5. If a firm is having excessive working capital then the relations with banks and otherfinancial institution may not be maintained.6. Due to lower rate of return on investments, the values of shares may also fall.7. The redundant working capital gives rise to speculative transactionsDISADVANTAGES OF INADEQUATE WORKING CAPITALEvery business needs some amounts of working capital. The need for working capital arises dueto the time gap between production and realization of cash from sales. There is an operatingcycle involved in sales and realization of cash. There are time gaps in purchase of raw materialand production; production and sales; and realization of cash.Thus working capital is needed for the following purposes:· For the purpose of raw material, components and spares.· To pay wages and salaries· To incur day-to-day expenses and overload costs such as office expenses.· To meet the selling costs as packing, advertising, etc.· To provide credit facilities to the customer.· To maintain the inventories of the raw material, work-in-progress, stores and spares andfinished stock.For studying the need of working capital in a business, one has to study the business undervarying circumstances such as a new concern requires a lot of funds to meet its initialrequirements such as promotion and formation etc. These expenses are called preliminaryexpenses and are capitalized. The amount needed for working capital depends upon the size ofthe company and ambitions of its promoters. Greater the size of the business unit, generallylarger will be the requirements of the working capital. 29 | P a g e
  30. 30. The requirement of the working capital goes on increasing with the growth and expensing of thebusiness till it gains maturity. At maturity the amount of working capital required is callednormal working capital.There are others factors also influence the need of working capital in a business.FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS1. NATURE OF BUSINESS: The requirements of working is very limited in public utilityundertakings such as electricity, water supply and railways because they offer cash sale only andsupply services not products, and no funds are tied up in inventories and receivables. On theother hand the trading and financial firms requires less investment in fixed assets but have toinvest large amt. of working capital along with fixed investments.2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement ofworking capital.3. PRODUCTION POLICY: If the policy is to keep production steady by accumulatinginventories it will require higher working capital.4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material andother supplies have to be carried for a longer in the process with progressive increment of laborand service costs before the final product is obtained. So working capital is directly proportionalto the length of the manufacturing process.5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires largerworking capital than in slack season.6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes onecycle determines the requirements of working capital. Longer the cycle larger is the requirementof working capital. 30 | P a g e
  31. 31. FINISHED DEBTORS GOODS WORK IN CASH PROGRESS RAW MATERIAL7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the questionof working capital and the velocity or speed with which the sales are affected. A firm having ahigh rate of stock turnover will needs lower amt. of working capital as compared to a firm havinga low rate of turnover.8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product/ services on cash requires lesser amt. of working capital and vice-versa.9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need forlarger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business,etc. On the contrary in time of depression, the business contracts, sales decline, difficulties arefaced in collection from debtor and the firm may have a large amt. of working capital.10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large amt.of working capital.11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earningcapacity than other due to quality of their products, monopoly conditions, etc. Such firms maygenerate cash profits from operations and contribute to their working capital. The dividendpolicy also affects the requirement of working capital. A firm maintaining a steady high rate ofcash dividend irrespective of its profits needs working capital than the firm that retains largerpart of its profits and does not pay so high rate of cash dividend. 31 | P a g e
  32. 32. 12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capitalrequirements. Generally rise in prices leads to increase in working capital.Others FACTORS: These are:ü Operating efficiency.ü Management ability.ü Irregularities of supply.ü Import policy.ü Asset structure.ü Importance of labor.ü Banking facilities, etc.Working capital level changes due to following three basic reasons:- 1. Changes in level of sales or operating expenses- this include long term trend change, cyclical change in economy and change in seasonality in sales activity. 2. Policy changes- this is initiated by management. The various policies may be conservative policy, hedging policy and trade off policy. 3. Changes in technology- if a new technological development occur then it shortens the operating cycle and hence it reduces the working capital requirement.MANAGEMENT OF WORKING CAPITALManagement of working capital is concerned with the problem that arises in attempting tomanage the current assets, current liabilities. The basic goal of working capital management is tomanage the current assets and current liabilities of a firm in such a way that a satisfactory level 32 | P a g e
  33. 33. of working capital is maintained, i.e. it is neither adequate nor excessive as both the situationsare bad for any firm. There should be no shortage of funds and also no working capital should beideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on itsprobability, liquidity and structural health of the organization. So working capital management isthree dimensional in nature as1. It concerned with the formulation of policies with regard to profitability, liquidity and risk.2. It is concerned with the decision about the composition and level of current assets.3. It is concerned with the decision about the composition and level of current liabilities. Decisions relating to working capital and short term financing are referred to as workingcapital management. These involve managing the relationship between a firms short term assetsand its short term liabilities. The goal of working capital management is to ensure that the firm isable to continue its operation and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.For the purpose of working capital management , net working capital can be said to measure theliquidity of the firm. In other words , the goal of working capital management is to manage thecurrent assets and liabilities in such a way that an acceptable level of net working capital ismaintained.Management will use a combination of policies and techniques for the management of workingcapital. These policies aim at managing the current assets(generally cash and cash equivalent,inventories and debtors) and the short term financing, such that cash flows and returns areacceptable.  Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.  Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ) 33 | P a g e
  34. 34.  Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa).  Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".Implementing an effective working capital management system is an excellent way for manycompanies to improve their earnings.One of the most important decisions, involved in the management of working capital is how thecurrent assets will be financed. There are two sources to raise current assets (i) Short term sources i.e current liabilities (ii) Long term sources such as share capital, long term borrowing , retained earnings etc.What proportion of current assets is financed by current liabilities and what proportion by longterm funds is determined by financing mix.There are three basic approaches to determine an appropriate financing mix a. Hedging approach also known as matching approach b. Conservative approach c. Trade- off between these two.HEDGING APPROACHIt is a risk reducing investment strategy involving transaction of simultaneous but oppositenature so that the effect of one is likely to counterbalance the effect of the other. It involves thematching of maturities of debt with the maturities of financial needs.For the purpose of financing current asset by this approach the current is classified into twoclasses 34 | P a g e
  35. 35. a. Those which are required in a certain amount for a level of operation and do not vary with time. b. Those which fluctuate over timeThe hedging approach suggest that long term funds should be used to finance the fixed portion ofcurrent assets while the temporary requirement, that is, the seasonal variation over permanentrequirement should be appropriately financed with short term funds.With this approach the short term financing requirement (current assets) would be just equal toshort term financing available ( current liabilities).CONSERVATIVE APPROACHThis approach suggest that estimated requirement of total funds should be met from long termsources; the use of short term funds should be restricted to only emergency situation or whenthere is unexpected outflow of funds.The two approaches discussed above can be compared on the basis of cost consideration and riskconsideration.TRADE-OFF APPROACHThe hedging approach is related with high profits as well as high risk while the conservativeapproach is related with low profits and low risk. So the trade-off approach strikes a balancebetween and provides a financial plan between the two extremes.The exact trade-off between risk and profitability will differ from case to case depending on riskperception of the decision maker. One possible trade off could be equal to the average ofminimum and maximum monthly requirements of funds during a given period of time. The level 35 | P a g e
  36. 36. of requirement may be financed through long term sources and for any additional financial needsthe short term funds may be used. IMPORTANCE OF WORKING CAPITALWorking capital is the measurement of the availability of liquid assets a company has to build itsbusiness. Generally, companies that have a lot of working capital will be more successful sincethey can expand and improve their operations. Companies without working capital may lack thefunds necessary for growth.Small businesses often use working capital to pay short-term obligations such as inventory oradvertising but it can also be utilized for long-term projects such as renovations or expansion.These are elements in the business cycle that can quickly absorb cash. If working capital dips toolow, a business risks running out of cash. Even very profitable businesses can run into trouble ifthey lose the ability to meet their short-term obligations. Business financing or small businessloans can be used as a fast cash option to cushion the periods when the flow is not ideal orreadily available.Cash flow is the businesses life blood and every owner‟s primary task is to help keep it flowingand to use the cash to generate profits. If a business is operating profitably, then it should, intheory, generate a cash surplus. If it does not generate a surplus, the business could eventuallyrun out of cash and expire. The faster a business expands , the more cash it will need for workingcapital. Proper management of working capital will generate cash and will help improve profitsand reduce risk.Working capital represents the funds available with the company for day to day operations.Working capital finances the cash conversion cycle. Company cannot survive with negativeworking capital which represents that the company has no funds for day to day operations.The importance of working capital can be summarized as follow:-Adequate amount of working capital provides the following advantage to a business enterprise. 36 | P a g e
  37. 37. 1. IMMEDIATE PAYMENT TO SUPPLIERS- it ensures regular supply and continuous production and also develop good repo. 2. BENEFIT OF CASH DISCOUNT- by payment on time firm can avail the advantage of cash discount which will reduce the cost of production and increase profitability of firm. 3. ADEQUATE DIVIDEND DISTRIBUTION- a firm can declare and distribute ample dividend when there is sufficient profit and thus can create satisfaction among shareholders and bring stability in the market value of share. 4. INCREASE IN GOODWILL AND DEBT CAPACITY- promptness to third party in business creates goodwill and debt capacity of the concerned firm. It enables firm to raise loan whenever needed without any difficulty. 5. EASY LOANS FROM BANK-A firm having adequate working capital and liquid assets can arrange loans from banks on easy and favourable terms, as excess current asset over current liabilities provides a good security for the unsecured loans. 6. EXPLOITATION OF GOOD OPPORTUNITIES- A firm with adequate working capital can exploit opportunities and can earn profit. 7. MEETING UNFORSSEN CONTINGENCIES- a firm can face small crises, financial crises due to heavy losses etc. 8. INCREASED EFFICIENCY- Adequate working capital has psychological effect on the directors and executive of the firm and motivates them to work vigorously. 9. INCREASED IN FIXED ASSETS PRODUCTIVITY- the fate of large scale investment in fixed assets is often determined by a relatively small amount of current assets.Essentially working capital is the answer to the question: "How much short term funding do youneed to operate this business?" Short term funding is important because, with long term fundingalready in place, the business still needs short term funding to operate. Without the short termfunding, the business will go bankrupt. 37 | P a g e
  38. 38. CHAPTER III RESEACH METHODOLOGY3.1) IntroductionResearch methodology is a way to systematically solve the research problem. It may beunderstood as a science of studying now research is done systematically. In that various steps,those are generally adopted by a researcher in studying his problem along with the logic behindthem. It is important for research to know not only the research method but also knowmethodology. ”The procedures by which researcher go about their work of describing,explaining and predicting phenomenon are called methodology.”Methods comprise the procedures used for generating, collecting and evaluating data. All thismeans that it is necessary for the researcher to design his methodology for his problem as thesame may differ from problem to problem. 38 | P a g e
  39. 39. Data collection is important step in any project and success of any project will be largely dependupon now much accurate you will be able to collect and how much time, money and effort willbe required to collect that necessary data, this is also important step.Data collection plays an important role in research work. Without proper data available foranalysis you cannot do the research work accurately.3.2) Types of data collectionThere are two types of data collection methods available.1. Primary data collection2. Secondary data collection1) Primary dataThe primary data is that data which is collected fresh or first hand, and for first time which isoriginal in nature. Primary data can collect through personal interview, questionnaire etc. tosupport the secondary data.2) Secondary data collection methodThe secondary data are those which have already collected and stored. Secondary data easily getthose secondary data from records, journals, annual reports of the company etc. It will save thetime, money and efforts to collect the data. Secondary data also made available through trademagazines, balancesheets, books etc.This project is based on primary data collected through personal interview of head of accountdepartment, head of SQC department and other concerned staff member of finance department.But primary data collection had limitations such as matter confidential information thus projectis based on secondary information collected through five years annual report of the company,supported by various books and internet sides. The data collection was aimed at study of workingcapital management of the companyProject is based on 39 | P a g e
  40. 40. 1. Annual report of CCL 2009-102.Annual report of CCL 2010-113.3) OBJECTIVES OF THE STUDYStudy of the working capital management is important because unless the working capital ismanaged effectively, monitored efficiently planed properly and reviewed periodically at regularintervals to remove bottlenecks if any the company can not earn profits and increase its turnover.With this primary objective of the study, the following further objectives are framed for a depthanalysis.1. To study the working capital management of Central Coalfields Ltd.2. To study the liquidity position through various working capital related ratios.3. To study the working capital components such as debtors management, cash management,Inventory position.4. To estimate the working capital requirement of Central Coalfields Ltd3.4) SCOPE & LIMITATIONS OF THE STUDYScope of the studyThe scope of the study is identified after and during the study is conducted. The study of workingcapital is based on tools like trend Analysis, Ratio Analysis, working capital leverage, operatingcycle etc. Further the study is based on last3 years Annual Reports of CCL. And even factors likecompetitor‟s analysis, industry analysis were not considered while preparing this project.Limitations of the study 40 | P a g e
  41. 41. Following limitations were encountered while preparing this project: 1) Limited data:-This project has completed with annual reports; it just constitutes one part of data collection i.e.secondary. There were limitations for primary data collection because of confidentiality. 2) Limited period:-This project is based on five year annual reports. Conclusions and recommendations are based onsuch limited data. The trend of last three year may or may not reflect the real working capitalposition of the company. Also being a public sectors it was to difficult to get access to variousdata. 3) Limited area:-Also it was difficult to collect the data regarding the competitors and their financial information.Industry figures were also difficult to get. CHAPTER IV WORKING CAPITAL MANAGEMENT IN CCLIn CCL working capital management is done on three indegriants: 1. Cash management 2. Debtors management 3. Inventory management. CASH MANAGEMENT IN CCL 41 | P a g e
  42. 42. Efficient cash management processes are pre-requisites to execute payments, collect receivablesand manage liquidity. Managing the channels of collections, payments and accountinginformation efficiently becomes imperative with growth in business transaction volumes. Thisincludes enabling greater connectivity to internal corporate systems, expanding the scope of cashmanagement services to include “full-cycle” processes (i.e., from purchase order toreconciliation) via ecommerce, or cash management services targeted at the needs of specificcustomer segments.Cash management is concerned with the managing of: - Cash flow – Inside the firm and Out of the firm Cash flow – Within the firm & Cash balances held by the firm at a point of time by financing deficit or investing surplus funds.Cash is money that is easily accessible either in the bank or in the business. Cash on hand or inthe bank is needed to pay suppliers, to pay the rent, and to meet the payroll. Profit is the amountof money you expect to make if all customers paid on time and if your expenses were spread outevenly over the time period being measured. However, it is not your day-to-day reality. Cash iswhat you must have to keep the doors of your business open. Over time, a companys profits areof little value if they are not accompanied by positive net cash flow. Cash flow is one of thecomponent in cash management.Cash Flow refers to the flow of cash into and out of a business over a period of time. Theoutflow of cash is measured by the money you pay every month to salaries, suppliers, andcreditors. The inflows are the cash you receive from customers, lenders, and investors. The basicobjective of cash flow statement is to inform about the cash inflows and cash outflows during theyear.Positive Cash Flow 42 | P a g e
  43. 43. If the cash coming into the business is more than the cash going out of the business, the companyhas a positive cash flow. A positive cash flow is very good and the only concern here ismanaging the excess cash prudently.Negative Cash FlowIf the cash going out of the business is more than the cash coming into the business, the companyhas a negative cash flow. A negative cash flow can be caused by a number of problems thatresult in a shortage of cash, such as too much or obsolete inventory, or poor collections onaccounts receivable. If the company doesnt have money in the bank or cant borrow additionalcash at this point, it may be in serious trouble. Cash Collection s Business Deficit Operations s Surplus Information Borrow And control Cash Invest Payments 43 | P a g e
  44. 44. ACCOUNTING STANDARD 3-CASH FLOW STATEMENTSAS-3 cash flow statements (revised 1997), issued by the council of ICAI, comes into effect inrespect of accounting periods commencing on or after 1-4-1997. This standard supersedes, AS-3changes in financial position, issued in June 1981. This standard is mandatory in nature inrespect of accounting periods commencing on or after 1-4-2004 for the enterprises which fall inany one or more of the categories of level I enterprises, at any time during the accounting period.The enterprises which do not fall in any of the categories of level I, are encouraged, but are notrequired, applying this standard.+An enterprise should prepare a cash flow statement and should present it for each period forwhich financial statements are presented. The cash flow statement should report cash flowsduring the period classified by operating, investing and financing activities. An enterprise shouldreport cash flows from operating activities using either: a) The direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or b) The indirect method, whereby net profit or loss is adjusted for the effects oftransactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.. Hence the preparation of cash flow statement involves the following steps: 1. Computation of net increase or decrease in cash. 2. Calculation of net cash flow provided by operating activities. 3. Calculation of net cash flow from investing activities. 44 | P a g e
  45. 45. 4. Calculation of net cash flows from financing activities. 5. Preparation of cash flow statement in approved format. 6. Reporting of significant non-cash transactions in a separate schedule to cash flow statement.A Cash Flow Statement is typically divided into three components so that you can see andunderstand both the internal and external sources and uses of cash. 1. Operating Cash Flow (Internal) Operating cash flow, often referred to as working capital, is the cash flow generated from internal operations. It is the cash generated from sales of the product or service of your business. Because it is generated internally, it is under your control. 2. investing cash flow (internal)Investing cash flow is generated internally from non- operating activities. This component would include investments in plant and equipment or other fixed assets, nonrecurring gains or losses, or other sources and uses of cash outside of normal operations. 3. Financing cash Flow (External)Financing cash flow is the cash to and from external sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan, the issuance of stock and the payment of dividend are some of the activities that would be included in this section of the cash flow statement.Good cash management means: Knowing when, where, and how your cash needs will occur, Knowing what the best sources are for meeting additional cash needs; and, Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors.The starting point for avoiding a cash crisis is to develop a cash flow projection. Smart businessowners know how to develop both short-term (weekly, monthly) cash flow projections to helpthem manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help them 45 | P a g e
  46. 46. develop the necessary capital strategy to meet their business needs. They also prepare and usehistorical cash flow statements to gain an understanding about where all the money went. Funds/cash plays a very vital role in every organization so does in CCL. It is important to meet its day to day requirement of cash. It is directly controlled by the General Manager of finance in CCL. The fund section is responsible for effective fund/cash management of entire CCL. There are many sources of funds from which CCL gets funds according to their requirement. In CCL cash is mainly realized from sale of coal which is supplied to various sectors that includes Power sector like Jharkhand state electricity board (JSEB) Punjab state electricity board (PSEB) Haryana state electricity board (HSEB) Delhi vidhut corporation (DVC) National thermal power corporation (NTPC) Steel sector like Steel authority of India limited (SAIL) Vizag steel plant etc. Other sector includes Defence Chemical industry etc. It is discussed earlier that coal is sold in two ways: cash and credit. A major percentage of total sales of coal are made to government parties on credit basis. Rest is sold to parties on advance payment basis. 46 | P a g e
  47. 47. CCL is spread over in different district of Jharkhand there are 13 areas of CCL namely Agarda Barkakhana Cs-cws Kuju Hazaribagh Rajrappa Giridih Kothara Bokaro&kargali Dhori North khanpura area Piprawar DaltanganjAll the above areas send their requisition for capital & revenue expenditure on week to weekbasis to CCL to Ranchi headquarter. The fund section make payment through bank on the basisof this capital & revenue expenditure report send by 13 different areas i.e. fund are provided tothese areas on the basis of pending bill claims. The capital & revenue expenditure report must beverified by two authorized person of CCL: - Area manager of CCL. 47 | P a g e
  48. 48. Finance manager of CCL. CCL mainly used cash flow projection and cash budget for cash planning and control. Cash flow projection is also used to determine for optimum cash balance of CCL. CCL has not faced any kind of liquidity crunch in past 5 years. This indicates that CCL maintain a sufficient cash balance. However CCL has working capital demand limit with SBI along with coal India ltd. (CIL) against hypothecation of current assets. If any surplus arises in CCL then that is deposited in nationalized banks with varying period of maturity of fixed deposit. Nationalized bank are decided by the board of directors of CCL. Selection of bank is done on the basis of their net worth. CCL follows accounting standard 3 to prepare cash flow which is explained earlier..METHOD USED BY CCL FOR PREPARING CASH FLOW STATEMENTCCL used direct method for preparing cash flow statement.But this direct method does motfolloew proper format. The direct method provides information which may be useful inestimating the future cash flows and which is not available under indirect method. Therefore,direct method is considered more appropriate than indirect method. Under the direct methodinformation about major classes of gross cash receipts and gross cash payments may be obtainedeither: From the accounting records of the enterprise. By adjusting sales, cost of sales (in the case of financial enterprise interest and similar income and interest expense and similar charges) and other items in the statement of Profit & Loss for: 1) Changes during the period in inventories and operating receivables and payables; 48 | P a g e
  49. 49. 2) Other non-cash items and3) Other items for which the cash effects are investing or financing cash flows. CENTRAL COALFIELDS LIMITED, RANCHIMonthly cash flow statement (Fund) (RS. In lakhs) APRIL-12 PROGRESIVE FUND 2012-2013 Opening Balance 24471.27 24471.27 Receipts Sales-credit 16595.54 16595.54 Recd from Rd sales 30757.33 30757.33 49 | P a g e
  50. 50. Income Tax refund 0.00 0.00Interest 65.20 65.20COAL BLOCK 0.00 0.00Rites 10429.27 10429.27Gratuity Fund 953.88 953.88Recd from Kolkata 7700.00 7700.00Total receipts 66501.22 66501.22OB+Receipts 90972.49 90972.49PAYMENTRoyalty 685.67 685.67Royalty adv 0.00 0.00CMPF/pension 6358.77 6358.77Corporate Tax 0.00 0.00FIXED DEPOSIT 0.00 0.00Wealth Tax 0.00 0.00Dividend Tax 0.00 0.00Dividend 0.00 0.00TDS 5040.59 5040.59Service Tax 2.19 2.19Clean energy cess 2203.03 2203.03Sales Tax 238.09 238.09 50 | P a g e
  51. 51. J vat 537.10 537.10Adv sales Tax 0.00 0.00Adv j VAT 0.00 0.00Cental excise duty 36.89 36.89Misc 0.00 0.00Area remit-revenue 34486.00 34486.00Area remit-capital 808.00 808.00Gratuity fund 22591.94 22591.94Total payments 72988.27 72988.27Closing balance 17984.22 17984.22 CENTRAL COALFIELDS LIMITED, RANCHI Monthly cash flow statement (Fund) 51 | P a g e
  52. 52. PROGRESIVE April 2012-2013Opening Balance 24471.27Cash flow from operating activitiesInflowRealization from customers 16595.54Recd from Rd sales 30757.33Rites 10429.27Recd from Kolkata 7700.00Total Add operating balance 65482.14OB+inflow 89953.41OutflowRoyalty 685.67CMPF/pension 6358.77TDS 5040.59Service Tax 2.19Clean energy cess 2203.03 52 | P a g e
  53. 53. Sales Tax 238.09 J vat 537.10 Cental excise duty 36.89 Area remit-revenue 34486.00 Area remit-capital 808.00 outflow amount 50396.33 B)cash flow from investing activities increase in interest received 65.20 Increase in gratuatity fund received 953.88 Decrease in gratuatity fund payment 22591.94 B) Total investing activies -21572.86 C)Cash flow from financing activities Fixed deposit 00.00 c)total financing activities 00.00 Closing balance = (A-B-C) 17984.22Workingnotes :( 89953.41-50396.33) =39557.08 A= 39557.08 B= -21572.86 C= 00.00 Closing balance= 39557.08-21572.86-00.00=17984.22. 53 | P a g e
  54. 54. Note‟s in croreSuggestions for improvementCCL has not faced any kind of liquidity crunch in past five years. This indicates that CCLmaintain a sufficient cash balance. However CCL has WCDL (working capital demand limit)with SBI along with CIL against hypothecated of current assets.If any surplus arises in CCL then this surplus fund is deposited with varying period of maturityof fixed deposit. Listed bank are decided by the board of directors of CCL. They decided anybank on the basis of net worth of that bank.There is no bank loan in respect of CCL to fulfil their working capital need. This shows thatCCL has enough cash balance to fulfil its day to day requirement of cash.CCI has taken a loan from World Bank to fulfil their fixed capital requirement.However an attempt has been recast… CCL & AS 3 CCL is also following AS 3, but they follow Both Method (Direct as well as Indirect). As per the cash flow statement for the month of March 2012, we can see that they are following directmethod and in that they mentioned their gross receipts and gross payment of cash only, and after studying the Cash Flow Statement for the year ended 2010-12 we can observe that they are following Direct Method for maintaining their Cash Flow Statement. In all this we can see for their monthly transactions they maintain Direct method and forthe whole at the end of the year CCL prepare their Cash Flow Statement by Indirect Method. 54 | P a g e
  55. 55. In CCL there is positive cash inflow since last 5-6 years. So the only concern of CCL is tomanage excess of cash inflow over outflow.It has been seen that when CCL was having negative cash inflow then it used to balance theshortage of funds by:- 1. Cost cutting of expenditure. 2. Delay in payment of statutory bills. 3. Short term funding by taking loans from bank. 4. Investment by central coalfield limited (C.C.L)According to the policy guidelines for the Investment/Deployment of Surplus Funds inAppropriate Financial Instruments approved by CIL Board, it is clearly mentioned that “Thedepartment of public enterprise has permitted central PSU to invest in public sector mutual fundonly. The Chairman, CIL approved investment in 4 PSU mutual fund houses. ” They are:- 1) SBI 2) UTI 3) CANARA 4) LICAs these fund houses are registered with and regulated by SEBI and GOI and wherein Govtfinancial institution and public sector banks holds individually and collectively more than 50%of equity shares. 55 | P a g e
  56. 56. MUTUAL FUNDS investment by C.C.L Name of fund Scheme 1) SBI SBI Premier Liquid Fund – Super Institutional (IP) Plan 2) UTI UTI Liquid Fund - Cash Plan - Institutional 3) Canara Robeco Canara Robeco mutual fund super institutional plan 4) LIC LIC NOMURA Liquid FundEach mutual fund is given a basis point of 25 of total investment. If it‟s over 25 point then awatch of 10 days is there and with a formal procedure the company withdraw the money andinvest in other three funds whichever is giving good report.Analysis:- SBI Premier Liquid Fund (SPLF) has been positioned for Institutional investors and large Corporate Treasuries who desire to invest their short term cash surpluses for periods ranging from overnight to a few days, while maintaining a high degree of liquidity. The investments in the scheme would be made only in debt/ money market securities. SBI Premier Liquid Fund (SPLF) would seek to generate returns with minimal volatility and provide investors with a high degree of liquidity. 56 | P a g e
  57. 57. The UTI Liquid Cash Plan is positioned as a low-risk, low-volatility fund which aims at offering reasonable returns to investors looking to park short-term surpluses. The fund attaches importance to low credit risk, portfolio diversification and stability of returns. Same above written benefits are provided by the canara robeco liquid fund and lic nomura liquid funds. Mutual fund investment is the safest and guaranteed return fund to be invested. So, the coal India subsidiaries companies especially Central coalfield limited invest its surplus money in 4 different mutual fund with a clear diversion of money equal in 4 parts so that if they found out any loss in any single mutual fund then the money is withdrawn and reinvested in other three equally or the one giving the larger profit. All the mutual funds are of governmental type investment on SEBI guidelines.There are various ways to utilize wisely the excess of cash like investment in mutual funds,shares etc. but being a public sector unit it can only have a single choice which is fix depositaccording to policies framed by Indian government. 57 | P a g e
  58. 58. CCL does the fixed deposit by keeping in mind various factors (i) Quarter end payment of tax (ii) Requirement of money for advance payment (iii) Requirement according to forecasted demandAccordingly the tenure of fixed deposit are decided. Mostly the fixed deposits are for 1 year orso.Uniform Deposit Policy for CIL and its Subsidiaries ANNEXURE-AThe salient features of the uniform deposit policy approved by CIL Board in its 235th meetingheld on 25 September 2007 and subsequent amendment in 249th meeting held on 10 April 2009along with DPE guidelines received after approval of uniform deposit policy are as under:1. As per existing RBI guidelines, PSUs are allowed to invest in any scheduled bankincorporated in India having net-worth of Rs.100 crores and above and fulfilling the CapitalAdequacy Ratio (CAR) norm as prescribed by RBI (presently 9%). In order to have manageablenumber of banks with sound financials to deal with, it has been decided that only such bankshaving networth of Rs.1500 crores and above with CAR exceeding 10% be selected forplacing deposits.In pursuance to the above, a list of 18 banks was identified initially for placement of deposits byCIL and its subsidiaries.Subsequently, IDBI Bank was included in the list taking the number of banks to 19. Further,during October 2009, with the approval of the competent authority, Central Bank of India hasbeen disqualified for doing all future business especially placement of fixed deposit by CIL andits Subsidiary Companies till further order. At present, there are 18 banks, which are eligibleto receive deposit from CIL and its Subsidiary Companies. A list of these banks is placed at 58 | P a g e
  59. 59. Annexure-1 (Revised as per Balance Sheet of 31.3.2009 of the banks). CIL and itsSubsidiaries shall place deposits with the banks from the said list.2. The CIL Board, in order to balance the risk and return on the portfolios of CIL and itssubsidiaries, approved that the fixed deposit is to be placed with the banks offering highest rateof interest within exposure limit of each bank. The methodology of calculating exposure limit isdescribed in Para-3. In a subsequent development, pursuant to the DPE guidelines, in order toavoid undesirable competition amongst banks leading to arbitrary hikes in deposit rates, withadverse consequences for the economy, the practice of inviting competitive bids for bulkdeposits was discontinued. Thus, at present, as per subsequent DPE guidelines, CIL and itsSubsidiaries shall place with banks at prevailing best available card rate subject toexposure limit of each bank as described in Para-3.3. Keeping in view the importance of net-worth, which determines the size and strength of banks,Net-worth (Equity Capital plus Free Reserves) of banks meeting CAR requirements areconsidered as criteria for determining the exposure limit of the bank.Exposure limit of the banks at different range of net-worth for CIL and its each Subsidiarywere decided initially as follows:TableHowever, there shall be no cap on maximum limit for State Bank of India. In a laterdevelopment, the maximum exposure limit of individual private bank has been restricted to10% of total cumulative deposit irrespective of net-worth. Moreover, overall exposure limitin private banks will be restricted to 25% of the total deposit.4. In respect of methodology of placement of deposit with the banks, the approvals of the CILBoard are as under:i) The subsidiaries should go for selection of one specific branch of a bank at a particularlocation from the list of eighteen banks at Annexure-1. It is advised that the subsidiaries as wellas CIL shall go for opening current account at the branches of the banks eligible to acceptdeposits. Subsidiaries shall go for placing deposit with the branches nominated by the respectivebanks. Such lists have been forwarded by CIL to Subsidiaries from time to time. Further, DPE 59 | P a g e
  60. 60. in its guidelines dated 15.1.2008 and 11.4.2008 directed that PSEs should place their bulkdeposits with such banks with whom they have regular course of business.ii) While selecting branches under Annexure-I, subsidiaries should give priority to thosebranches which have the facilities of Real Time Gross Settlement (RTGS)/ Core BankingSolution (CBS).iii) The subsidiaries may adopt policies for depositing surpluses through its desk offices locatedat Kolkata for better connectivity with the financial market besides its Command Areas.5. In respect of methodology of placing deposits, it is emphasized that CIL and its subsidiariesshall strictly adhere to theguidelines issued by the Dept. of Public Enterprise, GOI.Range of Net-worth Maximum exposure limit % of total cumulative deposit Private andNationalized Banks1500-5000 10% 5001 and 10000 15% 10001 and above 20% guidelines issued by the Dept. ofPublic Enterprise, GOI.6. All the fund managers of CIL and its subsidiaries shall assess investible surplus funds on adaily basis and ensure that no fund remains idle in the current account. In order to avoid loss ofinterest, it is required to maintain CLTD A/c with the bank(s) where funds are lying. If theCLTD arrangement is not there with a particular bank, the investible funds may be placed inshort-term deposits with the banks for 7-10 days with immediate effect. On maturity of suchshort-term deposits placed from time to time,the said amount may be placed with the banks asper the policy mentioned above subject to the exposure limit of the bank.7. The Para 4 of OM dated 14.12.1994 issued by DPE, stipulates inter-alia, that decision forinvesting short- term surplus funds upto one year maturity is to be taken by a designated group ofDirectors from among the functional Directors that should include Chairman and Director(Finance). Placing funds in CIL and its subsidiaries is a day-to-day operation, which is difficultto be carried out in the manner suggested in the said guidelines. However, keeping the spirit ofthe guideline and in order to ensure complete transparency, a Committee of at least two membersfrom Finance Division may be constituted comprising HOD of Finance, who shall chair theproceedings with other member(s) of the rank of CFM (E8). The Committee shall have thepower to approve a deposit proposal put up by the officer(s) in charge of the treasury operations.In case, treasury operations of the subsidiaries are carried out from Kolkata, such proposal 60 | P a g e
  61. 61. should, at the first instance be sent by FAX/ Email to the subsidiary (HQs) for approval by theCommittee. Since time is the essence in active treasury operation, such proposals should beimmediately taken up by the committee and decision communicated by FAX/ Email to theKolkata office.8. Based on above suggested methodology, bank card rate for funds available for each case ofdeposit is to be obtained from the selected branches of the listed banks. If any nominated branchof a bank is not in a position to submit the card rate, the same shall be recorded in writing. Theofficer(s) in charge of the treasury operation shall initiate a proposal along with the card ratesreceived from all the selected banks / branches in line with the guidelines detailed above. Theproposal shall suggest placement of fund among banks, which qualify to accept deposits as perthe policy, and thereafter placed before the committee for approval. The proposal shall be actedupon its approval.9. There shall be a system in place for submission of monthly report detailing the placements offunds made during that particular month to the Director (Finance) and to the Chairman/CMD. Aquarterly report shall be furnished to the Board of Directors informing the annualized return onthe deposits placed during the last quarter.10. All other guidelines contained in the approved Investment Policy of CIL, which have notbeen expressly dealt herein as laid down in the Uniform Deposit Policy shall continue. Debtors ManagementThe basic objectives of the debtor‟s management are to optimize the return on investment on theassets. Its main aim is to promote sales and profit until that point is reached where the return oninvestment is further funding of debtors is less than the cost of funds raised to finance thatadditional credit.When a firm makes sale of goods and services and does not receive payment, it grants tradecredit and creates Debtors accounts, which would be collected in the future. These represent the 61 | P a g e
  62. 62. extension of credit on an open A/c by the firm to its customers, as the substantial amount is tiedup in trade debtors, it needs careful analysis and proper management.  Size of Investment in Debtors: Investment in debtors A/c is a major part of their assets in most of business enterprises. Debtors A/c is one of the major components of working capital. The financial executives should pay due attention to the management of debtors, so that each rupee invested in debtors may contribute to the net worth of the organization.  The Basic Problem of Debtors Management: The basic problem of debtor‟s management is the balancing of profitability & liquidity. Soft credit terms attract sales and so the longer the time a company allows to pay to its customers the greater the sales and higher the profits. The longer the period of credit the greater the risk, the greater the level of debt and greater the strain on the liquidity of the company. PAYMENT ACCORDING TO FUEL SUPPLY AGREEMENT The Purchaser shall make advance payment for a month in three (3) installments for availing Coal supplies from the Seller – first (1st) installment on the first (1st) day of the month, second (2nd) installment on the eleventh (11th) day of the month and the third (3rd) installment on the twenty first (21st) day of the month. Each of these payment installments shall cover the As Delivered Price of Coal for the Coal quantities that is one- ninth (1/9th) of the QQ concerned. Further, each of these installments shall take into account the weighted average of Contract Prices of Grades based on actual supplies of immediately available previous month. However, the third (3rd) installment shall also include the adjustment amount with regard to the actual quantity of Coal delivered and the quality of Coal analysed vis-à- vis the advance payment made for the previous month. 62 | P a g e
  63. 63. Quarterly Quantity (QQ)The Annual Contracted Quantities for the Year shall be divided intoQuarterly Quantities (QQ), expressed in tonnes, as follows: Ist Quarter (Apr-Jun.) 25% of ACQ IInd Quarter (Jul-Sep) 22% of ACQ IIIrd Quarter (Oct-Dec) 25% of ACQ IVth Quarter (Jan-Mar) 28% of ACQThe Purchaser shall maintain with the Seller an Irrevocable Revolving Letter ofCredit (IRLC) issued by a bank acceptable to the Seller and in the formatacceptable to the Seller and fully conforming to the conditions for an amountequivalent to As Delivered Price of Coal for the Coal quantities that is one-ninth (1/9th)of the QQ concerned. The As Delivered Price of Coal in this context shall take intoaccount the highest of Contract Prices of Grades. The IRLC shall be maintainedthroughout the term of this Agreement. The amount of IRLC shall be suitably changedwhenever there is a change in any component of the As Delivered Price of Coal. Inaddition to the IRLC, the Purchaser shall pay advance amount equivalent to seven (7)days Coal value by way of Demand Draft/ Banker‟s cheque/ Electronic FundTransfer (EFT).All the payments shall be made through Demand Draft / Banker‟s cheque/Electronic Fund Transfer payable at ([•] to be stated by the Seller). In the event ofnon-payment within the aforesaid stipulated period, the Purchaser shall be liable topay interest in accordanceAdvance payment made by the Purchaser shall be non-interest bearing, and itshall change in accordance with change in the As Delivered Price of Coal. 63 | P a g e
  64. 64. ANALYSIS:- Fuel supply agreement is the newly most advanced tool for the coal India limited subsidiaries to generate a cash surplus and to also help the companies to avoid the debtors in the company. Fuel supply agreement is designed in such a manner that it covers all the legal aspects of the supplier and the buyer and put them in a mutual bond for the various types and supply of the coal. Fuel supply agreement contains all the relevant information about both sides covering each and every aspect regarding the fuel and the interest of the buyer. JSEB as the monopoly of the home state electricity generation and distribution company of Jharkhand is the only company which is not agreed to abide by the rules and regulation described in fuel supply agreement.Salient features of the New Coal Distribution Policy (NCDP) All project developers relating to the power, cement and steel sectors and consumingmore than 4,200 tonnes of coal per annum have to mandatorily enter into fuel supplyagreements (FSA) with the coal supplier (mostly Coal India and its subsidiaries)versus the earlier system of linkages. In view of the importance of the defence sector and railways, their total requirement tobe met at notified prices. 100% of the „normative‟ requirements of the power sector consumers with coallinkages and that of the fertiliser sector consumers to be met through FSAs (since theyoperate under a regulated price regime). 64 | P a g e
  65. 65. For all other consumers with coal requirement of more than 4,200 t per annum, 75% oftheir normative requirement of coal to be provided under FSAs. Non-core sector developers with coal requirements less than 4,200 tonnes per annumto be given the option of either entering into FSAs or meeting their requirementsthrough agencies nominated by the state governments. About 8 mmtpa coal to bemade available to meet the requirements of the small and medium sector consumers. Supply of coal through e-auctions to be made more systematic without thegovernment‟s involvement in the pricing of auctioned coal.It is worthwhile to note that despite the introduction of the NCDP in October 2007, FSAswere not signed until May 2009 due to a disagreement between Coal India and powerproducers (mostly NTPC) over the minimum coal supply guarantee threshold (below whichCoal India is liable to pay penalties). Following several discussions among thestakeholders, it was agreed in May 2009 with the signing of NTPC‟s FSA that Coal Indiawill guarantee at least 90% of the annual contracted quantity (ACQ) to the power projectscommissioned until Mar 2009 (ACQ is equal to 100% „normative‟ coal requirements andmostly equivalent to about 90% PLF for the power project) Debtors Management in CCLSalesCCL sale coal to its customer on cash bases: -CCL sales 100% of its production for cash and restCASH SALE: - CASH DO LIFTPreviously CCL uses both cash and credit sales 65 | P a g e