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Project Report
            On
Study of Financial System of MIEL
A PROJECT REPORT


                                 ON


         “Working capital & Ratio analysis”

                                 AT


               Monnet Ispat & Energy Limited




                            Submitted by
                           Sonu Samdariya
                         Id: 09PR00101B061




   INTERNAL GUIDE                                EXTERNAL GUIDE
   Mr. Manmeet Arora                             Mr. Kamal Tanna
                                                 (Sr. Manager )


IN PARTIAL FULFILLMENT OF MASTER OF BUSINESS ADMINISTRATION

                       PROTON b school, Indore
                            2009 - 2011
This is to certify that the internship project titled “Working Capital & Ratio Analysis” is

successfully completed by Mr. Sonu Samdariya under my supervision in partial fulfillment & for

the award of MBA for the period from 3rd May 2010 to 30th June 2010. This report neither full nor in

part has ever been submitted for awarding of any degree of either this university or any other

University. I am pleased to say that his performance during this period was very good.




Internal Guide

Mr. Manmeet Singh Arora

  (Faculty Guide)
DECLARATION




I hereby declare that this project work entitled “Working Capital & Ratio Analysis” is my sincere

work, carried out under the guidance of faculty guide Mr. Manmeet Singh Arora . This neither full

nor in part has ever been submitted for award at any other University.




Name : Sonu Samdariya




Place : Raipur




Date :
ACKNOWLEDGEMENT



It is my pleasure to acknowledge gratefully all those honorable personalities who have helped me
into the creation of this project and shared their experience about management and the market.

I express my deep regards and solemn gratitude to Mr. Kamal Tanna (Senior Manager Finance
Department) and my project guide Mr. Anand Pal for giving me the opportunity and their valuable
guidance to make this project successful.

I wish to express my indebtedness and sincere thanks to Dr. Vinay Goyal (Dean of PROTON
business School) for giving me opportunity to work in the organization.

I would also like to express my sincere gratitude and special thanks to Mr. Mnameet Singh Arora
(Faculty of Financial Management), and all the faculty members for being supportive to me.

Special thanks are due to all the respondents who gave me their time and attention despite their
busy schedule.

Finally, I wish to extend my sincere acknowledgement to my parents for their moral and financial
support.

With regards




                                                                                Sonu Samdariya
Table of Contents
Executive Summary

      The project is about Working Capital Management in “Monnet Ispat & Energy Ltd” at Raipur
Chhattisgarh,

      Project is an opportunity given to management student where one gets an insight in to the
practical aspects in the day to day working of an organization. It imparts a real time environment to
the theoretical knowledge that one acquire in a business school. The project was undertaken to
make a study on the various aspect of the “Working Capital Management”.

      The Project highlights the main aims and objects of the project report. It also explains the
great importance of Working Capital Management. It covers specific introduction of Working
Capital Management. It gives theoretical aspects as well as covers all dimensions of the topic.

      Research methodology adopted for getting data is empirical in nature and therefore release
in the company‟s annual report and financial statements.
Objective of Study



       To present an introductory profile of Monnet Ispat Energy Ltd.
       To study in depth the finance management of Monnet Ispat & Energy. Ltd
       To study the financial position of the concern through Working Capital Management.
       To estimate the working capital requirement of the company and the composition of the
         net current assets for the period under review.
       To analyze and interpret the working of the company through the use of tools such as
         Working Capital Management.
       To know the liquidity position of the company for the period under consideration.
       To know the efficiency of the concern.
       To study the level of current assets and current liabilities for the company.
       To study the nature of expense in company and estimate the future expense base on
         past data.
       To understand how the expense are control by the use of Working Capital Management.
       To understand how Working Capital Management helps the company.
       To draw a conclusion regarding Finance Management of Monnet Ispat & Energy Ltd.
Scope of the Study

      Working Capital Management is widely used in all the organization. The scope of this study
is limited to the study of different types of ratios and fund control of Monnet Ispat & Energy Ltd.
The study includes the computation and comparison of various ratios and the estimation of working
capital requirements for the period under review.

      The study was conducted at “Monnet Ispat & Energy Ltd Raipur”. The duration of the study
was confined to about 60 day‟s.

       This study is limited to Monnet Ispat & Energy. Ltd.
       This study is specially related with Finance management in particular.
       This study is presented on the basis of information and knowledge which could be
        gained during the course of SIP at Monnet Ispat & Energy Ltd.
       This study does not involve any survey or interaction with other company
       The data collected is related to Monnet Ispat & Energy Ltd and not the industry as a
        whole.
       The data collected is purely from company records and discussion with the top
        management only.
       This study is limited to time and does not consider the long run effect on the financial
        position of the firm.
Research and Methodology

       There are two methods of data collection –

              Primary Data Collection

              Secondary Data Collection

Collection of Primary Data

       The primary data are those which are collected and for the first time and thus happened to
be original in character. For this project primary data is collected by discussion with authorities.

   Collection of Secondary Data

       The secondary data on the other hand are those which have already been collected by
someone else and which already have been passed through statistical process. The secondary
data is collected from annual reports, magazines, office files and records etc.
Introduction to the Study

       The project is done on “Working Capital Management” of “Monnet Ispat & Energy Limited.”
This project was undertaken with an aim to gather information and get knowledge about the
Working Capital Management and related Financial Ratio of the company. A ratio is the
mathematical relationship between two quantities in the form of fraction or percentage. Ratio
analysis is essentially concerned with the calculation of relationship which after proper
identification and interpretation may provide information about the operations and state of affairs of
business enterprises.

       The analysis is used to provide indicators of past performance in terms of critical success
factors of a business. This assistance in decision-making reduces reliance on guesswork and
intuition and establishes a basis for sound judgment.

       The ratio analysis concentrates on the inter-relationship among the figure appearing in the
aforementioned for financial statements. Working Capital Ratio Analysis allow interested parties
like shareholders, investors, creditors, Government and analyst to make an evaluation of certain
aspect of a firms performance. The appraisal of the Working Capital will make proper analysis
about the strengths and weaknesses of the firm operations.

Working Capital Analysis is an accounting tool that reflects the followings:

    The ability of the firm to meet its short-term commitments.

    The debt financing of the company.

    The degree of the efficiency and the standard of performance of the company.

    Ratio provides an easy way to compare present performance with past.

    Ratio depicts the areas in which a particular business is competitively advantaged or
       disadvantaged through the comparison ratio to those of other business.

    The overall efficiency of the company.
equity research
Monnet Vision


 To achieve holistic in terms of cost, quality and customer satisfaction
   in a systematic and planned manner.
 A symbol of corporate excellence with strong focus for benefiting stakeholders and
   society at large.
Monnet Mission



 To achieve total integration in operations with global cost and quality
   Standards with the use of latest technology and to be perceived as the

   “Preferred “ choice of our customers.

 To build a team of motivated and dedicated work force with high
    Work Ethos.

 To strive to emerge as an ideal corporate citizen.
Introduction
Monnet Ispat & Energy Ltd is the flagship company of Monnet Group. It was incorporated
On 1st February 1990; Mr. Sandeep Jajodia and Jindal Strips Ltd jointly promoted the
company. It is located at Mandir Hasaud, Dist.Raipur. The first trial production Of the plant
came on 07/02/94 and the first commercial production of the plant came On 05/08/94. ISO
9001 certifies the MIEL.


Monnet is an industrial conglomerate born out of a conviction. It is this strength of conviction that
makes us the second largest coal-based Sponge Iron manufacturer with thriving facilities in Raipur
and Raigarh in the State of Chhattisgarh as well as the largest underground coal mine
operators in the country.

Today, Monnet has a combined capacity of 860,000 TPA of Sponge Iron, 300,000 TPA of Steel,
60,000 TPA of Ferro Alloys and Power generation facility of 150MW besides running the largest
underground coal mine in the country. Pursuing balanced integration, we have acquired additional
coal mining rights at Raigarh. Our profitability is a result of judicious use of indigenous technology,
backward & forward integration and economies of scale.


Company description
MIEL is the second largest sponge iron based steel manufacturer in India, next only to JSPL. The
business operations are backed by captive linkages of coal, power and to some extent, iron ore.
MIEL is expanding its capacity across its product range and the same is expected to be completed
by Q4FY09


Corporate

Monnet Ispat & Energy Ltd (MIEL) is the flagship company of the well diversified Monnet Group.

The Group currently manages manufacturing units for Sponge Iron, Steel Melting & Rolling Mill,
Ferro- Alloys Plant, Power Generation units, Mining & Mineral Beneficiation of Coal, Iron Ore and
other minerals. The Group has also a highly skilled set of professionals who guide the industry
through Coal Consulting Services.

In addition to its current thrusts, the group has envisaged ambitious growth plans in diverse sectors
and has devised strategic partnerships with world leaders to continue forays into sectors viz clean
coal technologies, port development and oil & gas sectors.
Monnet Group

      1   Monnet Ispat & Energy Ltd, Mandir Hasaud ,Raipur .
      2   Monnet Power Ltd, Angul
      3   Monnet Global Ltd.
      4   Monnet Danial Coal Washery Ltd (Ranchi)
      5   Rameshwaram Steel & Power Ltd

Monnet today
Monnet is an industrial conglomerate born out of a conviction. It is this strength of conviction that
makes us the second largest coal-based Sponge Iron manufacturer with thriving facilities in Raipur
and Raigarh in the State of Chhattisgarh.
Today, Monnet has a combined capacity of 0.86 million TPA of Sponge Iron, 0.3 million TPA of
Steel, 0.06 million TPA of Ferro Alloys and power generation facility of 150MW besides running the
largest underground coalmine in the Country. Pursuing balanced integration, we have acquired
additional coal mining rights at Raigarh. Our profitability is a result of judicious use of indigenous
technology, backward & forward integration and economies of scale.

Team monnet
Our growth plans have been fuelled by our workforce. As we expanded vertically and horizontally,
we added strength to our organizational structure by inducting seasoned professionals in each field
of activity - be it steel, mining on power. Such diverse specialists make Monnet a picture of multi-
faceted excellence.

Future, empowered
Monnet's growth story is marked by natural progression. Our 1.2 million TPA steel manufacturing
facility coming up at Raigarh is at an advanced stage of implementation. Brisk progress is being
made in the setting up of an additional 80 MW Power Plant at
Raigarh. Yet another mega venture will be completed on schedule - a 1050 MW Independent
Power Plant under the banner of Monnet Power Company Ltd. Quite simply, we are empowering
the future. With our mettle, and
our metal!


Company performance

Your Company has recorded impressive growth in the top line and bottom line in spite of the
deteriorated economic environment, sudden fall in demand in 2nd half of the
financial year followed by steep decline in selling prices. Additional capacity of Sponge Iron and
Power became operational in the 2nd half of the year, contributing to the
growth of the Company.
Expansion Plans
After completing the expansion in Sponge Iron and Power Divisions, your Company is moving
ahead with the implementation of 1.2 Million TPA Integrated Steel Plant at Raigarh. The integrated
facility will comprise of structural and a plate mill. The expansion will be completed in financial year
2011. Your company has also commenced implementation of 1050 MW Power Plant in its 100%
subsidiary company Monnet Power Company Limited (MPCL). The project is financially closed, the
orders for BTG Package have been placed with BHEL and the arrangements for evacuation and
sale of power have also been concluded. This marks a major milestone for your Company. Over
the next 3 years, your company would see substantial growth on a consolidated basis after
factoring the expansions being undertaken in steel and power.

Company's Philosophy on code of Governance
Monnet is committed to ethical corporate citizenship by following systemic process of healthy
governance practices and discharging societal responsibilities towards capital providers, business
associates, stakeholders and employees in conducting its affairs in a fair and professional manner
and in maintaining the high standards. The Company has also taken a series of other measures
such as having professional Directors on the Board who have achieved prominence in their
professional career, adopting pragmatic policies and effective systems and procedures, sharing of
information with shareholders on a regular basis, through newspapers, audits and checks. The
policies and actions of the Company, while being in full compliance of applicable laws and
regulations, are dictated by the underlying objective of maximizing shareholder value on a long-
term basis.
ORGANIZAIONAL FLOW CHART OF MONNET ISAPT & ENERGY LTD

                                                            M.D.




                                                                        Marketing        Finance     Corporate
                                                                                                     planning
                                                           C.E.O.




    Accounts                  Materials                Personnel                         Technical
     dept.                     dept.
                                                            Dept.                           Dept.




                                                           G.M.



    Dispatch         EDP                  Stores            Manager
     dept.
                     Procurement
                                          Manager stores
                                                                    Deputy

                     A.G.M Purchase                               Manager




     Process dept.                    Mechanical                    Electrical        Civil &        Quality
                                        dept.                         dept.                          control
                                                                                    Maintenance       Dept.
    Process          Process

    Sponge            Steel
FORWARD AND BACKWARD INTEGRATION


Coal
Mines

                                                     Sale in
                                 Sponge              Market

                                   Iron                                    Induction            Liquid
                                                                                                 Liquid
                                                   Captive use              Furnace
                                                                                                Metal
                                                                                                Metal
                                 By-Product
   Prospecting
   for iron ore                      &
   Mines                                                                                Poured into           Continuo
                                   Waste                                                                         us
                                                                                           Moulds
                                                                                                               Caster

                  Coal            Char            Waste                                  Ingot
                                                                                                                   Billet
                  Fines                            Gas

                                                                                        Market
                                                                                                                   Market



                                                  WHRB
                          AFBC




                                      Steam




                                     Turbine




                                          Power

                                                                  ARC                  Ferro
                                                                                       Alloys             Market
                                                                 Furnace
Quality Policy
  Monnet Ispat & ENERGY LIMITED shall strive to: -

      Achieve & Sustain Product Quality as per customer requirement and satisfaction.
      Adhere to Approved Quality Assurance system in conformance to ISO
      9001:2000.
M/S MONNET ISPAT& ENERGY LTD.          strive for continual improvement of their quality
management systems through the active involvement.

Divisions

      Sponge Iron.

      Steel Melting shop.

      Rolling Mill

      Power division

      Ferro division

PRODUCTS AND MANUFACTURING CAPACITY (Raipur)

Sponge Iron:
Monnet Ispat & Energy Ltd has total capacity of 3,00,000 Tonnes /annum Sponge
Iron. It has the four Kilns to produce sponge iron , whose capacities are as follows
       300 MT / day capacity which started
                It‟s Commercial Production on 05/08/1994
      350 MT / day capacity which started its
                Commercial production on 25/12/2001.
      100 MT / day capacity which started its
                Commercial Production on 19/08/2003.
     100 MT / day capacity which started its
                Commercial Production on 01/01/2004.
Steel Melting Shop :
Steel melting is consisting of two Products they are as follows.
      Steel Melting Shop – I (For Ingot)
      Steel Melting Shop – II (For Billet)
Steel Melting Shop-I

Its the total installed capacity is 67,000 tonnes p.a. This shop is

Having the total five furnaces, they are as follows

      4 furnaces of 3 tonnes each
      1 furnace of 4 tonnes each

Steel Melting Shop – II
 Its Total installed capacity is 2,33,000 Tonnes p.a. It has got 5 Furnaces as follows,
along with a double stand continuous caster for Billet Casting.

      2 furnaces of 12 tonnes.
      2 furnaces of 8 tonnes.
      1 furnacesof 18 tonne

Rolling Mill :
Its Total installed capacity is 200,000 Tonnes p.a. It has got 2 Furnaces.

Ferro Division:

Its Total installed capacity is 46400 Tonnes It has got 4 Furnaces

2 furnaces of 7.5MVA

1 furnace 5 MVA

1 furnancesof9 MVA

 Power division:
Its total installed capacity is 60 MW first unit is of 7.5MW second is 37.5MW and
third is 15MW.
Board of Directors




Shri Mohinder Singh Gujral            Chairman
Shri P.L. Nene                        Non Executive Director
Shri G.C. Mrig                        Non Executive Director
Shri J.P. Lath                        Non Executive Director
Shri V.N. Kedia                       Non Executive Director
Shri Sandeep Jajodia                  Executive Vice-Chairman
                                      & Managing Director
Board Committees
Audit Committee
Shri M.S. Gujral, Chairman            Investors' Grievance/
                                      Shareholders Committee
Shri P.L. Nene, Member                Shri M.S. Gujral
Shri G.C. Mrig, Member                Shri Sandeep Jajodia
Shri V.N. Kedia, Member               Shri J.P. Lath
Shri M.P. Kharbanda, Secretary

Finance Committee                Executive Committee
Shri Sandeep Jajodia                 Shri Sandeep Jajodia
Shri J.P. Lath                      Shri J.P. Lath

Remuneration Committee            Share Transfer Committee
Shri M.S. Gujral                       Shri J.P. Lath
Shri G.C. Mrig                         Shri V. N. Kedia
Shri J.P. Lath                   Shri M.P. Kharbanda

Company Secretary
Shri M.P. Kharbanda

Registered Office
Monnet Marg, Mandir Hasaud,
Raipur - 492101 (Chhattisgarh)
Works

Unit-I
Monnet Marg, Mandir Hasaud,
Raipur - 492 101 (Chhattisgarh)
Unit-II
Village - Naharpali,
Tehsil Kharsia, Dist. Raigarh
Chhattisgarh
Coalmine
Village - Milupara, Block-Tamnar,
Distt. Raigarh, Chhattisgarh
Corporate Office

MONNET HOUSE,
11, Masjid Moth, Greater Kailash Part-II
New Delhi-110048
MIEL Corporate Website : www.monnetgroup.com

Bankers
Bank of Baroda
Barclays Bank PLC
Citibank N.A.
DBS Bank Ltd.
HDFC Bank Ltd.
Hongkong and Shanghai Banking Corp. Ltd.
IDBI Bank Ltd.
IndusInd Bank Ltd.
ING Vysya Bank Ltd.
Jammu & Kashmir Bank Ltd.
JP Morgan Chase Bank N.A.
Punjab National Bank
Standard Chartered Bank
State Bank of Bikaner & Jaipur
State Bank of India
State Bank of Indore
State Bank of Mysore
State Bank of Patiala
State Bank of Travancore
Syndicate Bank
UCO Bank
Investments
A host of steel companies have lined up major investment proposals. Furthermore, with an
expanding consumer market, the Indian steel industry is likely to receive huge domestic and
foreign investments. The domestic steel sector has attracted a staggering investment of about US$
236 billion. This consists of nearly 222 MoUs signed between the investors and various state
governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal.
 According to the Investment Commission of India investments of over US$ 30 billion in
steel are in the pipeline over the next 5 years.
 Tata Steel has raised US$ 500 million by issuing 'global depository receipts' (GDRs)
aiming at expansion of its Jamshedpur plant and overseas mining projects.
 The state-owned Steel Authority of India Ltd (SAIL) will invest US$ 724.12 million to set up a 4-
million tonne per annum steel mill at its Bhilai Steel Plant.
 SAIL is also planning to set up a 12-million tonne plant in Jharkhand.
 Stainless steel manufacturer and exporter, Varun Industries, is setting up a US$ 171.63 million
stainless steel-cum-alloy steel plant at Rohat, Jodhpur.
 India‟s largest engineering conglomerate Larsen & Toubro (L&T) and state-owned
Nuclear Power Corporation of India Limited (NPCIL) have formed a US$ 370.09 million
joint venture for specialised steel and forging products.

Monnet Group has embarked upon a major investment program in the short term.
More than US $ 1.5 billion worth of investments have been lined up in various business
segments.
We expect that the company will keep its growth story in the coming quarters also. We
recommend „BUY‟ in this particular scrip with a target price of Rs.438.00 for Medium to




Long term investment.


Sector structure/Market size
The steel industry in India has been moving from strength to strength and according to theyear-end
review by the Press Information Bureau, India has emerged as the fourth largest producer of steel
in the world and the second largest producer of crude steel.
Significantly, state-owned steel maker, Steel Authority of India (SAIL), which reported a net profit of
US$ 571 million in January-June 2009, has become the most profitable steel company globally,
beating steel majors such as ArcelorMittal, Posco, Bao Steel and Nippon in the half yearly profits.
Production
Steel production reached 28.49 million tonne (MT) in April-September 2009. The National Steel
Policy has a target for taking steel production up to 110 MT by 2019–20. Nonetheless, with the
current rate of ongoing greenfield and brownfield projects, the Ministry of Steel has projected
India's steel capacity is expected to touch 124.06 MT by 2011–12. In fact, based on the status of
memoranda of understanding (MoUs) signed by the private producers with the various state
governments, India's steel capacity is likely to be 293 MT by 2020.

Expansion plans
Monnet Group has embarked upon a major investment program in the short term. More
than US $ 1.5 billion worth of investments have been lined up in various business
segments. Briefly the investment plan envisages the following:-
      Steel Plant expansion at Raigarh, Chhattisgarh is USD 555 million,
      Thermal Power Plant at Angul in Orissa, 1050MW is USD 855 million,
      Coal Washery at Talcher, Orissa is USD 10 million,
      Open cast mining in Orissa & amp; Chhattisgarh is USD 102 million,
      4 Cement Plant at Raipur USD 180 million
      The projects are being undertaken by the Project Division of the Monnet Group
      with a majority of equipment orders for the steel plant and the power plant
      having been placed.

Growth

                             Net Growth in the financial years
As At                   Dec-08                 Dec-09              08 %change
Net sales               3721.90               4000.80              -6.97
Net profit              680.10                335.00               103.01
Basic EPS               14.18                 6.80                 108.43


Peer Group Comparison

Name of      CMP(Rs.)     Market          EPS(Rs.)    P/E(x)     P/Bv(x)   Dividend(%)
Company                   Cap.(Rs.mn.)
MIEL         381.00       18272.76        50.80       7.50       1.52      50.00
SAIL         236.15        975394.1       1487        15.88      3.49      26.00
Jindal       697.00        649303.0       13.85       50.34      11.99     550.00
Steel  &
power
JSW          1184.35       221568.5       72.44       16.35      2.91      10.00
Steel
Power Generation




MIEL has extensive experience in setting up and operating power plants. It is presently generating
150 MW of power from it‟s Raipur and Raigarh Plant for captive consumption & sale.

MIEL is enhancing the power generation capacity at Raigarh from 90 MW to 180 MW. The new 90
MW plant is slated for commencing power generation in the financial year 2010-11

MIEL is setting up 1050 MW power plant in Angul, Orissa as an IPP. MIEL is executing the project
through its wholly owned subsidiary, Monnet Power Company Limited. The allocation of coal block
is testimony to the capability of MIEL to execute projects of large magnitude in coal mining and
power generation.

The plant shall be commissioned by year 2011-12.

Encouraged by these spurt of positive activities the company proposed to install two more super
critical power projects with the rated capacity of 2 x 660 MW i.e. equal to 1320 MW and at costal
states with captive Jetties and imported coal proposed to be unloaded at the western ports and
eastern ports respectively.

The company has envisaged to become a major power player by simultaneously entering into
Hydro Sector also and has been qualified for 3 small Hydro project in the state of Uttrakhand on
pinder river. Negotiation are also in progress for a 96 MW Hydro Power Project in the State of
Arunachal with the State Government.

Not contended with above the surplus power from the captive power plants of Raigarh and Raipur
has been traded to various beneficiaries on short term basis and company has been able to sell
sufficient units during the financial year 2009-2010 till date.


Sponge Iron
Sponge iron is formed through the reduction of iron ore to metallic iron through reaction with
carbon in the form of coal, etc at approx 1100 degree Celsius. Sponge iron is also referred to as
direct reduced iron, metalized iron, or hot briquetted iron.

Sponge iron is used in the iron and steel industry as a substitute for scrap in induction and
electrical arc furnaces. Over the years, the shortage of expensive melting scrap has made sponge
iron a significant raw material for manufacturing high quality steel. In India, the abundance of Iron
Ore deposits has led to absorption of the renowned by the Indian industry and use of ore lumps
and fines has led to the country becoming the largest producer of sponge iron in the world.

Monnet Group ventured into this segment in early nineties and over the years has perfected the
technology and become the second larges sponge iron manufacturer in India. For Manufacturing
Sponge Iron below three are the Raw Material required.

                       i.    Iron ore.
                      ii.    Coal.
                     iii.    Dolomite.


QUALITY A ND SUPPLIERS OF 3 MAJOR INPUTS
IRON ORE

       Physical properties                               Chemical properties

        Size     5-18mm                                  Fe (iron)        65% min.

                                                         Gangue               5% max .

                                                          Sulphur          0.02% max.

                                                          Phosphorus       0.04% max.
Loss on ignition 1.5 % max.

                                                                Moisture        1% max.

  SUPPLIERS.

  i.      Orissa Mining Corporation (OMC) .
 ii.      Essel Mining & Industries Ltd (Orissa).
iii.      Rungta Mines (Orissa)
iv.       Orissa Mineral & Development Corporation Ltd
 v.       National Minerals Development Cop (NMDC). Bailadila
vi.       Aryan Training Ltd


  COAL
  Physical Properties

  Steam coal Slack coal

  1.Size                 25-150mm      0-25 mm

  2.Stone &Shale         2 % max       2 % max

  Chemical Properties
  Fixed carban (FC)         48 %                    45%

  Volatile Mater(VM)        30 + 2 %              28 + 2 %

  Ash                      20 %max                25 % max

  Moisture                  10 % max              10 % max

  Sulphur                  1 % max                1% max

  Calorific value          5500Kcal/kg(min)

   Ash softening temp.             1300 c (min)



   SUPPLIERS

       1. South Eastern coalfields limited.
         i. Bishrampur Mines .
        ii. Delwadih .
iii. Singhali
  iv. Rajgamaer .
     v. Banki
  vi. Surakachar .
 vii. Dipika
 viii. Gevra .


2.         Mahanadi coalfields limited.
     i.        Samaleshwari Mines.
  ii.          Orient Valley Mines.

DOLOMITE
Physical Properties                       Chemical Properties

Size                2– 6                  Cao       28 % min      48 % max

Moisture            5

                                          Mgo         20 % min

                                          Sio2        2.5 % max

                                          Al2o3       2.5 % max   5 %max

                                          LOI        44 %

     SUPPLIERS
          i.    R.K. Agrawal               Mandla
      ii.       Vinod Kumar Agrawal        Mandla
     iii.       Shree Shakti Minerals      Bhilai
     iv.        Prem Enterprises          Mandl
Steel
As a part of on going down stream integration process to sponge iron manufacture, Monnet has
set up a steel melt shop for manufacturing structural steels. The capacity of the continuous mill is
500,000 MT per annum at Raipur in Chatisgarh. This Mill has been set up on better technological
platform for manufacturing various sizes of structural sections covering wide range of structural
grades to cater to the needs of the construction and engineering sectors and to create superior
values for the customers.

Further capacity additions are underway at Raigarh works where a greenfield steel plant is being
set up for manufacture of 1.5 million MT per annum of long and flat steel products at an investment
of Rs 4,000 crores.

Monnet‟s Medium and Heavy class structural Sections are suitable for all kinds of conceivable
Steel structural Construction of conventional and innovative types at any geographical location.

For manufacturing steel basic raw materials required as follows: -

      Sponge Iron
      Pig Iron
      M.S. Scrap
      Silico manganese
      Ferro silicon
      Calcinied Petroleum Coke
      Aluminum Shorts/Notch Bar

RAW MATERIAL FOR ROLLING MILL: -

          M.S.Billet
          Furnace oil

RAW MATERIAL FOR FERRO DIVISION: -

      Manganese ore
      Dolomite
      Pearl Coke
      Higher Silico Manganese Slag
      Higher Ferro manganese slag
      Quartez
PROCESS OF PRODUCING STEEL:



              Additive
              Ferro alloys



                                       Poured it
                                                   Ingots
Sponge iron                           to moulds
               Induction     Liquid    Moulds
+ scrap
                             metal
+ pig iron                             Taken in
                                       ladle To
                                      continuous    Billets
                             Metal
                                        caster
              Electricity


                                       Caster.
Ferro Division:
        Its Total installed capacity is 46400 Tonnes It has got 4 Furnaces

            2 furnaces of 7.5MVA
            1 furnace 5 MVA
            1 furnancesof9 MVA




RAW MATERIAL FOR FERRO DIVISION: -

      Manganese ore
      Dolomite
      Pearl Coke
      Higher Silicon Manganese Slag
      Higher Ferro manganese slag
      Quartez
Ferro Alloys :

These are alloys of iron with elements such as chromium, manganese, silicon, tungsten,
molybdenum or vanadium. The Monnet Group portfolio of Ferro-alloys includes vital alloys such as
Ferro Manganese (Fe-Mn) and Silicon-Manganese (Si-Mn). These are supplied in diverse of
shapes and forms from billets and ingots to powders, fillers and allied reinforcements.

   Ferro alloys are used in the steel making process for introducing alloying elements into the
molten metal or as de-oxidizing agents.

Currently the entire production is made for captive purposes in the production of value added steel
products.


High Carbon Silicon manganese:

Chemical Composition:

   Element                 % age by Weight
   Manganese(Mn)           60 Minimum
   Carbon (C)              2 – 2.5
   Silicon (Si)            15 Minimum
   Sulphur (S)             0.05 Maximum
   Phosphorus (P)          0.35 Maximum
High Carbon Ferro Manganese:
       Chemical Composition :

  Element               % age by Weight
  Manganese(Mn)         70 Minimum
  Carbon (C)            6–8
  Silicon (Si)          1.5 Minimum
  Sulphur (S)           0.05 Maximum
  Phosphorus (P)        0.4 Maximum




Customers
  a) Govt plant sail/Rinl/Railway.
  b) Private Plants
  c) Export market 1500 t/month.


Key Concerns
     Steel imports jumped by 46 percent in 2007-08. During that period, India
     Imported seven million tonnes of steel and exported five million tonnes. Consumption of
     steel is
going up by 8-10 million tonnes per annum. This will continue for several years. Then, we
    have to import 25 million tonnes of steel in the next five years.
    The extensive involvement of the government to keep price stable, the industrial
    margins are going into the pressure.
    The ongoing credit crisis and slowing demand from global markets has forced companies
    across sector to postpone expansion plans.


One Year Comparative graph




               Monnet Ispat
                   &                         BSE
               Energy Ltd
Consumption
India accounts for around 5 per cent of the global steel consumption. Almost 70 per cent of the
total steel used is for kitchenware. However, its use in railway coaches, wagons, airports, hotels
and retail stores is growing immensely. India's steel consumption rose by 6.8 per cent during April-
November 2009 over the same period a year ago on account of improved demand from sectors
like automobile and consumer durables. India's steel consumption will continue to grow by 16 per
cent annually till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope
for raising the total consumption of steel is huge, given that per capita steel consumption is only 35
kg – compared to 150 kg across the world and 250 kg in China.
Steel players like JSW Steel and Essar Steel are increasing their focus on opening up more retail
outlets pan India with growth in domestic demand. JSW Steel currently has 50 such steel retail
outlets called JSW Shoppe and is targeting to increase it to 200 by March 2010. They expect at
least 10-15 per cent of their total production to be sold by their retail outlets. Essar Steel which
currently has over 300 retail outlets across the country, plans to set up 5,000 outlets of various
formats soon. It expects to sell 3MT of steel through the retail route in two years.

Exports
Out of India's annual iron ore production of more than 200 MT, about 50 per cent is exported.
India's iron ore exports more than doubled to 9.3 million tone in October 2009 as compared to 4.4
million tone in the same month a year ago on the back of increase in demand from Chinese steel
producers, as per a joint study by a group of iron ore exporters. 14 Iron ore is a key input in steel
making. The country‟s iron ore exports during April-October 2009 period grew 20 per cent over the
year ago period to 53 million tonne, as per the study.
equity research
The term Working Capital Management refers to the plants, techniques and policies adopted to
manage the working capital. To be precise, by working Capital Management is meant the
systematic process, plants and techniques of managing the current assets the liabilities of the
concern and estabilishing an effective link between current assets and current liabilities. It has the
ultimate objectives of maintaining the liquidity and attaining the financial goal of increasing the net
worth of the business.

What Is Working Capital

        Working capital refers to the investment by the company in short term assets such as cash,
marketable securities etc. Net current assets or net working capital refers to the current assets less
current liabilities.

Current Assets – Current Liability = Working Capital

The aspects of management of working capital are,

    1. Determine the requirements of working capital.

    2. Financing the requirements.

    3. Efficient utilization of requirements of working capital.

Classification of Working Capital

    Working capital may be classified in to ways:

            On the basis of concept.
            On the basis of time.

    On the basis of concept working capital can be classified as

            Gross Working Capital
            Net Working Capital.

    On the basis of time, working capital may be classified as:

            Permanent or Fixed Working Capital.
            Temporary or Variable Working Capital



 Permanent or Fixed Working Capital

         Permanent or fixed working capital is minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets.
Every firm has to maintain a minimum level of raw material, work- in-process, finished goods
and cash balance.

      This minimum level of current assets is called permanent or fixed working capital as this part
of working is permanently blocked in current assets. As the business grow the requirements of
working capital also increases due to increase in current assets.

Temporary or Variable Working Capital

        Temporary or variable working capital is the amount of working capital which is required to
meet the seasonal demands and some special exigencies. Variable working capital can further be
classified as seasonal working capital and special working capital.

       The capital required to meet the seasonal need of the enterprise is called seasonal working
capital. Special working capital is that part of working capital which is required to meet special
exigencies such as launching of extensive marketing for conducting research, etc.

       Temporary working capital differs from permanent working capital in the sense that is
required for short periods and cannot be permanently employed gainfully in the business.
OPERTING CYCLE

                       CASH




DEBTORS                                       RAW MATERIAL




SALES                               WORK IN PROCES




                   FINISHED GOODS
Adequacy of Working Capital

       The firm should maintain a sound working capital position. It should have adequate working
capital to run its business operations. Working capital should be adequate for the following
reasons:

   1. It protects a business from the adverse effect of shrinkage in the values of current assets.

   2. It is possible to pay all the current obligations promptly land to take advantage of cash
       discount.

   3. It permits the carrying of inventories at a level of that would be enabling a business to save
       satisfactorily the needs of its customers.

   4. It enables a company to extend favorable credit terms to customers.

   5. It enables a company to operate its business more efficiently because there is no delay in
       obtaining materials etc. because of credit difficulties.

   6. There may be operating or non operating losses.

   7. There may be increasing price necessitating bigger investment in inventories and fixed
       assets.

   8. It enables business to with stand periods of depression smoothly.

Factors Affecting Working Capital Requirements

The working capital needs of a firm are influenced by the numerous factors. The important ones
are,

1. Nature of Business

       The working capital requirements of a firm is closely related to the nature if its business. A
service firm, like an electricity undertaking or a transport corporation, which has a short operating
cycle and which sells predominately on cash basis, has a modest working capital requirement. On
the other hand a manufacturing concern, which has a long operating cycle, has substantial working
capital requirements.

2. Seasonality of Operations
Firms which have marked seasonality in their operations usually have highly fluctuating
working capital requirements. To illustrate consider a firm manufacturing ceiling fans. The sale of
ceiling fans reaches a peak during the summer months and drops sharply during the winter period.
On the other hand, a firm manufacturing a product, which have fairly even sale round the year,
tends to have stable working capital needs.

3. Production Policy

       A firm marked by pronounced seasonal fluctuation in its sales may pursue a production
policy which may reduce the sharp variations in working capital requirements.

4. Market Condition

       The degree of competition prevailing in the market place has an important bearing in
working capital needs. When competition is keen, a larger inventory of finished goods is required
to promptly serve customers. Further, generous credit terms may have to be offered to attract
customers in a highly competitive market.

If the market is strong and competition is weak, a firm can manage with smaller inventory of
finished goods.



5. Condition of Supply

       The inventory of raw materials spares and stores depends on the condition of supply. If the
supply is prompt and adequate the firm can manage with small inventory. However, if the supply is
unpredictable and scant then the firm, to ensure the continuity of production would have to acquire
stock as and when they are available and carry larger inventory on an average. A similar policy
may have to be followed when the raw material is available only seasonally and production
operations are carried out round the year.

6. Taxes

       Taxation has an important impact on the profit earned by an enterprise. Nearly one-half of
the profit earned is drained off. Tax liability when arise will be drain on working capital funds even
though this liability happens only ones in a year. Yet the management should be able to calculate
this liability and make the provision for payment when due. Payment of taxes in installments during
the year will drain off the liquidity more quickly.
7. Dividend Policy

       Dividend policy has a dominant influence on working capital position of an enterprise.
Dividend policy cannot liquidity – the ability of the concern to find necessary cash to meet the
dividend payment. When ones dividend is declared and the same has to be paid in cash, it
consequently drains off large amount from working pool.

8. Operating Efficiency

       If the operating cycle operates successfully, the working structure becomes strong. If there
is decline or loss of operating efficiency there will be drain of the cash flows before the competition
of the cycle. If the cost rise up, there will be decline in the net profit – drain on cash realization.
Therefore effective control of costs will have on impact on the net profit and liquidity.

9. Expansion Programme

       Capital investment in capital projects is generally financed by permanent capital or retained
earning. However, expansion programme sometimes drain off working capital funds account of
increase in stock and debtors. Even though such programme is sign of successful growth, they
have influence over working capital reserves.

10. Price Level Changes
   Changes in the price level also affect the working capital requirements. Generally rise in prices
leads to increase in working capital.
11. Others Factors

       Management ability.
       Import policy.
       Asset structure.
       Importance of labor.
       Banking facilities, etc.
       Sources of Working Capital Financing
        The need of working capital working capital increase by raising prices of end products and
       relative inputs on the other hand the government and monetary authorities play their own
       role to curb the mallet in the period‟s o f inflation. The control measures of ten takes the
       form of dear money policy and restrictive credit financing of addition working capital
       requirements in such an environment become a real problem to a finance manager of a
       concerned unit.
SOURCES OF WORKING CAPITAL
       A) Long term sources (Fixed working capital)
       1. Loan from financial institutions
       2. Floating of debentures]
       3. Accepting public deposits
       4. Issue of shares by operational results
       5. Raising funds by operational results
       B) Short term sources (Temporary working capital)
       1. Trade credit
       2. Notes bills payable
       3. Bank credit, Cash loan, Cash credit etc.
       4. Bank acceptance

A) Long Term Sources

   It includes the following sources

Loan from financial institutions

       This option is normally rules out because financial
institutions do not provide finance for working capital. The                                    IDBI,
FCI and ICICI these various types of financial institution set                                      in
each and every state for providing finance to the business concern. But these institutions do not
provide finance for working capital requirements.

Floating of Debentures

       The probability of successful floating of debentures to be another measure In Indian capital
market floating of debentures has still to gain popularity. The company raising funds by issuing
convertible debentures are also considered which may attract a number of investments.

Accepting Public Deposits

       The next alternative is public deposits. This source of finance is most profitable in company.

Issue of Shares

       Issue of shares is one of the important sources for to fulfill the need of working capital. But
generally this course is used for purchasing of fixed assets or long term assets.

Raising Funds by Operational Results
Raising Funds by Operational Results are the most important source of finance. In which
the company earning fund out of profit to pay reasonable dividend to shareholders and retain profit
to cover margin money requirements to finance additional requirements.



Short Term Sources
   1. Internal Sources
Depreciation funds:

       The depreciations funds constitute important source for working capital. Some authorize of
business finance do not accept them as a sources of funds but it is not reasonable.

Accrued Expenses

       The firm can postpone the payment of expenses for short period. Hence the accrued
expenses also constituted an important source of working capital.

   2. External Deposits
Trade Credit

       Trade credit refers to the credit that a customer gets from suppliers of goods in the normal
course of business. Normally the buying firms do not have to pay cash immediately for the
purchase made by them. The time gap between the receipt of goods and services and payment
thereof provide a firm with a source of finance i.e. trade credit. Trade credit can be in the form of an
open account or bills payable.

Short term bank credit

       The bank credit is the primary institutional sources of financing working capital. The amount
approved by bank for the company working capital is called credit limit. Credit limit thus denotes
the maximum limit of finance, which the firm can raise in the form of loan from the bank.
Sometimes the bank may approve separate limits for peak season and non peak season. Usually
the bank credit is available in following form,



i) Letter of Credit

A letter of credit is the guarantee provided by the buyers‟ bank to the sellers that in the cases of
default or failure of the buyer, the bank should make the payment of the buyer.
ii) Cash Credit

           This type of credit is provided mainly to individuals or enterprises engaged in
manufacturing 7 trading activities to enable them to carry on their activities. The amt of cash credit
facility to be sanctioned to a unit is need based and is worked out as per well defined parameters
in each bank. The guidelines of RBI may also affect the quantum of facility in some cases. This
facility is generally granted against the security of stock of goods, bills/books debts representing
genuine sales.

iii) Bills Finance

           The banks extend assistance to the borrowers against the bills. The finance against bills
is meant to finance, the actual sales transaction. The finance against bills can take three forms.

1. Purchase of bills by the bank if these are payable on demand.

2. Discounting of bills by bank if these are usance bills (or time) bills.

3. Advanced against bills under collection from the drawees whether sent for realization through
   the bank or sent directly by the drawer to the drawee.

iv) Working Capital Demand Loan

           In compliances of RBI directions, bank presently grants only a small part of the fund-
based working capital facilities to a borrower by the way of running cash credit amount, a major
portion is in the form of working capital demand loan. These arrangements presently applicable to
borrowers having working capital facilities of Rs 10 core or above

Working Capital Management Policy

       Working capital management policies have a great effect on firm‟s profitability, liquidity and
its structural health. As pointed out earlier gross working capital consist of cash, receivables and
inventory, if a firm has relatively high investment in these assets in comparisons to a firm, which is
transacting the same volume of sale, it will have lower profitability in comparison to the latter.
       Therefore, a firm which has high working capital turnover will have higher profitability. This
may require reduction of investment in working capital but, if it is reduced disproportionately, it will
affect the liquidity position of the firm. Generally the current ratio and the quick ratio indicate
liquidity aspect of firm. If current assets are reduced beyond limit, the current and quick ratios will
be adversely affected leading the firm to poor liquidity.

       Therefore, it is essential that finance manager laid down such working capital management
policies that a proper balance is struck between profitability and liquidity. Infact profitability and
liquidity are inversely related. When one increase the other decrease. A firm have high liquidity will
have a lower profitability and vice versa.

Handling Receivables (Debtors)
        Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know.... who owes them money.... how much is owed.... how long
it owes for what it is owed. Late payments erode profits and can lead to bad debts.
       Slow payment has a crippling effect on business; in particular on small businesses who can
least afford it. If you don't manage debtors, they will begin to manage your business as you will
gradually lose control due to reduced cash flow and, of course, you could experience an increased
incidence of bad debt. The following measures will help manage your debtors:




   1. Have the right mental attitude to the control of credit and make sure that it gets the priority it
      deserves.

   2. Establish clear credit practices as a matter of company policy.

   3. Make sure that these practices are clearly understood by staff, suppliers and customers.

   4. Be professional when accepting new accounts, and especially larger ones.

   5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank
      references, industry sources etc.

   6. Establish credit limits for each customer... and stick to them.

   7. Continuously review these limits when you suspect tough times are coming or if operating in
      a volatile sector.

   8. Keep very close to your larger customers.

   9. Invoice promptly and clearly.

   10. Consider charging penalties on overdue accounts.

   11. Consider accepting credit /debit cards as a payment option.

   12. Monitor your debtor balances and ageing schedules, and don't let any debts get too large or
       too old.
Recognize that the longer someone owes you, the greater the chance you will never get paid. If the
   average age of your debtors is getting longer, or is already very long, you may need to look for the
   following possible defects:

       weak credit judgment

       poor collection procedures

       lax enforcement of credit terms

       slow issue of invoices or statements

       errors in invoices or statements

       Customer dissatisfaction.

 Debtors due over 90 days (unless within agreed credit terms) should generally demand immediate
attention. Look for the warning signs of a future bad debt. For example

       longer credit terms taken with approval, particularly for smaller orders

       use of post-dated checks by debtors who normally settle within agreed terms

       evidence of customers switching to additional suppliers for the same goods

       new customers who are reluctant to give credit references

       Receiving part payments from debtors.

        Profits only come from paid sales. The act of collecting money is one which most people
dislike for many reasons and therefore put on the long finger because they convince themselves
there is something more urgent or important that demands their attention now. There is nothing
more important than getting paid for your product or service. A customer who does not pay is not a
customer. Here are a few ideas that may help you in collecting money from debtors:

       Develop appropriate procedures for handling late payments.

       Track and pursue late payers.

       Get external help if your own efforts fail.

       Don't feel guilty asking for money.... its your and you are entitled to it.

       Make that call now. And keep asking until you get some satisfaction.
In difficult circumstances, take what you can now and agree terms for the remainder. It
      lessens the problem.

      When asking for your money, be hard on the issue - but soft on the person. Don't give the
      debtor any excuses for not paying.

      Make it your objective is to get the money - not to score points or get even.



Managing Payables (Creditors)

   Creditors are a vital part of effective cash management and should be managed carefully to
enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing
function can create liquidity problems. Consider the following:

      Who authorizes purchasing in your company - is it tightly managed or spread among a
      number of (junior) people?

      Are purchase quantities geared to demand forecasts?

      Do you use order quantities which take account of stock-holding and purchasing costs?

      Do you know the cost to the company of carrying stock?

      Do you have alternative sources of supply? If not, get quotes from major suppliers and shop
      around for the best discounts, credit terms, and reduce dependence on a single supplier.

      How many of your suppliers have a returns policy?

      Are you in a position to pass on cost increases quickly through price increases to your
      customers?

      If a supplier of goods or services lets you down can you charge back the cost of the delay?

      Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-
      time basis?

   There is an old adage in business that if you can buy well then you can sell well. Management
of your creditors and suppliers is just as important as the management of your debtors. It is
important to look after your creditors - slow payment by you may create ill-feeling and can signal
that your company is inefficient (or in trouble!).

   Remember, a good supplier is someone who will work with you to enhance the future viability
and profitability of your company.

Working capital performance is comprised of a complicated set of interactions within the corporate
ecosystem that can be viewed through the lenses of Accounts Receivable, Accounts Payable and
Inventory. Understanding these interactions, their performance drivers, and the affect on Working
Capital requires accurate and timely information. This six-step process in plan has been shown to
increase the probability of success in Working Capital performance improvement initiatives.


Six Steps


      The Project Charter: Define the initiative.
      Get the information you require.
      Create a cross-functional team to identify strategies for improvement.
      Put the initiative to work.
      Monitor, measure, and validate the improvements against baseline information.
      Make adjustments and re-iterate over these steps.


Step 1: The Project Charter: Define the initiative


       It is important to view Working Capital performance improvement as strategic within the
organization and understand that it is going to take a team effort involving members from several
different areas and management levels within your organization. Starting with a project charter to
clearly define goals and the scope, will give a greater chance of success for your initiative.
        In the project charter, identify the teams and team players, executive sponsorship, steering
committee members, objective of the initiative, scope of the initiative, and high level milestones.
Also define any risks in the project along with the steps that will moderate the risks. Return on
investment should be fully quantified as well as the metrics that are going to be used to quantify
the return.
       It is important to have an executive sponsor for a project such as this, as well as a steering
committee. The steering committee should be comprised of high level managers from operations
and finance.
        Areas that should be represented are Inventory, Purchasing, Manufacturing, Accounts
Receivable, Sales, Accounts Payable, Information Technology and Treasury. The steering
committee is invaluable in helping to implement process changes that otherwise might meet with
resistance within the organization.
Get the information you require
Understanding Working Capital performance starts with data. Information that is accurate and easy
to use for analysis is critical in the assessment phase. Information feedback which provides a
common view of targets and achievements across the enterprise is essential in measurement and
plays a key role in making certain Process improvements fix. Information needs to serve all of the
direct and indirect members of the team.
       One barrier to having effective information is the lack of a common customer, vendor, and
or product master within the organization..
Following are some tips around information:

   o Leverage off-the-shelf analytics software packages that automatically gather and organize
     this information for you.
   o Align the information needs with the initiative‟s directives and Priorities. The steering
     committee can help with this.
   o Implement the solution so that over time you have a complete and accurate representation
     of the business.
   o Make the information visible on a daily basis. Working Capital performance management is
     not a quarter-end activity, current performance information should be monitored regularly
     and the data should support real time decisions and corrective actions.


Step 3: Create a cross-functional team to identify
       Strategies for improvement At first glance, effectively managing Working Capital seems
simple: extend supply payments, reel in customer payment timeframes, minimize inventory and
maximize inventory turns. Unfortunately, things are not that simple – every action has a reaction.
Extending payment terms to vendors without an overall strategy will probably result in higher prices
for products they supply.
        An Inventory team might be created to focus on improvement around inventory and
sourcing. For improvements around Accounts Payable, a team might be put together involving AP
and sourcing. Define these teams in the project charter. Each team should have a clear set of
directives and should understand what they are trying to achieve. These teams should be directed
by the steering committee. Put your teams to work to develop the right strategy. Following are
some suggestions.
 Know your customers, how they pay and why
          Improve cash flow visibility by customer
          Consider Securitization
          Analyze true (net) customer profitability
 Know your vendors
          Constantly evaluate vendor performance
          Associate costs with vendor performance
          Arm buyers with vendor performance data
 Communicate more with Customers and Suppliers
          Collaborate and share more information
          Publish vendor performance scorecards
          More communication decreases variability
 Evaluate Inventory Efficiency
          Understand turns down to the item level
Understand relationships between turns, demand, and customer service requirements
          Implement lean processes and techniques
Step 4: Put your Initiative to work:


        Being able to put an initiative into motion and realize its benefits is a discipline and takes
resources - people, processes, and information. Detailed project plans should be used to make
sure that the project stays on track. An experienced project leader is also critical to the success of
the initiative. Be sure to keep the project‟s objectives realistic and focus on near-term results. Be
careful not to over complicate the project by attempting to boil the ocean.
       Identify this as a risk in the project charter and moderate the risk by perhaps integrating one
system at a time. It may be that your first initiative might be to tackle one identified defect that
needs attention, not all of them at once. It might be around billing efficiency or more accurate cash
flow projections.
       Make sure that the initiative under way is being monitored by the steering committee and it
is understood that progress is being made. Having information at your fingertips to assist in
improving your business is a critical success factor, but having information that shows progress on
the project is equally important.
Step 5: Measure and Validate the Improvements


        Against Baseline Information As the initiative unfolds, it is important that you be able to
measure success and validate that improvements are being made. To do this, you must have
historical baseline information so that you can measure impact of the initiative. Having a timeline
of informational metrics is essential. This information should be made available to all members of
all teams so that they can see progress and feel good that their efforts are paying off.


Step 6: Adjust Project Charter and Re-iterate


        Every initiative will have room for improvement. Assume that
this will be the case and use this step to analyze the issues to
determine how it could be made better. Reflect this in the project
charter and re-iterate steps 1-5. Commitment means doing this. Use
this step to adjust the strategy and address the issue.
       Leverage your early success to justify the investment in the
follow-on iterations of the project. View this as a performance
improvement discipline which never ends. Continue to monitor and
make adjustments to the process where necessary.
        In order to make sure your process improvements stick, continue to monitor and analyze
the suggested metrics. Keep the improvement initiatives in the forefront of your managers‟ minds
by distributing performance reports. Tie compensation to continuous improvement of the key
measurements. This will ensure that managers and employees stay motivated and contribute to
the continued success of the initiative.

Analysis of Working Capital:

Working Capital Requirements:

Net Working Capital = Current Assets – Current Liability




Particular              31/03/2009            31/03/2008             31/03/2007

Current Asset           12224.85              10353.06               6407.02

Current Liability       2318.48               1994.52                1070.46

Net Working             9906.37               8358.54                5336.57

Capital




             14000
                     12224.85
             12000
                                          10353.06
                                9906.37
             10000
                                                     8358.54
             8000                                                                  Current Asset
                                                               6407.02
                                                                         5336.57   Current Liability
             6000
                                                                                   Net working Capital
             4000
                         2318.48              1994.52
             2000                                                 1070.46

                 0
                      31/03/2009           31/03/2008           31/03/2007
Ratio Analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of
two mathematical expression “ and as “the relationship between two or more things”. In financial
analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a
firm. The absolute accounting figures reported in the financial statement do not provide a
meaningful understanding of the performance and the financial position of a firm. An accounting
figure conveys meaningful when it is related to some other relevant information.

Standards of comparison

The ratio analysis involves comparison for a useful interpretation of the financial statement. A
single ratio in itself does not indicate favorable of unfavorable conditions. It should be compared
with some standards. Standards of comparison may consists of :
Past ratios, i.e., ratios calculated from the past financial statement of the same firm;
Competitors’ ratio, i.e., ratios of some selected firms, especially the most progressive and
successful firms, at the same time;
Industry ratios, i.e., ratio of the industry to which the firms belongs; and
Projected ratios, i.e., ratios developed using the projected, or Performa, financial statement of the
same firm.


Types Of Ratio

Liquidity Ratio
   Liquidity ratio measure the liquidity of he firm and its ability to meet its maturing short-term
obligations. Liquidity is defined as the ability to realize value in money, the most liquid assets. It
refers to the ability to pay in cash, the obligations that are due. The important ratios in measuring
short term solvency are
1. Current Ratio
2. Quick Ratio
Current Ratio
   This ratio is used to assess the short-term financial position of the business concern. In other
words, it is an indicator of firm‟s ability to meet its short-term obligations. It matches the total
current assets of the firms against its current liabilities. Current assets means the assets are either
in the form of cash or cash equivalents or can be converted into cash or cash equivalents in the
short run and current liabilities means liabilities repayable in the short run. The ratio is calculated
as follow:
                                  Current Assets
             Current Ratio = --------------------------
                                  Current Liabilities
Generally the ratio of 2:1 is considered satisfactory but this does not mean if the ratio is lower the
business is in financial difficulty.
Quick Ratio or Liquid Ratio or Acid Test Ratio
   Liquid ratio is worked out to test the short-term liquidity of the firm in its current form. If from the
current assets, stock and prepaid expenses are removed, the reminder is known as liquid assets.
Liquid assets are those, which are either in the form of cash or cash equivalents or can be
converted in cash within a very short time. The ratio is calculated as follow:
                              Liquid Assets
Quick or Liquid Ratio = ----------------------
                             Liquid Liabilities
Liquid assets includes cash, bills receivable, marketable securities and debtors (excluding bad and
doubtful debts) etc. According to accounting principles, a quick ratio of 1:1 has usually been
considered favorable.
Net Working Capital Turnover Ratio
      This ratio indicates the number of times a unit invested in working capital produces sales. In
other words, this ratio indicates the efficiency or otherwise in the utilization of short term funds in
making the sales. The ratio is calculated as follow:


                                                  Sales
Net Working Capital Turnover Ratio = -----------------------------
                                              Net Working Capital
Inventory Turnover Ratio
      This ratio establishes a relationship between the cost of goods sold during a given period
and the average amt of inventory carried during the period. It is usually considered better to work
out the turnover against coat of sales since sales include an element of profit, whereas stock is
usually at cost.
The ratio is calculated as follow:
                                                      Cost of Good Sold
                       Stock Turnover Ratio = ---------------------------
                                                          Average stock
Cost of goods sold is calculated as follow:
Cost of goods sold = Opening stock + Purchases + Direct Exp - Closing stock
                                       OR
Cost of goods sold = Sales – Gross profit
Inventory turnover in days
        Indicates the length of time that it will take to use up the inventory through sales Indicate the
liquidity of the inventory in days. On average, you turn over the value of your entire stock every x
days. You may need to break this down into product groups for effective stock management.
Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer
product lines, just in time ordering will reduce average days.
Inventory turnover in days =
                                           Ending Inventory
                                       -------------------------------------
                                        Cost of Goods Sold / 365



Debtors Turnover Ratio
     This ratio establishes a relationship between the net credit sales and average debtors of the
years. Average debtors are calculated by dividing the sum of debtors in the beginning and the end
by 2.
                               Credit Sales
Debtors Turnover Ratio = ------------------------
                               Account receivables
Average Collection Period or Debtors collection Period
        This ratio deals with the same subject and shows the number of days, for which normally
sales remain uncollected. It indicates the extent to which the debts have been collected in time.
For calculation of average collection period, one should divide the number of days or week or
month in a year by debtor ratio
                                        365 or 52 or 12
        Average Collection Period = ------------------------
                                              Debtor Ratio
Creditor Turnover Ratio
        This ratio establishes a relationship between the net credit Purchase and average Creditors
of the years. Average debtors are calculated by dividing the sum of debtors in the beginning and
the end by 2.
                             Credit Purchase
Creditor Turnover Ratio = --------------------------
                               Account Payables


Average Payment Period or Creditors collection Period
        This ratio deals with the same subject and shows the number of days, for which normally
Purchase remain unpaid. It indicates the extent to which the debts have been paid in time. For
calculation of average payment period, one should divide the number of days or week or month in
a year by creditor ratio
                                  365 or 52 or 12
Average Payment Period = ------------------------
                                  Creditor Ratio



Stock to Working Capital Ratio
       This ratio indicated the efficiency between stock and working capital. This ratio is calculated
as follows
                                               Closing Stock
        Stock to Working Capital Ratio = -----------------------------------
                                             Net Working Capital


Long-term Debt to Net Working Capital
       Provides insight into the ability to pay long term debt from current assets after paying
current liabilities
                                            Long-term Debt
                                 -------------------------------------------
                                Current Assets - Current Liabilities

Cash Turnover
     Measures how effective a company is utilizing its cash.

                                                    Net Sales
                                  Cash Turnover = --------------------------
                                                       Cash

Operating Cycle
       Indicates the time between the acquisition of inventory and the realization of cash from
sales of inventory for most companies the operating cycle is less than one year, but in some
industries it is longer.
Operating Cycle =Accounts Receivable Turnover in Days+ Inventory Turnover in Day

Return on Investment (DU PONT Approach)
       Return on investment is one of the most successful yet simple techniques ever conceived to
aid both decision making and performance evaluation. This technique was first developed by DU
PONT Company for making analysis and controlling financial performance. It brings together the
activity ratio and profit margin as sales and shows how these ratios interact to determine
profitability of asset. This ratio is calculated as follows
                                           Sales           X      Net Profit after Tax
Return on Investment (ROI) =          --------------           ----------------------
                                         Total Asset                      Sales

Fixed Assets Turnover Ratio
       This ratio shows how well the fixed assets are being utilized. If compared with the previous
period, it indicates whether the investment in fixed assets has been judicious or not the ratio is
calculated as follow:
   In computing the fixed assets turnover ratio, the fixed assets are generally taken at the written
down value at the end of the year. It may also be taken at the original cost or at the present market
value depending on the object of comparison. Often this ratio is also calculated by taking cost of
sales instead of sales figures.


                                        Net Sales
Fixed Assets Turnover Ratio =           ----------------
                                          Fixed Assets
Financial Statement :
                                       Monnet Ispat & Energy Ltd
                              Profit & Loss Account For The Year Ended
                                             (Rs. In Million )
Particulars                                Mar -2009             Mar-2008   Mar-2007
Gross Sales                                22248.92              18040.63   9703.95
Less :inter division transfer               5141.59               4846.22   2320.95
Less: sales return                              0                     0        0
Less: Excise                                1620.07               1603.72   1004.99
Net sales                                  15487.26              11590.69   6378.01
Other income                                 476.66                483.69    246.83
Increase / Decrease in stocks               (444.87)               455.39    225.73
                                           15519.05              12529.77   6850.57
Expenditure
Raw material consumed                      15108.50              13396.48   6732.91
Less: inter division transfer               5141.59               4846.21   2505.18
                                            9966.91               8550.27   4227.73
Salaries, wages & Amenities                  608.16                408.97    233.51
Repair & maintenance                          56.27                 48.35     40.21
Administrative ,selling & others             664.33                519.13    360.52
Exp
Loss on sale of investment                   157.03                   0         0
Financial charges                            706.04                350.52    (2.91)
Depreciation                                 653.03                444.85    330.47
                                           12811.77              10322.09   5189.53
Profit before tax                           2707.28               2207.68   1661.04
Less : provision for taxation                306.01                251.80    183.10
Less: provision for deferred                 231.04                280.44    125.82
taxation
Less: provision for FBT                       12.70                 5.80     4.20
Add : Income from adjustment                   2.63                (8.00)    (0.5)
Profit After Tax                            2160.16               1661.63   1347.85
Balance As per Last Year                    4434.25               3224.02   2187.36
Profit Available For Appropriation          6594.41               4885.65   3535.21
Appropriation
Transfer To General Reserve                  220.00                167.00    135.00
Transfer To Debenture                         57.20                   0        0
Redemption Reserve
Dividend
Proposed Dividend on Equity                  239.79                123.11      0
Share
Interim Dividend on Equity Share                0                  119.98    154.51
Corporate Dividend Tax                        40.87                 41.31     21.67
Balance Carried To Balance                  6036.55               4434.25   3224.02
Sheet
                                         6594.41              4885.65    3535.21
Basic Earnings Per Share (Rs)             44.22                42.98      39.36
Diluted Earnings Per Share (Rs)           43.63                39.02      36.39
                                  Monnet Ispat & Energy Ltd
                                       Balance Sheet As on
                                          (Rs. In Million )
                                            Mar-2009          Mar-2008   Mar-2007
A    Sources Of Funds:
      1.Shareholder‟s Funds
         a. Share Capital                    479.65            479.97     34.42
         b. Share Warrants &                   0               209.25     0.00
            Subscription
         c. Reserve & Surplus               12383.00          10198.36   5365.95
     Shareholder‟s Funds                    12862.65          10887.58   5709.37
     2.Loan funds:
     a. Secured loan                        10168.54           9456.67    5241.43
     b. unsecured Loan                      3083.26            1524.07    4794.90
        Total Debts                         13251.80          10980.74   10036.33
     Total Sources Of Funds:                26114.45          21868.32   15745.70
B    Application Of Funds:
     1. Fixed Asset:
       a. Gross Block                       13664.53          12120.98   8302.57
       b.Less Accumulated                   2395.68            1747.97   1303.27
     Depreciation
       c. Net Block                         11268.85          10373.01    6999.30
     Capital Work in Progress               3096.63            2661.19    3589.45
                                            14365.48          13.034.2   10588.75
     2. Investment                          2156.28            1384.07     448.43

     3.Current Assets ,Loan &
     Advance:
     a. Inventories                         1844.56            2217.07   1219.75
     b. Sundry Debtors                      1097.32            1050.93    462.76
     c. Cash &Bank Balance                  2455.85            3708.34   2896.94
     d. Loan & Advance                      6827.11            3376.72   1827.59
                                            12224.85          10353.06   6407.02
     Less: Current Liability &
     Provisions:`
     a. Current liability                    1719.14          1452.52     883.16
     b. Provisions                            599.34           542.00     187.30
     Total current Liability:                2318.48           1994.52    1070.46
     Net working Capital:                    9906.37          8358.54    5336.57
     Deferred Tax Assets /Liability:        (1139.52)         (908.48)   (628.04)
Miscellaneous Expenditure            825.84        0          0
     Total Application of Funds          26114.45    21868.32   15745.70


Calculated Different Types of Ratio

Types of ratio                        2009          2008        2007

Liquidity Ratio
Current Ratio                          5.2           5.1         5.9
Quick Ratio                            4.4           4.0         4.8
Net Working capital                   0.37          0.38        0.33
Leverage Ratio
Debt ratio                             0.5           0.5         0.6
Debt-Equity Ratio                     1.03          1.00        1.75
Coverage Ratio                        4.83          6.30        7.39
Activity Ratio
Debtor Turnover                       15.59         12.55       15.95
Creditors Turnover                    9.38          9.00        7.40
Net asset turnover                    2.25          2.16        1.82
Total asset turnover                  0.85          0.82        0.61
Working Capital Turnover              1.82          1.74        1.51
Profitability Ratio
Net profit margin                     0.10          0.09        0.14
Return on Investment(ROI)             0.091         0.083       0.085
Return on Equity(ROE)                 0.17          0.24        0.15
Earning Per Share(EPS)                44.22         42.98       39.36
Dividend Per Share (DPS)              4.91          6.29        5.15
Dividend-payout ratio                 0.11          0.15        0.13
Combined Ratio
Return on Capital Employed            0.07          0.08        0.10
Return on Total Resources             0.100         0.103       0.105
Return on Shareholders Funds          0.16          0.15        0.23
Debt ratio
Particulars                                2009                       2008                         2007
Total Debt (in billions)                   13.25                      10.98                        10.03
Capital Employed (In billions)             26.11                      21.86                        15.74
Dept Ratio                                 0.50                       0.50                         0.63


  30
             26.11
  25
                                 21.86

  20
                                                       15.74
                                                                        Total Debt(in billion)
  15    13.25
                                                                        Capital Debt(in billion)
                           10.98
                                                   10.03                Ratio
  10


   5

                     0.5                 0.5                   0.63
   0
             2009                2008                  2007




Analysis or Comment:

    Dept ratio is Generally used the long term solvency of the firm‟s ,in the year2007 dept ratio is
0.63 it means lender have contributed more funds than owners lender contribution is 1.70 times of
owner contribution but in the Future owner contribution is more as compare to the lender‟s in 2008,
&2009 this will be 0.5 ,0.5 Respectively
Particulars                2009                            2008                     2007
Total Debt(in billion)     13.25                           10.98                    10.03
Net Worth(in billion)      12.86                           10.88                    5.70
Ratio                      1.03                            1.00                     1.75



   14     13.25
              12.86

   12                      10.98
                               10.88
                                             10.03
   10

    8                                                               Total Debt(in billion)
                                                     5.7            Net Worth(in billion)
    6
                                                                    Ratio
    4
                                                           1.75
    2               1.03               1

    0
             2009              2008             2007


Analysis or Comment :

           It is clear that the total dept ratio is more because of lender‟s contribution is more funds
than the owner funds .in 2007 dept ratio is 1.75 it means company rises the more fund from the
lender in this year but in 2008, 2009 this will be reduce ,if the company rise the more funds from
the lender that time company has to pay more interest to the lender, either company making the
profit or loss
Coverage Ratio

Particulars                    2009                           2008                      2007
EBIT(in billion)               3.41                           2.55                      1.92
Interest(in billion)           0.706                          0.35                      0.25
Ratio                          4.87                           7.28                      7.68



                                                                   7.68
   8                                          7.28

   7

   6
                        4.87
   5
                                                                          EBIT(in billion)
   4       3.41                                                           Interest(in billion)

   3                            2.55                                      Ratio
                                                     1.92
   2
                  0.7
   1                                   0.35                 0.25

   0
              2009                 2008                 2007




Analysis or Comment:

           Coverage ratio is used to describe the firm‟s dept servicing capacity .and this ratio also
indicating the number of times the interest charges are covered funds that ordinarily available for
their payment. In 2007,2008 7.68 & 7.28 company‟s ratio is higher. but the higher ratio indicate that
the firm‟s very conservative in using the dept, in the year 2009 ratio 4.87 will be very low this ratio
will indicate the excessive use of dept or inefficient operation.
Debtor Turnover Ratio

Particulars                              2009                 2008                            2007
Credit sales(in billions)                17.10                13.19                           7.38
Average Debtors(in billions)             1.09                 1.05                            0.46
Ratio                                    15.65                12.56                           16.00



  18     17.1
                   15.65                                 16
  16
                           13.19
  14                                 12.56

  12

  10                                                           Credit sales(in billions)
                                             7.38              Average Debtors(in billions)
   8
                                                               Ratio
   6

   4

   2         1.09              1.05
                                                  0.46
   0
            2009              2008               2007


Analysis or Comment:

   Debtors turnover ratio indicate the number of times debtors turnover each year , Generally
higher the debtors turnover is more efficient as compare to lower .Monnet Ispat & Energy Ltd show
the higher debtors turnover in the year 2007, it is 16.00 times it means company‟s sales are
increases but in the year 2008 this will be reduce 12.56 times, because of recessions but after that
it will increase 15.65 times in the year 2009 and this will continue in 2010 also,
Creditors Turnover Ratio

Particulars                             2009                  2008                             2007
Credit purchase(in billions)            13.49                 10.88                            5.52
Average creditors(in billions)          1.36                  1.20                             0.74
Ratio                                   9.9                   9.0                              7.45



         13.49
  14

  12                      10.88
                    9.9
  10                                9

                                                       7.45
   8                                                          Credit purchase(in billions)

                                           5.52               Average Creditors(in billions)
   6
                                                              Ratio
   4

             1.36             1.2
   2                                             0.74

   0
            2009             2008               2007


Analysis or Comment:

   Creditors Turnover Ratio is similar to the debtors’ turnover ratio. It compares creditors with the total
credit purchases. In the year 2007ratio is 7.45 it means company purchasing power is more and this will
continue in the year 2008,2009Respectively 9.00,& 9.9, company con grow their business very efficient way
Net asset Turnover

Particulars                    2009                            2008                         2007
Sales(in billions)             22.24                           18.04                        9.70
Net Assets(in billions)        9.90                            8.35                         5.33
Ratio                          2.24                            2.16                         1.81




   25
          22.24


   20                          18.04


   15                                                                  Sales(in billions)

                  9.9                            9.7                   Net Assets(in billions)
   10                              8.35                                Ratio
                                                       5.33
    5
                        2.24              2.16                1.81

    0
             2009                 2008             2007


Analysis or Comment:

 Net asset turnover ratio .it means a firm‟s ability to produce a large volume of sales for a given
amount of net asset. It is most important aspect of its operating performance, in the 2007 ratio will
be 1.81 it means company producing large volume of sales and this will be continue in the year
2008,2009Respectively 2.16,& 2.24 , this will be more effective to the company to produce the
large amount of sales
Total Assets Turnover ratio

Particulars                   2009                         2008                         2007
Sales(in billions)            22.24                        18.04                        9.70
Total Assets(in billions)     26.11                        21.86                        15.74
Ratio                         0.85                         0.82                         0.61




   30
              26.11

   25     22.24                 21.86

   20                       18.04
                                                   15.74           Sales(in billions)
   15                                                              Total Assets(in billions)
                                             9.7                   Ratio
   10


    5
                   0.85               0.82             0.61
    0
           Category 1       Category 2       Category 3


Analysis or comment:

     This ratio show‟s the firm‟s ability in generating sale from all the financial resources
committed to total asset. In 2007 this will be 0.61 times and in the year 2008,2009 this will be 0.82
& 0.85 times . it means company investment is more for the purpose of making the sales,
Working Capital turnover

Particulars                       2009                         2008                            2007
Sales(in billions)                22.24                        18.04                           9.70
Current Assets(in billions)       12.22                        10.35                           6.40
Ratio                             1.82                         1.74                            1.51



  25
         22.24


  20                      18.04


  15                                                                   Sales(in billions)
             12.22
                              10.35         9.7                        Current Assets(in billions)
  10                                                                   Ratio
                                                  6.4

   5
                   1.82              1.74               1.51

   0
            2009              2008            2007


Analysis or Comment:

   The firm may also like to relate net current asset (or net working capital gap) to sales . it may
thus compute the net working capital turnover for making the sales over the current asset. In 2007
working capital turnover is 1.51 times and this will be continue grow in the 2008,2009 respectively
1.74 & 1.82 ,
Net Profit Margin

Particulars                   2009                           2008                     2007
PAT(in billions)              2.16                           1.66                     1.34
Sales(in billions)            22.24                          18.04                    9.70
Ratio                         1                              0.14                     0.09



   25
                  22.24


   20                                  18.04


   15                                                                     PAT(in billions)

                                                             9.7          Sales(in billions)
   10                                                                     Ratio


    5
           2.16                 1.66
                          1                           1.34
                                               0.14                0.09
    0
              2009                 2008                  2007




Analysis or Comment:

    Net profit ratio established the relationship between net profit and sales and it will indicate the
management efficiency in manufacturing ,administrative , selling the product, this ratio is the over
all measure of the firm‟s ability, the with a high net margin ratio would be in an advantages it
means company can make the better use of favourable condition, in 2007this will be 0.09 there
after it will continue grow in 2008,2009 respectively 0.14,& 1
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equity research

  • 1. Project Report On Study of Financial System of MIEL
  • 2. A PROJECT REPORT ON “Working capital & Ratio analysis” AT Monnet Ispat & Energy Limited Submitted by Sonu Samdariya Id: 09PR00101B061 INTERNAL GUIDE EXTERNAL GUIDE Mr. Manmeet Arora Mr. Kamal Tanna (Sr. Manager ) IN PARTIAL FULFILLMENT OF MASTER OF BUSINESS ADMINISTRATION PROTON b school, Indore 2009 - 2011
  • 3. This is to certify that the internship project titled “Working Capital & Ratio Analysis” is successfully completed by Mr. Sonu Samdariya under my supervision in partial fulfillment & for the award of MBA for the period from 3rd May 2010 to 30th June 2010. This report neither full nor in part has ever been submitted for awarding of any degree of either this university or any other University. I am pleased to say that his performance during this period was very good. Internal Guide Mr. Manmeet Singh Arora (Faculty Guide)
  • 4. DECLARATION I hereby declare that this project work entitled “Working Capital & Ratio Analysis” is my sincere work, carried out under the guidance of faculty guide Mr. Manmeet Singh Arora . This neither full nor in part has ever been submitted for award at any other University. Name : Sonu Samdariya Place : Raipur Date :
  • 5. ACKNOWLEDGEMENT It is my pleasure to acknowledge gratefully all those honorable personalities who have helped me into the creation of this project and shared their experience about management and the market. I express my deep regards and solemn gratitude to Mr. Kamal Tanna (Senior Manager Finance Department) and my project guide Mr. Anand Pal for giving me the opportunity and their valuable guidance to make this project successful. I wish to express my indebtedness and sincere thanks to Dr. Vinay Goyal (Dean of PROTON business School) for giving me opportunity to work in the organization. I would also like to express my sincere gratitude and special thanks to Mr. Mnameet Singh Arora (Faculty of Financial Management), and all the faculty members for being supportive to me. Special thanks are due to all the respondents who gave me their time and attention despite their busy schedule. Finally, I wish to extend my sincere acknowledgement to my parents for their moral and financial support. With regards Sonu Samdariya
  • 7. Executive Summary The project is about Working Capital Management in “Monnet Ispat & Energy Ltd” at Raipur Chhattisgarh, Project is an opportunity given to management student where one gets an insight in to the practical aspects in the day to day working of an organization. It imparts a real time environment to the theoretical knowledge that one acquire in a business school. The project was undertaken to make a study on the various aspect of the “Working Capital Management”. The Project highlights the main aims and objects of the project report. It also explains the great importance of Working Capital Management. It covers specific introduction of Working Capital Management. It gives theoretical aspects as well as covers all dimensions of the topic. Research methodology adopted for getting data is empirical in nature and therefore release in the company‟s annual report and financial statements.
  • 8. Objective of Study  To present an introductory profile of Monnet Ispat Energy Ltd.  To study in depth the finance management of Monnet Ispat & Energy. Ltd  To study the financial position of the concern through Working Capital Management.  To estimate the working capital requirement of the company and the composition of the net current assets for the period under review.  To analyze and interpret the working of the company through the use of tools such as Working Capital Management.  To know the liquidity position of the company for the period under consideration.  To know the efficiency of the concern.  To study the level of current assets and current liabilities for the company.  To study the nature of expense in company and estimate the future expense base on past data.  To understand how the expense are control by the use of Working Capital Management.  To understand how Working Capital Management helps the company.  To draw a conclusion regarding Finance Management of Monnet Ispat & Energy Ltd.
  • 9. Scope of the Study Working Capital Management is widely used in all the organization. The scope of this study is limited to the study of different types of ratios and fund control of Monnet Ispat & Energy Ltd. The study includes the computation and comparison of various ratios and the estimation of working capital requirements for the period under review. The study was conducted at “Monnet Ispat & Energy Ltd Raipur”. The duration of the study was confined to about 60 day‟s.  This study is limited to Monnet Ispat & Energy. Ltd.  This study is specially related with Finance management in particular.  This study is presented on the basis of information and knowledge which could be gained during the course of SIP at Monnet Ispat & Energy Ltd.  This study does not involve any survey or interaction with other company  The data collected is related to Monnet Ispat & Energy Ltd and not the industry as a whole.  The data collected is purely from company records and discussion with the top management only.  This study is limited to time and does not consider the long run effect on the financial position of the firm.
  • 10. Research and Methodology There are two methods of data collection – Primary Data Collection Secondary Data Collection Collection of Primary Data The primary data are those which are collected and for the first time and thus happened to be original in character. For this project primary data is collected by discussion with authorities. Collection of Secondary Data The secondary data on the other hand are those which have already been collected by someone else and which already have been passed through statistical process. The secondary data is collected from annual reports, magazines, office files and records etc.
  • 11. Introduction to the Study The project is done on “Working Capital Management” of “Monnet Ispat & Energy Limited.” This project was undertaken with an aim to gather information and get knowledge about the Working Capital Management and related Financial Ratio of the company. A ratio is the mathematical relationship between two quantities in the form of fraction or percentage. Ratio analysis is essentially concerned with the calculation of relationship which after proper identification and interpretation may provide information about the operations and state of affairs of business enterprises. The analysis is used to provide indicators of past performance in terms of critical success factors of a business. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgment. The ratio analysis concentrates on the inter-relationship among the figure appearing in the aforementioned for financial statements. Working Capital Ratio Analysis allow interested parties like shareholders, investors, creditors, Government and analyst to make an evaluation of certain aspect of a firms performance. The appraisal of the Working Capital will make proper analysis about the strengths and weaknesses of the firm operations. Working Capital Analysis is an accounting tool that reflects the followings:  The ability of the firm to meet its short-term commitments.  The debt financing of the company.  The degree of the efficiency and the standard of performance of the company.  Ratio provides an easy way to compare present performance with past.  Ratio depicts the areas in which a particular business is competitively advantaged or disadvantaged through the comparison ratio to those of other business.  The overall efficiency of the company.
  • 13. Monnet Vision  To achieve holistic in terms of cost, quality and customer satisfaction in a systematic and planned manner.  A symbol of corporate excellence with strong focus for benefiting stakeholders and society at large.
  • 14. Monnet Mission  To achieve total integration in operations with global cost and quality Standards with the use of latest technology and to be perceived as the “Preferred “ choice of our customers.  To build a team of motivated and dedicated work force with high Work Ethos.  To strive to emerge as an ideal corporate citizen.
  • 15. Introduction Monnet Ispat & Energy Ltd is the flagship company of Monnet Group. It was incorporated On 1st February 1990; Mr. Sandeep Jajodia and Jindal Strips Ltd jointly promoted the company. It is located at Mandir Hasaud, Dist.Raipur. The first trial production Of the plant came on 07/02/94 and the first commercial production of the plant came On 05/08/94. ISO 9001 certifies the MIEL. Monnet is an industrial conglomerate born out of a conviction. It is this strength of conviction that makes us the second largest coal-based Sponge Iron manufacturer with thriving facilities in Raipur and Raigarh in the State of Chhattisgarh as well as the largest underground coal mine operators in the country. Today, Monnet has a combined capacity of 860,000 TPA of Sponge Iron, 300,000 TPA of Steel, 60,000 TPA of Ferro Alloys and Power generation facility of 150MW besides running the largest underground coal mine in the country. Pursuing balanced integration, we have acquired additional coal mining rights at Raigarh. Our profitability is a result of judicious use of indigenous technology, backward & forward integration and economies of scale. Company description MIEL is the second largest sponge iron based steel manufacturer in India, next only to JSPL. The business operations are backed by captive linkages of coal, power and to some extent, iron ore. MIEL is expanding its capacity across its product range and the same is expected to be completed by Q4FY09 Corporate Monnet Ispat & Energy Ltd (MIEL) is the flagship company of the well diversified Monnet Group. The Group currently manages manufacturing units for Sponge Iron, Steel Melting & Rolling Mill, Ferro- Alloys Plant, Power Generation units, Mining & Mineral Beneficiation of Coal, Iron Ore and other minerals. The Group has also a highly skilled set of professionals who guide the industry through Coal Consulting Services. In addition to its current thrusts, the group has envisaged ambitious growth plans in diverse sectors and has devised strategic partnerships with world leaders to continue forays into sectors viz clean coal technologies, port development and oil & gas sectors.
  • 16. Monnet Group 1 Monnet Ispat & Energy Ltd, Mandir Hasaud ,Raipur . 2 Monnet Power Ltd, Angul 3 Monnet Global Ltd. 4 Monnet Danial Coal Washery Ltd (Ranchi) 5 Rameshwaram Steel & Power Ltd Monnet today Monnet is an industrial conglomerate born out of a conviction. It is this strength of conviction that makes us the second largest coal-based Sponge Iron manufacturer with thriving facilities in Raipur and Raigarh in the State of Chhattisgarh. Today, Monnet has a combined capacity of 0.86 million TPA of Sponge Iron, 0.3 million TPA of Steel, 0.06 million TPA of Ferro Alloys and power generation facility of 150MW besides running the largest underground coalmine in the Country. Pursuing balanced integration, we have acquired additional coal mining rights at Raigarh. Our profitability is a result of judicious use of indigenous technology, backward & forward integration and economies of scale. Team monnet Our growth plans have been fuelled by our workforce. As we expanded vertically and horizontally, we added strength to our organizational structure by inducting seasoned professionals in each field of activity - be it steel, mining on power. Such diverse specialists make Monnet a picture of multi- faceted excellence. Future, empowered Monnet's growth story is marked by natural progression. Our 1.2 million TPA steel manufacturing facility coming up at Raigarh is at an advanced stage of implementation. Brisk progress is being made in the setting up of an additional 80 MW Power Plant at Raigarh. Yet another mega venture will be completed on schedule - a 1050 MW Independent Power Plant under the banner of Monnet Power Company Ltd. Quite simply, we are empowering the future. With our mettle, and our metal! Company performance Your Company has recorded impressive growth in the top line and bottom line in spite of the deteriorated economic environment, sudden fall in demand in 2nd half of the financial year followed by steep decline in selling prices. Additional capacity of Sponge Iron and Power became operational in the 2nd half of the year, contributing to the growth of the Company.
  • 17. Expansion Plans After completing the expansion in Sponge Iron and Power Divisions, your Company is moving ahead with the implementation of 1.2 Million TPA Integrated Steel Plant at Raigarh. The integrated facility will comprise of structural and a plate mill. The expansion will be completed in financial year 2011. Your company has also commenced implementation of 1050 MW Power Plant in its 100% subsidiary company Monnet Power Company Limited (MPCL). The project is financially closed, the orders for BTG Package have been placed with BHEL and the arrangements for evacuation and sale of power have also been concluded. This marks a major milestone for your Company. Over the next 3 years, your company would see substantial growth on a consolidated basis after factoring the expansions being undertaken in steel and power. Company's Philosophy on code of Governance Monnet is committed to ethical corporate citizenship by following systemic process of healthy governance practices and discharging societal responsibilities towards capital providers, business associates, stakeholders and employees in conducting its affairs in a fair and professional manner and in maintaining the high standards. The Company has also taken a series of other measures such as having professional Directors on the Board who have achieved prominence in their professional career, adopting pragmatic policies and effective systems and procedures, sharing of information with shareholders on a regular basis, through newspapers, audits and checks. The policies and actions of the Company, while being in full compliance of applicable laws and regulations, are dictated by the underlying objective of maximizing shareholder value on a long- term basis.
  • 18. ORGANIZAIONAL FLOW CHART OF MONNET ISAPT & ENERGY LTD M.D. Marketing Finance Corporate planning C.E.O. Accounts Materials Personnel Technical dept. dept. Dept. Dept. G.M. Dispatch EDP Stores Manager dept. Procurement Manager stores Deputy A.G.M Purchase Manager Process dept. Mechanical Electrical Civil & Quality dept. dept. control Maintenance Dept. Process Process Sponge Steel
  • 19. FORWARD AND BACKWARD INTEGRATION Coal Mines Sale in Sponge Market Iron Induction Liquid Liquid Captive use Furnace Metal Metal By-Product Prospecting for iron ore & Mines Poured into Continuo Waste us Moulds Caster Coal Char Waste Ingot Billet Fines Gas Market Market WHRB AFBC Steam Turbine Power ARC Ferro Alloys Market Furnace
  • 20. Quality Policy Monnet Ispat & ENERGY LIMITED shall strive to: - Achieve & Sustain Product Quality as per customer requirement and satisfaction. Adhere to Approved Quality Assurance system in conformance to ISO 9001:2000. M/S MONNET ISPAT& ENERGY LTD. strive for continual improvement of their quality management systems through the active involvement. Divisions Sponge Iron. Steel Melting shop. Rolling Mill Power division Ferro division PRODUCTS AND MANUFACTURING CAPACITY (Raipur) Sponge Iron: Monnet Ispat & Energy Ltd has total capacity of 3,00,000 Tonnes /annum Sponge Iron. It has the four Kilns to produce sponge iron , whose capacities are as follows 300 MT / day capacity which started  It‟s Commercial Production on 05/08/1994 350 MT / day capacity which started its  Commercial production on 25/12/2001. 100 MT / day capacity which started its  Commercial Production on 19/08/2003. 100 MT / day capacity which started its  Commercial Production on 01/01/2004.
  • 21. Steel Melting Shop : Steel melting is consisting of two Products they are as follows. Steel Melting Shop – I (For Ingot) Steel Melting Shop – II (For Billet) Steel Melting Shop-I Its the total installed capacity is 67,000 tonnes p.a. This shop is Having the total five furnaces, they are as follows 4 furnaces of 3 tonnes each 1 furnace of 4 tonnes each Steel Melting Shop – II Its Total installed capacity is 2,33,000 Tonnes p.a. It has got 5 Furnaces as follows, along with a double stand continuous caster for Billet Casting. 2 furnaces of 12 tonnes. 2 furnaces of 8 tonnes. 1 furnacesof 18 tonne Rolling Mill : Its Total installed capacity is 200,000 Tonnes p.a. It has got 2 Furnaces. Ferro Division: Its Total installed capacity is 46400 Tonnes It has got 4 Furnaces 2 furnaces of 7.5MVA 1 furnace 5 MVA 1 furnancesof9 MVA Power division: Its total installed capacity is 60 MW first unit is of 7.5MW second is 37.5MW and third is 15MW.
  • 22. Board of Directors Shri Mohinder Singh Gujral Chairman Shri P.L. Nene Non Executive Director Shri G.C. Mrig Non Executive Director Shri J.P. Lath Non Executive Director Shri V.N. Kedia Non Executive Director Shri Sandeep Jajodia Executive Vice-Chairman & Managing Director Board Committees Audit Committee Shri M.S. Gujral, Chairman Investors' Grievance/ Shareholders Committee Shri P.L. Nene, Member Shri M.S. Gujral Shri G.C. Mrig, Member Shri Sandeep Jajodia Shri V.N. Kedia, Member Shri J.P. Lath Shri M.P. Kharbanda, Secretary Finance Committee Executive Committee Shri Sandeep Jajodia Shri Sandeep Jajodia Shri J.P. Lath Shri J.P. Lath Remuneration Committee Share Transfer Committee Shri M.S. Gujral Shri J.P. Lath Shri G.C. Mrig Shri V. N. Kedia Shri J.P. Lath Shri M.P. Kharbanda Company Secretary Shri M.P. Kharbanda Registered Office Monnet Marg, Mandir Hasaud, Raipur - 492101 (Chhattisgarh)
  • 23. Works Unit-I Monnet Marg, Mandir Hasaud, Raipur - 492 101 (Chhattisgarh) Unit-II Village - Naharpali, Tehsil Kharsia, Dist. Raigarh Chhattisgarh Coalmine Village - Milupara, Block-Tamnar, Distt. Raigarh, Chhattisgarh Corporate Office MONNET HOUSE, 11, Masjid Moth, Greater Kailash Part-II New Delhi-110048 MIEL Corporate Website : www.monnetgroup.com Bankers Bank of Baroda Barclays Bank PLC Citibank N.A. DBS Bank Ltd. HDFC Bank Ltd. Hongkong and Shanghai Banking Corp. Ltd. IDBI Bank Ltd. IndusInd Bank Ltd. ING Vysya Bank Ltd. Jammu & Kashmir Bank Ltd. JP Morgan Chase Bank N.A. Punjab National Bank Standard Chartered Bank State Bank of Bikaner & Jaipur State Bank of India State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore Syndicate Bank UCO Bank
  • 24. Investments A host of steel companies have lined up major investment proposals. Furthermore, with an expanding consumer market, the Indian steel industry is likely to receive huge domestic and foreign investments. The domestic steel sector has attracted a staggering investment of about US$ 236 billion. This consists of nearly 222 MoUs signed between the investors and various state governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal.  According to the Investment Commission of India investments of over US$ 30 billion in steel are in the pipeline over the next 5 years.  Tata Steel has raised US$ 500 million by issuing 'global depository receipts' (GDRs) aiming at expansion of its Jamshedpur plant and overseas mining projects.  The state-owned Steel Authority of India Ltd (SAIL) will invest US$ 724.12 million to set up a 4- million tonne per annum steel mill at its Bhilai Steel Plant.  SAIL is also planning to set up a 12-million tonne plant in Jharkhand.  Stainless steel manufacturer and exporter, Varun Industries, is setting up a US$ 171.63 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.  India‟s largest engineering conglomerate Larsen & Toubro (L&T) and state-owned Nuclear Power Corporation of India Limited (NPCIL) have formed a US$ 370.09 million joint venture for specialised steel and forging products. Monnet Group has embarked upon a major investment program in the short term. More than US $ 1.5 billion worth of investments have been lined up in various business segments. We expect that the company will keep its growth story in the coming quarters also. We recommend „BUY‟ in this particular scrip with a target price of Rs.438.00 for Medium to Long term investment. Sector structure/Market size The steel industry in India has been moving from strength to strength and according to theyear-end review by the Press Information Bureau, India has emerged as the fourth largest producer of steel in the world and the second largest producer of crude steel. Significantly, state-owned steel maker, Steel Authority of India (SAIL), which reported a net profit of US$ 571 million in January-June 2009, has become the most profitable steel company globally, beating steel majors such as ArcelorMittal, Posco, Bao Steel and Nippon in the half yearly profits.
  • 25. Production Steel production reached 28.49 million tonne (MT) in April-September 2009. The National Steel Policy has a target for taking steel production up to 110 MT by 2019–20. Nonetheless, with the current rate of ongoing greenfield and brownfield projects, the Ministry of Steel has projected India's steel capacity is expected to touch 124.06 MT by 2011–12. In fact, based on the status of memoranda of understanding (MoUs) signed by the private producers with the various state governments, India's steel capacity is likely to be 293 MT by 2020. Expansion plans Monnet Group has embarked upon a major investment program in the short term. More than US $ 1.5 billion worth of investments have been lined up in various business segments. Briefly the investment plan envisages the following:- Steel Plant expansion at Raigarh, Chhattisgarh is USD 555 million, Thermal Power Plant at Angul in Orissa, 1050MW is USD 855 million, Coal Washery at Talcher, Orissa is USD 10 million, Open cast mining in Orissa & amp; Chhattisgarh is USD 102 million, 4 Cement Plant at Raipur USD 180 million The projects are being undertaken by the Project Division of the Monnet Group with a majority of equipment orders for the steel plant and the power plant having been placed. Growth Net Growth in the financial years As At Dec-08 Dec-09 08 %change Net sales 3721.90 4000.80 -6.97 Net profit 680.10 335.00 103.01 Basic EPS 14.18 6.80 108.43 Peer Group Comparison Name of CMP(Rs.) Market EPS(Rs.) P/E(x) P/Bv(x) Dividend(%) Company Cap.(Rs.mn.) MIEL 381.00 18272.76 50.80 7.50 1.52 50.00 SAIL 236.15 975394.1 1487 15.88 3.49 26.00 Jindal 697.00 649303.0 13.85 50.34 11.99 550.00 Steel & power JSW 1184.35 221568.5 72.44 16.35 2.91 10.00 Steel
  • 26. Power Generation MIEL has extensive experience in setting up and operating power plants. It is presently generating 150 MW of power from it‟s Raipur and Raigarh Plant for captive consumption & sale. MIEL is enhancing the power generation capacity at Raigarh from 90 MW to 180 MW. The new 90 MW plant is slated for commencing power generation in the financial year 2010-11 MIEL is setting up 1050 MW power plant in Angul, Orissa as an IPP. MIEL is executing the project through its wholly owned subsidiary, Monnet Power Company Limited. The allocation of coal block is testimony to the capability of MIEL to execute projects of large magnitude in coal mining and power generation. The plant shall be commissioned by year 2011-12. Encouraged by these spurt of positive activities the company proposed to install two more super critical power projects with the rated capacity of 2 x 660 MW i.e. equal to 1320 MW and at costal states with captive Jetties and imported coal proposed to be unloaded at the western ports and eastern ports respectively. The company has envisaged to become a major power player by simultaneously entering into Hydro Sector also and has been qualified for 3 small Hydro project in the state of Uttrakhand on pinder river. Negotiation are also in progress for a 96 MW Hydro Power Project in the State of Arunachal with the State Government. Not contended with above the surplus power from the captive power plants of Raigarh and Raipur has been traded to various beneficiaries on short term basis and company has been able to sell sufficient units during the financial year 2009-2010 till date. Sponge Iron
  • 27. Sponge iron is formed through the reduction of iron ore to metallic iron through reaction with carbon in the form of coal, etc at approx 1100 degree Celsius. Sponge iron is also referred to as direct reduced iron, metalized iron, or hot briquetted iron. Sponge iron is used in the iron and steel industry as a substitute for scrap in induction and electrical arc furnaces. Over the years, the shortage of expensive melting scrap has made sponge iron a significant raw material for manufacturing high quality steel. In India, the abundance of Iron Ore deposits has led to absorption of the renowned by the Indian industry and use of ore lumps and fines has led to the country becoming the largest producer of sponge iron in the world. Monnet Group ventured into this segment in early nineties and over the years has perfected the technology and become the second larges sponge iron manufacturer in India. For Manufacturing Sponge Iron below three are the Raw Material required. i. Iron ore. ii. Coal. iii. Dolomite. QUALITY A ND SUPPLIERS OF 3 MAJOR INPUTS IRON ORE Physical properties Chemical properties Size 5-18mm Fe (iron) 65% min. Gangue 5% max . Sulphur 0.02% max. Phosphorus 0.04% max.
  • 28. Loss on ignition 1.5 % max. Moisture 1% max. SUPPLIERS. i. Orissa Mining Corporation (OMC) . ii. Essel Mining & Industries Ltd (Orissa). iii. Rungta Mines (Orissa) iv. Orissa Mineral & Development Corporation Ltd v. National Minerals Development Cop (NMDC). Bailadila vi. Aryan Training Ltd COAL Physical Properties Steam coal Slack coal 1.Size 25-150mm 0-25 mm 2.Stone &Shale 2 % max 2 % max Chemical Properties Fixed carban (FC) 48 % 45% Volatile Mater(VM) 30 + 2 % 28 + 2 % Ash 20 %max 25 % max Moisture 10 % max 10 % max Sulphur 1 % max 1% max Calorific value 5500Kcal/kg(min) Ash softening temp. 1300 c (min) SUPPLIERS 1. South Eastern coalfields limited. i. Bishrampur Mines . ii. Delwadih .
  • 29. iii. Singhali iv. Rajgamaer . v. Banki vi. Surakachar . vii. Dipika viii. Gevra . 2. Mahanadi coalfields limited. i. Samaleshwari Mines. ii. Orient Valley Mines. DOLOMITE Physical Properties Chemical Properties Size 2– 6 Cao 28 % min 48 % max Moisture 5 Mgo 20 % min Sio2 2.5 % max Al2o3 2.5 % max 5 %max LOI 44 % SUPPLIERS i. R.K. Agrawal Mandla ii. Vinod Kumar Agrawal Mandla iii. Shree Shakti Minerals Bhilai iv. Prem Enterprises Mandl
  • 30. Steel
  • 31. As a part of on going down stream integration process to sponge iron manufacture, Monnet has set up a steel melt shop for manufacturing structural steels. The capacity of the continuous mill is 500,000 MT per annum at Raipur in Chatisgarh. This Mill has been set up on better technological platform for manufacturing various sizes of structural sections covering wide range of structural grades to cater to the needs of the construction and engineering sectors and to create superior values for the customers. Further capacity additions are underway at Raigarh works where a greenfield steel plant is being set up for manufacture of 1.5 million MT per annum of long and flat steel products at an investment of Rs 4,000 crores. Monnet‟s Medium and Heavy class structural Sections are suitable for all kinds of conceivable Steel structural Construction of conventional and innovative types at any geographical location. For manufacturing steel basic raw materials required as follows: - Sponge Iron Pig Iron M.S. Scrap Silico manganese Ferro silicon Calcinied Petroleum Coke Aluminum Shorts/Notch Bar RAW MATERIAL FOR ROLLING MILL: - M.S.Billet Furnace oil RAW MATERIAL FOR FERRO DIVISION: - Manganese ore Dolomite Pearl Coke Higher Silico Manganese Slag Higher Ferro manganese slag Quartez
  • 32. PROCESS OF PRODUCING STEEL: Additive Ferro alloys Poured it Ingots Sponge iron to moulds Induction Liquid Moulds + scrap metal + pig iron Taken in ladle To continuous Billets Metal caster Electricity Caster.
  • 33. Ferro Division: Its Total installed capacity is 46400 Tonnes It has got 4 Furnaces  2 furnaces of 7.5MVA  1 furnace 5 MVA  1 furnancesof9 MVA RAW MATERIAL FOR FERRO DIVISION: -  Manganese ore  Dolomite  Pearl Coke  Higher Silicon Manganese Slag  Higher Ferro manganese slag  Quartez
  • 34. Ferro Alloys : These are alloys of iron with elements such as chromium, manganese, silicon, tungsten, molybdenum or vanadium. The Monnet Group portfolio of Ferro-alloys includes vital alloys such as Ferro Manganese (Fe-Mn) and Silicon-Manganese (Si-Mn). These are supplied in diverse of shapes and forms from billets and ingots to powders, fillers and allied reinforcements. Ferro alloys are used in the steel making process for introducing alloying elements into the molten metal or as de-oxidizing agents. Currently the entire production is made for captive purposes in the production of value added steel products. High Carbon Silicon manganese: Chemical Composition: Element % age by Weight Manganese(Mn) 60 Minimum Carbon (C) 2 – 2.5 Silicon (Si) 15 Minimum Sulphur (S) 0.05 Maximum Phosphorus (P) 0.35 Maximum
  • 35. High Carbon Ferro Manganese: Chemical Composition : Element % age by Weight Manganese(Mn) 70 Minimum Carbon (C) 6–8 Silicon (Si) 1.5 Minimum Sulphur (S) 0.05 Maximum Phosphorus (P) 0.4 Maximum Customers a) Govt plant sail/Rinl/Railway. b) Private Plants c) Export market 1500 t/month. Key Concerns Steel imports jumped by 46 percent in 2007-08. During that period, India Imported seven million tonnes of steel and exported five million tonnes. Consumption of steel is
  • 36. going up by 8-10 million tonnes per annum. This will continue for several years. Then, we have to import 25 million tonnes of steel in the next five years. The extensive involvement of the government to keep price stable, the industrial margins are going into the pressure. The ongoing credit crisis and slowing demand from global markets has forced companies across sector to postpone expansion plans. One Year Comparative graph Monnet Ispat & BSE Energy Ltd
  • 37. Consumption India accounts for around 5 per cent of the global steel consumption. Almost 70 per cent of the total steel used is for kitchenware. However, its use in railway coaches, wagons, airports, hotels and retail stores is growing immensely. India's steel consumption rose by 6.8 per cent during April- November 2009 over the same period a year ago on account of improved demand from sectors like automobile and consumer durables. India's steel consumption will continue to grow by 16 per cent annually till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 35 kg – compared to 150 kg across the world and 250 kg in China. Steel players like JSW Steel and Essar Steel are increasing their focus on opening up more retail outlets pan India with growth in domestic demand. JSW Steel currently has 50 such steel retail outlets called JSW Shoppe and is targeting to increase it to 200 by March 2010. They expect at least 10-15 per cent of their total production to be sold by their retail outlets. Essar Steel which currently has over 300 retail outlets across the country, plans to set up 5,000 outlets of various formats soon. It expects to sell 3MT of steel through the retail route in two years. Exports Out of India's annual iron ore production of more than 200 MT, about 50 per cent is exported. India's iron ore exports more than doubled to 9.3 million tone in October 2009 as compared to 4.4 million tone in the same month a year ago on the back of increase in demand from Chinese steel producers, as per a joint study by a group of iron ore exporters. 14 Iron ore is a key input in steel making. The country‟s iron ore exports during April-October 2009 period grew 20 per cent over the year ago period to 53 million tonne, as per the study.
  • 39. The term Working Capital Management refers to the plants, techniques and policies adopted to manage the working capital. To be precise, by working Capital Management is meant the systematic process, plants and techniques of managing the current assets the liabilities of the concern and estabilishing an effective link between current assets and current liabilities. It has the ultimate objectives of maintaining the liquidity and attaining the financial goal of increasing the net worth of the business. What Is Working Capital Working capital refers to the investment by the company in short term assets such as cash, marketable securities etc. Net current assets or net working capital refers to the current assets less current liabilities. Current Assets – Current Liability = Working Capital The aspects of management of working capital are, 1. Determine the requirements of working capital. 2. Financing the requirements. 3. Efficient utilization of requirements of working capital. Classification of Working Capital Working capital may be classified in to ways: On the basis of concept. On the basis of time. On the basis of concept working capital can be classified as Gross Working Capital Net Working Capital. On the basis of time, working capital may be classified as: Permanent or Fixed Working Capital. Temporary or Variable Working Capital Permanent or Fixed Working Capital Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets.
  • 40. Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets. Temporary or Variable Working Capital Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.
  • 41. OPERTING CYCLE CASH DEBTORS RAW MATERIAL SALES WORK IN PROCES FINISHED GOODS
  • 42. Adequacy of Working Capital The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Working capital should be adequate for the following reasons: 1. It protects a business from the adverse effect of shrinkage in the values of current assets. 2. It is possible to pay all the current obligations promptly land to take advantage of cash discount. 3. It permits the carrying of inventories at a level of that would be enabling a business to save satisfactorily the needs of its customers. 4. It enables a company to extend favorable credit terms to customers. 5. It enables a company to operate its business more efficiently because there is no delay in obtaining materials etc. because of credit difficulties. 6. There may be operating or non operating losses. 7. There may be increasing price necessitating bigger investment in inventories and fixed assets. 8. It enables business to with stand periods of depression smoothly. Factors Affecting Working Capital Requirements The working capital needs of a firm are influenced by the numerous factors. The important ones are, 1. Nature of Business The working capital requirements of a firm is closely related to the nature if its business. A service firm, like an electricity undertaking or a transport corporation, which has a short operating cycle and which sells predominately on cash basis, has a modest working capital requirement. On the other hand a manufacturing concern, which has a long operating cycle, has substantial working capital requirements. 2. Seasonality of Operations
  • 43. Firms which have marked seasonality in their operations usually have highly fluctuating working capital requirements. To illustrate consider a firm manufacturing ceiling fans. The sale of ceiling fans reaches a peak during the summer months and drops sharply during the winter period. On the other hand, a firm manufacturing a product, which have fairly even sale round the year, tends to have stable working capital needs. 3. Production Policy A firm marked by pronounced seasonal fluctuation in its sales may pursue a production policy which may reduce the sharp variations in working capital requirements. 4. Market Condition The degree of competition prevailing in the market place has an important bearing in working capital needs. When competition is keen, a larger inventory of finished goods is required to promptly serve customers. Further, generous credit terms may have to be offered to attract customers in a highly competitive market. If the market is strong and competition is weak, a firm can manage with smaller inventory of finished goods. 5. Condition of Supply The inventory of raw materials spares and stores depends on the condition of supply. If the supply is prompt and adequate the firm can manage with small inventory. However, if the supply is unpredictable and scant then the firm, to ensure the continuity of production would have to acquire stock as and when they are available and carry larger inventory on an average. A similar policy may have to be followed when the raw material is available only seasonally and production operations are carried out round the year. 6. Taxes Taxation has an important impact on the profit earned by an enterprise. Nearly one-half of the profit earned is drained off. Tax liability when arise will be drain on working capital funds even though this liability happens only ones in a year. Yet the management should be able to calculate this liability and make the provision for payment when due. Payment of taxes in installments during the year will drain off the liquidity more quickly.
  • 44. 7. Dividend Policy Dividend policy has a dominant influence on working capital position of an enterprise. Dividend policy cannot liquidity – the ability of the concern to find necessary cash to meet the dividend payment. When ones dividend is declared and the same has to be paid in cash, it consequently drains off large amount from working pool. 8. Operating Efficiency If the operating cycle operates successfully, the working structure becomes strong. If there is decline or loss of operating efficiency there will be drain of the cash flows before the competition of the cycle. If the cost rise up, there will be decline in the net profit – drain on cash realization. Therefore effective control of costs will have on impact on the net profit and liquidity. 9. Expansion Programme Capital investment in capital projects is generally financed by permanent capital or retained earning. However, expansion programme sometimes drain off working capital funds account of increase in stock and debtors. Even though such programme is sign of successful growth, they have influence over working capital reserves. 10. Price Level Changes Changes in the price level also affect the working capital requirements. Generally rise in prices leads to increase in working capital. 11. Others Factors Management ability. Import policy. Asset structure. Importance of labor. Banking facilities, etc. Sources of Working Capital Financing The need of working capital working capital increase by raising prices of end products and relative inputs on the other hand the government and monetary authorities play their own role to curb the mallet in the period‟s o f inflation. The control measures of ten takes the form of dear money policy and restrictive credit financing of addition working capital requirements in such an environment become a real problem to a finance manager of a concerned unit.
  • 45. SOURCES OF WORKING CAPITAL A) Long term sources (Fixed working capital) 1. Loan from financial institutions 2. Floating of debentures] 3. Accepting public deposits 4. Issue of shares by operational results 5. Raising funds by operational results B) Short term sources (Temporary working capital) 1. Trade credit 2. Notes bills payable 3. Bank credit, Cash loan, Cash credit etc. 4. Bank acceptance A) Long Term Sources It includes the following sources Loan from financial institutions This option is normally rules out because financial institutions do not provide finance for working capital. The IDBI, FCI and ICICI these various types of financial institution set in each and every state for providing finance to the business concern. But these institutions do not provide finance for working capital requirements. Floating of Debentures The probability of successful floating of debentures to be another measure In Indian capital market floating of debentures has still to gain popularity. The company raising funds by issuing convertible debentures are also considered which may attract a number of investments. Accepting Public Deposits The next alternative is public deposits. This source of finance is most profitable in company. Issue of Shares Issue of shares is one of the important sources for to fulfill the need of working capital. But generally this course is used for purchasing of fixed assets or long term assets. Raising Funds by Operational Results
  • 46. Raising Funds by Operational Results are the most important source of finance. In which the company earning fund out of profit to pay reasonable dividend to shareholders and retain profit to cover margin money requirements to finance additional requirements. Short Term Sources 1. Internal Sources Depreciation funds: The depreciations funds constitute important source for working capital. Some authorize of business finance do not accept them as a sources of funds but it is not reasonable. Accrued Expenses The firm can postpone the payment of expenses for short period. Hence the accrued expenses also constituted an important source of working capital. 2. External Deposits Trade Credit Trade credit refers to the credit that a customer gets from suppliers of goods in the normal course of business. Normally the buying firms do not have to pay cash immediately for the purchase made by them. The time gap between the receipt of goods and services and payment thereof provide a firm with a source of finance i.e. trade credit. Trade credit can be in the form of an open account or bills payable. Short term bank credit The bank credit is the primary institutional sources of financing working capital. The amount approved by bank for the company working capital is called credit limit. Credit limit thus denotes the maximum limit of finance, which the firm can raise in the form of loan from the bank. Sometimes the bank may approve separate limits for peak season and non peak season. Usually the bank credit is available in following form, i) Letter of Credit A letter of credit is the guarantee provided by the buyers‟ bank to the sellers that in the cases of default or failure of the buyer, the bank should make the payment of the buyer.
  • 47. ii) Cash Credit This type of credit is provided mainly to individuals or enterprises engaged in manufacturing 7 trading activities to enable them to carry on their activities. The amt of cash credit facility to be sanctioned to a unit is need based and is worked out as per well defined parameters in each bank. The guidelines of RBI may also affect the quantum of facility in some cases. This facility is generally granted against the security of stock of goods, bills/books debts representing genuine sales. iii) Bills Finance The banks extend assistance to the borrowers against the bills. The finance against bills is meant to finance, the actual sales transaction. The finance against bills can take three forms. 1. Purchase of bills by the bank if these are payable on demand. 2. Discounting of bills by bank if these are usance bills (or time) bills. 3. Advanced against bills under collection from the drawees whether sent for realization through the bank or sent directly by the drawer to the drawee. iv) Working Capital Demand Loan In compliances of RBI directions, bank presently grants only a small part of the fund- based working capital facilities to a borrower by the way of running cash credit amount, a major portion is in the form of working capital demand loan. These arrangements presently applicable to borrowers having working capital facilities of Rs 10 core or above Working Capital Management Policy Working capital management policies have a great effect on firm‟s profitability, liquidity and its structural health. As pointed out earlier gross working capital consist of cash, receivables and inventory, if a firm has relatively high investment in these assets in comparisons to a firm, which is transacting the same volume of sale, it will have lower profitability in comparison to the latter. Therefore, a firm which has high working capital turnover will have higher profitability. This may require reduction of investment in working capital but, if it is reduced disproportionately, it will affect the liquidity position of the firm. Generally the current ratio and the quick ratio indicate liquidity aspect of firm. If current assets are reduced beyond limit, the current and quick ratios will be adversely affected leading the firm to poor liquidity. Therefore, it is essential that finance manager laid down such working capital management policies that a proper balance is struck between profitability and liquidity. Infact profitability and
  • 48. liquidity are inversely related. When one increase the other decrease. A firm have high liquidity will have a lower profitability and vice versa. Handling Receivables (Debtors) Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it owes for what it is owed. Late payments erode profits and can lead to bad debts. Slow payment has a crippling effect on business; in particular on small businesses who can least afford it. If you don't manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. The following measures will help manage your debtors: 1. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. 2. Establish clear credit practices as a matter of company policy. 3. Make sure that these practices are clearly understood by staff, suppliers and customers. 4. Be professional when accepting new accounts, and especially larger ones. 5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc. 6. Establish credit limits for each customer... and stick to them. 7. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. 8. Keep very close to your larger customers. 9. Invoice promptly and clearly. 10. Consider charging penalties on overdue accounts. 11. Consider accepting credit /debit cards as a payment option. 12. Monitor your debtor balances and ageing schedules, and don't let any debts get too large or too old.
  • 49. Recognize that the longer someone owes you, the greater the chance you will never get paid. If the average age of your debtors is getting longer, or is already very long, you may need to look for the following possible defects: weak credit judgment poor collection procedures lax enforcement of credit terms slow issue of invoices or statements errors in invoices or statements Customer dissatisfaction. Debtors due over 90 days (unless within agreed credit terms) should generally demand immediate attention. Look for the warning signs of a future bad debt. For example longer credit terms taken with approval, particularly for smaller orders use of post-dated checks by debtors who normally settle within agreed terms evidence of customers switching to additional suppliers for the same goods new customers who are reluctant to give credit references Receiving part payments from debtors. Profits only come from paid sales. The act of collecting money is one which most people dislike for many reasons and therefore put on the long finger because they convince themselves there is something more urgent or important that demands their attention now. There is nothing more important than getting paid for your product or service. A customer who does not pay is not a customer. Here are a few ideas that may help you in collecting money from debtors: Develop appropriate procedures for handling late payments. Track and pursue late payers. Get external help if your own efforts fail. Don't feel guilty asking for money.... its your and you are entitled to it. Make that call now. And keep asking until you get some satisfaction.
  • 50. In difficult circumstances, take what you can now and agree terms for the remainder. It lessens the problem. When asking for your money, be hard on the issue - but soft on the person. Don't give the debtor any excuses for not paying. Make it your objective is to get the money - not to score points or get even. Managing Payables (Creditors) Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following: Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people? Are purchase quantities geared to demand forecasts? Do you use order quantities which take account of stock-holding and purchasing costs? Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier. How many of your suppliers have a returns policy? Are you in a position to pass on cost increases quickly through price increases to your customers? If a supplier of goods or services lets you down can you charge back the cost of the delay? Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in- time basis? There is an old adage in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors - slow payment by you may create ill-feeling and can signal that your company is inefficient (or in trouble!). Remember, a good supplier is someone who will work with you to enhance the future viability and profitability of your company. Working capital performance is comprised of a complicated set of interactions within the corporate ecosystem that can be viewed through the lenses of Accounts Receivable, Accounts Payable and
  • 51. Inventory. Understanding these interactions, their performance drivers, and the affect on Working Capital requires accurate and timely information. This six-step process in plan has been shown to increase the probability of success in Working Capital performance improvement initiatives. Six Steps  The Project Charter: Define the initiative.  Get the information you require.  Create a cross-functional team to identify strategies for improvement.  Put the initiative to work.  Monitor, measure, and validate the improvements against baseline information.  Make adjustments and re-iterate over these steps. Step 1: The Project Charter: Define the initiative It is important to view Working Capital performance improvement as strategic within the organization and understand that it is going to take a team effort involving members from several different areas and management levels within your organization. Starting with a project charter to clearly define goals and the scope, will give a greater chance of success for your initiative. In the project charter, identify the teams and team players, executive sponsorship, steering committee members, objective of the initiative, scope of the initiative, and high level milestones. Also define any risks in the project along with the steps that will moderate the risks. Return on investment should be fully quantified as well as the metrics that are going to be used to quantify the return. It is important to have an executive sponsor for a project such as this, as well as a steering committee. The steering committee should be comprised of high level managers from operations and finance. Areas that should be represented are Inventory, Purchasing, Manufacturing, Accounts Receivable, Sales, Accounts Payable, Information Technology and Treasury. The steering committee is invaluable in helping to implement process changes that otherwise might meet with resistance within the organization. Get the information you require Understanding Working Capital performance starts with data. Information that is accurate and easy to use for analysis is critical in the assessment phase. Information feedback which provides a common view of targets and achievements across the enterprise is essential in measurement and plays a key role in making certain Process improvements fix. Information needs to serve all of the direct and indirect members of the team. One barrier to having effective information is the lack of a common customer, vendor, and or product master within the organization..
  • 52. Following are some tips around information: o Leverage off-the-shelf analytics software packages that automatically gather and organize this information for you. o Align the information needs with the initiative‟s directives and Priorities. The steering committee can help with this. o Implement the solution so that over time you have a complete and accurate representation of the business. o Make the information visible on a daily basis. Working Capital performance management is not a quarter-end activity, current performance information should be monitored regularly and the data should support real time decisions and corrective actions. Step 3: Create a cross-functional team to identify Strategies for improvement At first glance, effectively managing Working Capital seems simple: extend supply payments, reel in customer payment timeframes, minimize inventory and maximize inventory turns. Unfortunately, things are not that simple – every action has a reaction. Extending payment terms to vendors without an overall strategy will probably result in higher prices for products they supply. An Inventory team might be created to focus on improvement around inventory and sourcing. For improvements around Accounts Payable, a team might be put together involving AP and sourcing. Define these teams in the project charter. Each team should have a clear set of directives and should understand what they are trying to achieve. These teams should be directed by the steering committee. Put your teams to work to develop the right strategy. Following are some suggestions.  Know your customers, how they pay and why Improve cash flow visibility by customer Consider Securitization Analyze true (net) customer profitability  Know your vendors Constantly evaluate vendor performance Associate costs with vendor performance Arm buyers with vendor performance data  Communicate more with Customers and Suppliers Collaborate and share more information Publish vendor performance scorecards More communication decreases variability  Evaluate Inventory Efficiency Understand turns down to the item level
  • 53. Understand relationships between turns, demand, and customer service requirements Implement lean processes and techniques Step 4: Put your Initiative to work: Being able to put an initiative into motion and realize its benefits is a discipline and takes resources - people, processes, and information. Detailed project plans should be used to make sure that the project stays on track. An experienced project leader is also critical to the success of the initiative. Be sure to keep the project‟s objectives realistic and focus on near-term results. Be careful not to over complicate the project by attempting to boil the ocean. Identify this as a risk in the project charter and moderate the risk by perhaps integrating one system at a time. It may be that your first initiative might be to tackle one identified defect that needs attention, not all of them at once. It might be around billing efficiency or more accurate cash flow projections. Make sure that the initiative under way is being monitored by the steering committee and it is understood that progress is being made. Having information at your fingertips to assist in improving your business is a critical success factor, but having information that shows progress on the project is equally important. Step 5: Measure and Validate the Improvements Against Baseline Information As the initiative unfolds, it is important that you be able to measure success and validate that improvements are being made. To do this, you must have historical baseline information so that you can measure impact of the initiative. Having a timeline of informational metrics is essential. This information should be made available to all members of all teams so that they can see progress and feel good that their efforts are paying off. Step 6: Adjust Project Charter and Re-iterate Every initiative will have room for improvement. Assume that this will be the case and use this step to analyze the issues to determine how it could be made better. Reflect this in the project charter and re-iterate steps 1-5. Commitment means doing this. Use this step to adjust the strategy and address the issue. Leverage your early success to justify the investment in the follow-on iterations of the project. View this as a performance improvement discipline which never ends. Continue to monitor and make adjustments to the process where necessary. In order to make sure your process improvements stick, continue to monitor and analyze the suggested metrics. Keep the improvement initiatives in the forefront of your managers‟ minds by distributing performance reports. Tie compensation to continuous improvement of the key
  • 54. measurements. This will ensure that managers and employees stay motivated and contribute to the continued success of the initiative. Analysis of Working Capital: Working Capital Requirements: Net Working Capital = Current Assets – Current Liability Particular 31/03/2009 31/03/2008 31/03/2007 Current Asset 12224.85 10353.06 6407.02 Current Liability 2318.48 1994.52 1070.46 Net Working 9906.37 8358.54 5336.57 Capital 14000 12224.85 12000 10353.06 9906.37 10000 8358.54 8000 Current Asset 6407.02 5336.57 Current Liability 6000 Net working Capital 4000 2318.48 1994.52 2000 1070.46 0 31/03/2009 31/03/2008 31/03/2007
  • 55. Ratio Analysis Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expression “ and as “the relationship between two or more things”. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and the financial position of a firm. An accounting figure conveys meaningful when it is related to some other relevant information. Standards of comparison The ratio analysis involves comparison for a useful interpretation of the financial statement. A single ratio in itself does not indicate favorable of unfavorable conditions. It should be compared with some standards. Standards of comparison may consists of : Past ratios, i.e., ratios calculated from the past financial statement of the same firm; Competitors’ ratio, i.e., ratios of some selected firms, especially the most progressive and successful firms, at the same time; Industry ratios, i.e., ratio of the industry to which the firms belongs; and Projected ratios, i.e., ratios developed using the projected, or Performa, financial statement of the same firm. Types Of Ratio Liquidity Ratio Liquidity ratio measure the liquidity of he firm and its ability to meet its maturing short-term obligations. Liquidity is defined as the ability to realize value in money, the most liquid assets. It refers to the ability to pay in cash, the obligations that are due. The important ratios in measuring short term solvency are 1. Current Ratio 2. Quick Ratio Current Ratio This ratio is used to assess the short-term financial position of the business concern. In other words, it is an indicator of firm‟s ability to meet its short-term obligations. It matches the total current assets of the firms against its current liabilities. Current assets means the assets are either in the form of cash or cash equivalents or can be converted into cash or cash equivalents in the short run and current liabilities means liabilities repayable in the short run. The ratio is calculated as follow: Current Assets Current Ratio = -------------------------- Current Liabilities
  • 56. Generally the ratio of 2:1 is considered satisfactory but this does not mean if the ratio is lower the business is in financial difficulty. Quick Ratio or Liquid Ratio or Acid Test Ratio Liquid ratio is worked out to test the short-term liquidity of the firm in its current form. If from the current assets, stock and prepaid expenses are removed, the reminder is known as liquid assets. Liquid assets are those, which are either in the form of cash or cash equivalents or can be converted in cash within a very short time. The ratio is calculated as follow: Liquid Assets Quick or Liquid Ratio = ---------------------- Liquid Liabilities Liquid assets includes cash, bills receivable, marketable securities and debtors (excluding bad and doubtful debts) etc. According to accounting principles, a quick ratio of 1:1 has usually been considered favorable. Net Working Capital Turnover Ratio This ratio indicates the number of times a unit invested in working capital produces sales. In other words, this ratio indicates the efficiency or otherwise in the utilization of short term funds in making the sales. The ratio is calculated as follow: Sales Net Working Capital Turnover Ratio = ----------------------------- Net Working Capital Inventory Turnover Ratio This ratio establishes a relationship between the cost of goods sold during a given period and the average amt of inventory carried during the period. It is usually considered better to work out the turnover against coat of sales since sales include an element of profit, whereas stock is usually at cost. The ratio is calculated as follow: Cost of Good Sold Stock Turnover Ratio = --------------------------- Average stock Cost of goods sold is calculated as follow: Cost of goods sold = Opening stock + Purchases + Direct Exp - Closing stock OR Cost of goods sold = Sales – Gross profit
  • 57. Inventory turnover in days Indicates the length of time that it will take to use up the inventory through sales Indicate the liquidity of the inventory in days. On average, you turn over the value of your entire stock every x days. You may need to break this down into product groups for effective stock management. Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days. Inventory turnover in days = Ending Inventory ------------------------------------- Cost of Goods Sold / 365 Debtors Turnover Ratio This ratio establishes a relationship between the net credit sales and average debtors of the years. Average debtors are calculated by dividing the sum of debtors in the beginning and the end by 2. Credit Sales Debtors Turnover Ratio = ------------------------ Account receivables Average Collection Period or Debtors collection Period This ratio deals with the same subject and shows the number of days, for which normally sales remain uncollected. It indicates the extent to which the debts have been collected in time. For calculation of average collection period, one should divide the number of days or week or month in a year by debtor ratio 365 or 52 or 12 Average Collection Period = ------------------------ Debtor Ratio Creditor Turnover Ratio This ratio establishes a relationship between the net credit Purchase and average Creditors of the years. Average debtors are calculated by dividing the sum of debtors in the beginning and the end by 2. Credit Purchase Creditor Turnover Ratio = -------------------------- Account Payables Average Payment Period or Creditors collection Period This ratio deals with the same subject and shows the number of days, for which normally Purchase remain unpaid. It indicates the extent to which the debts have been paid in time. For
  • 58. calculation of average payment period, one should divide the number of days or week or month in a year by creditor ratio 365 or 52 or 12 Average Payment Period = ------------------------ Creditor Ratio Stock to Working Capital Ratio This ratio indicated the efficiency between stock and working capital. This ratio is calculated as follows Closing Stock Stock to Working Capital Ratio = ----------------------------------- Net Working Capital Long-term Debt to Net Working Capital Provides insight into the ability to pay long term debt from current assets after paying current liabilities Long-term Debt ------------------------------------------- Current Assets - Current Liabilities Cash Turnover Measures how effective a company is utilizing its cash. Net Sales Cash Turnover = -------------------------- Cash Operating Cycle Indicates the time between the acquisition of inventory and the realization of cash from sales of inventory for most companies the operating cycle is less than one year, but in some industries it is longer. Operating Cycle =Accounts Receivable Turnover in Days+ Inventory Turnover in Day Return on Investment (DU PONT Approach) Return on investment is one of the most successful yet simple techniques ever conceived to aid both decision making and performance evaluation. This technique was first developed by DU PONT Company for making analysis and controlling financial performance. It brings together the
  • 59. activity ratio and profit margin as sales and shows how these ratios interact to determine profitability of asset. This ratio is calculated as follows Sales X Net Profit after Tax Return on Investment (ROI) = -------------- ---------------------- Total Asset Sales Fixed Assets Turnover Ratio This ratio shows how well the fixed assets are being utilized. If compared with the previous period, it indicates whether the investment in fixed assets has been judicious or not the ratio is calculated as follow: In computing the fixed assets turnover ratio, the fixed assets are generally taken at the written down value at the end of the year. It may also be taken at the original cost or at the present market value depending on the object of comparison. Often this ratio is also calculated by taking cost of sales instead of sales figures. Net Sales Fixed Assets Turnover Ratio = ---------------- Fixed Assets
  • 60. Financial Statement : Monnet Ispat & Energy Ltd Profit & Loss Account For The Year Ended (Rs. In Million ) Particulars Mar -2009 Mar-2008 Mar-2007 Gross Sales 22248.92 18040.63 9703.95 Less :inter division transfer 5141.59 4846.22 2320.95 Less: sales return 0 0 0 Less: Excise 1620.07 1603.72 1004.99 Net sales 15487.26 11590.69 6378.01 Other income 476.66 483.69 246.83 Increase / Decrease in stocks (444.87) 455.39 225.73 15519.05 12529.77 6850.57 Expenditure Raw material consumed 15108.50 13396.48 6732.91 Less: inter division transfer 5141.59 4846.21 2505.18 9966.91 8550.27 4227.73 Salaries, wages & Amenities 608.16 408.97 233.51 Repair & maintenance 56.27 48.35 40.21 Administrative ,selling & others 664.33 519.13 360.52 Exp Loss on sale of investment 157.03 0 0 Financial charges 706.04 350.52 (2.91) Depreciation 653.03 444.85 330.47 12811.77 10322.09 5189.53 Profit before tax 2707.28 2207.68 1661.04 Less : provision for taxation 306.01 251.80 183.10 Less: provision for deferred 231.04 280.44 125.82 taxation Less: provision for FBT 12.70 5.80 4.20 Add : Income from adjustment 2.63 (8.00) (0.5) Profit After Tax 2160.16 1661.63 1347.85 Balance As per Last Year 4434.25 3224.02 2187.36 Profit Available For Appropriation 6594.41 4885.65 3535.21 Appropriation Transfer To General Reserve 220.00 167.00 135.00 Transfer To Debenture 57.20 0 0 Redemption Reserve Dividend Proposed Dividend on Equity 239.79 123.11 0 Share Interim Dividend on Equity Share 0 119.98 154.51 Corporate Dividend Tax 40.87 41.31 21.67 Balance Carried To Balance 6036.55 4434.25 3224.02
  • 61. Sheet 6594.41 4885.65 3535.21 Basic Earnings Per Share (Rs) 44.22 42.98 39.36 Diluted Earnings Per Share (Rs) 43.63 39.02 36.39 Monnet Ispat & Energy Ltd Balance Sheet As on (Rs. In Million ) Mar-2009 Mar-2008 Mar-2007 A Sources Of Funds: 1.Shareholder‟s Funds a. Share Capital 479.65 479.97 34.42 b. Share Warrants & 0 209.25 0.00 Subscription c. Reserve & Surplus 12383.00 10198.36 5365.95 Shareholder‟s Funds 12862.65 10887.58 5709.37 2.Loan funds: a. Secured loan 10168.54 9456.67 5241.43 b. unsecured Loan 3083.26 1524.07 4794.90 Total Debts 13251.80 10980.74 10036.33 Total Sources Of Funds: 26114.45 21868.32 15745.70 B Application Of Funds: 1. Fixed Asset: a. Gross Block 13664.53 12120.98 8302.57 b.Less Accumulated 2395.68 1747.97 1303.27 Depreciation c. Net Block 11268.85 10373.01 6999.30 Capital Work in Progress 3096.63 2661.19 3589.45 14365.48 13.034.2 10588.75 2. Investment 2156.28 1384.07 448.43 3.Current Assets ,Loan & Advance: a. Inventories 1844.56 2217.07 1219.75 b. Sundry Debtors 1097.32 1050.93 462.76 c. Cash &Bank Balance 2455.85 3708.34 2896.94 d. Loan & Advance 6827.11 3376.72 1827.59 12224.85 10353.06 6407.02 Less: Current Liability & Provisions:` a. Current liability 1719.14 1452.52 883.16 b. Provisions 599.34 542.00 187.30 Total current Liability: 2318.48 1994.52 1070.46 Net working Capital: 9906.37 8358.54 5336.57 Deferred Tax Assets /Liability: (1139.52) (908.48) (628.04)
  • 62. Miscellaneous Expenditure 825.84 0 0 Total Application of Funds 26114.45 21868.32 15745.70 Calculated Different Types of Ratio Types of ratio 2009 2008 2007 Liquidity Ratio Current Ratio 5.2 5.1 5.9 Quick Ratio 4.4 4.0 4.8 Net Working capital 0.37 0.38 0.33 Leverage Ratio Debt ratio 0.5 0.5 0.6 Debt-Equity Ratio 1.03 1.00 1.75 Coverage Ratio 4.83 6.30 7.39 Activity Ratio Debtor Turnover 15.59 12.55 15.95 Creditors Turnover 9.38 9.00 7.40 Net asset turnover 2.25 2.16 1.82 Total asset turnover 0.85 0.82 0.61 Working Capital Turnover 1.82 1.74 1.51 Profitability Ratio Net profit margin 0.10 0.09 0.14 Return on Investment(ROI) 0.091 0.083 0.085 Return on Equity(ROE) 0.17 0.24 0.15 Earning Per Share(EPS) 44.22 42.98 39.36 Dividend Per Share (DPS) 4.91 6.29 5.15 Dividend-payout ratio 0.11 0.15 0.13 Combined Ratio Return on Capital Employed 0.07 0.08 0.10 Return on Total Resources 0.100 0.103 0.105 Return on Shareholders Funds 0.16 0.15 0.23
  • 63. Debt ratio Particulars 2009 2008 2007 Total Debt (in billions) 13.25 10.98 10.03 Capital Employed (In billions) 26.11 21.86 15.74 Dept Ratio 0.50 0.50 0.63 30 26.11 25 21.86 20 15.74 Total Debt(in billion) 15 13.25 Capital Debt(in billion) 10.98 10.03 Ratio 10 5 0.5 0.5 0.63 0 2009 2008 2007 Analysis or Comment: Dept ratio is Generally used the long term solvency of the firm‟s ,in the year2007 dept ratio is 0.63 it means lender have contributed more funds than owners lender contribution is 1.70 times of owner contribution but in the Future owner contribution is more as compare to the lender‟s in 2008, &2009 this will be 0.5 ,0.5 Respectively
  • 64. Particulars 2009 2008 2007 Total Debt(in billion) 13.25 10.98 10.03 Net Worth(in billion) 12.86 10.88 5.70 Ratio 1.03 1.00 1.75 14 13.25 12.86 12 10.98 10.88 10.03 10 8 Total Debt(in billion) 5.7 Net Worth(in billion) 6 Ratio 4 1.75 2 1.03 1 0 2009 2008 2007 Analysis or Comment : It is clear that the total dept ratio is more because of lender‟s contribution is more funds than the owner funds .in 2007 dept ratio is 1.75 it means company rises the more fund from the lender in this year but in 2008, 2009 this will be reduce ,if the company rise the more funds from the lender that time company has to pay more interest to the lender, either company making the profit or loss
  • 65. Coverage Ratio Particulars 2009 2008 2007 EBIT(in billion) 3.41 2.55 1.92 Interest(in billion) 0.706 0.35 0.25 Ratio 4.87 7.28 7.68 7.68 8 7.28 7 6 4.87 5 EBIT(in billion) 4 3.41 Interest(in billion) 3 2.55 Ratio 1.92 2 0.7 1 0.35 0.25 0 2009 2008 2007 Analysis or Comment: Coverage ratio is used to describe the firm‟s dept servicing capacity .and this ratio also indicating the number of times the interest charges are covered funds that ordinarily available for their payment. In 2007,2008 7.68 & 7.28 company‟s ratio is higher. but the higher ratio indicate that the firm‟s very conservative in using the dept, in the year 2009 ratio 4.87 will be very low this ratio will indicate the excessive use of dept or inefficient operation.
  • 66. Debtor Turnover Ratio Particulars 2009 2008 2007 Credit sales(in billions) 17.10 13.19 7.38 Average Debtors(in billions) 1.09 1.05 0.46 Ratio 15.65 12.56 16.00 18 17.1 15.65 16 16 13.19 14 12.56 12 10 Credit sales(in billions) 7.38 Average Debtors(in billions) 8 Ratio 6 4 2 1.09 1.05 0.46 0 2009 2008 2007 Analysis or Comment: Debtors turnover ratio indicate the number of times debtors turnover each year , Generally higher the debtors turnover is more efficient as compare to lower .Monnet Ispat & Energy Ltd show the higher debtors turnover in the year 2007, it is 16.00 times it means company‟s sales are increases but in the year 2008 this will be reduce 12.56 times, because of recessions but after that it will increase 15.65 times in the year 2009 and this will continue in 2010 also,
  • 67. Creditors Turnover Ratio Particulars 2009 2008 2007 Credit purchase(in billions) 13.49 10.88 5.52 Average creditors(in billions) 1.36 1.20 0.74 Ratio 9.9 9.0 7.45 13.49 14 12 10.88 9.9 10 9 7.45 8 Credit purchase(in billions) 5.52 Average Creditors(in billions) 6 Ratio 4 1.36 1.2 2 0.74 0 2009 2008 2007 Analysis or Comment: Creditors Turnover Ratio is similar to the debtors’ turnover ratio. It compares creditors with the total credit purchases. In the year 2007ratio is 7.45 it means company purchasing power is more and this will continue in the year 2008,2009Respectively 9.00,& 9.9, company con grow their business very efficient way
  • 68. Net asset Turnover Particulars 2009 2008 2007 Sales(in billions) 22.24 18.04 9.70 Net Assets(in billions) 9.90 8.35 5.33 Ratio 2.24 2.16 1.81 25 22.24 20 18.04 15 Sales(in billions) 9.9 9.7 Net Assets(in billions) 10 8.35 Ratio 5.33 5 2.24 2.16 1.81 0 2009 2008 2007 Analysis or Comment: Net asset turnover ratio .it means a firm‟s ability to produce a large volume of sales for a given amount of net asset. It is most important aspect of its operating performance, in the 2007 ratio will be 1.81 it means company producing large volume of sales and this will be continue in the year 2008,2009Respectively 2.16,& 2.24 , this will be more effective to the company to produce the large amount of sales
  • 69. Total Assets Turnover ratio Particulars 2009 2008 2007 Sales(in billions) 22.24 18.04 9.70 Total Assets(in billions) 26.11 21.86 15.74 Ratio 0.85 0.82 0.61 30 26.11 25 22.24 21.86 20 18.04 15.74 Sales(in billions) 15 Total Assets(in billions) 9.7 Ratio 10 5 0.85 0.82 0.61 0 Category 1 Category 2 Category 3 Analysis or comment: This ratio show‟s the firm‟s ability in generating sale from all the financial resources committed to total asset. In 2007 this will be 0.61 times and in the year 2008,2009 this will be 0.82 & 0.85 times . it means company investment is more for the purpose of making the sales,
  • 70. Working Capital turnover Particulars 2009 2008 2007 Sales(in billions) 22.24 18.04 9.70 Current Assets(in billions) 12.22 10.35 6.40 Ratio 1.82 1.74 1.51 25 22.24 20 18.04 15 Sales(in billions) 12.22 10.35 9.7 Current Assets(in billions) 10 Ratio 6.4 5 1.82 1.74 1.51 0 2009 2008 2007 Analysis or Comment: The firm may also like to relate net current asset (or net working capital gap) to sales . it may thus compute the net working capital turnover for making the sales over the current asset. In 2007 working capital turnover is 1.51 times and this will be continue grow in the 2008,2009 respectively 1.74 & 1.82 ,
  • 71. Net Profit Margin Particulars 2009 2008 2007 PAT(in billions) 2.16 1.66 1.34 Sales(in billions) 22.24 18.04 9.70 Ratio 1 0.14 0.09 25 22.24 20 18.04 15 PAT(in billions) 9.7 Sales(in billions) 10 Ratio 5 2.16 1.66 1 1.34 0.14 0.09 0 2009 2008 2007 Analysis or Comment: Net profit ratio established the relationship between net profit and sales and it will indicate the management efficiency in manufacturing ,administrative , selling the product, this ratio is the over all measure of the firm‟s ability, the with a high net margin ratio would be in an advantages it means company can make the better use of favourable condition, in 2007this will be 0.09 there after it will continue grow in 2008,2009 respectively 0.14,& 1