A SUMMER INTERNSHIP REPORT

ON
“ANALYSIS OF FINANCIAL WORKING OF
SECL”

SUBMITTED TO: SUBMITTED BY:

MR. P.C. SAINI SEJAL TUTEJA
DEPUTY MANAGER (FINANCE) 18DM187
SECL
&
DR. L. RAMANI
ASSOCIATE PROFESSOR
BIMTECH
 ACKNOWLEDEGMENT

I would like to gratefully acknowledge the contribution of all the people who took active part
and provided valuable support to me during the course of this project. To begin with, I would
like to offer my sincere thanks to P.C. Saini Sir, for giving me the opportunity to do my summer
training at SECL. Without his guidance, support and valuable suggestions during the research,
the project would not have been accomplished.

My heartfelt gratitude also goes to the entire Finance Department of the company for their
co-operation and willingness to answer all my queries and provide valuable assistance.

I also sincerely thank Dr. L. Ramani Sir, my faculty mentor at BIMTECH, who provided valuable
suggestions, shared his rich corporate experience, and helped me script the exact requisites.

Lastly, I would like to thank all the associates of the department for sharing their experience
and giving their valuable time to be during the course of my project.

2
 Letter of Transmittal

Date: July 2, 2019

P.C. Saini Sir

Dy. Finance Manager
South-Eastern Coalfields Ltd.
Seepat Road
Bilaspur, C.G.

Respected Sir,

Re: Summer Internship Project Report

Attached herewith is a copy of my summer-project report “Analysis of Financial Working of

SECL” which I am submitting in order to mark the completion of a 10-week summer project
at your organization.
This report was prepared by me using the best of practices and summarizes the work
performed on the project and is being submitted in partial fulfillment of the requirements for
award of diploma.

I would like to mention that overall experience with the organization was very good, and
helped me to know how work is carried out in real practice with the help of your esteemed
organization. I feel honored that I got an opportunity to work with SECL, a company of such
great repute.

I hope I did justice to the project. Suggestions/comments would be appreciated.

Yours truly,
Sejal Tuteja

3
 Letter of Authorization

I, Sejal Tuteja, a student of Birla Institute of Management Technology (BIMTECH), hereby

declare that I have worked on a project titled “Analysis of Financial Working of SECL” during
my summer internship at “South-Eastern Coalfields Ltd.”, in partial fulfillment of the
requirement for the Post Graduate Diploma in Management Program.

I guarantee/underwrite my research work to be authentic and original to the best of my

knowledge in all respects of the process carried out during the project tenure.

My learning experience at SECL, under the guidance of P.C. Saini Sir, Dy. Finance Manager,
SECL and Dr. L. Ramani, Associate Professor, BIMTECH, has been truly enriching.

Date: July 2, 2019

(Sejal Tuteja)

4
Certificate

5
 Summer Project Certificate

This is to certify that Miss Sejal Tuteja, Roll No. 18DM187 a student of PGDM (Finance, 2018-
20) has worked on a summer project titled “Analysis of Financial Working of SECL” at South-
Eastern Coalfields Limited after Trimester-III in partial fulfilment of the requirement for the
Post Graduate Diploma in Management program. This is her original work to the best of my
knowledge.

Date: 15th July, 2018 Signature: _________

(Professor L. Ramani)

6
TABLE OF CONTENTS
EXECUTIVE SUMMARY ...................................................................................................... 9
CHAPTER 1: INDUSTRY BACKGROUND............................................................................. 10
CHAPTER 2: COMPANY PROFILE ...................................................................................... 12
2.1 ABOUT THE COMPANY ..................................................................................................... 12
2.2 VISION ............................................................................................................................. 12
2.3 MISSION .......................................................................................................................... 12
2.4 PERFORMANCE ................................................................................................................ 12
2.5 MAJOR CONSUMERS ........................................................................................................ 12
2.6 CORPORATE SOCIAL REPONSIBILITY .................................................................................. 13
CHAPTER 3: INTRODUCTION ........................................................................................... 14
3.1 BACKGROUND .................................................................................................................. 14
3.2 OBJECTIVE ........................................................................................................................ 14
3.3 SCOPE OF THE STUDY ....................................................................................................... 14
3.4 RESEARCH METHODOLOGY............................................................................................... 14
3.5 LIMITATIONS .................................................................................................................... 14
CHAPTER 4: STUDY ON THE ACTIVITIES OF THE FINANCE DEPARTMENT ........................... 15
4.1 FINANCE AND ADMINISTRATION ...................................................................................... 16
4.2 TAXATION ........................................................................................................................ 22
4.3 COST AND BUDGET SECTION ............................................................................................. 26
4.4 PAY ROLL PROCESSING AND EMPLOYEMENT BENEFITS...................................................... 28
4.5 CORPORATE ACCOUNTS AND AUDIT ................................................................................. 35
4.6 CORPORATE TREASURY MANAGEMENT ............................................................................ 37
4.7 SALES REALISATION AND ACCOUNTING ............................................................................ 40
CHAPTER 5: FINANCIAL STATEMENT ANALYSIS ................................................................ 42
5.1 RATIO ANALYSIS ............................................................................................................... 42
5.2 TREND ANALYSIS .............................................................................................................. 57
RESULTS AND CONCLUSION ............................................................................................ 58
RECOMMENDATIONS ..................................................................................................... 59
REFERENCES ................................................................................................................... 60
APPENDIX....................................................................................................................... 61
APPENDIX A: BALANCE SHEET................................................................................................. 61
APPENDIX B: INCOME STATEMENT ......................................................................................... 62

7
LIST OF FIGURES
Figure 1: Bank Guarantee ........................................................................................................ 17
Figure 2: Financial Concurrence .............................................................................................. 19
Figure 3: Bill Passing ............................................................................................................... 21
Figure 4: Taxation (Direct) ...................................................................................................... 23
Figure 5: Taxation (Indirect) .................................................................................................... 25
Figure 6: Pay Roll Processing .................................................................................................. 29
Figure 7: Employee Loan......................................................................................................... 31
Figure 8: Employee Advances ................................................................................................. 32
Figure 9: Claims and Reimbursements .................................................................................... 34
Figure 10: Period-end Closing ................................................................................................. 35
Figure 11: Audit ....................................................................................................................... 36
Figure 12: Fund Management .................................................................................................. 38
Figure 13: Cheque Management .............................................................................................. 39
Figure 14: Sales Realization and Accounting .......................................................................... 41

LIST OF TABLES
Table 1: Liquidity Ratios ......................................................................................................... 43
Table 2: Profitability Ratios ..................................................................................................... 45
Table 3: Turnover Ratios ......................................................................................................... 48
Table 4: Leverage Ratios ......................................................................................................... 53

TABLE OF GRAPHS
Graph 1: Current Ratio............................................................................................................. 43
Graph 2: Quick Ratio ............................................................................................................... 44
Graph 3: Cash Ratio ................................................................................................................. 44
Graph 4: Gross Profit Margin .................................................................................................. 45
Graph 5: Net Profit Ratio ......................................................................................................... 46
Graph 6: Operating Profit Ratio............................................................................................... 46
Graph 7: Return on Equity ....................................................................................................... 47
Graph 8: Return on Capital Employed..................................................................................... 47
Graph 9: Return on Assets ....................................................................................................... 48
Graph 10: Fixed Assets Turnover ............................................................................................ 49
Graph 11: Total Assets Turnover ............................................................................................. 49
Graph 12: Working Capital Turnover ...................................................................................... 50
Graph 13: Inventory Turnover ................................................................................................. 50
Graph 14: Debtors Turnover .................................................................................................... 51
Graph 15: Creditors Turnover .................................................................................................. 51
Graph 16: Average Collection Period ...................................................................................... 52
Graph 17: Average Payments Period ....................................................................................... 52
Graph 18: Debt-Equity Ratio ................................................................................................... 54
Graph 19: Interest Coverage Ratio .......................................................................................... 54
Graph 20: Proprietary Ratio ..................................................................................................... 55
Graph 21: Fixed Assets to Equity Ratio .................................................................................. 55
Graph 22: Capital Gearing Ratio ............................................................................................. 56
Graph 23: Sales (trend) Graph 24: Income (trend) ............................................................ 57
Graph 25: Expenditures (trend) Graph 26: Profit (trend) ................................................... 57

8
EXECUTIVE SUMMARY
The project report titled “Analysis of Financial Working of South-Eastern Coalfields Ltd.” provides a
brief insight into the key activities carried out by the finance department of the company and also
provides a descriptive analysis of the financial statements of the company. It talks about the
contribution of the coal mining industry in various sectors. It also talks about the CSR activities of the
company and its role in the development of state it’s situated in.

The objective of this report is to analyse the financial performance of the company through
quantitative as well as qualitative approach. For the qualitative approach the effectiveness of the
processes by which the financial functions of the company are carried out is analysed, which is done
by studying the key activities step-wise in order to create a flow or an order in which they are executed
and then analysing it. For the quantitative approach the financial statements of the company are
analysed using different financial ratios of the company for the last fiscal year and also the past five
year trend in the financial performance of the company in order to comprehend the efficacy of the
company through various dimensions and also get a rough guess about the future performance of the
company and find the areas in which the company may have issues or may have scope of
improvement.

Analysis of financial information includes various dimensions such as their financial functions which
were studied using primary research techniques i.e. interviewing the executives looking after those
functions of the finance department and observing the work going on in the company; financial size
in terms of sales, production, income, expenditure and profit and their financial position in terms of
liquidity, profitability and financial stability of the company which was studied using secondary
research techniques i.e. annual report of the company and other internet sources as a reference for
the determinants of the financial position.

SECL is the largest coal producing subsidiary of CIL and coal mining being a monopolistic industry
because of the Nationalization of coal production in India, the performance of SECL also gives an
insight into the efficacy of the coal mining industry. Therefore, the ratios of the company are
compared with the past trend.

9
LITERATURE REVIEW

 Dušan BARAN1, Andrej PASTÝR1, Daniela BARANOVÁ2; Faculty of Material Science and
Echnology in Tranava; research paper on “FINANCIAL ANALYSIS OF A SELECTED COMPANY”
provides basic knowledge about financial analysis and evaluates the business subject progress
in the area of activity, liquidity, profitability and indebtness (solvency) and reveals strengths
and opportunities that the business subject should rely on. It also determines weaknesses and
threats that could lead to difficult situations and based on the results to provide measures to
improve the system of financial economic analysis of the business subject. The analysis was
focussed on the financial statements of a public limited company which produces equipment
and components for the mining, chemical and energy industries, as well as boat and marine
components.

 Harpreet Kaur, Assistant Professor, Mata Gujhri College Fatehgarh Sahib, December 2015;
research paper, “A STUDY ON FINANCIAL AND PROFITABILITY ANALYSIS OF COAL INDIA”
provides insight into her study on the profitability of CIL and its subsidiaries in order to know
the short-term financial position of the company. In her study she uses statistical tools like
average and trend analysis. She uses secondary sources of data for her research. She uses
trends of various ratios to determine the financial health and concludes that the performance
of the company was satisfactory as at that time period and the production of all the
subsidiaries were growing other than WCL

 Sadhna Bagchi; Dr Philosophy (Commerce); Pt. Ravishankar University; (2016) research on

“ROLE AND IMPORTANCE OF SECL IN SOCIO-ECONOMIC DEVELOPMENT OF
CHHATTISGARH”; studies the socio-economic development of Chhattisgarh state in last two
decades since the inception of SECL in Chhattisgarh i.e. 1985-86. She says that SECL has been
consistently rendering services and activities towards the betterment of society and
community. Apart from its coal production activities it contributes towards development of
nearby area through CSR activities. In order to study the role of South Eastern Coalfield
Limited on socio economic development of Chhattisgarh, she uses a closed ended
questionnaire as an instrument for sampling and data collection for stakeholder and schedule
for business firm or company basically for employers. In her research she also finds that SECL’s
services will lead to the betterment of the state in the coming decade.

10
CHAPTER 1: INDUSTRY BACKGROUND

Coal is composed primarily of carbon along with variable quantities of others materials i.e. Hydrogen,
Sulphur, Oxygen and Nitrogen. Coal is the largest source of energy generation worldwide. Coal is found
in variety of grades which depends upon the composition of carbon and others substances. Uses of
coal depend upon its Combustion efficiency and combustion efficiency depends upon quantity of
carbon content in it. It is a rough indicator that as how old the coal deposits, it contains as higher
carbon content.

India is currently among the top three fastest growing economies of the world. The Mining industry
in India is a major economic activity which contributes significantly to the economy of India. The GDP
contribution of the mining industry varies from 2.2% to 2.5% only but going by the GDP of the total
industrial sector it contributes around 10% to 11%.

The demand for coal is improving in India with the development of thermal power plants at a very fast
pace as compared to what it was a decade ago. The list of top companies in the coal mining industry
in India is given below, here it should be noted that there are not many major private coal company
as in the early 1970s since almost all privately owned coal companies were nationalized under the
Coal Mines Act in India:
 Coal India Limited
 Neyveli Lignite Corporation
 Singareni Collieries Company

CIL is the largest coal-producing company in the world and a Maharatna company.
The company contributes to around 82% of the coal production in India. It produced 607 million
tonnes of coal in 2018-19. The Union Government of India owns CIL and controls the operations of CIL
through Ministry of Coal. CIL was conferred the Maharatna status by the Union Government of India,
in April 2011.
Coal India Limited (CIL) produces coal through seven of its wholly owned subsidiaries. Its 8th wholly
owned subsidiary Central Mine Planning & Design Institute Limited (CMPDIL) provides exploration,
planning and technical support to all the 7 production subsidiaries.
CIL also has a wholly owned subsidiary in Mozambique, Coal India Africana Limitada (CIAL) for
pursuing coal mining opportunities in that country.

Contribution of the industry in the state:

Coal mining is the most prominent industry in Chhattisgarh in terms of employment generation,
economic infrastructure development and generation of revenue for the state and the central
government. As a result of the opening of coal mines in this region have led to the expansion of rail
connections, power supply lines, roads and tele-communications over the last decade and also has
caused the development of power houses and other industries. It has generated a multiplier effect in
the economy of Chhattisgarh and Madhya Pradesh.

11
CHAPTER 2: COMPANY PROFILE

2.1 ABOUT THE COMPANY

SECL (South-Eastern Coalfields Limited) is a subsidiary of. It is a schedule ‘B’ MiniRatna CPSE in coal
and lignite under the administrative control of ministry of coal.
South Eastern Coalfields Limited (SECL) is the largest Coal producing Company of India, headquartered
in Bilaspur, Chhattisgarh. It is a “MiniRatna” company with 144.71 Million Tonnes of coal production
in 2017-18 which is not only the highest coal production amongst all subsidiaries of CIL but also accounts
for more than 21% of the total coal production of India. Coal reserves of SECL are spread over the States
of Chhattisgarh & Madhya Pradesh inhabited by simple minded and hardworking tribes with a rich
cultural heritage. The Company is operating 75 mines (47 mines in CG & 28 mines in MP). For effective
administrative control & operations, the mines have been grouped into three coalfields, namely,
‘Central India Coalfields’ (CIC), ‘Korba Coalfields’ and ‘Mand-Raigarh Coalfields’ with a total of 13
Operating Areas.
The quality of coal is determined using GCV (Gross Calorific Value) and the higher GCV of the coal
represents higher quality and wise verse. Therefore, the coal is graded from G1-G17 according to the
presence of the GCV in the coal. G1 represents the best quality of coal and it degrades up to G17.

2.2 VISION
“To be one of the leading energy suppliers in the country, by adopting the best practices and leading
technology from mine to market.”

2.3 MISSION
“To produce and market the planned quantity of coal and coal products efficiently and economically
in an eco-friendly manner with due regard to safety, conservation and quality.”

2.4 PERFORMANCE
The significant milestones achieved by the Company during the fiscal year 2017-18 are:
 Highest ever Coal Production of 144.71 Million Tonnes (MT), registering a growth of 3.36%
over the previous year.
 Highest ever Coal dispatch of 151.09 MT, registering a growth of 9.76% over the previous year.
 Gross Sales value an all-time high of ` 30,555.21Crore.
 Profit Before Tax (PBT) of ` 3,820.97 Crore.
 Dividend pay-out @ 737.20% (i.e. ` 7,372.04 per share) amounting to ` 2,202.58 Crore.
These achievements reflect the Company’s proven commitment towards sustained growth and
performance excellence. Consistently driven by well-defined growth strategies, performance of the
Company improves every year surpassing its own previous record.

2.5 MAJOR CONSUMERS

In SECL non-coking coal is mined, which falls in the category of bituminous coal, which is mainly used
in power generation, steel industry, cement industry, fertilizer manufacturing, bricks manufacturing
and oil & pharmaceutical industry.

12
2.6 CORPORATE SOCIAL REPONSIBILITY
The mines of the company are located in relatively isolated areas with little contact to the outside
society, however, coal mining has profound impact on the people living in and around the areas where
the mines are established. The obvious impact of the introduction of any production activity in such
areas changes the traditional lifestyle of the original inhabitants and indigenous communities and also
changes the socio-economic profile of the Area. Hence, the primary beneficiaries of CSR are land
oustees, Project Affected Persons and those staying within the radius of 25 KMs of SECL establishment.
Under privileged section of the society living in different parts of states in which the company is
operating should be secondary beneficiaries. A CSR Policy has been approved by Coal India Limited for
all its subsidiaries. Prescribed CSR Expenditure for the financial year 2017-18 comes to 93.30 Crore,
which is 2% of the average profit of the past three years.

Key areas of activities covered in 2017-18 under CIL CSR Policy are as below:
a) Healthcare programs like conducting village health camps, construction of special units in hospitals
etc. Providing safe drinking water and sanitation by installing hand-pumps, bore-wells, construction
of community toilets etc.
b) Promoting education by developing infrastructure like class rooms, boundary wall, toilet blocks,
cultural stage, common room etc. and modernization of library, adoption of school, promoting
employment enhancing vocational skills etc
c) Ensuring environmental sustainability by taking up activities like Block/Road side plantation under
“Hariyar Chhattisgarh” Scheme of Chhattisgarh Govt. and also by deepening of ponds in drought
affected area.
d) Protection of art and culture for cultural development through financial assistance to different
cultural events and construction of Community infrastructure.
e) Projects to promote Skill Development & Skill Development Training programs etc.
f) Promoting nationally recognized sports by building Sports Infrastructure & providing financial
assistance for various training programs.
g) Rural development projects like construction of community building, CC roads, culverts, ghats and
safety wall for ponds, sheds, boundary walls, bathrooms, cultural stage etc.
h) Contribution of ` 10.00 Crore to Clean Ganga Fund set up by Central Government for Conservation
of the river Ganga.
i) SECL has taken up Projects aiming at the Welfare of disabled by providing Motorized Tricycles to
486 differently abled persons of Bilaspur District.
j) Swachh Bharat Abhiyan: SECL has taken up Construction of 5368 nos. toilet for domestic purpose
on saturation basis for achieving Open Defecation Free (ODF) status to 31 Nos of villages of District
Korba, implemented through District Administration, Korba.

13
CHAPTER 3: INTRODUCTION

3.1 BACKGROUND
The project was undertaken as a requirement for partial fulfillment of PGDM in finance specialization,
for a period of 10 weeks, in the company South-Eastern Coalfields Ltd., headquartered in Bilaspur. The
project emphasizes on the studying the different segments of the finance department of the company,
along with the analysis of the financial performance of the company using the various methods of
financial statements analysis.

3.2 OBJECTIVE
 The objective of the project is to get the practical exposure of the work environment of a real
company and learning the practical application of theories learnt in classroom.
 Studying the functioning of the various segments of the finance department will develop the
understanding regarding how the chores of a company are run and how they are linked with
one another in order to ensure a smooth and fast flow of activities.
 The analysis of the financial performance will help in understanding the efficiency of the
activities and the work flows and how effective those have been for the company.

3.3 SCOPE OF THE STUDY

The scope of the study is limited within the headquarters of the organization. The research and the
information provided in the report is either collected from the finance associates of the company or
the internet sources. The project will help in developing analytical skills as it involves the study of
complete finance department and will also help in developing communication skills.

3.4 RESEARCH METHODOLOGY

The project is distributed in two parts; first, the study of the functioning of the finance department;
second, the analysis of the financial performance of the company.
 The first part involves collection of information by the primary sources, i.e., interviewing the
various associates concerned with the respective function, followed by an organized
representation of that information, in order to develop a better understanding of the
functions.
 For the second part, the financial data was collected from the annual reports of the company
and the reference material for the analysis was collected from the internet sources.
The facts about the company were collected from the primary as well as secondary sources. The
websites which are used for the project are mentioned in the references section.

3.5 LIMITATIONS
 The limitations for the project were the availability of time with the associates due to their
busy work schedule,
 The confidentiality of certain information in the company and
 The duration of the project.

14
CHAPTER 4: STUDY ON THE ACTIVITIES OF THE FINANCE
DEPARTMENT

This part of the project is concerned with the study of the processes of different activities carried out
in the finance department of the company. The finance department plays a major role in any
organization, as every organization requires capital for a smooth functioning. The finance department
ensures efficient utilization of financial resources in the organization which provides strength and
stability to the organization. SECL being the largest coal producing company in India is a huge
organization and requires proper planning and organization of its financial working, therefore, the
finance department of the company is divided into smaller units or sections as a result of which the
associates are able to give proper attention in their area of expertise and there is a smooth and fast
flow of the activities relating to the financial aspects of the company, like maintaining income &
expenditures and investments of the company.

The sections of the finance department are as follows:

 Finance & Administration
- Bank Guarantee
- Financial Concurrence
- Bill passing
 Taxation
 Cost & Budget
 Payroll Processing & Employment Benefits
- Salary
- Loans & Advances
- Retirement Benefits
- Claims & Reimbursements
 Corporate Accounts & Audit
- Period End Closing
- Internal Audit
 Corporate Treasury Management
- Fund Management
- Cheque Payments
 Sales Realization & Accounting

NOTE: Some of the above sections are grouped for a better understanding of closely related activities
and does not imply that they are sub-sections of any section. All the sections operate separately and
have a flow within themselves.

15
4.1 FINANCE AND ADMINISTRATION

4.1.1 BANK GUARANTEE

Bank guarantee is a type of guarantee issued by a bank or a financial institution for their client
promising to cover the loss for the third party in case of default by their client.
Bank guarantees or BGs are issued in order to ensure supply and performance of the purchased
materials which may be for operational or administrative purposes. For ensuring on-time supply of
the ordered materials, BG is issued as a security deposit and is redeemed after the delivery. For
ensuring the performance or quality of the material, Performance Bank Guarantee (PBG) is required.

Step 1: Grouping of required materials

The respective departments send the approved indents for procurement of material with required
specifications and quantity to the Material Procurement Department, which clubs up the
requirements and take approval of competent authority for procurement.

Step 2: Tenders Floated

After the materials and their quantity is known, tendering is done through NIT (notice inviting tender)
mentioning specifications of material, quantity, quality and required work experience of bidder.

Step 3: Bidders selected

The bidders are selected on the basis of various criteria like, price, quality, delivery period, the terms
& conditions of NIT, etc. The quality is checked using different certifications and the help of the
technical wing. And the tenant with the lowest price, giving the required quality, delivering within
reasonable time and meeting the various other criteria is selected and the information regarding the
same is communicated to the tenant.

Step 4: Work order/ Supply order issued

The Work order/ Supply order mentioning the quantity, rate, delivery schedule, payment terms and
other information as per requirements is to be issued. It also contains the amount and period (in case
of PBG) required for the bank guarantee.

Step 5: Security Deposit for supply

For ensuring the supply on time, bank guarantee amounting to a certain percentage of the total value
of the transaction, is taken as a security deposit. The security deposit can be converted to PBG with
mutual consent. It is returned at the time of delivery along with the payment for the material. In case
there is delay in delivery, the agreement needs to be extended time to time. If the agreement fails to
be extended, bank is instructed to deposit money in the company.

Step 6: Performance Bank Guarantee (PBG)

After the delivery of the material, a PBG is required, as a guarantee that the material would be
functioning well up to a certain period which varies for different products. The PBG is for a longer time
period than the security deposit as it is present till the guaranteed period is over. It may be returned
or redeemed as per the performance.

16
 Figure 1: Bank Guarantee

Approved indents sent to

material procurement
department

Grouping of required
materials

Floating Tenders

Selection of bidders

Work/Supply order issued to

party

Submission of Security Deposit

& Performance Bank
Guarantee

Material delivered Material not delivered

Security deposit returned Security deposit redeemed

PBG returned after

performance of material PBG redeemed or extended

17
4.1.2 FINANCIAL CONCURRENCE

The financial concurrence section scrutinizes the payment proposals to develop a logical fact finding
so as to facilitate approval or disapproval of payments by the competent authority which is CMD
(Chairman & Managing Director) in this case. The proposals regarding civil department & welfare, CSR,
Railway siding works, mining, contract management and purchase & procurement of the headquarters
and the cases in the area which are beyond the delegation of the area GM (competent authority of
area) is taken care of in the financial concurrence section.

Scrutinization: If the budget provision pre-exists for the proposed expenditure, the payment can be
approved, otherwise, there needs to be a cost benefit analysis to check the profitability of the project,
also, the project should meet the safety & security needs and if it is in accordance with the social
aspects.

Concurrence: - The proposed expenditure is evaluated from different aspects in order to make sure
that the proposed expenditure is within the guidelines and rules & regulations of the company,
conforms to the needs of the project, is in accordance with the specific directives (if any) of the
competent authority, follows the guidelines as provided in the approved manuals. There are different
manuals for civil work, contract management and CSR. The manuals provide information regarding
the preparation of estimates, floating of tenders, award criteria, post award management of contract
and closure of contract
The decision for concurrence of the proposed expenditure should:
 Have a purpose that provides value addition to the company
 Be prudent i.e. considers proprietary aspect
 Ensure internal audit and control mechanism
 Guard against any adverse comments of external agency of stake holders
 Be integrated to the mission of the project
 Ensure the proposed cost is reasonable
 Be in accordance with the delegation of power
 Consider the impact of indirect taxes

The proposal is analyzed in the financial concurrence section to provide the logical facts regarding the
same to the Director Finance for making the decision which is further to be approved by the CMD.

Procedure: -
Step 1: Proposal by the execution department
The department requiring the payment for the expenditure sends the proposal regarding the same
mentioning the estimates, purpose and value addition of the proposal.

Step 2: Scrutinization
The concurrence section scrutinizes the proposal and forwards the proposal along with
recommendations as per the section and the logical fact findings regarding the proposal.

18
Step 3: Director’s approval
After receiving the proposal and recommendations, the director forwards it to the GM (finance) for
further recommendations and on that basis the proposal is accepted or rejected.

Step 4: Tendering
The tender is floated, for the approved proposals, to get the suitable bidder quoting the lowest price
for the requirements. The tender is scrutinized by the tender committee, which provides the
recommendation regarding the tender.

Step 5: Payment
Payment is made in accordance with the price quoted by the selected bidder.

Figure 2: Financial Concurrence

Proposal by the execution

department

Scrutinization

Director’s Approval

Tendering

Payment

19
4.1.3 BILL PASSING

The Bill Passing section receives and scrutinizes the various bills after which the bill is sent to the cash
section for payment. The bill passing is divided in two categories, the first is concerned with the bills
relating to the requirements for the operations of the company like materials purchased, store items
and civil bills, whereas the second part is concerned with the petty expenses like stationery bills, repair
bills, food expenses, etc. The various steps involved are as follows:

Step 1: Placing of supply order or work order

Firstly, the concerned user department (the department that that submits the bill to the finance
department in order to get the payment for meeting the requirements) issues the work or supply
order. For instance, the material management department issues work order (a tender is floated
containing the information regarding the required quality, quantity, delivery time, etc. after which the
lowest bidder is selected and a work order is issued mentioning the payment details and other
necessary details and the terms & conditions). Likewise, any department that requires payment of a
bill relating to the company, has to issue a work or supply order.

Step 2: Receiving materials

After the work or supply order is issued, the ordered item should be delivered within the mentioned
delivery time. And for the bill to move ahead, the concerned item’s physical presence is to be ensured.

Step 3: Submission of the bill (to the receipt section of the finance department)
After receiving of the material, the bill for payment, along with the necessary documents is to be
submitted to the finance department in the Receipt Section.
From the receipt section, the bill order is sent to the concerned bill passing section according to the
type of bill.

Step 4: Scrutinization of Bill

After receiving the bill, the bill passing section, scrutinizes the bill as per terms and conditions of work
or supply order which include the quantity, rate, value, delivery period and so on. Before passing any
bill, a Budget Certificate (BC) and Financial Concurrence (FC) are to be submitted. The bill may be
passed or rejected accordingly.

Step 5: Submission to cash department

If the bill is passed in the scrutinization process, the bill is submitted to the cash section for the
payment and payment is made through Electronic Fund Transfer (EFT) and the required entry is
passed.
NOTE: The bills for payments of CSR is also cleared at this section. However, it doesn’t require to be
scrutinized. The CSR department sends a utilization certificate mentioning the amount required and
the purpose, the bill passing section forwards the bill for the respective payment to the cash
department and make the entry.

20
 Figure 3: Bill Passing

Supply order/Work order

placed

Materials Received

Submission of Bill

Scrutinization of Bill

Approved Disapproved

Submission to cash Sent back to execution

department department

21
4.2 TAXATION
The taxation section deals with computation of Corporate tax liability, filling of Income Tax Returns,
compliance as per Income Tax 1961 and dealing with Tax Authorities / Tax Auditors.
Computation: As per Income Tax Act 1961, Corporate assessee need to pay Advance Tax on Quarterly
basis tax within Financial Year itself to avoid any interest under Section 234b /234c of Income Tax
1961.
Due dates of Advance Tax is as under:
1. 15th June – 15%
2. 15th September- 45%
3. 15th December – 75%
4. 15th March -100%
The direct taxes involve Advance Tax, Tax deducted at source (TDS) & Tax Collected at Source (TCS).
The procedure regarding payment of income tax is as follows:
Step 1: Projections from cost department
The projections regarding the income statement is sent to the taxation section from the cost
department for further processing in each quarter.
Step 2: Computation of tax liability
Taxation department based on the estimates received from Costing department, prepares
Computation of Business Income and calculates Income tax by deducting allowed expenses and adding
back the disallowed expenses. The tax liability is computed as 30% of the income plus 12% surcharge
plus 4% education cess.
Tax Audit
Every corporate assessee need to file the Tax audit report signed by a Chartered Accountant in Form
3CA and Form 3CD on or before 30th September. Appointed auditor checks books of accounts and may
suggest necessary changes and note observations to take in accounts while filling Income Tax Return.
Filling of Return:
Based on the Annual Accounts and Tax Audit report again a fresh Computation of income is prepared
and Balance Tax Amount is paid before Filling of ITR-7, if any payable
Assessment
Assistant Commissioner of Income Tax (ACIT) or Deputy Commissioner of Income tax (DCIT) or
Jurisdictional Assessing office may choose to scrutinize the return of the Assessee if it is fit case. The
ACIT/DCIT may also request rectification in the returns.
Appeals & Revision
If Assessee is not satisfied with the assessment or rectification done by Assessing officer, an appeal
can be filed before higher authority, i.e., CIT (Appeals) (Commissioner of Income Tax). If the decision
of the CIT is not satisfactory, further appeal can be made to ITAT (Income Tax Appeal at Tribunal),
further to High Court and the last one to the Supreme Court.
In case of issues related to facts, the appeal can’t be forwarded to court after ITAT, if it is not resolved
at ITAT, it is dismissed. In case of issues related to law the appeal can be taken to the Supreme Court,
if not resolved at lower levels.

22
 Figure 4: Taxation (Direct)

Projections from Cost

Department

Computation of Tax
Liability

Tax Audit

Filing of Tax Return

Assessment of Return by
ACIT/DCIT

Acceptance of return Non-acceptance of return

Payment of Tax Issue of order for rectification

Order accepted Order rejected

Payment after Rectification Appeal filed before higher

authority

23
The indirect taxes/levies charged are as follows:
 Royalty: it is charged on the coal value at 14% and paid to the respective state government
 District Mineral Foundation: it is charged on the royalty at the rate of 30% and paid to the
respective state government
 National Mineral Exploration Trust (NMET): it is charged on royalty at the rate of 2% and paid
to the respective state government
 Goods & Services Tax (GST): it is charged on the total bill amount at the rate of 5% and paid
to the Central as well as the state government
 GST State Compensation Cess: it is charged on the dispatch quantity at the rate of Rs.400/Te
and paid to the Central Government
 Terminal Tax: it is charged on the coal value and paid to the respective state at the respective
rate, i.e., 2% at MP and .20% at CG
 Forest Transit Fees: it is charged on the dispatch quantity and paid to the respective state at
the respective rate, i.e., Rs.15/Te at MP and Rs.7/Te at CG
 Local Taxes: CG Paryavaran and Vikas Upkar in charged on the dispatch quantity at the rate of
Rs.15/Te in case of CG and MP Sadak Vikas Tax on the coal value at the rate of 15% in case of
MP.

Processing:
First of all, the bill is prepared for every transaction considering all the taxes and levies, which is then
further sent for auditing. If the taxes/levies are as per the regulations and is also arithmetically
justified, the auditor issues an audit memo and the bill is further sent for scrutinization to the Tax
Authorities. If the tax authorities accept the bill, the transaction is made, if the bill is rejected by the
tax authorities, an order is issued to the tax department for making the necessary changes. After the
tax department receives the order, it may accept or reject it, if the order is accepted the payment for
the difference amount is made and if the order is rejected appeal is made to CE(A) regarding the not
acceptance of the order. If the appeal is rejected in the CE(A) is moved further to the CESTAT (The
Customs Excise and Service Tax Appellate Tribunal) and in case of rejection by the CESTAT it is
forwarded to the High Court and likewise to the Supreme Court and the decision made by the Supreme
Court is the final one and if it doesn’t accept the appeal, the payment for the difference amount is to
be made.

24
 Figure 5: Taxation (Indirect)

Preparation of bills for sale

transactions

Auditing of taxes/levies in
the bill

Issue of Audit Memo

Submission to Tax
Authority for scrutinization

Accepted Rejected

Payment of Tax Issue of order for rectification

Order accepted Order rejected

Payment after Rectification Appeal filed before higher

authority

25
4.3 COST AND BUDGET SECTION

The cost & budget section is one of the major sections of the company as for conducting any activity
money is required to meet the cost, the budget for which is to be passed by this section and also for
any company the ascertainment of profit or loss is required to make the necessary changes in the
functioning of the company. The major activities of the cost & budget section are preparation of cost
sheet and budget, reporting of variances between actual & budgeted cost, projection of financial
performance and scrutiny of additional budgetary requirements.

Preparation of Revenue and Capital Budget

The revenue budget is a statement depicting forecasted sales revenue, capital expenditure and other
expenses, it facilitates proper allocation of resources in a company. The revenue budget is prepared
by the Cost & Budget section using the past data depicting the revenue and expenditure, the expected
percentage changes in the various components of the budget are also considered while the
preparation of the budget. The budget is first prepared at area level and then consolidated at the
headquarters. The revenue budget is presented at the subsidiaries’ board meetings for approval
through the audit committee and approved by the CIL Board.
Accounting for revenue in the budget- the revenue for the budget is estimated based on the
production planning and distribution of coal during the year, coal consumption pattern of major
consumers and production forecast (made on the basis of reserves and capacity).
Accounting for expenses in the budget- the cost of transportation is assessed on the basis of the
estimated quantity of coal and other items that are to be transported; the expenditures like salary &
wages, stores & spares, OBR removal, depreciation, electricity, administrative expenses etc. have a
cost structure and their usage is estimated on the basis of past data and expected changes in the usage
and the rate is charged on the contemporary basis.

The capital budget is a statement depicting the forecast of the capital expenditures and investments
for the concerned period, it facilitates the maintenance of funds for the expenditures and also
adjustment of expenditure in case of unavailability of fund.
Accounting for the capital expenditure in the budget- the capital expenditures may be for the existing
mining and non-mining projects or for the new projects. For the new projects, CMPDI (another
subsidiary of CIL), prepares project reports which show the feasibility and financial analysis of the
project based on the input data received from the mine planners and the company, in order to
facilitate proper investment decision, the project reports include analysis through capital budgeting
tools like IRR, NPV and payback period, it also includes sensitivity analysis of the project. If the project
is approved, the expected capital expenditure, as mentioned in the project report, is considered in the
preparation of Revenue Budget.
For existing projects, cost & budget section verifies the physical progress with the budgeted flow of
activities and also verifies the actual expenditure with the budgeted expenditure which helps in
determining the deviation in expenditure if there is any left-over amount or if any more budget is
required, this information helps in preparation of a revised budget for the upcoming period.

26
According of BC
BC (Budget Certification), is given for capital expenditure proposals and certifies the availability of
amount for the expenditure which have approved FC. FC (Financial Concurrence), is also given for
capital expenditure proposals to certify that the expenditure is relevant to the needs of the company
and total amount that is to be provided regarding the same. The cost & budget section provides
Budget Certification both under capital and revenue heads after scrutinizing the proposals related to
the additional budget and capital requirement related to procurement, civil nature jobs, etc.

Preparation of Cost Sheet:

It is a statement which reflects details of the activity-wise cost during the production process, it
determines the unit cost of production. The cost sheet of the SECL Headquarters is a consolidated cost
sheet representing the cost of all the areas, in SECL there are thirteen areas or units. The areas may
have several numbers of mines which may be opencast or underground.
The cost of underground and opencast mining is accounted separately as they have different cost
structure owing to the fact that opencast mining involves removal of overburden (i.e. the land
covering the coal) and therefore involves an overburden removal (OBR) cost for heavy machines,
whereas the underground mining doesn’t involve overburden removal but digging of tunnel which
doesn’t require heavy machines but more labor work. The per unit cost of production is much higher
in case of underground mining than in opencast mining because of four reasons, first, the volume is
more in opencast as the top is covered in underground, second, lack of safety in underground mining,
third, statutory requirement of hiring 100 labors for underground mining by the Ministry of Coal
irrespective of the requirement, fourth, scope for mechanization is more in opencast mining.

The cost sheet at the headquarters is prepared monthly which projects the financial performance of
each mine.
First, the cost sheet is prepared at the respective mines separately for the underground and open cast
mines, the data for which is collected from the cash book, bills, dispatch data, production report, stock
report, etc.
Second, the cost sheet of the mines is collected at their respective areas for compilation and the costs
incurred at areas is incorporated separately as they are not reflected in the cost sheet of the mines.
After the compilation of costs incurred in the mines and the area, mine-wise summary is prepared at
the area separately for opencast and underground mines and overall cost summary of the area is also
prepared.
Third, the cost sheet is prepared at the headquarters by compiling the cost sheets of all the areas and
adding to it the costs incurred in the headquarters, for which a GM co-ordination meeting is held. The
compiled cost sheet reflects the financial performance of the underground mines, opencast mines,
the areas and the company as a whole.

Measuring of variances
At the end of each period, the actual revenue and expenditure is compared with the budgeted revenue
and expenditure and with the previous year’s revenue and expenditure to report for the variances
between them, which facilitates proper management decision in order to have a watch and control
over the cost of production of mines.

27
Projection of financial performance
Every quarter, the company sends the report showing the cost sheet, revenues and expenditures to
CIL for quarterly evaluation of the financial performance of the company and also Financial projections
are prepared for MoU with CIL and annual plan. The MoU with CIL is an agreement mentioning the
desired financial performance of the respective subsidiary (SECL in this case), it includes targets and
evaluation criteria or upcoming year. At the end of year, the targets mentioned in the agreement are
audited by assessing the achievements.
The financial projections form the basis for Annual plans and Annual Action Plans.
The Annual plans and Annual Action Plans are in accordance with the guidelines of the MoC (Ministry
of Coal), which is a superior authority to the CIL and regulates all the coal mining companies.

4.4 PAY ROLL PROCESSING AND EMPLOYEMENT BENEFITS

4.4.1 SALARY SECTION

The salary section deals with the payment of the salary due to the executive and non-executive
employees of the company. It ensures the accuracy of the amount to be paid and also ensures
payment made in the precise time. For which a certain procedure is followed which is as follows:

Step 1: Attendance (concern of the HR department)

Attendance is taken through an Aadhar enabled system which uses the biometrics for marking the
attendance, the Aadhar of the employee is the input for their information in the system. The
attendance is also recorded in attendance register which is used for cross checking and also as a
backup when there is a problem in the biometric system.

Step 2: Report generated

At the end of each period a report accounting for the attendance and leave of the respective
employees is generated by the system. The attendance is recorded from the 16th of a month to the
15th of the next month which accounts for the payment of the next month.

Step 3: Verification of the report

The generated report is cross checked with a physical check list and correction is made thereon if
applicable.

Step 4: Pay roll processed

After the attendance is verified, the salary is processed and the pay slip is generated for each
employee. The salary is processed according to the pay structure and leaves taken.
The employees are divided into three categories, i.e. executives, non-executives and labors (working
at mines) each category having a different pay structure, for instance, the non-executives have daily
or monthly salary depending on their respective pay structure and the labors have piece rated
(production based) salary.
Each employee is credited with a number of leaves in the beginning of the year according to the leaves
allowed to them (different for executives and non-executives), the leaves may be casual, earned or

28
sick leave (half-paid). Earned leaves are not deducted from the credited leaves. Leaves other than the
credited ones are deducted from the salary.
Pay slip is generated after accounting for the above.

Step 5: Payment voucher and salary summary

After the pay slip is processed, a payment voucher based on it is generated and a salary summary
containing the information regarding all the pay slips is prepared

Step 6: Manpower reconciliation

Before making the payment, manpower reconciliation is done, in order to add the new employees in
the system and remove the employees getting retired, transferred or resigning.

Step 7: Audited and sent for payment

The payment voucher is audited by the finance department and sent to the cash section for payment.
The cash section deposits the cheque in the bank along with the salary summary.
Figure 6: Pay Roll Processing

Attendance

Verification

Pay roll processing

Payment voucher + Salary

summary

Manpower reconciliation

Payment voucher audited

29
4.4.2 EMPLOYEE LOANS

Employees working in SECL can avail for loans from the company for the official purposes, the payment
for which is processed in the loans section. three types of loans are offered by the company, namely,
house building loan, car loan and furniture and household advance scheme, out of which only house
building loan can be availed by both executives and non- executives, whereas car and household
furnishing loan can only be availed by the executives.

Step 1: Application for loan

The concerned employee is required to apply for the loan stating the amount and reason for loan.
Which is processed further according to the regulations of the company. The maximum amount any
employee can apply for car loan is the sum of the 10 months’ salary (basic + DA or cost of vehicle,
whichever is less), in case of house building loan it is 75 months’ salary or 30lakhs whichever is less
and for household furnishing it varies up to 5 lakhs.

Step 2(a): Checking of documents

In case of house building loan, following documents are to be submitted- house agreement, mortgage
papers, insurance papers and reference of certificate (issued by controller of accounts). In case of car
advance, following documents are to be submitted- essentiality certificate, certificate of availability
of funds, amount & purpose, mode of repayment and interest, agreement, mortgage & interest, etc.
In case of furniture advance, repaying certificate bond is to be submitted. For car and furniture loans,
original bills are to be submitted after the amount is paid.

Step 2(b): Processing for approval

The application is duly verified by Director Personnel department (in case of car& furniture advance)
or Director Personnel Legal and Civil department (in case of House Building Advance). The director
sanctions the loan on the basis of the above-mentioned documents.

Step 3: Amount paid

After the formality for the agreement is done, the finance department makes the payment to the
employee and the entry is passed regarding the same.

Step 4: Recovery of amount and interest

Principal amount is to be recovered before the interest. Interest is charged at the prevailing rate of
Central government in case of HBA and car advance and in case of furniture advance interest is at par
with average yearly cash credit ratio rate as notified by SBI on a regular basis.

Step 5: Entry in Accounts

Separate schedules for principal, accrued interest, actual interest deducted are maintained in
accounts ad in case of transfer of employee’s amount is transferred through debit notes.

30
 Figure 7: Employee Loan

Application for loan and

submission of documents

Processing for approval

Approved Disapproved

Amount Paid Re-application by employee

Recovery of principal and

interest

Entry in Accounts

4.4.3 ADVANCES

There are two kinds of advances establishment advance and commercial advance. The establishment
advances include the advances that are provided as a support or employment perks to the employees
which are medical advance, travelling medical advance and travelling advance. The commercial
advances include the advance payment made for the procurements of the company, the procurement
advance is only made with PSU’s with whom there is an MOU, in SECL, it is only with the Steel Authority
of India Ltd. (SAIL).

- Travelling advance is given for the tours of employees that are made for the official purposes
and is provided on the basis of the entitlement of the employee which is based on their
position in the company. As the travelling advance is paid for the official purposes of the
company it isn’t recovered from the salary.

31
- Medical Advance is given for the treatment of employees and Travelling Medical Advance is
given to the employees for treatments in outstation. First the employee makes a request in
the HR department regarding the same and the payment is given to the employee along with
the recovery schedule, after the treatment/returning after treatment of the employee, the
supporting bills are to be submitted in the department within a stipulated time, the failure of
which may lead to charging of penalty on the employee. The amount is later recovered from
the salary.

Figure 8: Employee Advances

Request for advance to HR

by employee

Request processed and

payment made

Submission of relevant
bills

Recovery from Salary

32
4.4.4 RETIREMENT BENEFITS

The retirement benefits include the pension, Medicare, leave encashment, provident and gratuity
provided by the company.

- Pension Trust: the objective is to decide the pension trust amount and monitor it. A
centralized trust is formed to monitor. Since, 01.01.2007 as per Executives Defined
Contribution Pension Scheme (EDCPS), a separate pension fund or trust is created in which
every year the company contributes an amount equivalent to 9.84% of the Basic Pay and DA
to the trust which is to be invested within 10 days and the claim of the investment is forwarded
to the employee getting separated. (for the board level and below board level executives.

- Medicare: For providing medical cover to the executives a Contributory Post Retirement
Medicare Executive Scheme and Contributory Post Retirement Medicare Scheme for Non-
Executives was started since 01.01.2007. The HR department registers the employee in this
scheme. A percentage of Basic pay and DA are contributed for the scheme in the separate
fund for superannuation Medical Benefits. the liability for the payment made is made on the
actuarial basis and E-payment is made centrally (centrally is for SECL and CIL and other
subsidiaries of CIL).
As per CPRMS, the executives are either entitled for a payment of Rs.7500 half yearly or
complete payment of medical expenses for the year, which is a choice of the employee, the
limit for such payments is 25lakhs. And as per CPRMS-NE, the non-executives are entitled to
a payment of 5lakh for medical purposes after depositing Rs.40,000 in the trust by the
employee and Rs.18,000 by the employer.

- Gratuity Funding: The gratuity payable is calculated on the basis of salary structure and profile
of the employee. On the due date, actuarial valuation is done using the employee data and
the amount is paid from the Gratuity Trust. After the valuation the payment is made by the
cash section and accounting entry is passed. An executive is entitled to gratuity of up to 20
lakhs and a non-executive also is now entitles to an amount of up to 20 lakhs which was 10
lakhs until 29th March, 2018.

- Leave Encashment: The valuation of leave encashment is done by the HR department for each
retiring employee on the basis of their respective salary structure and leave profile. An
executive can have leave encashment of up to 300 days which will account for earned as well
as half pay leave. A non-executive can have leave encashment of up to 150 days which only
accounts for the earned leaves. After the separation of employee, the valuation is done and
the payment is made and accounting entry is passed thereon.

- Coal Mines Provident Fund (CMPF) and Pension: the contribution for the fund is deducted
from the monthly salary of the employees for the CMPF Office (CMPFO), which is an
independent entity controlled by Ministry of Coal. The major deductions from the monthly
salary includes employer’s contribution, employee’s contribution and Voluntary contribution.
The due provident fund and family pension is provided to employee on the date of retirement.

33
4.4.5 CLAIMS AND REIMBURSEMENTS

The various reimbursement claims paid to employees are Medical Reimbursement, LTC(Home
Town)/LLTC(Bharat Brahman) Final Payment for Non executives, TA Final Claim, Transfer TA Final
Claim for on roll employees, TA/Settling allowance on retirement, CIL Scholarship Claims and
Reimbursement of Higher Education, PF recovery in respect of retired employees, Excess
Recovery/Refund (Advance/Interest Recovered etc.) from the employees and Other Misc.
reimbursements.
Processing of all the above claims of employees are initiated by the Employee. Employee submits the
Claims in Hard copy along with the required supporting documents which will be forwarded by the
officer in charge of the section duly approved by the controlling officer or the controlling officer for
the claims. Finance Department, after receipt of the bill/claim along with the competent approval and
other documents will audit and process/pass the claim as per CIL rules and send to Cash Section for
payment, after adjustment of advance, if any.

Step 1: Claim submitted to the controlling officer by the concerned employee.

Step 2: Entry in Bill Tracking System by the Controlling Officer and recommendation forwarded to the
approving authority.
Step 3: Eligibility check by the approving authority. Forwarded to finance department after approval.
Step 4: Audit of the bill and preparation of payment voucher.
Step 5: Bill passed by the Bill Passing Officer and forwarded to Cash Section for payment.
Step 6: Payment made by the Cash Section through RTGS/Cheque.

Figure 9: Claims and Reimbursements

Claim submitted by the

employee

Entry made and Bill

forwarded to finance
department after approval

Auditing and Bill passing

Payment by Cash Section

34
4.5 CORPORATE ACCOUNTS AND AUDIT

4.5.1 PERIOD END CLOSING

Period end closing in SECL is done quarterly and involves verification of the entries, in the end of each
quarter, for the transactions throughout the quarter in the headquarters. The entries may be simple
i.e. through journal entries or may be through bank vouchers issued by different sections looking after
the different expenditures and income (fund management section). The entries are passed in CoalNet,
which are automatically processed for the financial statements. Each article has a 6-digit financial code
which is used for making the entries in the system and the category of the article is suggested by the
initial digits of the code, for instance, the codes beginning with 000 indicate income and 00 indicate
expenses.

Step 1: (a) Transactions made

Throughout the quarter several transactions are made like miscellaneous purchases for civil work and
administration, payments (for salary and wages), etc. and income from coal dispatch which are
recorded in the system thereon.
Step 1: (b) Remittance to areas
Remittances for major expenditures in the areas are provided by the headquarters after receiving a
requisition note from the respective area. At the end of each quarter an inter area reconciliation
meeting is held in which a debit memo is issued to the respective area for the remittances provided
by the headquarters and credit note is issued for the income received on behalf of the area.

Step 2: Period end closing- Headquarters and areas

At the end of each quarter closing is done for the period from the beginning of the year up to that
quarter. Closing is done separately for headquarters and all the areas and is audited by the auditing
team.

Step 3: Consolidation of accounts

After finalization of all area accounts, the financial statements are consolidated for the company as a
whole for which the accounts of all the areas are compiled. The consolidated financial statements
show the real position of the company.
Figure 10: Period-end Closing

Transactions made Remittance to areas

Period end closing

Consolidation of accounts
35
4.5.2 INTERNAL AUDIT

The purpose of internal audit is ensuring that the operations of the company are within the relevant
laws and the guidelines of the company. The audit team of the company consists of people from
different disciplines so as to look after all the aspects of the company’s operations. The scope of the
internal audit team includes all the operations of the company like production, sales, accounts and all
the various operations undertaken for the official purposes of the company, it does so by inspection
of the various documents and supporting documents for every chore and transaction undertaken in
the company.
Firstly, the audit team hires an audit firm every three years, for the auditing of the areas and the
headquarter. The audit firm must consist of at least four members out of which at least one should
have completed the qualification i.e. CA.
The auditing is done every month in each area by the members of the audit firm hired. If the monthly
functioning is satisfactory, the report is prepared for that month otherwise the changes are made
accordingly and in case of any dispute, the issue is forwarded to the audit team of the headquarters.
The internal audit team of the company scrutinizes the quarterly report prepared by the audit firm.
After the scrutinization, a report is prepared specifying about the flaws and suggesting corrective
measures regarding the same. If the flaws are not rectified as per the specifications of the audit team,
the issue is taken forward to the audit committee which is governed by the board and further to the
CVO (Chief Vigilance Officer), who has the power to punish the responsible person according to the
suitability of the situation, which is not within the power of the audit team. Audit team only has the
power of providing suggestions regarding the flaws within its scope. Quarterly reports are maintained
by the audit team and the yearly reports are prepared using them which is to be forwarded to the
CMD (Chairman and Managing Director) of the Company.
Figure 11: Audit

Monthly audit in area

Quarterly audit report of

each area compiled for
presenting in the HQ

Issues resolved in the audit

committee

Yearly report to the CMD

36
4.6 CORPORATE TREASURY MANAGEMENT

4.6.1 FUND MANAGEMENT

This section is concerned with realization and optimum utilization of funds. By investing the surplus
funds, also it ensures the liquidity of the company by monitoring the inflows and outflows. The inflows
include the sales revenue of the company and the outflows involve the expenditures and investments.

Step 1: Realization from sales

Firstly, the sale is made either through rail or road transport. The payment for sale made through rail
transport is received as Letter of Credit (LC) which is sent to the Kolkata office for further processing
and realization and the payment for sale made through road transport is be received in advance and
is processed in the Headquarters itself.

Step 2: Funds required for expenditure kept aside

Company requires a certain cash balance for various expenditures, therefore, from the amount
received a certain sum is kept aside. The sum that has to be kept aside is decided according to the
estimated fund requirement in the concerned period.

Step 3: Investment of the surplus funds

The remaining amount can be invested in fixed deposit or mutual funds (liquidity debt MF). The
investment portfolio depends on the tenure and requirement of fund in the near future. For instance,
in case the fund is not expected to be required in the near future, it can be invested in the fixed deposit
as it gives higher returns and the liquidity is not required, whereas, when fund is required in the near
future the fund is invested in mutual funds though it gives lower returns, it provides liquidity as the
amount invested can be withdrawn within 2-3 days. The investments have to be made within the
investment policy of the company, for instance, only 30% of the surplus can be invested in the mutual
funds.
- Identification of the amount of surplus funds
- Information regarding returns of investment options (interest rates of banks and dividend
rates of mutual funds)
- Company lays deposit policy according to the returns and capital adequacy ratio of banks and
financial institutions
- The banks and financial institutions selected according to the deposit policy and the
information regarding the same is communicated to the concerned institutions.
- Amount is invested

Step 4: Maturity of investments

When the amount is received, a bank receipt voucher is issued by the fund section and record is made
for the amounts.
Step 5: Yield of the investments
The maturity amount of the investments is recorded and the weighted average gross yield of the
portfolio is calculated each quarter and sent to CIL for review.

37
 Figure 12: Fund Management

Realization from sales

Funds kept aside for

expenditure (balance fund is
to be invested)

Evaluation of investment
options

Funds invested according

to the deposit policy

Investment matured

Yield calculated and

reviewed

4.6.2 CHEQUE MANAGEMENT (PAYMENTS)

All payments are being done through FT/NEFT mode. However, certain cases such as railway payment
and payment to Govt. authorities made through Cheque/DD as an exception only after getting
approval of Director (Finance)/ competent authority.
The cash section receive information of the invoice document along with valid supporting documents.
The Cash section would post a bank payment-clearing document, which would clear the open line

38
item of the vendor/ liability and make the payment through selected bank. The cash section would
then make payments for all posted cash payment vouchers. If any Cheque is cancelled / destroyed
during printing, the cheque would be made void and a fresh Cheque would be printed for the same
bank payment document. For all cheques which are void, they would be manually re-printed and
would be allotted the next applicable sequential cheque number. Cheque Register containing Cheque
details along with cheques printed would be forwarded to authorized signatories for signatures. The
authorized signatories would sign on the cheque as well as on the cheque register. The concerned
person would necessarily confirm the actual bank balance to ensure that all requested balance
transfers, receipts, etc. have been effected physically as per bank book before releasing the signed
cheques for dispatch. If any payment is returned by bank due to wrong account no or wrong IFSC code,
a debit advice is raised and the voucher is returned to bill passing department for re-processing of
voucher.

Figure 13: Cheque Management

Receipt of invoice from

concerned section

Approval of competent
authority

Preparation of Cheque and

update in the record

Signing by the authorized

signatory

Payment

39
4.7 SALES REALISATION AND ACCOUNTING

Sales accounting sections is a wing of the sales and marketing department, in which finance personnel
are posted as Associate finance to assist in finance and tax related activities of the department. It
involves accounting of sales transactions wiz receipt of sale consideration on sale invoices, preparation
and submission of sale bill, reconciliation of balances, issue of credit/debit note, and other financial
activities concerned with sales of coal.

Step 1: Sales
The core sales activities are undertaken by the personnel in the sales department. There are mainly
two types of sales, i.e., through e-auctions or Fuel Supply Agreement (FSA). The dispatch of the sold
quantity may be through rail or rode mode, for looking after the rail mode sale, there is a dedicated
sales office in Kolkata. The E-Auctions are conducted on electronic platform through third party and
the details regarding the quality, quantity, size and other specifications of coal are provided to them
by the sales department, whereas, in FSA agreement with consumers are made for supply of coal for
a certain number of years. The quality of coal is determined by the Gross Calorific Value (GCV) and
graded in the range G1-G17 (G1 signifying the highest quality). The auction service providers make the
allotment to the bidders, and inform the sales department regarding the same.

Step 2: Deposit of Consideration and issue of delivery order

After the coal sales is allotted to the bidders/customers, they have to deposit the consideration (which
includes the TCS as per provision of Income Tax Act) equal to the value of the coal, within the specified
time, after which the delivery order is to be issued (the delivery order provides the information
regarding the mines, coal grade, coal value and deposit value) to the customer which enables lifting
of the coal from the respective mine. The sales consideration is received in a dedicated centralized
realization account of SECL, which is transferred to respective coalfield area on monthly basis for
future accounting and maintenance of debtor’s ledger. The failure to deposit the consideration within
the stipulated time may lead to the forfeiture of the Earnest Money Deposit (EMD) received by the
consumer at the time of E-auction.

Step 3: Preparation of Bill

The bill is prepared on the basis of the delivery order data after lifting of coal. The bill reveals the
selling price, after considering its various components, which includes:
 Basic value of coal. (on the basis of grade)
 Coal Royalty
 Sizing Charges
 Evacuation facility charges
 Goods & Services Tax (GST)
 District Mineral Foundation (DMF)
 National Mineral Exploration Trust (NMET)
 Local Taxes
The TCS collected from consumers is deposited to enchequer on monthly basis before the stipulated
date as per Income Tax Act and the quarterly return of TCS is filed by sales accounting section.

40
Step 4: Maintenance of accounts
After the preparation of bills, it is accounted in debtors’ ledger in the books of respective coalfields
area along with sales realization credit received from headquarters.
There is a tri-party agreement amongst the core consumers, SECL and third-party analyzing agency for
sampling and analysis of coal. Third party analysis agency does sample and analysis of the sold coal, in
case the analyzed grade varies with the sold grade, the difference in price is adjusted through issue of
debit/credit notes to the customers, after which it is accounted in the debtors’ ledger.

Step 5: Reconciliation
At the end of each period, the balances are jointly reconciled for correction of differences in the books
of accounts of company and debtors i.e. the balance of debtors in the books of the company is tallied
with the balance of the company in the debtor’s books.

Figure 14: Sales Realization and Accounting

Sales and sales realization

Deposition of consideration
and issue of DO

Preparation of Bill

Maintenance of Accounts

Reconciliation

41
CHAPTER 5: FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is an evaluative method of determining the past, current, and projected
performance of a company for decision-making purposes and to understand the overall health of an
organization. Financial statements record financial data, which must be evaluated through financial
statement analysis to become more useful to investors, shareholders, managers, and other interested
parties.

Several techniques are commonly used as part of financial statement analysis including horizontal
analysis, which compares two or more years of financial data in both dollar and percentage form;
vertical analysis, in which each category of accounts on the balance sheet is shown as a percentage
of the total account; ratio analysis, which calculates statistical relationships between data and trend
analysis, which past trends are analysed in order to predict the future performance.

5.1 RATIO ANALYSIS

A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Ratio Analysis is used to evaluate various aspects of a company’s operating and financial performance
such as its efficiency, liquidity, profitability and solvency. A firm’s financial statements can be
interpreted by the systematic use of ratios. The strengths and weaknesses of the firm as well as its
historical and current condition can be determined using this method.

42
5.1.1 LIQUIDITY RATIOS

The term liquidity is defined as the ability of a company to meet its financial obligations as they come
due. The computation of liquidity ratio is used to measure a company’s ability to pay its short-term
debts. It represents the short-term financial stability.
A firm should have neither lack nor excess liquidity, as the lack of liquidity leads to poor credit
worthiness and excess liquidity leads to idle assets which do not contribute in the firm’s earnings.
Hence, there should be a proper balanced liquidity.
There are three kinds of liquidity ratios; namely; current ratio, quick ratio and cash ratio.

For the Financial Year 2017-18 2016-17 2015-16 2014-15 2013-14

[A] LIQUIDITY RATIOS
(1) Current Ratio (Current
1.35 1.39 2.21 3.02 3.53
Asset /Current Liability)
(2) Quick Ratio (Quick Asset
0.55 0.68 1.25 2.1 2.56
/ Current Liability)
(3) Cash Ratio (Cash &Cash
0.032 0.052 0.061 0.052 2.285
equivalents /Current Liability)
Table 1: Liquidity Ratios

Current Ratio
The current ratio indicates a company’s ability to pay its current liabilities using its current assets i.e.
how much of current assets are available to cover each unit of current liabilities. A current ratio of 1
or more means that current assets are more than current liabilities and the company should not face
any liquidity problem. A current ratio below 1 means that current liabilities are more than current
assets, which may indicate liquidity problems. It is calculated by dividing current assets by current
liabilities. A ratio of 2:1 is considered ideal.
The current ratio for the company for the financial year 2017-18 was 1.35 which shows that, currently,
the company has enough current assets to pay off the current liabilities, although, it is less than the
ideal ratio, it doesn’t show inability of the company to pay off the liabilities. However, the ratio has a
declining trend and if the trend continues, it may lead to financial instability.

CURRENT RATIO
4
3.5
3
2.5
2
1.5
1
0.5
0
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 1: Current Ratio

43
Quick Ratio/ Acid Test Ratio
The quick ratio indicates the immediate liquidity of a company using the assets which can be converted
into cash immediately without any loss of value. Cash, debtors, marketable securities and bills
receivables are a few examples of such assets. Greater the ratio indicates better the financial position
of the company and vice versa. This ratio is more conservative than the current ratio therefore, it
shows a clearer picture of a company’s liquidity. It is calculated by dividing quick assets (currents
assets excluding prepaid expenses and inventories) by current liabilities. A ratio of 1:1 is ideal.
The quick ratio for the company for the financial year 2017-18 was 0.55 which shows that, currently,
the company doesn’t have enough quick assets to pay off the current liabilities, although, it is less
than the ideal ratio, it doesn’t show the complete inability of the company to pay off the liabilities, as
it may take time to pay them off but it can be paid within the year, considering the current ratio.
However, the ratio has a declining trend, therefore, in the future, it may lead to financial instability.
QUICK RATIO
3

2.5

1.5

0.5

0
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 2: Quick Ratio

Cash Ratio
It indicates the absolute liquidity of the company, as it uses the absolute liquid assets i.e. cash and
cash equivalents. It is also known as super quick ratio and is more conservative than both current
ratio and quick ratio. It is calculated by dividing the cash and cash equivalents by the current liabilities.
A ratio of 0.5:1 is considered ideal.
The cash ratio for the company for the financial year 2017-18 was 0.032 which shows that, currently,
the company has a very low cash ratio and there may be a risk in paying the current liabilities. Also,
the ratio has a declining trend and it may lead to financial instability of the company.
CASH RATIO
2.5

1.5

0.5

0
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 3: Cash Ratio

44
5.1.2 PROFITABILITY RATIOS

The term profitability is defined as the company’s ability to generate profit with the given resources.
The profitability ratio measures the overall efficiency and performance of the company. It indicates
whether the utilization of assets and funds are done efficiently and optimally or not, so as to generate
adequate profits or returns. It consist of a group of metrics that assess a company's ability to generate
revenue relative to its revenue, operating costs, balance sheet assets, and shareholders' equity. The
higher the ratio, the better the profitability of the company. There are several kinds of profitability
ratios some of which used for analysis in the project are gross profit ratio, operating profit ratio, net
profit ratio, return on equity, return on capital employed and return on assets.

For the Financial Year 2017-18 2016-17 2015-16 2014-15 2013-14

[B] PROFITABILITY RATIOS
Gross Profit Ratio 20.09% 17.68% 30.90% 34.74% 42.77%
Net Profit Ratio 12.27% 11.03% 19.40% 22.46% 28.31%
Operating Profit Ratio 80.00% 83.00% 69.00% 65.00% 57.00%
Return on Equity 73.19% 60.81% 60.76% 37.83% 47.50%
Return on Capital Employed 25.13% 23.94% 29.20% 24.22% 30.78%
Return on Assets 9.20% 8.57% 15.72% 15.43% 21.48%
Table 2: Profitability Ratios

Gross Profit Ratio

It is a profitability ratio that shows the relationship between gross profit and total net sales revenue.
It is a popular tool to evaluate the operational performance of the business . The ratio is computed by
dividing the gross profit figure by net sales. It measures the efficiency of the production as well as
price. Higher ratio indicates higher profitability and vice versa.
The ratio is computed by dividing the gross profit figure by net sales. Gross profit is equal to net sales
minus cost of goods sold. Net sales are equal to total gross sales less returns inwards and discount
allowed.
The current gross profit ratio or margin of the company is 20.09% which shows that company is not
on losses and is earning a decent profit on sales. The gross profit ratio had a declining trend until 2016-
17, however, it increased in the year 2017-18, which may be a sign for further growth in profits.

Gross Profit Margin/Ratio

45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%

10.00%
5.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 4: Gross Profit Margin

45
Net Profit Ratio
It shows overall efficiency of the business, as it considers, all the expenses and taxes. It indicates a
firm’s efficiency in manufacturing, administering and selling. It measures firm’s ability to turn each
rupee sales into net profit. It is calculated by taking net profit as a percentage of the sales. Higher ratio
indicates higher efficiency of firm and higher efficiency of business and better utilization of total
resources and vice versa.
The current net profit ratio or margin of the company is 12.27% which shows that company is not on
losses and is earning a decent profit on sales. The net profit ratio of the company had a declining trend
until 2016-17, however, it increased in the year 2017-18, which may be a sign for further growth in
future profits.

NET PROFIT RATIO

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 5: Net Profit Ratio

Operating Profit Ratio

The operating ratio is used to measure the operational efficiency of the management. It is computed
by dividing operating expenses by net sales and is expressed in percentage. Operating cost is equal to
cost of goods sold plus operating expenses. Non-operating expenses such as interest charges, taxes
etc., are excluded from the computations.
The operating profit ratio is 80%. It means 80% of the sales revenue would be used to cover cost of
goods sold and other operating expenses of the company. Also, the operating profit ratio of SECL
shows an increasing trend and it indicates improving efficiency at the company.

OPERATING PROFIT RATIO

90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 6: Operating Profit Ratio

46
Return on Equity/Return on Net Worth
It measures overall profitability of the company from preference and common stockholders’ point of
view and also indicates the efficiency of the management in using the resources of the business. It is
computed by dividing the net income after interest and tax by average stockholders’ equity.
Higher ratio means higher return on shareholders’ investment and vice versa. Investors always search
for the highest return on their investment and a company that has higher ROE ratio than others in the
industry attracts more investors. (expressed in percentage)
The return on shareholders’ investment or return on equity (ROE) ratio of SECL is 73.19%. It means for
every Rs.100 invested by shareholders’, the company earns Rs.73.19 after interest and tax. It is a huge
number and shows that the company has very good returns. Also, the ROE has increasing trend, so it
can be said that the company will continue to perform good in terms of returns to the shareholders.

RETURN ON EQUITY
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 7: Return on Equity

Return on Capital Employed

Return on capital employed ratio measures the efficiency with which the investment made by
shareholders and creditors is used in the business. It is computed by dividing the net income before
interest and tax by capital employed. The ratio is expressed in percentage. It is a ratio of overall
profitability and a higher ratio is, therefore, better.
The RCE of SECL is 25.13% and shows that the company earns Rs.25.13 on each Rs.100 of the capital.
The trends of RCE has been fluctuating and can’t contribute to the prediction of the future returns.

RETURN ON CAPITAL EMPLOYED

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 8: Return on Capital Employed

47
Return on Assets
Return on assets measure the efficiency with which the assets of the company have been invested. It
is computed by dividing the return (profit after tax + interest) by the total assets. The ratio is
represented in percentage. It focuses on the return earned by the company and the total assets of the
company. Total assets are a combination of both debt and equity therefore, the interest levied on the
debt is included after to the profit after tax.
The current ROA of SECL for the year 2017-18 is 9.20%, which is not as good as the previous
performances of the company, however, it is better than the previous year’s performance, therefore,
by focusing on the weak areas, the ratio can be improved.

RETURN ON ASSETS
25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 9: Return on Assets

5.1.3 ACTIVITY/TURNOVER RATIOS

The turnover ratios measure the efficiency with which the assets are employed, which represents the
efficiency with which the firm manages and utilizes its assets. In other words, it shows the efficiency
with which the firm generates its revenue by converting production into sales. Higher the ratio, faster
the conversion and vice versa. Fast conversion increases the revenue and profits and slow conversion
decreases it. Therefore, higher turnover ratio is preferred for companies. The ratios which fall into this
category are fixed assets turnover, total assets turnover, working capital turnover, inventory turnover
ratio, debtor’s turnover, creditors turnover, average collection period and average payment period.

For the Financial Year 2017-18 2016-17 2015-16 2014-15 2013-14

[C] TURNOVER RATIOS
Fixed Assets Turnover 1.79 1.92 2.14 2.33 3.17
Total Assets Turnover 0.75 0.78 0.81 0.69 0.76
Working Capital Turnover 4.98 0.83 0.69 0.65 0.57
Inventory Turnover 1.54 1.52 1.56 1.51 1.30
Debtors Turnover 6.88 7.28 9.02 12.55 17.95
Creditors Turnover 1.54 1.83 3.74 16.55 14.61
Average Collection Period 45.35 42.86 34.59 24.86 17.38
Average Payment Period 202.60 170.49 83.42 18.85 21.36
Table 3: Turnover Ratios

48
Fixed Assets Turnover/Fixed Assets Ratio
Fixed assets turnover ratio is a commonly used activity ratio that measures the efficiency with which
a company uses its fixed assets to generate its sales revenue. It is computed by dividing net sales by
average fixed assets. Generally, a high fixed assets turnover ratio indicates better utilization of fixed
assets and a low ratio means inefficient or under-utilization of fixed assets.
The fixed assets turnover ratio of the company is 1.79, which shows a good performance, however,
the ratio has been declining over the years, which is not a good sign for the growth of the company.

FIXED ASSETS TURNOVER

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 10: Fixed Assets Turnover

Total Assets Turnover

It is an activity ratio that measures the efficiency with which assets are used by a company. It is
computed by dividing net sales by average total assets for a given period. Generally, a high assets
turnover ratio indicates better utilization of fixed assets and a low ratio means inefficient or under-
utilization of assets.
The total assets turnover ratio of the company is 0.75, representing an efficient utilization of the
assets. The ratio has been fluctuating in the past, therefore, the performance can’t be judged.

TOTAL ASSETS TURNOVER

0.82
0.80
0.78
0.76
0.74
0.72
0.70
0.68
0.66
0.64
0.62
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 11: Total Assets Turnover

Working Capital Turnover

It shows company’s efficiency in generating sales revenue using total working capital available in the
business during a particular period of time. It is computed by dividing the net sales by average working
capital. Cost of goods sold (COGS) can also be used for calculation of working capital turnover, rather
than net sales, as cost of goods sold has a more direct relation to the efficiency with which working
capital is used in the business.

49
Generally, a high working capital turnover ratio is better. A low ratio indicates inefficient utilization of
working capital during the period. However, a very high ratio may also be a sign of insufficient quantity
of working capital in the business.
The working capital turnover ratio of the company is 4.98, which shows the efficiency of the working
capital. Also, the ratio after being stable for previous years had a sudden hike last year, which may
indicate something abnormal.

WORKING CAPITAL TURNOVER

6.00

5.00

4.00

3.00

2.00

1.00

0.00
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 12: Working Capital Turnover

Inventory Turnover Ratio

It is a tool to evaluate the liquidity of company’s inventory. It measures how many times a company
has sold and replaced its inventory during a certain period of time. It is computed by dividing the cost
of goods sold by average inventory at cost.
Inventory turnover ratio vary significantly among industries. A high ratio indicates fast moving
inventories and a low ratio, on the other hand, indicates slow moving or obsolete inventories in stock.
A low ratio may also be the result of maintaining excessive inventories needlessly, which indicates
poor inventory management because it involves tiding up funds that could have been used in other
business operations.
The inventory turnover ratio of the company for the year 2017-18 was 1.54, which indicates
management of optimum level of inventory in the company, as well as quick conversion of inventory
into sales. The past ratios, show a reasonably increasing trend, which is a good sign of growth in the
company.

INVENTORY TURNOVER
1.60
1.55
1.50
1.45
1.40
1.35
1.30
1.25
1.20
1.15
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 13: Inventory Turnover

50
Debtors Turnover
It measures how many times the receivables are collected during a particular period and is a helpful
tool to evaluate the liquidity of receivables. It is computed by dividing the net credit sales during a
period by average receivables.
Generally, a high ratio indicates that the receivables are more liquid and are being collected promptly.
A low ratio is a sign of less liquid receivables and may reduce the liquidity of the business in the
perspective of the analyst even if the current and quick ratios are satisfactory.
The debtors turnover ratio of the company for the year 2017-18 was 6.88, which is a decent ratio
indicating reasonably liquid debtors, however, it has been decreasing over the years, which may be a
problematic area for the company.

DEBTORS TURNOVER
20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 14: Debtors Turnover

Creditors Turnover
It measures the number of times, on average, the accounts payable are paid during a period and
indicates the creditworthiness of the company. It is computed by dividing the net credit purchases by
average accounts payable. It is expressed in times.
A high ratio means prompt payment to suppliers for the goods purchased on credit and a low ratio
may be a sign of delayed payment. Accounts payable turnover ratio also depends on the credit terms
allowed by suppliers. Companies who enjoy longer credit periods allowed by creditors usually have
low ratio as compared to others. A high ratio is desirable but company should always avail the credit
facility allowed by the suppliers.
The creditors turnover ratio of the company for the year 2017-18 was 1.54, which is quite less than
the debtors turnover ratio, shows that the payments made are more time taking than the payments
received, or suppliers allow more credit time to the company than allowed by the company to its
customers.
CREDITORS TURNOVER
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 15: Creditors Turnover

51
Average Collection Period
It is an indication of the quality of receivables and is expressed in days. It is computed by dividing the
number of working days for a given period by receivables turnover ratio. A short collection period
means prompt collection and better management of receivables. A longer collection period may
negatively affect the short-term debt paying ability of the business in the eyes of analysts. Whether a
collection period is good or bad, depends on the credit terms allowed by the company.
The average collection period is 45.35, i.e., on average the company has to wait for 45.35 days before
the receivables are collected, which is reasonably less time and the payments are received quickly,
therefore company would not face shortage of funds, as the receivables are quickly convertible to
cash.The past ratios have an increasing trend, which is not a good sign as, it shows that, earlier the
debtors were more liquid than now and if the trend continues, the company may face problems
regarding the working capital management.

AVERAGE COLLECTION PERIOD

50.00
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 16: Average Collection Period

Average Payment Period

It means the average period taken by the company in making payments to its creditors. It is computed
by dividing the number of working days in a year by creditors turnover ratio.
A shorter payment period indicates prompt payments to creditors. It also indicates creditworthiness
but a very short payment period may be an indication that the company is not taking full advantage
of the credit terms allowed by suppliers. Prompt payments may be made to avail the discount offered
by suppliers. Where the discount is available for early payment, the amount of discount should be
compared with the benefit of the length of the credit period allowed by suppliers.
The average payment period is 202.6, i.e., on average the company takes 202 days to pay its creditors,
which is very high than the average collection period, this may impact the credit worthiness of the
company. Also, the ratio has been increasing which shows an important issue in the future.
AVERAGE PAYMENT PERIOD
250.00

200.00

150.00

100.00

50.00

0.00
2013-14 2014-15 2015-16 2016-17 2017-18

Graph 17: Average Payments Period

52
5.1.4 LEVERAGE/SOLVENCY RATIOS

It measures a company’s ability to sustain operations indefinitely by comparing debt levels with
equity, assets and earnings which shows a firm’s ability to pay its bills in the long term. Solvency ratio
focus more on the long-term sustainability of the company and show a company’s ability to make
payments and pay off its long term obligations to creditors, bondholders and banks. Higher solvency
ratios indicate more credit worthiness and financial soundness of the company in the long run,
whereas a lower solvency ratio reflects a higher probability of the company being on default with its
debt obligations. Leverage/Solvency ratios are of various types, a few of which are debt-equity ratio,
interest coverage ratio, proprietary ratio, fixed assets to equity ratio and capital gearing ratio.

For the Financial Year 2017-18 2016-17 2015-16 2014-15 2013-14

[D] LEVERAGE RATIOS
Debt to Equity Ratio 0.00 0.07 0.02 0.00 0.00
Interest Coverage Ratio 34.50 35.93 4511.80 4856.56 434.42
Proprietary Ratio 0.13 0.14 0.26 0.41 0.45
Fixed Assets to Equity Ratio 3.33 2.87 1.46 0.72 0.53
Capital Gearing Ratio 4.30 4.87 5.56 11.27 13.26
Table 4: Leverage Ratios

Debt-Equity Ratio
It indicates the soundness of long-term financial policies of a company. It shows the relation between
the portion of assets financed by creditors and the portion of assets financed by stockholders. It is
calculated by dividing total debt by stockholder’s equity.
A ratio of 1 means that assets are equally financed by creditors and stockholders, a ratio of less than
1 means finance by stockholders is more than the creditors and ratio of more than 1 means finance
by creditors is more than stockholders.
A low ratio is preferred by creditors as it indicates greater protection to their money. A high ratio is
preferred by the stockholders as it is a cheaper source of finance and gives them more ownership.
Debt equity ratio vary from industry to industry. A ratio of 1 : 1 is normally considered satisfactory for
most of the companies.
The debt to equity ratio of the company is 0. It means that there is no borrowings in the company,
which may seem inappropriate, however, it is because the company uses the reserved funds for its
operations and has enough fund to manage its expenditures, because of which the borrowing are not
required. Therefore, this ratio is satisfactory according to the scenario of the company. The debt-
equity ratio where only long term debt is considered has stable trend near to 0.00 and seems to be
stable for the upcoming years. However, the total debt-equity ratio seems to be risen to 0.08 and has
been rising over the previous years, therefore, we can say that the short term obligations are settled
using the borrowed fund.

53
Graph 18: Debt-Equity Ratio

Interest Coverage Ratio/Times Interest Earned

It shows how many times the annual interest expenses are covered by the net operating income of
the company. The ratio is expressed in times. It is computed by dividing the income before interest
and tax by interest expenses.
A high ratio ensures a periodical interest income for lenders. The companies with weak ratio may have
to face difficulties in raising funds for their operations. Generally, a ratio of 2 or higher is considered
adequate to protect the creditors’ interest in the firm. A ratio of less than 1 means the company is
likely to have problems in paying interest on its borrowings. A very high times interest ratio may be
the result of the fact that the company is not taking full advantage of the debt facilities.
The times interest earned ratio of the company is 34.50 times. It means that the interest expenses of
the company are 34.50 times covered by its net operating income, which shows its efficiency in
interest payment, however, no trend can be established using the past data.

Graph 19: Interest Coverage Ratio

Proprietary Ratio/Equity Ratio

It is used to evaluate the soundness of the capital structure of a company. It is computed by dividing
the stockholders’ equity by total assets.
A high proprietary ratio, therefore, indicates a strong financial position of the company and greater
security for creditors. A low ratio indicates that the company is already heavily depending on debts
for its operations. A large portion of debts in the total capital may reduce creditors interest, increase

54
interest expenses and also the risk of bankruptcy. Having a very high proprietary ratio does not always
mean that the company has an ideal capital structure. A company with a very high proprietary ratio
may not be taking full advantage of debt financing for its operations that is also not a good sign for
the stockholders.
The proprietary ratio is 13%. It means stockholders’ has contributed 13% of the total tangible assets.
The ratio has an decreasing trend and the position of the company is declining as per the ratio.

Graph 20: Proprietary Ratio

Fixed Assets-Equity Ratio

Fixed assets to equity ratio measures the contribution of stockholders and the contribution of debt
sources in the fixed assets of the company. It is computed by dividing the fixed assets by the
stockholders’ equity.
If fixed assets to stockholders’ equity ratio is more than 1, it means that stockholders’ equity is less
than the fixed assets and the company is using debts to finance a portion of fixed assets. If the ratio is
less than 1, it means that stockholders’ equity is more than the fixed assets and the stockholders’
equity is financing not only the fixed assets but also a part of the working capital. Different industries
have different norms. Generally a ratio of 0.60 to 0.70 (or 60% to 70%, if expressed in percentage) is
considered satisfactory for most of the industrial undertakings.
The ratio is less than 3.33. It means that a very less portion of fixed assets and working capital of SECL,
has been financed by the stockholders. However, other ratios show that company uses less borrowed
fund, therefore, it is assumed that the fixed assets and working capital are funded by the reserved
funds of the company.

Graph 21: Fixed Assets to Equity Ratio

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Capital Gearing Ratio
Capital gearing ratio is a useful tool to analyse the capital structure and financial strength of a
company and measures the relationship between the funds provided by common stockholders and
the funds provided by those who receive a periodic interest or dividend at a fixed rate.
It is computed by dividing the common stockholders’ equity by fixed interest or dividend bearing
funds. The common stockholders’ equity is equal to total stockholders’ equity less preferred stock and
the fixed interest or dividend bearing funds usually include long term loans, bonds, debentures and
preferred stock etc.
A company is said to be low geared if the larger portion of the capital is composed of common
stockholders’ equity, whereas, a company is said to be highly geared if the larger portion of the capital
is composed of fixed interest/dividend bearing funds.
It is of great importance for actual and potential investors. Borrowing is a cheap source of funds for
many companies but a highly geared company is considered a risky investment by the potential
investors because such a company has to pay more interest on loans and dividend on preferred stock
and, therefore, may have to face problems in maintaining a good level of dividend for common
stockholders during the period of low profits.
The current capital gearing ratio of the company is 4.3 which can be stated to be low geared and also
it has a declining trend. We can say that the cost of financing is reducing as the company is using own
fund and also it is more attractive for the investors.

Graph 22: Capital Gearing Ratio

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5.2 TREND ANALYSIS

Trend analysis evaluates an organization’s financial information over a period of time. Periods may be
measured in months, quarters, or years, depending on the circumstances. The goal is to calculate and
analyse the amount change and percent change from one period to the next.
The following is the trend analysis of the major components of the income statement of the company
i.e. sales, income, expenditure and profit of the company in order to understand the performance of
the company in monetary terms.
The following are the graphs showing the trend of sales, income, expenditures and profit of the
company in the past five years, which will help in understanding the performance of the company in
terms of past performance and will also help in forecasting the future performance of the company.

SALES TOTAL INCOME

SALES TOTAL INCOME
20,000.00 21,500.00
19,500.00 21,000.00
19,000.00 20,500.00
18,500.00 20,000.00
18,000.00
19,500.00
17,500.00
19,000.00
17,000.00
18,500.00
16,500.00
18,000.00
16,000.00
15,500.00 17,500.00

15,000.00 17,000.00
14,500.00 16,500.00
2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Graph 23: Sales (trend) Graph 24: Income (trend)

TOTAL EXPENDITURES PROFIT AFTER TAX

TOTAL EXPENDITURES PROFIT AFTER TAX
18,000.00 6,000.00
16,000.00
5,000.00
14,000.00

12,000.00 4,000.00
10,000.00
3,000.00
8,000.00

6,000.00 2,000.00
4,000.00
1,000.00
2,000.00

0.00 0.00
2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Graph 25: Expenditures (trend) Graph 26: Profit (trend)

As can be seen in the graphs the sales, income and expenditure have an increasing trend, however,
the profit of the company is tremendously declining, which shows that even after the improving
performance of the company in terms of sales, the company is unable to improve the profits which
is because of the higher percentage increase in expenditures as compared to the percentage
increase in sales and income. Therefore, the expenditures of the company need to be cut short in
order to improve its financial position.

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RESULTS AND CONCLUSION
 The OMS (output per man shift) and sales of the company has been increasing, which shows
that company is growing and has a good performance.
 On studying the financial working of the company, it was observed that the organization and
distribution of the company is well structured and maintained. The communication between
all the departments is very easy and convenient, which is very important as, all the
departments need to work together for the betterment of the organization as a whole. It is a
result of the above mentioned qualities of the organization that has led to its remarkable
achievements.
 CIL being the holding company of SECL, has a lot of involvement in the governance and
regulations of the company, most of the work is carried out as per the guidelines provided
by CIL and also the work distribution, the authority of different employees and the complete
system of the work in SECL is provided in the CIL guidelines, which is same for the other
subsidiaries as well.
 On studying the financial statements of the company, we see that many ratios have a
declining trend and also the ratios deviate from the ideal ratios as per stated by different
analysts.
 The liquidity ratios of the company are declining over the past years and have went below
the ideal ratio, in other words the liquidity of the company is decreasing and it will also
create a problem for credit purchases as suppliers will be more conscious.
 The profitability ratios of the company have different trends, the net profit and gross profit
margin has a decreasing trend, however, the operating profit ratio has an increasing trend,
which shows that the operating expenses of the company are rising at a higher pace than
the operational expenses.
 The other profitability ratios i.e. return on equity, return on capital employed and return on
total assets ratio also have different trends. Return on equity has an increasing trend, return
on capital employed has a stable trend and return on total assets have a decreasing trend. It
shows that the proportion of equity is less in the capital of the company or a major
proportion of the profits is given to the shareholders as dividends.
 The turnover ratios also have different trends, however, there is no sharp increase or
decrease in the ratios, therefore the company can said to be quite efficient, also the
inventory turnover ratio is quite high, which shows the proper management of inventory
and high sales. The collection and payment period are both high and therefore, it gets
balanced and is less likely to cause any problem in the availability of funds in the company.
 According to the trend of the solvency or leverage ratios, we can say that the firm has no
borrowings and the equity portion of the company is also declining, however, the fixed
assets to equity ratio is increasing which shows that company is investing or has capital but
is using the retained earnings i.e. own funds for the same.
 On performing the trend analysis of major components of the income statement, we
observe that, though the revenue from sales have improved but the expenses have
increased at a higher rate than the revenue, which has harmed the profitability of the
company, as can be seen in the ratios.

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RECOMMENDATIONS
 As mentioned in the conclusions section, the major policies of the company and the
guidelines of different tasks is governed by the holding company i.e. CIL, though it ensures
uniformity in all its subsidiaries and provides highly professional support to the company,
there can be a little more provision of flexibility to the subsidiary companies, as the different
localities have different requirements and the company based on that locality may have
more suitable solutions to certain issues.
 For improving the liquidity of the company, it can add more short term loans or bank over
drafts which will help the company in paying its current liabilities.
 One more factor that is causing a decrease in the liquidity and solvency ratios is that, the
company’s dividend pay-out ratio has been increasing i.e. the major proportions of profits of
the company are paid off as dividend’s which reduces the ability of the company to pay off
its current and non-current liabilities therefore the liquidity and solvency of the company is
affected, which can be improved by reducing the dividend paid and using that fund in
investing which will help the company in long term growth.
 As mentioned above, in spite of the increase in income and sales in the company, it has
decreasing profits which is because of the high expenditures of the company. The
profitability of the company can be improved by cutting unnecessary activities in the
productions process which will reduce the expenditures, another way can be by reviewing
the pricing structure the profits can be increased. Also, more attention can be paid to the
non-operating expenses as they are increasing at a higher pace than the operating expenses.

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REFERENCES
 https://www.coalindia.in/Portals/13/PDF/SECL_ANNUAL_REPORT_17_18.pdf
 http://secl-cil.in/writereaddata/2017.pdf
 http://mospi.nic.in/sites/default/files/publication_reports/Energy_Statistics_2018.pdf
 http://shodh.inflibnet.ac.in:8080/jspui/bitstream/123456789/3872/2/02_synopsis.pdf
 https://en.wikipedia.org/wiki/Coal_mining_in_India
 https://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=601
 https://www.google.com/url?client=internal-uds-cse&cx=partner-pub-
9975833564918811:5841039237&q=https://www.accountingformanagement.org/classificat
ion-of-financial-
ratios/&sa=U&ved=2ahUKEwjzyKrG1oHjAhVZPnAKHSDgDxkQFjABegQIEBAB&usg=AOvVaw0
Hga4iRYDcU_85ukhLSj1k

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APPENDIX
APPENDIX A: BALANCE SHEET

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APPENDIX B: INCOME STATEMENT

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