Appendix – I

A
Major Project Report
Subject Code: 536422(36)
On
“WORKING CAPITAL MANAGEMENT
AT
SARDA ENERGY AND MINERALS LTD.”

Submitted for partial fulfillment of requirement for the award of

degree

Of
Master of Business Administration
Of
CHHATTISGARH SWAMI VIVEKANAND TECHNICAL
UNIVERSTY
BHILAI (C.G.)
Session 2009-11
Supervision By Submitted by
Guide-Prof.S.Bhattacharya Lata Chandra
Department-Faculty of Management Roll No. 5053609075
MBA IV Sem, Sec‘A’
2011
DEPARTMENT OF MANAGEMENT
DISHA INSTITUTE OF MANAGEMENT AND TECHNOLOGY
(Disha Education Society)
Satya Vihar, Vidhansabha- Chandrakhuri Marg, Mandir Hasaud,
Raipur (C.G.) 492007

1
 Appendix – II

DECLARATION

I the undersigned solemnly declare that the report of the project work
entitled Working Capital Management at Sarda Energy and Minerals
Ltd., is based my own work carried out during the course of my study under
the supervision of Mr. Gaurav Thakkar.

I assert that the statements made and conclusions drawn are an outcome
of the project work. I further declare that to the best of my knowledge and
belief that the project report does not contain any part of any work which has
been submitted for the award of any other degree/diploma/certificate in this
University or any other University.

____________________
(Signature of the Candidate)
Name-Lata Chandra
Roll No.5053609075

2
 Appendix-III

CERTIFICATE BY GUIDE

This to certify that the report of the project submitted is the outcome of the
project work entitled Working Capital Management at Sarda Energy And
Minerals Ltd. carried out by Lata Chandra bearing Roll No. 5053609075 &
Enrollment No. AE6615 carried by under my guidance and supervision for the
award of Degree in Master of Business Administration of Chhattisgarh Swami
Vivekananda Technical University, Bhilai (C.G), India.
To the best of the my knowledge the report
i) Embodies the work of the candidate him/herself,
ii) Has duly been completed,
iii) Fulfils the requirement of the ordinance relating to the MBA degree of
the University and
iv) Is up to the desired standard for the purpose of which is submitted.

_______________________
(Signature of the Guide)
Name:Prof.S.Bhattacharya
Dept:Faculty Of Management

The project work as mentioned above is hereby being recommended and

forwarded for examination and evaluation.

DEPARTMENT OF MANAGEMENT
DISHA INSTITUTE OF MANAGEMENT AND TECHNOLOGY
(Disha Education Society)
Satya Vihar, Vidhansabha-Chandrakhuri Marg, Mandir Hasaud,
Raipur (C.G.) 492007

3
 Appendix –IV

CERTIFICATE BYTHE EXAMINERS

This is to certify that the project entitled Working Capital Management of SARDA,
Submitted by LATA CHANDRA, Roll No. 5053609075 and Enrollment No.
AE6615 has been examined by the undersigned as apart of the examination for the
award of Master of Business Administration degree of Chhattisgarh Swami
Vivekanand Technical University, Bhilai (C.G.).

________________ ________________
__________________ __________________
Name & Signature of Name & Signature of
Internal Examiner External Examiner
Date: Date:

Forwarded by
Academic Head
Department of Management

4
 Appendix – V

ACKNOWLEDGEMENT
I would like to acknowledge my deep sense of gratitude to “Sarda Energy And
Minerals Ltd.”, for giving me this wonderful opportunity for allowing me to do
project here. It gives me immense pleasure to present this project report on
WORKING CAPITAL MANAGEMENT AT SARDA ENERGY AND
MINERALS LTD. in partial fulfillment of Master of Business Administration.
No work can be carried out without the help and guidance of various persons. I
am happy to take this opportunity to express my gratitude to those who have
been helpful to me in completing this project report.
At the outset I would like to thank Mr. Gaurav Thakkar for his valuable advice
and guidance during my project completion, also Mr. P.K.Jain, Director
(finance), Mr.Sandeep Laddha, Sr.Vice President at Sarda Energy And
Minerals Ltd. for timely help concerning various aspects of project. I also
thank to all staff members of finance department for helping me to complete this
project.
I would be failing in my duty if I do not express my deep sense of gratitude to
Prof.S.Bhattacharya. Without his guidance it wouldn’t have been possible for
me to complete this project work.
Lastly I would like to thank my parents, friends and well wishers who
encouraged me to do this research work and all those who contributed directly
or indirectly in completing this project to which I am highly obliged.

_______________________
(Signature of the student)
Name: LATA CHANDRA
Roll. No 5053609075
MBA IV Semester
Section – ‘A’

5
 Table of Contents Appendix – VI

Declaration i
Certificate by Guide ii
Certificate by Examiner iii
Acknowledgement iv

Chapter Title Page No.

Chapter 1. Introduction to the
study----------------------------------------------------------7

Chapter 2. Company Profile / Industry

Profile----------------------------------------------10

a. About the
Company-------------------------------------------------------------------11

b. Vision &
Values-------------------------------------------------------------------------12

c. SARDA’s six codes for corporate

sustainability----------------------------------15

d. Products Of
Company-----------------------------------------------------------------17

e. Corporate
responsibility--------------------------------------------------------------20

Chapter 3. Research
Methodology--------------------------------------------------------------26

a. Objectives-------------------------------------------------------------------------
-------27

b. Research
design------------------------------------------------------------------------28

c. Data
Collection-------------------------------------------------------------------------
30

Chapter 4. Data Analysis and

Interpretations-----------------------------------------------31

a. Working Capital Management-

Concept------------------------------------------32

b. Factors determining Working

Capital---------------------------------------------39

c. Operating
Cycle------------------------------------------------------------------------41

d. Current Assets & Current Liabilities of SEML at Mar’2009-

10---------------46

6
e. Graphical Interpretations:

Inventories------------------------------------------------------------------------
-------49

Sundry
Debtors--------------------------------------------------------------------------
49

Cash &
Bank-----------------------------------------------------------------------------50

Loans &
Advances----------------------------------------------------------------------50

Provisions-------------------------------------------------------------------------
-------51

Other
Liabilities-------------------------------------------------------------------------
50

Statement Of Working Capital (2009-10)

-----------------------------------------51

Ratio
Analysis---------------------------------------------------------------------------
53

f. Calculation & Analysis:

Current
Ratio----------------------------------------------------------------------------55

Quick Acid
Ratio------------------------------------------------------------------------56

Absolute Liquid
Ratio------------------------------------------------------------------58
Inventory Turnover
Ratio-------------------------------------------------------------60

Debtors Turnover
Ratio---------------------------------------------------------------61

Average Collection
Period------------------------------------------------------------62

Creditors Turnover
Ratio-------------------------------------------------------------63

Working Capital Turnover

Ratio----------------------------------------------------65

g. Study of Financial
Analysis-----------------------------------------------------------68

Balance Sheet.

Ratios.
7
 Cash Flow Statement

Chapter 5. Conclusion &

Suggestions----------------------------------------------------------73

BIBLIOGRAPHY------------------------------------------------------------------------------77

Appendix – VII

8
The steel industry

CHAPTER – I
INTRODUCTION

9
The steel industry, in general, is on the upswing, due to strong growth in demand propelled
particularly by the demand for steel in China. The world scenario coupled with strong
domestic demand has benefited the Indian steel Industry.

India’s per capita income has increased at a rapid pace and according to the advance
estimates of the central statistical organization (cso). India’s per capita income is estimated to
be over USD 825.07 in 2007-08. Indian steel industry has entered into a new growth zone
considering the average growth rate in steel output for the last 5 years the rapid rise in
production has resulted in India becoming the world’s fifth largest producer of steel. Demand
for steel will continue to grow in traditional sectors such as infrastructure and consumer
durables etc.

Worldwide production of steel was 1344 million tons in 2009-10 against 1249 million tons of
last year the production of the steel in India in 2008-09 was 53.08 million tons. consumption
of steel in India grew by 11.72% to 51.80 million tons in 2009-10.

Per capita consumption of steel in India is only 29kgs as against 400 kgs in the developed
countries and world average of 140kgs. The world apparent consumption of finished steel in
2009-10 is likely to rise by 5-6% and increase in supply is likely to be around 3-5%.

Demand for steel is continuously increasing particularly in view of growth in infrastructure

sector and new capacities are set up in india. As a part of building infrastructure, India has
started a tremendous programme of highway construction across the country. As a result,
domestic steel demand has risen.

Working Capital Management

10
Working capital management has significant role in a financial management due to the fact it
plays a pivotal role in keeping the wheels of a business enterprises running. In common
parlance the management of current assets is called the Working Capital management. In any
business firm whether it is trading business or manufacturing business, they need some asset,
in terms of money. As we know that money is the life blood of any business. Shortage of
funds for working capital has caused many business to fail and in many cases has retarded
their growth. Lack of efficient and effective utilization of working capital leads to earn low
rate of return on capital employed or even compel sustain losses. The need for skill working
capital management has become greater in recent years. These assets may be for short term or
temporary purpose or long-term purposes. Long term funds may required for many purposes
like acquisition of fixed asset, diversification and expansion of business on modernization of
plants and machinery and research and development.
But funds are also needed for short-term purposes i.e. for day-to-day requirement. We will
hardly finds that any business does not required any amount of working capital for its normal
operations. The requirements of working capital varies from firm to firm, its depending
upon the nature of the business like production policies, market conditions, season ability of
operations, conditions of supplies etc. working capital used for procurement or raw material,
payment of wages to workmen and for meeting the routine expenses.
The system requires some times lag between sales of goods and receipt of payment. So a need
for short term funds in the form of current assets are required in lack of immediate realization
of cash against goods sold.
Another problem may arise if the finished goods are in the stocks and within the given period
it could not be sold and some goods like raw materials, semi finished good are also in the
stock many funds blocked in different types of inventory. For the successful running of the
business requires sufficient amount of funds.

11
 CHAPTER II

COMPANY PROFILE

12
ABOUT THE COMPANY

Sarda Energy & Minerals Limited (SEML) is one of the lowest cost
producers of steel (sponge iron, billets, ingots, TMT bars) and one of the
largest manufacturers and exporters of ferro alloys in India.
Headquartered in Raipur, Chhattisgarh, the company merged with
Chhattisgarh Electricity Company Limited (CECL) in 2007 with a vision
to becoming a leading energy and minerals company.
Over the last three decades the company has continuously diversified its
product portfolio to include many customized value added products. The
company firmly believes in benchmark product quality, customer centric
approach, people focus, ethical business practices and good corporate
citizenship. Building on these values, SEML has become the supplier of
13
choice for many domestic and international customers across more than
60 countries.
SEML differentiates itself from its peers by not being just another steel
company. It foresaw the importance and emergence of energy and
minerals as two critical ingredients for developing economies and
particularly for India. Synergy in Energy became the basis of all its
future endeavors. Today, SEML is one of the very few companies to
become completely self-sufficient
in terms of its energy requirements and is well on its way to achieve self
sufficiency in other mineral resources. The company has acquired iron
ore, coal and manganese mines in India and is
aggressively looking for mineral resources across the globe. SEML is
listed on the Bombay Stock exchange and is traded as SARDAEN

Vision and values

Vision
To be a globally respected energy and minerals company creating
superior value for our stakeholders on a sustainable basis.
Values
Our values are reflected in:
Quality:-We believe in setting benchmarks through the quality of our
products and services.
Customer focus:-We believe in high customer satisfaction and becoming
a part of our customer's success story.
People:-We believe in our people and constant upgradation of their skills
and leadership capabilities.
Integrity and ethics:-We believe in our commitments and strive to
achieve high ethical standards.

14
Corporate social responsibility- We believe in caring for our
environment and our communities.

Time line
1979 The Sarda Group took over Raipur Alloys and Steel Limited
(RASL) (earlier Raipur Wires & Steel Limited), a sick and closed entity.
1981 Commissioned a 10 MT electric arc furnace to produce ingots.
1984Installed a continuous casting machine/ billet casting machine, the
fourth company in India to do so at that time.
1987Implemented the first automated oxygen lancing plant in Madhya
Pradesh to feed oxygen in the arc furnace.
1990Implemented the first automated ultra-high power furnace (25
MTPD) and ladle refining furnace (25 MTPD) in Madhya Pradesh.
1993Commissioned first sponge iron plant (100 MTPD) with modern
SIL technology.
1995 Commissioned second sponge iron plant (100 MTPD).

2001Commissioned a 24-MW captive power plant in Chhattisgarh

Electricity Company Limited (CECL). CECL installed 2x9-MVA
closed-top ferro alloys furnaces. RASL commenced production in 2x6
MT induction furnaces.
2002Implemented an integrated Oracle-based ERP solution.
2003Commenced a fly ash brick plant of 6000 units per day to utilize
hazardous fly ash from captive power plant. CECL installed third 9
MVA ferro alloys furnace.
2004Commenced extraction from RASL iron ore mines in Rajnandgaon
(Dongarbore, Chhattisgarh). RASL augmented its sponge iron capacity
through another 500 MTPD kiln. Doubled the fly ash brick-making
capacity to 240 lakh units per annum.
2005CECL installed fourth 9 MVA ferro alloys furnace. CECL installed
second 24 MW power plant. RASL achieved QMS certification of ISO
9001:2000.

15
2006Augmented steel-making capacity by 100,000 MTPA ( 2X15
tonnes). Installed the fifth 9 MVA ferro alloys furnace. Achieved the
coveted Star Export House status from the Government of India.
2007Sarda Energy & Minerals Limited came into existence on 2 August
2007 following the merger of CECL with RASL.
2008Increased steel-making capacity by another 100,000 TPA (2x15
tonnes). Commissioned a 4.8 MW hydro power project through an SPV.
Implemented SAP ERP system.
COMPANY MANAGEMENT
Company Management At SEML, the Board of Directors plays a vital
role in charting the future course of the company. The board comprises
of four Executive and four Non-Executive Independent Directors. The
Non-Executive and Independent Directors are eminent professionals
having rich experience in business and finance.
Kishore Sarda, born on 12 June, 1952, did his
Bachelors in Mechanical Engineering from
National Institute of Technology (formerly
Vishveshvarya Regional College of Engineering),
Nagpur, MH, India. He has also taken courses in
Strategic Management and Human Resources from
IIM, Ahmedabad and XLRI, Jamshedpur Mr.
Kamal Sarda has over three decades of experience
inironandsteelindustry
He is the Chairman of SEML's Board and Managing Director and is
responsible for steering SEML towards the path of growth. Since, taking
over SEML (erstwhile Raipur Alloys & Steel

Ltd.) a sick and closed unit in 1979, he has been instrumental in turning
around the company and expanding its product portfolio to include high
value added steel products, minerals and energy.
He is associated with the Friends of Tribal Society in the capacity of
Vice President of the Raipur chapter and was the Ex-Chairman of
Confederation of Indian Industry (CII), Chhattisgarh Chapter.

16
 was born on 24 September 1952 and has been on
SEML's Board since 25 November 1997. He has
done his Bachelors in Mechanical Engineering
from Government Engineering College, Jodhpur.
He has over three decades of experience in the
steel industry and is associated with SEML with
more than two decades. Before joining SEML he

Gopal has worked with various organizations like Zenith

Krishna Steel & Pipes Limited, Usha Alloys & Steel

Chhanghani, Limited, Special Steels Limited etc

.With his rich experience in the field, he provides direction to the

company's mining operations as well as its corporate planning function.
He is Regional Director of SIMA (Sponge Iron Manufacturers
Association), New Delhi, Chairman - Power HT-Sub Committee, URLA
Industries Association and Chairman - Mining Panel, CII, Chhattisgarh
Chapter.

PankajSarda, born on 24 October, 1979 is the son

of Kamal Kishore Sarda. He completed his
Bachelors in Industrial Engineering from Nagpur
University, Nagpur, MH, India in 2001 and
Masters of Science in Industrial Administration
from Purdue University, USA in 2004.He was
appointed to SEML's Board as Whole Time
Pankaj Director in November 2007 and has more than five
years of industry experience.

Ghanshyam Mundra was born on 20 July 1961 and is a Chartered

Accountant with more than 25 years of experience in the field of finance
and accounting. He is associated with SEML since the beginning of his
career and was appointed to SEML. Board in December 2000 as
Wholetime Director

17
SARDA'S SIX CODES FOR CORPORATE SUSTAINABILITY
1. Pursue constructive change
SEML dwell on the endless possibilities for the future. Notwithstanding the limitations of today, we can
choose what we want to be and drive the change.
2. Embrace success and failure with a smile
SEML know if we do not aim high, we can never attain excellence. At the same time, we accept the
freedom to fail, because we believe failure often precedes progress.
3. Measure your performance
SEML believe if something cannot be measured, it does't get done. We set benchmarks against which we
measure our performance, keeping us ahead.
4. Be customer savvy
SEML owe our existence to our customers. Our corporate blueprint is directed to servicing and delighting
customers.
5. Encourage transparency
SEML have createrd a culture of openness based on mutual respect and trust. We welcome disagreement
in our pursuit for the right perspective.
6. Give back generously
SEML recognize that a single business entity can start a responsible socio-economic cycle.

GROUP COMPANIES:

Sarda Energy & Minerals Hong Kong Limited (SEMHL) SEMHL was incorporated as a wholly
owned subsidiary of SEML in Hong Kong during 2007-08. The primary focus of the company would be to
establish a strong international trading arm. China being a major manufacturing hub and an important
destination of international trade, a representative office has also been set up in Beijing.
Sarda Global Venture Pte LimitedAnother wholly owned subsidiary of SEML was established in
Singapore during 2007-08 for business related acquisitions. The company will actively seek mineral
resources acquisitions internationally.
Parvatiya Power Private Limited Parvatiya Power was incorporated for implementation of hydro power
plants. Presently, 4.8 MW Loharkhet Hydro Power Project has been installed and commissioned in
February 2008. The Project is located near village Munar of Bageshwar district in the state of Uttaranchal.
It is a run-of-the-river scheme for power generation by exploiting potential of Sarju River, a tributary of
Kali Ganga River.
Chhattisgarh Hydro Power Private Limited The company was established in the year 2005 for setting
up a 24 MW Gullu Hydro Power Plant in the state of Chhattisgarh. It has also identified other potential
sites in the state and is planning to develop the same. The Company is currently involved in land
acquisition, obtaining statutory clearances and identifying contractors for civil and hydro mechanical
works.
Madhya Bharat Power Corporation Limited The Company was incorporated for implementation of 96
MW Rongni Chu hydro power project in Sikkim. The project envisages utilizing the flow of the Rongni
Chu, a tributary to the Teesta River for the generation of power in the run of the river scheme. The
Company is currently in the process of identifying contractors for civil and hydro mechanical work of the
project. The work of land acquisition and all project clearances are in full swing.

Raipur Infrastructure Company Ltd The JV Company was incorporated for operating a private railway
siding for unloading the raw materials being transported through the railways. Our stake in the company is
33 percent.
Madanpur South Coal Company Ltd The JV Company has been allotted a coal block in the Madanpur
area of Chhattisgarh in consortium. The company is in the final stages of receiving of various clearances
and permissions to commence its operations. SEML has 24.91 percent share in the joint venture.
Chhattisgarh Investments Ltd. Chhattisgarh Investments Ltd. was incorporated two decades ago as a
closely held public limited company. The Company has interests in investments, socio-forestry and
horticulture, with over 800 acres agricultural estate at Kharora, about 40 Kms. from Raipur. About one
million trees of various species such as Teak, Hybrid Eucalyptus, Sobabul, Khamar, Bamboo etc have
been planted.

PRODUCTS
Sarda Energy & Minerals Ltd. is one of the leading integrated steel producers using the direct reduction
process for steel making. SEML’s annual DRI making capacity is 360,000 MT and crude steel making
capacity is 240,000 MTPA. SEML is also one of the largest exporters of ferro alloys from India with an
annual production capacity of 75,000 MT. The captive iron ore and coal mines provide SEML a robust
competitive advantage and guarantees continued supply of critical inputs at all times.

Sponge iron

SEML was one of the first companies to install a sponge iron plant in the Siltara,
Raipur area. Sponge Iron or Direct Reduced Iron is produced by reducing Iron Ore
(in the form of lumps/pellets) using non-coking coal in a rotary kiln. The coal acts as the fuel as well as a
reducing agent & Oxygen is removed from the Ore to produce Sponge Iron. Since the reduction takes
place in the solid phase only it is called Direct Reduction. The finished product has pores like a sponge due
to removal of Oxygen, thus it is also known as Sponge Iron. The hot flue gases produced in the reactor
during the process are used in Waste Heat Recovery Boilers to produce Steam. This helps us in
economizing our power generation costs.
Majority of the Sponge Iron produced at SEML is used for its own captive use to produce steel ingots and
billets through induction furnace route. Our annual DRI production capacity is 360,000 MT with 2 X 500
MTPD and 2 X 100 MTPD rotary kilns installed at our Siltara works.

Ingots

Ingots are produced in induction furnace using either sponge iron or scrap. At SEML, we use our captive
sponge iron to manufacture steel ingots. This gives us an edge over our competitors as we are in complete
control of our raw material as well as finished product quality. Induction furnace provides a clean, energy -
efficient and highly controlled process as compared to most other means of steel melting. The steel is
molted by inductive heating of the metal in a crucible. After it is refined, the molten steel is tapped into
refractory lined ladles. The molten steel is then poured into a series of ingots molds. After the ingots
solidify, the ingot molds are placed in soaking pits for heating and to equalize the internal and external
temperature. Following the soak, the ingots are hot rolled in large primary rolling mills to produce slabs,
blooms, or billets depending on the final product desired.
SEML has a total ingot production capacity of 40,000 MTPA.

Billets

Billets are semi-finished steel products with a square cross section usually up to 155mm x 155mm. This
product is either rolled or continuously cast and is then transformed by rolling to obtain finished products
like wire rod, merchant bars and other sections. At SEML, billets are produced using continuous casting
process. The molten steel is continuously cast via a tundish into a water-cooled copper mold causing a thin
shell to solidify. This ‘strand’ is then withdrawn through a set of guiding rolls and further cooled by
spraying with a fine water mist. The solidified shell continues to thicken until the strand is fully solidified.
Finally, the strand is cut into desired lengths and these are either discharged to a storage area or to the hot
rolling mill. Our annual billet production capacity is 200,000 MT and we produce billets ranging from
100mmX100mm to 160mmX160mm.

Thermo mechanically treated(TMT)

SEML has a 10 year patent to produce High Quality TMT Bars under its brand name, 'Hytech' TMT.TMT
is a special heat treatment process, involving rapid quenching of the hot rolled bar in a special water
system converting the surface layer into a hardened structure, followed by tempering process involving
flow of heat from the core of the bar to the surface and finally atmospheric cooling of the finished product
on the cooling bed. This transforms the outer layer of the bar into tempered martensitic state, while
internally the bar is a fine perlite core.

Ferro alloys
Ferro alloys are high value added products usually used in imparting special properties steel. SEML is one
of the largest producers and exporters of ferro manganese with exports to more than 60 countries. For its
contribution to ferro alloys export, SEML has been awarded Star-Export house status from the
Government of India. The ferro alloys division constitutes the bulk of SEML’s top-line as well as bottom-
line.
Ferro alloys are produced in sub-merged arc furnaces using electro-thermic process. The main raw
materials are manganese ore, fluxes like dolomite & quartz and reductants like coke, charcoal & coa. Ore
which is in metallic oxide form is smelted in the furnace. The reduction reactions are endothermic and
necessary heat is supplied by captive electricity through graphite electrodes in the centre of the furnace.
The electricity passing through the electrode to the metal creates arc which smelts the metal forming ferro
alloys of desired quality. SEML has total installed capacity of 45 MVA at its Siltara, Raipur plant. The
installed capacity is being increased by 25% to 60 MVA due to improvements in operational efficiency.

ECO briks

SEML very strongly believes in environment conservation and preservation. SEML manufactures eco-
friendly bricks mainly from the fly-ash generated from our captive power plant. The manufactured bricks
facilitate substantial consumption of fly-ash, an environmental hazard.
Fly-ash bricks have good compressive strength, low water absorption, high density and low shrinkage
value as compared to burnt clay bricks. Raw materials required for manufacturing of bricks are Flyash,
lime gypsum and sand. The process of manufacturing fly ash bricks is based on the reaction of lime with
silica of fly-ash to form calcium silcate hydrates (C-S-H) which binds the ingredients to form a brick.The
Company is putting up a new fully automated fly ash brick-manufacturing facility of 160,000 bricks per
day, which is expected to be commissioned in first quarter of next financial year.

Mining
In view of its long term strategic plan, SEML is very strongly focused on gaining 100% raw material self-
sufficiency. For SEML the key inputs constitute of coal, iron ore and manganese ore. The company
already has acquired two mines with estimated coal reserves of nearly 100 million MT; 67 million MT
open cast reserves in a mine situated near Raigarh, CG and 36 million MT share in a mine in Madanpur
area in Chhattisgarh. The total reserve of Madanpur mine is 108 million MT, of which 36 million MT is
SEML's share. The annual coal available to SEML from these mines would be around 2.3 million
MT.SEML's operational iron ore mine is located in the Rajnandgaon, CG with potential reserves of 20
million MT and annual output of around 200,000 MT. In addition to this, the Company has got an in-
principle approval from the Government of India for five more mines possessing sufficient reserves to
meet our requirement for the next 25 years.The Company acquired mining rights for manganese ore from
private parties in Goa. The potential reserve of the mine is nearly 6 million MT. In addition to that,
reconnaissance permits/ in-principle approvals were granted in favor of the Company for three mines in
Madhya Pradesh.

Power

At SEML, we strongly believe in deriving 'Synergy in Energy'. Energy, in essence has been the foundation
of our success. SEML prides itself in being one of the select companies which is 100% self-sufficient in its
energy requirements. Currently, we have installed 3X30 MW thermal power plants at our Siltara plant.
The energy generated is consumed 100% in our sponge iron, billet, ingot and ferro alloys plants. We also
plan to setup an 80 MW thermal power plant in Raigarh, CG near our coal mines and 1100 MW merchant
thermal power plant in phases, also in Chhattisgarh.
SEML firmly believes in utilization of renewable energy and in that respect has commissioned a 4.8 MW
hydro power plant in the state of Uttranchal. Two more hydro power plants of 96 MW and 24 MW are
proposed to be set up in Sikkim and Chhattisgarh respectively.

CORPORATE RESPONSIBILITY-:

Communities –
Since inception, the Group has actively assisted communities in and around its production and mining sites
with three basic needs -
Education

The Company has adopted 270 single-teacher schools in the tribal areas of Chhattisgarh for providing
basic education. In addition, the Company also assists primary and secondary schools around its facilities
for strengthening their infrastructure. A full-fledged school in the Siltara industrial area, Raipur, has been
proposed with the aid of Ramakrishna Vivekananda Ashram, catering to the educational needs of the
children of industrial workers and from the surrounding villages. Besides, a school at Khadgoan village
(near the Company's captive iron ore mines) has been provided with a new building, uniforms, books and
other supplies.

Water

Potable water is scarce in many villages, especially in summer. A tube well was
built in the Khadgaon village at our iron ore mining site. The Tada village was
also equipped with bore wells at the village centre. Cleaning and desalination of
lakes across such villages is an annual activity carried out by the Group.
Healthcare

We recognize our responsibility to operate in harmony with our local

communities. The Company actively sponsors medical facilities, assisting in
primary healthcare across villages. It acquired a well-equipped ambulance and

set up first-aid facilities in the villages surrounding its mines. These sponsored units fulfilled the need for
low-cost and high-quality medical assistance for the economically underprivileged. Apart from these
initiatives, SEML has adopted a cluster of villages near its iron ore mines in Rajnandgaon District. SEML
provides these villages with basic amenities such as elementary education, clothes, woolen blankets and
health care on an annual basis.
Environment & energy conversation

Today our society faces one of the most urgent environmental issues – producing goods & services with
minimal impact on our climate. This calls for active participation and responsible actions from individuals,
communities, organizations, governments, corporations, companies et al. SEML firmly believes that by
energy conservation & optimization and recycling waste it can help minimize the impact on the
environment and at the same time enhance operational efficiency.
SEML has a dedicated team of experts for identifying areas for energy optimization and conservation.
SEML has installed waste heat recovery boilers in its sponge iron plants for utilizing valuable heat energy
for generation of steam for power generation. SEML generates approximately 12 MW of electricity
through waste heat. Renewable energy resource such as hydro power is another area where the company is
firmly committed. The company has recently commissioned a 4.8 MW hydro power plant in the state of
Uttaranchal and 24 MW in the state of Chhattisgarh is in pipeline.
Utilization of hazardous waste such as fly-ash from captive thermal power plant is another endeavor that
the company has taken up aggressively. The company is installing a state-of-the-art fly ash brick-making
facility with a capacity of 30 million bricks annually. The company has also taken steps to further reduce
the emission level of the power plant chimney through ammonia dozing. Electrostatic Precipitators have
been installed with all the sponge iron kilns and steam generators to maintain the pollution within the
prescribed limits.

Health and safety

SEML will not compromise on its commitment to the health, safety and security of our people, customers,
suppliers, sites, products and communities. This commitment has always been deeply embedded in the
way we work, the decisions we make and the actions we take.
Our goal is to attain world-class health & safety business practices and, more important, to be the safest
company in our industry. That means zero tolerance for unsafe conditions, unsafe equipment, and unsafe
actions, decisions and attitudes.
SHARE PRICE :

Exchange
Yearly High Low : : BSE

Year Ending High (Rs.) High Date Low (Rs.) Low Date

16/07/2010 340.80 27/04/2010 172.00 01/04/2010

31/12/2009 248.35 17/10/2009 50.00 06/03/2009
31/12/2008 685.00 08/01/2008 52.00 31/10/2008
31/12/2007 695.00 14/12/2007 121.85 13/02/2007
29/12/2006 199.40 02/05/2006 58.00 20/02/2006
30/12/2005 158.25 17/03/2005 63.85 24/01/2005
31/12/2004 80.40 28/12/2004 26.25 15/07/2004
31/12/2003 42.80 22/12/2003 4.00 26/03/2003
31/12/2002 9.40 13/03/2002 1.70 11/01/2002
31/12/2001 5.05 26/11/2001 1.00 26/06/2001

Why SEML
At SEML we harness people power i.e. provide an environment where individuals can build upon their
strengths and choose to work in the area of their liking be it production, finance, accounts, marketing,
quality control, human resources etc. Working with a diverse group of passionate, enthusiastic and talented
people who on a daily basis try to find ways of doing same things in better way is what makes the SEML
experience different.
If you share this passion of making everyday work an enjoyable experience and building a career that you
can be proud of, you should be asking why not SEML?
Work Environment & Culture SEML offers a very open, professional and entrepreneurial environment,
where each day people having varied and rich business experience collaborate to deliver superior products
& services to our customers. But the SEML culture goes far beyond improving product quality. We place a
huge emphasis on the overall development of our people and their quality of life.
Ethical Conduct At SEML we believe that success is equally important as the methods we adopt to
achieve them. We expect all SEML people to strictly abide by the Code of Conduct which sets out the
basic tenets on how we conduct our business around the world.
Diversity Fostering an environment where people embrace diversity in entirety is very crucial for today's
global workplace. At SEML, we encourage a culture that is open and welcomes people from diverse
backgrounds having different viewpoints, ideas and different opinions.
Work-Life Balance At SEML we realize the demands that today's fast paced life puts on our people's time
- in the workplace, at home or in the local community. That's why we are working towards an environment
where work and personal life cease as competing with each other.
Learning & Development SEML's success depends hugely on the skills and knowledge that its people
bring to the workplace. To ensure that our people are always in the forefront of their respective fields, we
encourage continuous learning. On a regular basis, employees are encouraged to attend various seminars,
guest lectures and workshops for personal development.
Top Tier Compensation At SEML, we strongly believe that compensation should be tied to your
performance and the overall success of the company. This is why SEML has established a pay-for-
performance approach to compensation, in which all employees are required to identify their Key Result
Areas (KRA) and work towards achieving the same.
Reward & Recognition At SEML, we believe in acknowledging your good work and superior
performance and showing our appreciation for the same. There are various ways in which we recognize
and reward good performance such as cash bonuses, public appreciation and awards to name a few.
Opportunities and threats
With the near majority mandate to the ruling UPA from the Indian people in the recent parliamentary
elections, the process of long awaited reforms will speed up, ultimately enhancing infrastructure

development spending and increasing GDP growth rate. This will present opportunities to the steel
industry, increasing steel demand. The Company is well set to exploit this opportunity. Commissioning of
the pellet plant and coal mines will give the Company an edge over its competitors. The captive
availability of key raw materials will hedge the Company against raw material price volatility. Further, the
commissioning of the ongoing projects will improve the Company’s performance and help it optimise
resource utilisation. As regards the ferro alloys market, China levied a 20 per cent export tariff on most
ferro alloys, likely to create a good opportunity for Indian ferro alloys exporters to tap markets in Europe,
Korea, the US and a host of other countries at competitive price. This will further open up an opportunity
for the Company to increase its ferro alloys production and ultimately, its exports. However, the Company
feels that the economy will remain sluggish till the first half of the current financial year, impacting the
industry and thereby the Company. But with the available infrastructure and scale of operations, the
Company expects to overcome the present condition smoothly.

Risks And concerns

Recessionary trends in the global economic scenario adversely affected demand and pricing of
commodities including steel. 20 The raw material resources at the global level are controlled or influenced
by a few. In India also major explored mines are controlled by limited players. This puts severe pressure
on margins. Infrastructural bottlenecks in raw material and finished goods transportation remains a serious
concern. However, captive mine availability and the flexibility to sell power in an adverse market scenario
mitigates the Company’s risks.
 CHAPTER III

Research Methodology

RESEARCH METHODOLOGY
OBJECTIVE OF THE STUDY
The present study has been taken up with the following objectives:
1. To learn how the various theoretical aspects of the Working Capital Management fare in reality.

2. To Study the practice of Working Capital Management in detail in SEML.

3. To study the cash management, receivable management and management of inventory at SEML.

4. To know the short term solvency of SEML.

5. To know the utilization of finance provided by banks for working capital.

To identify problems, if any, in the Working Capital Management of SEML., and to suggest solutions to
solve them

SCOPE OF THE STUDY

The study of working capital helps us to know the current assets and current liability of an organization. It
gives a clear picture or idea about the organizations working capital that how much amount they are kept
in advance to meet their day-to-day expenses.

An organization kept some amount to maintain or meet their day-to-day expenses. If the organization
maintains only that much of working capital they needed then we can say that they manage their working
capital correctly or they follows the exact working capital management.

If working capital is excess than the excess amount of working capital is idle.

If the working capital is not sufficient for meeting the day-to-day expenses then it creates a problem for
furnishing all the activities.

So it is necessary to maintain exact working capital according to the expenses of the organization.

SIGNIFICANCE OF STUDY
The significance of adequate working capital in commercial undertakings can never be over emphasized.
A concern needs funds for its day to day running. Adequacy or inadequacy of these funds would determine
the efficiency with which the daily business may be carried on. Management of working capital is an
essential task of the finance manager. He has to ensure that the amount of the working capital available
with his concern is neither to large nor to small for its requirements. A large amount of working capital
would mean that the company has idle funds. Since funds have a cost, the company has to pay the amount
as interest on such funds.
The various studies conducted by the Bureau of Public Enterprises have shown that one of the reasons for
the poor performance of public sector undertaking in our country has been the large amount of funds
locked up in working capital. This result in over capitalization. Over capitalization implies that a company
has too large funds for its requirements, resulting in a low rate of return a situation is implies a less than
optimal use of resources. A firm has, therefore, to be very careful in estimating its working capital
requirements.
If the firm has inadequate working capital, it is said to be under capital, it is said to be under-
capitalization. Such a firm runs the risk of insolvency. This is because; Paucity of working capital may
lead to a situation where the firm may not be able to meet its liabilities. It is interesting to note that many
firms which are otherwise prosperous (having good demand for their products and enjoying profitable
marketing conditions may fail because of lack of liquid resources.

RESEARCH DESIGN USED:

EXPLORATORY RESEARCH

It is also termed as formulative research studies. The main purpose of such studies is that of formulating a
problem for more precise investigation or of developing the working hypotheses from an operational point
of view. The major emphasis in such studies is on the discovery of ideas & insights. As such the research
design appropriate for such studies must be flexible enough to provide opportunity for considering
different aspects of a problem under study. Inbuilt flexibility in research design is needed because the
research problem, broadly defined initially, is transformed in to one with more precise meaning in
exploratory studies, which fact may necessitate changes in the research procedure for gathering relevant
data. Generally, the following three methods in the context of research design for such studies are talked
about:

a.) The survey of concerning literature: It happens to be the most simple & fruitful method of
formulating precisely the research problem or developing hypothesis. Hypotheses stated by earlier workers
are reviewed & their usefulness be evaluated as a basis for further research. It may also be considered
whether the already stated hypotheses suggest new hypothesis. In this way the researcher should review
and build upon the work already done by others, but in cases where hypotheses have not yet been
formulated, his task is to review the available material for deriving the relevant hypotheses from it.

Besides, the bibliographical survey of studies, already made in one’s area of interest may as well as made
by the researcher for precisely formulating the problem. He should also make an attempt to apply concepts
& theories developed in different research contexts to the area in which he is himself working. Sometimes
the works of creative writers also provide a fertile ground for hypothesis formulation & as such may be
looked in to by the researcher.

b.) The experience survey: It means the survey of people who have had practical experience with the
problem to be studied. The object of such a survey is to obtain insight into the relationships between
variables & new ideas relating to the research problem. For such a survey people who are competent & can
contribute new ideas may be carefully selected as respondents to ensure a representation of different types
of experience. The respondents so selected may then be interviewed by the investigator. The researcher
must prepare an interview schedule for the systematic questioning of informants. But the interview must
ensure flexibility in the sense that the respondents should be allowed to raise issues & questions which the
investigator has not previously considered. Generally, the experience desirable to send a copy of the
questions to be discussed to the respondents well in advance. This will also give an opportunity to the
respondents for doing some advance thinking over the various issues involved so that, at the time of
interview, they may be able to contribute effectively. Thus, an experience survey may enable the
researcher to define the problem more concisely & help in the formulation of the research hypothesis. This
survey may as well provide information about the practical possibilities for doing different types of
research.

c.) The analysis of ‘insight-stimulating’ examples: is also a fruitful method for suggesting
hypotheses for research. It is particularly suitable in areas where there is little experience to serve as a
guide. This method consists of the intensive study of selected instances of the phenomenon in which one
is interested. For this purpose the existing records, if any, may be examined, the unstructured interviewing
may take place, or some other approach may be adopted. Attitude of the investigator, the intensity of the
study & the ability of the researcher to draw together diverse information into a unified interpretation are
the main features which make this method an appropriate procedure for evoking insights.

DATA COLLECTION:
The information for the study has been obtained from two sources:
 • Primary data

• Secondary data

PRIMARY DATA
The primary data is collected from the discussion with the concerned officer and the staff of the SEML. I
collected the data from the classes which they are held in between the training session.

SECONDARY DATA
The secondary data is obtained from the annual reports, financial statements, balance sheet & profit loss
account which I we got from the organization. Financial records and other information like journals of the
organizations & some other information I got through financial books.
However in this period of project work most of the information I got from the secondary source as
compared to primary source. The calculation part is done on the basis of the secondary data by using the
annual reports.

LIMITATIONS:
 More dependency on published data rather than actual data. Totally dependent upon
the annual report. Because the financial data are confidential in nature.

 In case of working capital company didnot disclose all data which is related to the WIC
 CHAPTER 4

Data Analysis and Interpretations

WORKING CAPITAL MANAGEMENT: CONCEPT

Capital required for a business generally classified under two categories
 1. Fixed capital

2. Working capital

Every business needs funds for two purposes:

a. Establishment of business

b. Carry out day-to-day business

Long-term funds are required to create production facilities through purchase of fixed assets such as plant
and machinery, land, building etc. Investments in these assets represent that part of firm’s capital which is
blocked on a permanent or fixed basis and is called fixed capital. Funds are also need for short-term
purposes for the purchase of raw materials, payment of wages and other day-to day expenses, etc. These
funds are known as working capital. In simple words, working capital refers to that part of firm’s capital
which is required for financing short term or current assets such as cash, marketable securities, debtors and
inventories.
MEANING OF WORKING CAPITAL
Working capital defined as the “excess of current assets over current liabilities”
Concepts Of Working Capital
One of the most important areas in the day-to-day management of the firm is the management of
working capital. Working capital management is the functional area of finance that covers al the current
accounts of the firm. It is concerned with management of the level of individual current assets as well as
the management of the working capital. Financial management means procurement of funds and effective
utilization of these procured funds. Procurement of funds in firstly concerned for financing working capital
requirement of the firm and secondly for financing fixed assets.
The working capital can be used in two different ways:
Gross Working Capital: The gross working capital refers to investment in all the current assets taken
together. The total of investments in all current assets is known as Gross Working Capital.
Net Working Capital: The term net working capital refers to excess of the total current assets over total
current liabilities. It may be noted that the current liabilities refers to these liabilities which are payable
within a period of one year.

Working capital
 Current assets Current liabilities
Cash Accounts Payable
Accounts receivable Notes payable
Notes receivable Accrued expenses
Marketable securities Taxes payable
Inventory Short term loans
Prepaid expenses Bank overdraft
Total current assets Total current liabilities

Net working capital = CA-CL

Kinds of Working Capital

11. Permanent working capital:

Permanent working capital is the minimum amount of current assets, which is needed to conduct a
business even during the dullest season of the year. The minimum level of current assets is called
permanent or fixed working capital as this part is permanently blocked in current Assets. This amount
varies from year to year, depending upon the growth of the company and the stage of the business cycle
in which it operates.
12. Temporary working capital:
Temporary working capital represents a certain amount of fluctuations in the total current assets during a
short period. These fluctuations are increased or decreased and are generally cyclical in nature.
Additional current assets are required at different times during the operating year. Variable working
capital is the amount of additional current asset that are required to meet the seasonal needs of a firm, so
is also called as the seasonal working capital. For example: additional inventory will be required for
meeting the demand during the period of high sales When the peak period is over variable working
capital starts decreasing or very little during the normal period.
Working Capital Management
Working capital management has significant in a financial management due to the fact it plays a pivotal
role in keeping the wheels of a business enterprises running. In common parlance the management of
current assets is called the Working Capital management. In any business firm whether it is trading
business or manufacturing business, they need some asset, in terms of money. As we know that money is
the life blood of any business. Shortage of funds for working capital has caused many business to fail and
in many cases has retarded their growth. Lack of efficient and effective utilization of working capital leads
to earn low rate of return on capital employed or even compel sustain losses. The need for skill working
capital management has become greater in recent years. These assets may be for short term or temporary
purpose or long-term purposes. Long term funds may required for many purposes like acquisition of fixed
asset, diversification and expansion of business on modernization of plants and machinery and research
and development.
But funds are also needed for short-term purposes i.e. for day-to day requirement. We will hardly finds
that any business does not required any amount of working capital for its normal operations. The
requirements of working capital varies from firm to firm, its depending
upon the nature of the business like production policies, market conditions, season ability of operations,
conditions of supplies etc. working capital used for procurement or raw material, payment of wages to
workmen and for meeting the routine expanses.
As we all know that only a successful sales progress can earn profit for the business but these days credit
system is [prevailing in the present competitive market. So the sales do not convert into cash instantly.
This system requires some times lag between sales of goods and receipt of payment. So a need for short
term funds in the form of current assets are required in lack of immediate realization of cash against goods
sold.

Another problem may arise if the finished good are in the stocks and within the given period it could not
be sold and some goods like raw materials, semi finished good are also in the stock many funds blocked in
different types of inventory. For the successful running of the business requires sufficient amount of funds.
So the management of these funds or current assets is termed as working Capital Management. It is the
most vital ingredient of a business. Working Capital management if carried out effectively, efficiently and
consistently will assured the health of an organization.

Decision criteria

By definition, working capital management entails short term decisions - generally, relating to the next one
year periods - which are "reversible". These decisions are therefore not taken on the same basis as Capital
Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or
profitability.

• One measure of cash flow is provided by the cash conversion cycle - the net number of days from
the outlay of cash for raw material to receiving payment from the customer. As a management tool,
this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts
receivable and payable, and cash. Because this number effectively corresponds to the time that the
firm's cash is tied up in operations and unavailable for other activities, management generally aims
at a low net count.
• In this context, the most useful measure of profitability is Return on capital (ROC). The result is
shown as a percentage, determined by dividing relevant income for the 12 months by capital
employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is
enhanced when, and if, the return on capital, which results from working capital management,
exceeds the cost of capital, which results from capital investment decisions as above. ROC
measures are therefore useful as a management tool, in that they link short-term policy with long-
term decision making.

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the
management of working capital. These policies aim at managing the current assets (generally cash and
cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns
are acceptable.

• Cash management. Identify the cash balance which allows for the business to meet day to day
expenses, but reduces cash holding costs.
• Inventory management. Identify the level of inventory which allows for uninterrupted production
but reduces the investment in raw materials - and minimizes reordering costs - and hence increases
cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ);
Economic production quantity
• Debtors’ management. Identify the appropriate credit policy, i.e. credit terms which will attract
customers, such that any impact on cash flows and the cash conversion cycle will be offset by
increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances.
 • Short term financing. Identify the appropriate source of financing, given the cash conversion
cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be
necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

Working capital management involves the relationship between a firm's short-term assets and its short-
term liabilities. The goal of working capital management is to ensure that a firm is able to continue its
operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming
operational expenses. The management of working capital involves managing inventories, accounts
receivable and payable, and cash.
Why firms hold cash?
The finance profession recognizes the three primary reasons offered by economist John Maynard Keynes
to explain why firms hold cash. The three reasons are for the purpose of speculation, for the purpose of
precaution, and for the purpose of making transactions. All three of these reasons stem from the need for
companies to possess liquidity.
Speculation
Economist Keynes described this reason for holding cash as creating the ability for a firm to take
advantage of special opportunities that if acted upon quickly will favor the firm. An example of this would
be purchasing extra inventory at a discount that is greater than the carrying costs of holding the inventory.
Precaution
Holding cash as a precaution serves as an emergency fund for a firm. If expected cash inflows are not
received as expected cash held on a precautionary basis could be used to satisfy short-term obligations that
the cash inflow may have been bench marked for.
Transaction
Firms are in existence to create products or provide services. The providing of services and creating of
products results in the need for cash inflows and outflows.

How firms Manage cash?

Firms can manage cash in virtually all areas of operations that involve the use of cash. The goal is to
receive cash as soon as possible while at the same time waiting to pay out cash as long as possible. Below
are several examples of how firms are able to do this.
Policy for Cash Being Held Here a firm already is holding the cash so the goal is to maximize the
benefits from holding it and wait to pay out the cash being held until the last possible moment. Previously
there was a discussion on Float which includes an example based on a checking account. That example is
expanded here.
Assume that rather than investing $500 in a checking account that does not pay any interest, you invest
that $500 in liquid investments. Further assume that the bank believes you to be a low credit risk and
allows you to maintain a balance of $0 in your checking account.
This allows you to write a $100 check to the water company and then transfer funds from your investment
to the checking account in a "just in time" (JIT) fashion. By employing this JIT system you are able to
draw interest on the entire $500 up until you need the $100 to pay the water company. Firms often have
policies similar to this one to allow them to maximize idle cash.
Sales The goal for cash management here is to shorten the amount of time before the cash is received.
Firms that make sales on credit are able to decrease the amount of time that their customers wait until they
pay the firm by offering discounts.
For example, credit sales are often made with terms such as 3/10 net 60. The first part of the sales term
"3/10" means that if the customer pays for the sale within 10 days they will receive a 3% discount on the
sale. The remainder of the sales term, "net 60," means that the bill is due within 60 days. By offering an
inducement, the 3% discount in this case, firms are able to cause their customers to pay off their bills early.
This results in the firm receiving the cash earlier.
Inventory
The goal here is to put off the payment of cash for as long as possible and to manage the cash being held.
By using a JIT inventory system, a firm is able to avoid paying for the inventory until it is needed while
also avoiding carrying costs on the inventory. JIT is a system where raw materials are purchased and
received just in time, as they are needed in the production lines of a firm.
Inventory Management:

Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a
business. Insufficient stocks can result in lost sales, delays for customers etc.

The key is to know how quickly your overall stock is moving or, put another way, how long each item of
stock sit on shelves before being sold. Obviously, average stock-holding periods will be influenced by the

nature of the business. For example, a fresh vegetable shop might turn over its entire stock every few days
while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case
somebody needs them.

Nowadays, many large manufacturers operate on a just-in-time (JIT) basis whereby all the components to
be assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This helps
to minimize manufacturing costs as JIT stocks take up little space, minimize stock-holding and virtually
eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold stock for a very short
time, they are able to conserve substantial cash. JIT is a good model to strive for as it embraces all the
principles of prudent stock management.

The key issue for a business is to identify the fast and slow stock movers with the objectives of
establishing optimum stock levels for each category and, thereby, minimize the cash tied up in stocks.
Factors to be considered when determining optimum stock levels include:

 What are the projected sales of each product?

 How widely available are raw materials, components etc.?
 How long does it take for delivery by suppliers?
 Can you remove slow movers from your product range without compromising best sellers?

Remember that stock sitting on shelves for long periods of time ties up money which is not working for
you. For better stock control, try the following:

 Review the effectiveness of existing purchasing and inventory systems.

 Know the stock turn for all major items of inventory.
 Apply tight controls to the significant few items and simplify controls for the trivial many.
 Sell off outdated or slow moving merchandise - it gets more difficult to sell the longer you keep it.
 Consider having part of your product outsourced to another manufacturer rather than make it
yourself.
 Review your security procedures to ensure that no stock "is going out the back door!"

Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and
interest charges.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENT

 Nature of the business

 Size of business/scale of operation

 Production policy

 Manufacturing process/length of production cycle

 Seasonal variation
  Rate of stock turnover

 Credit policy

 Business cycles

 Rate of growth of business

 Earning capacity and dividend policy

 Price level changes

 Working capital cycle

The following are the important factors generally influencing the working capital requirements:
1. The Nature Or Character Of The Business The working capital requirements of a firm basically
depend upon the nature of its business. Generally public utility under takings require small amount
of working capital than any trading and financial firms.

2. Size Of Business/Scale Of Operation The working capital requirements of a concern are directly
influenced by the size of its business which may be measured in terms of scale of operations.

3. Production Policy In certain industries the demand is subject to wide fluctuations due to seasonal
variations. The requirement of working capital, in such cases, depends upon the production policy.

4. Manufacturing process/ Length of production cycle In a manufacturing business, the

requirements of working capital in direct proportion to length of manufacturing process.

5. Seasonal Variation In certain industries raw material is not available through out the year. They
have to buy raw materials in bulk during the season to ensure an uninterrupted flow and process
them during the entire year.

6. Rate Of Stock Turnover A firm having a high rate of stock turnover will need lower amount of
working capital as compared a firm having a low rate of turn over.

7. Credit Policy The credit policy of a concern in its dealings with debtors and creditors influence
considerably the requirements of working capital.

8. Business Cycle Business cycle refers to alternate expansion and contraction in general business
activity.

9. Rate Of Growth Of Business The working capital requirements of a concern increase with the
growth and expansion of its business activities.
 10. Earning Capacity And Dividend Policy The working capital requirement determination also
depends upon the earning capacity and dividend policy.

11. Price Level Changes hanges in the price level also affect the working capital requirements.

12. Working Capital Cycle In a manufacturing concern, the working capital cycle starts with the
purchase of raw material and ends with realization of cash from the sale of finished products. This
cycle involves purchase of raw materials and stores, its conversion into stocks of finished goods
through work-in-process with progressive increment of labor and service costs, conversion of
finished stock into sales, debtors and receivables and ultimately realization of cash and this cycle
continues again from cash to purchase of raw material and so on.

NEED OF WORKING CAPITAL:

Any company can not neglect the need for working capital. The need for working capital arise due to the
time gap between the production and realization of cash from sales. The working capital is needed for the
following purpose:
1. For the purchase of raw materials, components and spares.

2. To pay wages and salaries.

3. To incur day-to-day expenses and overhead costs.

4. To meet the saving costs as packing, advertisement etc.

5. To provide credit facilities to the customers.

6. To maintain the inventory of raw material, work-in-progress, store and spares and finished goods.

Greater the size of the company generally lager will be the requirement of working capital the amount of
working capital need a goes on increasing with the growth and expansion of the business till it attains
maturity. At maturity the amount of working capital is called the normal working capital.
OPERATING CYCLE/WORKING CAPITAL CYCLE

The operating cycle begins with the acquisition of materials and ends with the collection of
receivables. It may be broadly classified into the following four stages viz.,
(i) Raw materials and stores storage stage.
(ii) Work- in process stage.
(iii) Finished goods inventory stage.
(iv) Receivables collection stage.
The duration of the operating cycle for the purpose of estimating working capital requirements is
equivalent to the sum of the durations of each of these stages less the credit period allowed by the suppliers
of the firm.
Symbolically, the duration, of the working capital cycle can be put as follows:
O=R+W+F+D-C
Where
O= Duration of operating cycle.
R=Raw materials and stores storage period;
W=Work in process period.
F= Finished stock storage period; D= Debtor’s collection period;
C= Creditor’s payment period.
 Each of the components of the operating cycle can be calculated as follows

R=Average stock of raw materials and stores /Average Raw Materials and stores consumption per
day
W= Average work-in-process inventory/ Average cost of production per day
F= Average finished stock inventory/ Average cost of goods sold per day
D=Average book debts/Average credit sales per day
C=Average trade creditors/ Average credit purchases per day
After computing the period of one operating cycle, the total number of operating cycle that can be
completed during a year can be computed by dividing 365 days with the number of operating days in a
cycle. The total operating expenditure in the year when divided by the number of operating cycles in a year
will give the average amount of the working capital requirements.
Working capital can be defined as excess of current assets over current liabilities.
CURRENT ASSETS
Current assets are those assets which will be converted into cash within the current accounting period of
within the next year as a result of ordinary operations of the business.
Resources of current assets:-
 Cash and bank Balance

 Receivable

 Period expanses

 Short Term Advances

 Temporary investments
Cash is used for purchasing the raw materials, to pay wages and other manufacturing things. After
manufacture the product, finished goods puts in the stock-in-inventory and then goods will be sold for the
receivable accounts.
CURRENT LIABILITIES
Current liabilities are those debts of the firm that have to be paid during the current accounting period or
within a year. Current liabilities includes:-
 Creditors for goods purchased

 Outstanding expenses

 Short term borrowing

 Advance received against sales

 Taxes and Dividends Payable

 Other liabilities maturing within a year

The necessity of maintaining adequate amount of working capital as follows:-
1. Solvency of the business:-Adequate working capital helps in maintaining solvency of the business
forms pay its debts on time by working capital continuously. His will only possible if the working
capital be adequate.

2. Goodwill:-Sufficient working capital enables a company to create and maintain goodwill through
prompt payments.

3. Easy Loans:-A company’s adequate working capital creates favorable and easy conditions to arrange
the loans.

4. Cash Discounts:-Adequate working capital avail cash discount and reduces cost.

5. Regular supply of Raw Materials:-Sufficient working capital regulates continuous production as it

ensures regular supply of raw materials.

6. Regular Payment of Salaries, Wages and others day-to-day commitments. company which ample
working capital can make regular payments to its employees which in turn raises the morale and their
efficiency and reduces wastages and enhances production and profit.

7. Exploitation of favorable market conditions.:-Company having adequate working capital can exploit
favorable conditions as purchasing its requirements in bulk when the prices are lower and by holding its
inventories for higher prices.

8. Ability to face prices:-The crisis in emergencies like depression can be faced easly by company having
adequate working capital.

9. Quick and regular return on investment:-Sufficiency of working capital enables a company to pay
quick and regular dividend to its investor as their may not be much pressure to plaugh back profits
which creates a favourable market to raise additional funds in the future.

10. High Morale :-Adequacy of working capital creates an environment of security, confidence high
morale reates overall efficiency in a company.
SOURCES OF WORKING CAPITAL
Permanent or Fixed Temporary or Variable
Share Commercial Banks
Debenture Indigenous Bakers
Public Deposit Trade Credit
Ploughing Back of Profit Installment Credit
Loans from Financial Instructions Advances
Accounts
Receivable Credit

IMPORATNCE OF WORKING CAPITAL MANAGEMENT

A firm may have to face the following adverse consequences from inadequate working capital.
1. Growth may be stunted. It may become difficult for the firm to undertake profitable protects due to
non-availability of funds.

2. Implementation of operating plans may become difficult and consequently firm profits goals may not
be achieved.

3. Operating inefficiency may creep in due to difficulties in meeting even day to day commitment.

4. Fix assets may not be efficiently utilized due to lack of working funds, thus lowering the rate of return
on investment in the process.

5. Attractive credit opportunities may have to be lost due o paucity of working capital.

6. The firm losses its reputation when it is not in a position to honour its short terms obligation. As a
result the firm is likely to face tight credit terms.

On the other hand excessive working capital may pose the following dangers:
1. excess of working capital may result in unnecessary accumulation of inventories, increasing the
chances of inventory mishandling, waste and theft.
 2. It may provide an undue incentives for adopting too liberal a credit policy and stackening of
collection of receivable, causing a higher incidence of bad debts. This has an adverse effect on
profits.

3. Excessive working capital may make management complacent leading eventually to managerial
inefficiency.

4. If may encourage he tendency to accumulate inventories for making speculative profits, causing a
liberal dividend policy which becomes difficult to maintain when affirm is unable to make
speculative profit.

Standards of working capital management:

I. There is no one single criteria for judging the efficient arrangement of working capital.

II. Factors to be taken into account for organizing on efficient lines.

 Ability to meet short-term commitments in time, make payment of bills on due dates.

 Ability to find adequate cash at the right time to present forecast levels of business.

 Ability to maximize sales turnover with minimum possible cash.

 Minimum possible inventory turnover- Turnover norms are fixed.

 Whether adequate credit on favorable terms is obtained from suppliers.

 Whether reasonable credit is extended to customers as a sales and monitoring strategy.

DETAILS
OF
CURRENT ASSETS AND CURRENT LIABITIES OF SEML AT MAR 31,2009-10
CURRENT ASSETS (IN LACS)
INVENTORIES
Stores and Spares 674.86
Raw materials 7,062.88
Opening Stock 4,093.61
41,476.9
Add:Purchases 3
Add:Cost of Material Produced ( Mining
expenses) 11.71
38,519.3
Less:RAW MATERIAL CONSUMED 7
Closing Stock 7,062.88
Finished goods 7,460.70
TOTAL 15,198.44

SUNDRY DEBTORS
Exceeding six months 369.36
Other Debts 1,439.44
TOTAL 1,808.80
Less : Provision for Doubtful Debts 369.32
TOTAL (Unsecured and considered good) 1,439.48

Cash in hand 19.22

Balance with Scheduled Banks
In Current accounts 67.50
In Deposit accounts 2,379.85
TOTAL 2,466.57

LOANS AND ADVANCES

(Unsecured and considered good )
Loans to Employees 66.34
Advances recoverable in cash or in kind
or for value to be received :
To Suppliers net of Doubtful Advances 2,106.75
To Others 1,951.80
To Subsidiaries 2,528.40
Cenvat Credit & PLA (unutilized) 1,068.57
Security and other deposits 485.60
Income-tax advance and TDS (Net of provision) 914.80
TOTAL 9,122.26

CURRENT LIABITIY (IN LACS)

CURRENT LIABILITIES & PROVISIONS
CURRENT LIABILITIES
Sundry Creditors 4,895.56
Other liabilities 1,563.50
Interest accrued but not due 105.52
Unclaimed Dividend 38.64
Advances and deposits 1,792.19
8,395.41
PROVISIONS
For Proposed Dividend (including Dividend distribution tax) 1,194.93
1,194.93
TOTAL 9,590.34

GRAPHICAL INTERPRETATIONS:
INVENTORIES

INTERPRETATION ;-By analyzing the 6 years data we see that the inventories are increased year by
year. We are looking increasing pattern in inventories. We can see that inventories are grown by in 07-08 ,
08-09 and 09-10 respectively from previous year. By this growth we can say that the company is growing
very rapidly . A company uses inventory when they have demand in market and SEML plant is having a
great demand in steel sector. That is biggest reason for increase in inventories. From other point of view
we can say that the liquidity of firm is blocked in inventories but to stock is very good due to uncertainty
of availability of raw material in time

SUNDRY DEBTORS
INTERPRETATION :-In the table and figure we see that there is continuous fall in the debtors after the
2008 of SEML in the successive years. A simple logic of the company is that debtors are maintained in
the corporate office i.e. in SAIL. all amount of debtors are maintained i.e. related to nearest regional
purchasers and products are sold in hard cash no credit transactions are maintained . Company policy of
debtors is very good as it decreases the risk of bad debts is always present in high debtors. If company
decreases the Debtors they can use the money in many investment plans.

CASH AND BANK

INTERPRETATION :- If we analyze the above table and chart we find that it follows an increasing
trend. In the year 2008 it had maintained a huge amount of cash and bank balance which has with respect
to the year 2009 & 2010 because due to recession company has to manage cash as production pattern was
diversifying from 3 shifts to 2 shifts or 1 shifts so not huge amount of cash is invested in working capital
but to hold. Although company’s cash is slightly increasing but this is not so poor sign for company
because they are not holding the so much cash in hand but using the cash for better projects .Company is
utilizing the fixed cash for exploding the projects that is good for growth.

LOANS AND ADVANCES

INTERPRETATION :-If we analyze the table and the chart we can see that it follows an increasing trend
which is a good sign for the company but in the year 2009-10 it shows a somehow stabilized cum
decreasing trend.The increasing pattern shows that company is giving advances for the expansion of plants
and machinery which is good sign for better production of steel and other goods. Although company’s
cash is blocked but this is good that company is doing modernization of plants in time to compete with
other competitors in market. But it is stabilized in the year 2009-10 as markets getting slow down because
there is low market consumption in the market and companies had started to diversify their key areas to
gain profits.

PROVISIONS

INTERPRETATION:-From the above table we can see that provision shows a stability between 2008-10
. Though the profits of the company are increased benefits are shared with the employees & provisions are
also increased which is good that company is creating goodwill in market by paying benefits to their
employees in time to time. Other provisions are also for the benefit of employees and public. This is good
sign for Company growth.

OTHER LIABILITIES
INTERPRETATION :-If we analyze the above table then we can see that it follow an increasing trend.
The important component of current liabilities is sundry creditors and other liabilities. In 07-08 it increases
and in 08-09 it Decreased by . In 07-08 it was increased because of growth in other liabilities .This is
liability for company so this should be less. When companies have minimum liabilities it creates a better
goodwill in market. High current liabilities indicate that company is using credit facilities by creditors.

WORKING CAPITAL
 INTERPRETATION :-If we analyze the above table then we can see that it follow an increasing trend
between 2005 to 2009 but decreases in 2010.

PARTICULARS YEAR ENDING Changes in working capital

2010 2009 Increase Decrease
CURRENT ASSETS -:
Inventories 15198.4 9962.62 5235.82
Sundry debtors 1439.48 1825.34 385.86
Cash & bank 2466.57 3525.87 1059.3
Loans & Advances 9122.22 19909.8 10787.6
TOTAL (A) 28226.7 35223.6
CURRENTS LIABILITIES -:
1) Provisions 1194.93 1194.93 0 0
2) Others Liabilities 8395.41 4535.74 3859.67
TOTAL (B) 9590.34 5730.67 3859.67

WORKING CAPITAL (A-B) 18636.4 29493

Decrease in working capital 14717.72

TOTAL 19953.54 19953.54

STATEMENT OF WORKING CAPITAL

RATIO ANALYSIS
Meaning of Ratio:- A ratio is simple arithmetical expression of the relationship of one number to another.
It may be defined as the indicated quotient of two mathematical expressions.
According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio is an expression of the
quantitative relationship between two numbers”.

Ratio Analysis:- Ratio analysis is the process of determining and presenting the relationship of items and
group of items in the statements. According to Batty J. Management Accounting “Ratio can assist
management in its basic functions of forecasting, planning coordination, control and communication”.
It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It
is helpful tool to aid in applying judgement, otherwise complex situations.
Ratio analysis can represent following three methods.
Ratio to measure the efficiency of working capital.
• Current Ratio: Current Assets/Current liabilities.
 • Quick ratio: (Current assets-Inventories) / Current liabilities.

• Sales to cash: Sales during a period /Average cash balance.

• Average collection period : Debtors divided by annual credit sales and the resulting figure
multiplied by 365. The ratio indicates how many days of credit are being obtained form the
suppliers.

• Average payment period: Creditors divided by annual credit purchase and the resultant figure is
multiplied by 365. This ratio indicates how many days of credit are being obtained from the
suppliers.

• Inventory turnover ratio : Sales / Average inventory.

RATIO ANALYSIS ACCORDING TO THE WORKING CAPITAL MANAGEMENT

Important Terms
• Ratio analysis

• Gearing

• Liquidity

• Overtrading

Ratio Analysis
This is the measure of inter relationship between different sections of the financial statements which then
is compared with the budgeted or forecasted results, prior year results and or the Industrial results. To be
most important ratios must include a study of underlying data. Ratios should be taken as guides that are
useful in evaluating a company's financial position and operations and making comparisons with results in
previous years or with other companies. The primary purpose of ratios is to point out areas needing further
investigations. Ratios will not carry meaningful business reasoning if there is no supporting quantitative
and financial information. Apart from the ratios other information which should be looked at includes:
1. The contents of any accompanying commentary on the accounts.

2. The age and nature of company's assets.

3. Current and future developments in the company's markets, at home and overseas, recent
acquisitions and disposals of a subsidiary by the company.

4. Extraordinary items in the income statements.

 5. The auditor opinion on the financial statements.

6. Other information in the local papers about the company.

As we know there are vast number of users of parties interested in analysing the financial statements,
including shareholders, lenders, customers, government , employees and competitors. Yet in many respect,
they will be interested in different things. There is not, therefore, any definitive, all-encompassing list of
points for analysis that would be useful to all these stakeholder groups. Ratio analysis is the first step in
assessing an entity. It removes some of the mystique surrounding the financial statements and makes it
easier to pin point items which it would be interesting to investigate further.

These ratios can ably be classified according to the target group of the stakeholders.
Profitability For shareholders, employees, creditors, investors, management.
Liquidity For shareholders, management, suppliers, creditor and competitors.
Efficiency For management, shareholders, creditors and competitors.
Gearing For shareholders, lenders, creditor and potential investors.

CALCULATION AND ANALYSIS:

CURRENT RATIO

This compares assets which will become liquid within approximately twelve months with liabilities which
will be due for payment in the same period and is intended to indicate whether there are sufficient short
term assets to meet the short- term liabilities. Recommended current ratio is 2: 1. Any ratio below indicates
that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is
the entity is under utilizing its current assets.

Current ratio = CURRENT ASSET/ CURRENT LIABILITY

CURRENT
RATIO CURRENT ASSET CURRENT LIABILITY RATIO
Current
Inventories 15198.44 Liabilities 8395.41
Sundry Debtors 1439.48 Provisions 1194.93
Cash & Bank
Balances 2466.57
Loans & Advances 9122.26
TOTAL TOTAL 28266.75 TOTAL 9590.34 2.9474

CALCULATION:

RATIO: Mar ' 07 Mar ' 08 Mar ' 09 Mar ' 10

SHORT-TERM
SOLVENCY
CURRENT RATIO 2.49 2.67 3.99 2.9474

INTERPRETATION
From the above graph of current ratio of SEML it is clearly show that current asset is more
than two. All the four years upon which I analyzed the ratio the current ratio is more than two where as if
the current ratio is 2:1 than we can say that the liquidity is good. Here it’s more than two so the current
asset is over trading, which indicates some amount is kept idle. But in case of SEML its not true, company
hold the cash of their future project and meet the economic requirements.

QUICK/ACID TEST RATIO

This shows that, provided creditors and debtors are paid at approximately the same time, a
view might be made as to whether the business has sufficient liquid resources to meet its current liabilities.

A company in the service industry will not have inventories as such current ratio will not
significantly be different from the current ratio. This ratio should ideally be 1 for companies with a slow
 inventory turnover. For companies with a faster inventory turnover, a quick ratio can be less than 1 without
suggesting that the company should be in cash flow trouble. Both current and quick ratio offer an
indication of the company's liquidity position, but the absolute figures should not be interpreted too
literally. It is often theorized that an acceptable figure should be 2:1 for current ratio and 1: 1 for quick
ratio but these should only be used as a guide. Different businesses operate in very different ways. A
supermarket group for example might have a current ratio of .5 and quick ratio of .17. Supermarkets have
low receivables (as sales are usually made on credit), low cash, medium inventories (high inventories but
quick turnover). While as in a manufacturing company these ratios may be regarded as showing solvency
problems.

Quick/acid test ratio =

LIQUID CURRENT
RATIO CURRENT ASSET Inventories LIABITIY RATIO
Stores and Current 8395.4
Inventories 15198.44 Spares 674.86 Liabilities 1
Raw 1194.9
Sundry Debtors 1439.48 materials 7,062.88 Provisions 3
Cash & Bank Finished
Balances 2466.57 goods 7,460.70
Loans &
Advances 9122.26
15,198.4 9590.3
TOTAL 28266.75 TOTAL 4 4 1.36

The following are the Quick/acid test ratio of last four years

RATIO: Mar ' 07 Mar ' 08 Mar ' 09 Mar ' 10

SHORT-TERM
SOLVENCY
QUICK RATIO 1.51 1.62 2.83 1.36
 INTERPERTATION
From the above paragraph it is clearly show that in 2008-09 the acid ratio is more than 2
and the rest of year it is below 2 but more than 1.but if the ratio is 1:1 than it is satisfactory. As the acid
ratio is more than one in all year than it indicates that SEML is liquid and has the ability to meet its current
or liquid liabilities in time. So it is clear understand that the position of the acid ratio of SEML is standard
level.

ABSOLUTE LIQUID RATIO

Absolute liquid assets include cash in hand and at bank and marketable securities or
temporary investments. The acceptable norm for this ratio is 50% or 0.5:1. Absolute liquid ratio should
also be calculated together with current ratio and acid test ratio. So as to exclude even receivables from the
current assets and find out the absolute liquid assets.

Absolute liquid ratio =

ABSOLUATE
LIQUID RATIO CURRENT ASSET CURRENT LIABILITY RATIO
Cash & Bank Current
Balances 2466.57 Liabilities 8395.41
Provisions 1194.93
TOTAL 2466.57 9590.34 0.26

CALCULATION:
RATIO: Mar ' 07 Mar ' 08 Mar ' 09 Mar ' 10
SHORT-TERM
 SOLVENCY
ABSOLUTE LIQUID RATIO 0.35 0.16 0.61 0.26

INTERPERTION
In 2009-10 the absolute liquid ratio is more than 0.5 but in remaining , it is less than 0.1 and
in the year 2005-06 it is just more than o.1. The rule thumb says that if it is 0.5 or more than that then
absolute liquid assets are considered adequate.

INVENTORY TURNOVER RATIO

The ratio is aimed at checking how vigorous the entity is trading. It measures approximately
the number of times an entity is able to acquire the inventories and convert them into sales. A lengthening
inventory turnover period from one accounting year to the next indicates:

1. A slow down in trading; or

2. A build in inventory levels, perhaps suggesting that the investment in inventories is becoming
excessive.

The higher turnover ratio is good for the firm, but several aspects of inventory holding
policy have to be balanced.

 Lead times
Inventories SALES AVARGE STOCK RATIO
55,591.48 5578.245 9.96
 Seasonal fluctuations in orders.
 Alternative use of warehouse space.
 Bulk discounts.

Inventory turn over ratio also known as stock velocity is normally calculated as
sales/average inventory or cost of goods sold.

Inventory turnover ratio =

RATIO: Mar ' 07 Mar ' 08 Mar ' 09 Mar ' 10

TURNOVER
RATIO/ASSETMGMT
INVENTORY TURNOVER 7.51 5.01 11.93 9.96
 INTERPRETATION
A high inventory turnover/stock velocity indicates efficient management of inventory
because more frequently the stocks are sold. A low inventory turnover ratio indicates an inefficient
management of inventory. From the last 2 year the inventory turnover ratio is more than 10. So the
inventory standard is good.

DEBTORS OR RECEIVABLE TURNOVER RATIO

Another asset management ratio that is used estimates how long it takes for the credit
customers to settle their balances. As outlined above it is very difficulty to establish the optimum level of
receivables days, it will always depend with the nature of the business an enterprise is involved. For this
company receivable of 5 to 7 times will be considered as to operate on cash basis. When setting the
receivable days, an enterprise should also consider how long its major suppliers demand their payments.
Failure to match receivable and payable days will result in failure to settle short-term liabilities when they
fall due.

Increase in receivable days may also indicate overtrading especially when the profit levels
increases, together with receivable amounts but there is no improvement in collection of receivables.

The enterprise should always strive to be within the industrial averages because if they are
too loose with their customers they run a risk of increasing the bad debtors levels. Some of the reasons for
improvement may be

a. Aggressive debt collection by the company.

b. Strict rules on credit transactions.
c. Offering cash discounts for early settlement.

Debtors/receivable turnover ratio =

DEBTORS TURN OVER

RATIO C.SALES DEBTORS RATIO
Sales Sundry
( Gross ) 55,591.48 Debtors 1439.48 38.96
AVARAGE COLLECTION IN DTR ACP
PRIODE DAYS Mar ' 07 Mar ' 08 Mar ' 09 Mar ' 10
RATIO: 365 38.96 9.36
DEBTOR TURNOVER RATIO 10.73 10.71 21.88 38.96
AVG COLLECTION PRIODE 34.02 34.08 16.68 9.37

DEBTOR TURNOVER RATIO

INTERPRETATION

Generally the higher the value of debtor’s turnover, the more efficient is the management of debtors/sales
more liquidity are the debtors. Similarly low debtors turnover implies inefficient management of
debtors/sales are less liquidity debtors. From the above chart it is clear that seml has been
maintaining a ratio with a minimum of 6:1.

AVG COLLECTION PERIOD

AVERAGE COLLECTION PERIOD

 INTERPRETATION Generally the lowest the value of ACP, the more efficient is the management of
debtors and more liquidity are the debtors.here last 2 year company acp is between 8 -20 which show
company only.

CREDITORS OR PAYABLE TURNOVER RATIO

Measures how long it takes for an entity to settle its creditors. The payable days should always be more
than the receivable days. Remember the cash received from the customers will be used in settling the
suppliers so it is imperative that the company should always ensure than they secure more payable days
than the days they allow their customers.

Increase in payable days may indicate that the business is facing cash flow problems and
will deter new and old suppliers from extending credit supplies to the business. On the other hand the
business with short payable days indicates that its suppliers do not trust it. Usually if the payment record of
the business has been bad suppliers will always insist cash purchases from the business.

In service industries the ratio is of little relevance than in trading organizations. The service
industries purchase consumables, which are not the core of their business unlike in trading activities where
the performance is based on the level of purchases made.

Creditors/payable turnover ratio =

CREDTORS TURN OVER RATIO CR.PURCHASE CREDITORS RATIO

Sundry 4,895.5
Purchases 41,476.93 Creditors 6 8.47
AVG PAYBALE PERIOD CTR 8.47 DAYS 365 43.09327

Mar ' 07 Mar ' 08 Mar ' 09 Mar ' 10

RATIO:
CREDITORS TURNOVER RATIO 32.2 19.43 16.63 8.47
18.7853834
AVG PAYABLE PERIOD 11.33540373 3 21.94829 43.09327
 AVERAGE PAYABLE PERIOD

INTERPRETATION:This ratio show that company payble preideo is increased year by year That means
company market position.

WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales. The current assets like debtors,
bills receivable, cash, and stock etc. change with the increase or decrease in sales.

Working capital turnover ratio indicates the velocity of the utilization of net working capital. The ratio
indicates the number of times the working capital is turned over the course of a year. This ratio measures
the efficiency with which the working capital is being used by a firm. A higher ratio indicates efficient
utilization of working capital and a low ratio indicate vice-versa.
 But a very high working capital turnover ratio is not a good situation for any firm. Making
of comparative and trend analysis can at best use this ratio for different firms in the same industry and for
various periods

Working capital turnover ratio: =

GROSS PROFIT MARGIN%

Mar ' 07 Mar ' 08 Mar ' 09 Mar ' 10

RATIO:
GROSS PROFIT MARGIN
% 17.80 23.89 21.03 16.07

NET PROFIT MARGIN %

Mar ' Mar ' Mar '
Mar ' 10
RATIO: 07 08 09

NET PROFIT MARGIN % 11.59 19.42 13.04 12.09

INTERPRETATION : This ratio in one form or the other is intended to measure how efficiently the firm
uses its assets and how efficiently the firm manages its operations. The focus in this ratio is on the bottom
line-net income.profit margins are different for different businesses.SEML when compared with its
competitors shows a decent net operating margin %. It was around 20 % in the yr 08 which came down to
13% for the yr 09. this decrease is due to the fact that the company increased its turnover by 30% for the
yr 09 by compensating on its profit margin.

Operating Cycle
There is a difference between current and fixed assets in terms of their liquidity. A firm requires many
years to recover the initial investment in fixed assets such as plant and machinery or land and buildings.
On the contrary, investment in current assets in turned over many times in a year. Investment in current
assets such as inventories and debtors (accounts receivable) is realized during the firm’s operating cycle,
which is usually less than a year. Operating Cycle is the time duration required to convert resources or
inventories into sales and then into cash.
The operating cycle of a manufacturing company involves three phases:
• Acquisition of resources: such as raw material, labor, power and fuel etc.
• Manufacture of the product: which includes conversion of raw material into work-in-progress into
finished goods?
• Sales of the product: either for cash or on credit. Credit sales create account receivable for
collection.
How is the length of an operating cycle determined?
The length of the operating cycle of a manufacturing firm is the sum of:
1(i) Inventory conversion period (ICP) and
1(ii) Debtors’ conversion period (DCP).
Here the inventory conversion period is the total time needed for producing and selling the product.
Typically, it includes:
1(a) Raw material conversion period (RMCP),
2(b) Work-in-process conversion period (WIPCP), and
3(c) Finished goods conversion period (FGCP).

Operating Cash Conversion Cycle

To measure the timer taken for the initial cash flows for goods and services to be realized as cash inflows
from sales, the device of the operating cash conversion cycle is used. Conversion cycle capture the fact
that different components of working capital have different life expectancies and are transformed to
liquidity flows at different rates. The imbalance between cash inflows and outflows necessitates
investments in current assets. The net cash conversion rate identified with the help of cash converting
cycle has to be financed by working capital.

COMPUTATION OF OPEARTING CYCLE

Formulae:
1. RMCP = (RMI*360) / RMC
2. WIPCP = (WIPI*360) / COP
3. FGCP = (FGI*360) / COGS
4. DCP = (DRS *360) / Cr.Sales
5. PDP = (CRS*360) / Cr. purchases
6. GROSS OP. CYCLE = ICP+DCP
7. ICP = RMCP + WIPCP +FGCP
8. NET OP. CYCLE = GOC-PDP
Where:
• RMC is the consumption of raw material
• RMI is the closing stock of raw material inventory
• WIPI is the closing stock of work-in process inventory
• FGI is the closing stock of finished goods inventory
• COP is the cost of production.
• COGS are the cost of goods sold.

Calculation of operating cycle

1.Raw material conversion period = ( Raw material * 360 )/ Raw material consumption

RCP=(7,062.88 * 360 )/ 38,519.37=66.0093

2. Work in progress conversion period = (work in progress inventory * 360)/ Cost of production
• In seml the WIPCP is not calculated, as they don’t go for the hot metal cost.

3. Finished goods conversion period = (Finished goods conversion period * 360)/ Cost of goods sold
FGC=(7,460.70* 360)/ 55,591.48=48.3099
4. Debtors conversion period = (Debtors * 360)/credit sales

5. Creditors deferral period = ( Creditors * 360)/credit purchase

Note: - SEML doesn’t go for the calculation of DCP & CDP as both the things are dealt in corporate
office, hence due to this reason working capital management for these both things are not done at SEML

STUDY OF FINANCIAL ANALYSIS

 1. BALANCE SHEET
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
SOURCES OF FUNDS
Owner's Fund
Equity Share Capital 34.05 34.05 34.05 13.08 13.08
Share Application Money 0.00 0.00 0.50 16.49 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves & Surplus 530.53 479.28 367.49 178.59 56.83
Loan Funds
Secured Loans 447.21 524.70 318.90 192.51 86.43
Unsecured Loans 12.30 8.27 4.39 16.23 17.05
Total 1,024.09 1,046.30 725.33 416.90 173.39

USES OF FUNDS
Fixed Assets
Gross Block 611.55 498.41 331.22 295.45 126.20
Less : Revaluation Reserve 0.00 0.00 0.00 0.00 0.00
Less : Accumulated Depreciation 185.04 146.78 121.38 99.92 40.08
Net Block 426.51 351.63 209.84 195.53 86.13
Capital Work-in-progress 373.34 355.35 254.68 94.65 36.61

Investments 66.46 72.63 20.45 21.85 0.10

Net Current Assets

Current Assets, Loans & Advances 284.92 355.80 382.53 174.52 69.56
Less : Current Liabilities & Provisions 127.15 89.12 143.17 70.15 21.74
Total Net Current Assets 157.77 266.68 239.37 104.37 47.82
Miscellaneous expenses not written 0.00 0.00 1.00 0.50 2.74
Total 1,024.08 1,046.29 725.34 416.90 173.40
Note :
Book Value of Unquoted Investments 60.70 65.58 13.13 9.98 0.00
Market Value of Quoted Investments 8.73 6.08 9.12 12.16 0.11
Contingent liabilities 62.30 123.13 95.49 71.34 18.83
Number of Equity shares outstanding (in Lacs) 340.45 340.45 340.45 130.80 130.80

INTERPRETATIONS:
 2. RATIOS

Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

PER SHARE RATIOS

Adjusted E P S (Rs.) 5.11 49.39 35.10 25.60 6.60

Adjusted Cash EPS (Rs.) 16.51 57.58 41.60 42.85 11.65
Reported EPS (Rs.) 18.56 36.20 35.67 32.54 9.19
Reported Cash EPS (Rs.) 29.96 44.39 42.17 49.80 14.24
Dividend Per Share 3.00 3.00 3.00 2.00 2.00
Operating Profit Per Share (Rs.) 23.80 66.52 50.11 53.44 15.30
Book Value (Excl Rev Res) Per Share (Rs.) 165.83 150.78 118.09 159.14 53.45
Book Value (Incl Rev Res) Per Share (Rs.) 165.83 150.78 118.09 159.14 53.45
Net Operating Income Per Share (Rs.) 153.68 276.60 182.49 278.44 164.87
Free Reserves Per Share (Rs.) 151.70 132.24 99.26 115.66 39.03

PROFITABILITY RATIOS

Operating Margin (%) 15.48 24.04 27.46 19.19 9.28

Gross Profit Margin (%) 8.07 21.08 23.89 12.99 6.21
Net Profit Margin (%) 11.88 12.80 19.42 11.59 5.54
Adjusted Cash Margin (%) 10.56 20.36 22.65 15.26 7.03
Adjusted Return On Net Worth (%) 3.08 32.75 29.83 17.51 12.84
Reported Return On Net Worth (%) 11.19 24.00 30.31 22.26 17.89
Return On long Term Funds (%) 5.36 23.21 22.84 13.89 9.00

LEVERAGE RATIOS

Long Term Debt / Equity 0.68 0.84 0.65 0.88 1.29

Total Debt/Equity 0.81 1.04 0.80 1.09 1.48
Owners fund as % of total Source 55.12 49.06 55.39 47.86 40.31
Fixed Assets Turnover Ratio 0.85 1.90 1.88 1.23 1.71

LIQUIDITY RATIOS

Current Ratio 2.24 3.99 2.67 2.49 3.20

Current Ratio (Inc. ST Loans) 1.03 1.22 1.47 1.19 1.43
Quick Ratio 1.02 2.83 1.62 1.51 1.65
Inventory Turnover Ratio 3.84 11.93 5.01 7.51 8.38

PAYOUT RATIOS

Dividend payout Ratio (Net Profit) 18.90 9.69 9.84 15.84 24.81
Dividend payout Ratio (Cash Profit) 11.71 7.90 8.32 10.35 16.01
Earning Retention Ratio 31.34 92.90 90.00 79.86 65.44
Cash Earnings Retention Ratio 78.74 93.91 91.57 87.97 80.43

COVERAGE RATIOS

Adjusted Cash Flow Time Total Debt 8.18 2.72 2.28 3.72 6.79
Financial Charges Coverage Ratio 4.61 9.75 12.20 8.42 6.60
Fin. Charges Cov.Ratio (Post Tax) 6.25 6.96 11.05 8.53 6.85

COMPONENT RATIOS

Material Cost Component(% earnings) 79.64 68.00 65.79 72.78 81.32

Selling Cost Component 1.24 1.28 2.90 4.29 1.71
Exports as percent of Total Sales 13.16 21.07 18.08 11.02 0.00
Import Comp. in Raw Mat. Consumed 11.81 21.85 21.29 91.14 2.69
Long term assets / Total Assets 0.75 0.68 0.55 0.64 0.63
Bonus Component In Equity Capital (%) 1.76 1.76 1.76 4.58 4.58

3.PROFIT & LOSS

Mar’10 Mar’09 Mar’08 Mar’07 Mar’06

Income :
Operating Income 523.19 941.69 621.29 364.20 215.64

Expenses
Material Consumed 387.67 652.67 394.37 252.62 169.03
Manufacturing Expenses 12.19 17.21 16.07 13.94 15.40
Personnel Expenses 21.71 20.40 14.16 7.56 4.41
Selling Expenses 6.52 12.11 18.02 15.63 3.69
Adminstrative Expenses 14.08 12.81 8.05 5.23 3.09
Expenses Capitalised 0.00 0.00 0.00 -0.68 0.00

Cost Of Sales 442.17 715.22 450.68 294.30 195.63

Operating Profit 81.02 226.47 170.62 69.90 20.01

Other Recurring Income 8.67 20.81 3.73 2.94 1.00

Financial Expenses 19.45 25.36 14.29 8.65 3.18
Depreciation 38.80 27.89 22.14 22.57 6.61
Other Write offs 0.00 0.00 0.00 0.00 0.00

Adjusted PBT 31.44 194.03 137.92 41.62 11.22

Tax Charges 14.04 25.88 18.43 8.14 2.59

Adjusted PAT 17.40 168.15 119.49 33.48 8.63

Non Recurring Items 44.94 -44.74 1.16 9.10 0.00
Other Non Cash adjustments 0.86 -0.17 0.78 -0.01 3.39

Reported Net Profit 63.20 123.24 121.43 42.57 12.02

Earnings Before Appropriation 371.42 335.17 240.63 139.94 38.21

Equity Dividend 10.21 10.21 10.21 5.91 2.62

Preference Dividend 0.00 0.00 0.00 0.00 0.00
Dividend Tax 1.74 1.74 1.74 0.83 0.37
Retained Earnings 359.47 323.22 228.68 133.20 35.22
 CHAPTER 5

Conclusion & Suggestions

 CONCLUSION
SEML a major unit of SALES has been generating continuous profits as compared to previous year with
current year. To summaries, working capital at a plant level, this mainly involves forecasting and monitoring
of various components, which is done systematically. Whereby major portions of receivables are managed
by central marketing organization for all plants level.
 Important components of working capital are bill payables and borrowings of funds monitored by
corporate level.

 Finance Department of SEML and various individual units decides the amount of funds
requirement during the preparation of operation budget, and then requirement of fund is intimated to
corporate office. Cash inflows and outflows are estimated in budget.

 The marketing of prime products are done by the central marketing organization and the receipts
of sale are directly sent into the inner unit current account which is centrally controlled by the corporate
office allocates the funds as per intimation to individual units.

 Cash is monitored every day and intimated to the top management as well as fortnightly to the
company.

 Inventory is monitored differently for raw materials, work in progress, finished goods and stores.
Monthly inventory report is sent to chairman through the finance department to corporate office, but the
major portion of debtor are dealt by central marketing organization.

While analyzing the data, I found that all most all the ratios calculated above shows a favorable trend which
shows that SEML is working efficiently and it is having a sound liquidity, the efficiency of working capital
management in SEML.
 Statement Showing Difference from Previous Year
Particulars 08-09 09-10

9962.62 15196.44
Inventories
↓ by 33.53% ↑ by 52.55%

1825.34 1439.48
Sundry Debtors
↓ by 73.15% ↓ by 21.13%

3525.87 2466.57
Cash & Bank
↓by 64.49% ↓ by 30.04%
Loans &
19909.81 9122.22
Advances
↑ by 200.98% ↓ by 54.18%

Current 4535.74 8395.41

Liabilities ↑ by 59.07% ↑by 85.09%

1194.93 1194.93
Provisions
↑ by 5.92% 0%(no change)

o Working capital calculation as shown by SEML does not provide a true picture mainly deals with
the inventory part.

o For the ascertainment of the working capital the three main items namely cash, debtors & creditor
is calculated in the central corporate office not in SEML.
o For ascertainment of correct working capital one must study the comparative balance sheet of
SEML.

o The working capital requirement cannot be ascertained as the demand is not uniform & it deals
with different product lines.

o The requirement of working capital is high in case when the raw material is imported & the raw
material is bought in bulks.

RECOMMENDATIONS

o Speculative measures should be used to meet the unforeseen events like price hikes & so this in
turn helps to manage proper working capital in case of high prices to.

o Due to formalized procedure working capital requirement are sent to corporate office then after
approval amount was transferred to his account so there is high gap between requirement & its approval
so I suggest to take the debtors cash in his account & manage the daily operations & submit report daily
to corporate office.

o Small amount of debtors are maintained in SEML and they mainly dealt with government public
ltd. Companies; so instead of targeting only to one sector diversify yourself & try to deal with local
private institutions which help to increase debtors.

o Ordering procedure of plant & equipment is very lengthy & formalized process try to be flexible
with the environment.
LIMITATIONS

A. Mental status of the respondent: - The respondents do not provide information whole heartedly
as they are convinced for our project but when we had taken interview some sort of hesitations comes in
mind to not to disclose their secrets, As these secrets are disclosed to others or they are used to completely
remove from their business.

B. Mismatch of time: - As we move on to their places they are not there they are busy in their
activities.

Appendix – VIII

BIBLIOGRAPHY

BOOKS: -

• Dr.D.D.SHARMA “MARKETING RESEARCH Principles, Application & Cases” New Delhi,

SULTAN CHAND AND SONS.
• KOTHARI C.R “Research methodology” New Delhi, Vishwa prakashan.
• Finance year book
• Panday I.M., Financial Management, Ninth Edition, Vikas Publication, 200.
• Chandra Prasanna, Financial Management, Fifth Edition, Tata McGraw-Hill Publication, 2001
• Khan & Jain, Financial Management, Third Edition, Tata McGraw-Hill Publication, 2001.
• Sharma & Gupta, Management Accounting, Kalayani Publication, 2004.
• SEML FINANCIAL REPORT
WEBSITES: -

1. http://en.wikipedia.org/wiki/Exploratory_Studies

2. http://www.123eng.com/forum/viewtopic.php?t=12820

3. http://www.indianmba.com/Faculty_Column/FC538/fc538.html

4. http://www.indianmba.com/Faculty_Column/FC685/fc685.html