Nowadays its very important for organizations to achieve corporate excellence.Every business concern irrespective of its size,nature needs funds to manage the business operations.Every business has to do day to day expenses like purchase of raw material ,payment of wages ,working capital becomes an important part of business.Working capital is the life blood of business because no business can undertake its day to day operations without an adequate amount of working capital.
Effectiveness of an organization depends on the strength of its working capital management.Working capital management is the core to whole system.Working capital management of India`s steel industry holds a greater importance because steel forms the backbone of any infrastructural facility and in recent years has become more crucial for achieving rapid economic growth of the country.In this term paper attempt is made to examine the working capital practices in SAILwith special refrence to Durgapur steel plant.The term contains the basics of working capital,procedures for analysis of working capital,ratios used to define the working capital and the impact of shortcomings in the management.
- To find out the efficiency of working capital management in Durgapur steel plant and other major plants of SAIL.
- To have knowledge about functioning of a large PSO steel plant.
- To study how working capital management practices plays an important role in supporting other activities of an integrated steel plant.
- To gain familiarity with various components of working capital in Durgapur steel plant.
- To have solution for improvement of working capital management at Durgapur steel plant.
I had used secondary data like:-
- Annual reports
- Cost and Budget reports
- Production reports
- Inventory reports
- Sales reports
- Cash reports
In this term term paper following steel plants of SAIL have been considered:-
- Durgapur steel plant
- Bhilai steel plant
- Rourkela steel plant.
- Bokaro steel plant
This study will help to find the efficiency of Working capital management practices in these plants and especially in Durgapur steel plant.Working capital of the four plants have been calculated and trend of working capital in past four years have been ascertained.Data of four consecutive years starting from year 2004-05 have been taken.
INDIAN STEEL INDUSTRY:-
Steel is an important indicator to analyze the economic development of a country. The steel industry is highly scientific and technology oriented. Technological advancement is very important for the overall health of the steel industry.
During Ancient Period
The history of iron and steel making in India goes back by several centuries. It dates to 480 BC when archers in India used arrows tipped with steel. The iron pillar of Dhar near Indore in Madhya Pradesh dates back to about 321 AD, the iron pillar of Kutab Minar near Delhi dates back to about 400 AD and the iron beams of Sun temple of Konark in Orissa dates back to 13th century. These pillars are a testimony to ancient India's expertise in the making of steel.
The roots of the Indian Steel industry in modern times can be traced to the year 1874, when a company called Bengal Iron works at Kulti near Asansol in West Bengal produced iron. One of the most important landmarks in the history of Indian steel industry was the commencement of the Tata Iron and Steel Company at Jamshedpur in the state of Bihar in 1907.The other prominent steel manufacturers before independence were Indian Iron and Steel Company (1922),Mysore Iron and Steel Works(1923) and Steel Corporation of Bengal (1937).
India found it difficult to sustain development in steel sector after independence on its own due to the lack of technological development. The high cost of developing technology in this sector proved to be a major hindrance. That's when the government decided to go for synergy with other countries for technology transfer. Some of the prominent steel plant set up then was in Rourkela in collaboration with West Germany and in Bokaro in collaboration with Russia. These steel plants came under the purview of public sector enterprises.
The post liberalization scenario in the Indian Steel industry has witnessed a monumental shift. Some of the salient features are:
- The need for license for increasing capacity has been abolished.
- Steel industry has been removed from the list of Industries under the control of state sector.
- Foreign equity investment in steel has gone up to 74%.
- In January 1992 the price and distribution controls were removed.
- Policies like convertibility of rupee on trade account, freedom to mobilize resources from overseas financial markets and restructuring of existing tax structure have immensely benefited the industry.
The Indian steel industry has come a long way since its humble beginnings. The takeover of the British steel giant Corus steel by Tata Steel and the acquisition of Arcelor by Mittal Steel herald a new beginning for the Indian steel industry. These events signify the fact that the Indian steel industry has acquired a global identity and is today extremely competitive globally.
Some of the prominent steel producers today are Posco, Tata Steel, Essar, Ispat, Sail and Rinl.
- It has to be said that the global recession has affected the Indian steel industry especially stainless steel, but the steel industry is trying to offset the negative effect of the recession by focusing on transportation and construction projects which are usually funded by the government.
- India is the only country globally to record a positive overall growth in crude steel production at 1.01 per cent for the period January -March 2009.
- It is estimated that India's steel consumption will grow at nearly 16% annually till 2012.
- The National Steel Policy has forecasted the demand for steel would reach 110 million tons by 2019-2020.
OVERVIEW OF STEEL AUTHORITY OF INDIA LTD:-
SAIL was established as a holding co. at New Delhi on 24-1-1973 with authorized share capital of Rs.2000 crores.This holding co.was formed with four public sector steel plants.It was converted into unitary co.in 1978 and is now responsible for the management of five integrated steel plants at Bhilai,Bokaro,Durgapur,Burnpur and Rourkela.
Steel Authority of India limited is one of the leading steel manufacturing companies in India.It produces both basic and special steel for domestic consumption,engineering power,railway,automotive and Defence industries and for sale in export market.It was ranked in top ten public sector companies in terms of turnover.SAIL has a well equipped Research and development for Iron and steel at Ranchi which helps to produce quality steel and develop new technologies for the steel industry.SAIL`s consultancy divison at New Delhi offers services and consultancy to clients world-wide.
Vision of SAIL:-
The vision of SAIL is to achieve market leadership and prosper in business through satisfaction of customer needs by continual improvement in quality,cost,delivery of products and services.
Objectives of SAIL:-
- To help in rapid economic growth and industrialization of the country.
- To promote balanced regional development.
- To create the necessary infrastructure for economic development.
- To generate different employment avenues in the country.
- To assist the development of small scale and ancillary industries.
DURGAPUR STEEL PLANT :-
In 1955 the Colombo plan mission headed by Sir Geric Coates visited India and selected Durgapur for setting up integrated steel plant,to be build with british collaboration.It was set up in late 50`s with an intial annual capacity of one million tones of ingot steel,which was subsequently expanded to 1.6 million tones per year.Durgapur steel plant was incorporated into SAIL on 1-May-1978.It produced its first steel ingot on 25-April-1960.It was highly desirable location because:-
- Proximity to nearby coal mines.
- Grand trunk road.
- ]Railway lines connecting Calcutta and New Delhi.
- Calcutta port.
- Power from Damodar valley corporation.
Water from Durgapur Barrage.
Products of Durgapur steel plant :-
- Wheels,Axle and wheel sets.
- Skelps and strips.
- Blooms,Billets and Slabs.
- Plain rounds and TMT Bars.
- Angles,Channels and Joists.
- Pig Iron.
WORKING CAPITAL MGT.-
Working capital means the investment in assets which facilitates the working of the organization.It is the amount required for day to day expenses.To run business successfully every concern should have adequate working capital.
Working capital management is the process of planning and controlling the level and mix of the current assets of the firm as well as financing these assets.Working capital should be managed in such a way that it ensure higher profitability and proper liquidity to the business concern.
Concepts of W.C:-
- Balance sheet concept/Traditional concept.
- Operating cycle concept.
Balance sheet concept/Traditional concept:-
It shows the position of the firm at a certain point of time.There are two types of working capital i.e Gross working capital and Net working capital.
- Gross working capital: - It refers to firm`s investment in current asset.The sum of the current asset is the working capital of the businesss.
- Net working capital:-It is the difference between current asset and current liabilities or excess of total current asset over total current liabilities.
Operating cycle concept:-
The duration or time required to complete the sequence of events right from the purchase of raw materials for cash to the realization of sales in cash is called operating cycle.It includes conversion of cash into inventory,conversion of inventory into receivables and collection of receivables.
Types of working capital:-
- Fixed/Permanent working capital:-
- Variable/Temporary working capital:-
Permanent working capital represents the min. level of raw material,work in progress,finished goods and stores,accounts receivables and cash which are in circulation to ensure continuity of production.
This capital is needed according to situation.To meet the growing demands of busy season business need additional working capital.This capital is used to feed the operating cycle in busy periods.It is of two types like seasonal working capital and special working capital.
Determinants of working capital:-
- Nature of business.
- Size of business.
- Operating cycle.
- Production cycle.
- Seasonal variations.
- Govt. Policies.
- Dividend policy.
Working capital ratios:-
- Current ratio = current assets
- Acid test ratio = Liquid assets
- Working capital ratio = Sales
- Stock turnover ratio = Sales
- Current assets turnover ratio=Sales
COMPARATIVE ANALYSIS OF W.C:-
Inventory in SAIL composed of:-
- Raw material.
- Stores and spares.
- Finished and semi finished products.
SHORTCOMINGS AND CONCLUSION:-
- The company has an effective short term liquidity position and it should focus more in future to improve this.
- Due to holding of idle cash the profitability of plant is effected.
- Durgapur steel plant follows a good credit policy of debtors but a risk of bad debts is always present in high debtors.
- Uneven trend in holding of raw material is a problem in Durgapur steel plant and this is affecting the liquidity position of plant.
- Durgapur steel plant had increased its loans and advances this depicts that plant is engaged in modernization of machinery.
- Working capital ratio is low in Durgapur steel plant and steps should be taken to increase this in future.
- The management of the plant is successful in timely recovery of acured interest from concerned parties.
- The holding period of finished and semi finished product in Durgapur steel plant has increased over the four years though the turnover has grown up .This kind of situation can cause a major impact on liquidity of the company.
- Durgapur steel plant should follow JIT (Just in time) technique of manufacturing.This will help in minimizing blockage of funds.
- The company should search for more source of raw material as it will reduce the cost of production and improves profitability.
- The management of plant should incorporate on TQM (Total quality management).
- The company should review its credit policy at frequent intervals as it helps in reducing debtors and money can be used for other investment plans.
- Durgapur steel plant should try to fix a standard in respect of holding period of raw materials.
- Durgapur steel plant should try to invest the excess cash balance after keeping the required amount because holding of cash as idle is unproductive for the plant.
- Annual statistics -Steel Authority of India.
- Financial report-Steel Authority of India(2004-05,2005-06,2006-07,2007-08)
- Financial management by M.Y.Khan and P.K. Jain.