CHAPTER-1

INTRODUCTION

 OBJECTIVE AND SCOPE OF THE STUDY

 REFRACTORY INDUSTRY
 COMPANY PROFILE
 WORKING CAPITAL MANAGEMENT

1
 OBJECTIVES OF THE STUDY

 To know efficiency of working capital management of TRL.

 To analyse the performance and position of TRL in Refractory’s Industry in India.
 To study the overall operating cycle of working capital of the company.
 To study receivable management, inventory management and cash management.
 To study the Working Capital financing practices of the company

SCOPE OF THE STUDY

Embarking upon the Scope of the project assigned to me, I was first briefed by the chief
of the finance department on the day one and during that session I was being introduced with my
internal guide with whom a well planned agenda was formulated.

 It suggested that first I have to go through the annual reports of last five years of TRL.

 Following the above was the task of following the functioning, position trend of TRL.After that I
took the job of interpreting the balance sheet and profit & loss account of the concern. By
conducting this research works on the basis of this information’s, various techniques of financial
management e.g., comparative statement, trend analysis and ratio analysis etc. were used in the
present study.

 Then interaction with the head of different department with whom we have the work like
INVENTORY, RECEIVABLES etc

The above-mentioned agenda aptly communicates the scope of my project.

2
 Refractory Industry

Refractory is a term given to a class of materials which are produced from non-
metallic minerals and possess capability to withstand heat and pressure. These are products that
confer properties like high temperature insulation, resistance to corrosive and erosive action of hot
gases, liquids and solids at high temperatures in various kilns and furnaces.

The production of refractories started in India in the form of fire clay bricks in 1874.
Today, a wide variety of refractory products are manufactured tailor made to suit the requirements of
the application in various sectors which include iron and steel, cement, glass, non-ferrous metal,
petrochemical, fertilizer, thermal power plants etc.

The fortunes of the refractory industry are linked to the growth of iron and steel sector
which consumes a mammoth 75% of the refractories produced. Sector wise consumption of the
refractories in India is shown below in the pie chart. The specific refractory consumption is about 27
Kg/T in steel industry, 1.7 Kg/T in Cement and 55 Kg/T in glass industry. These sectors are giving
high thrust on productivity, quality, cost, energy conservation and cleaner environment which
necessitates new generation of refractories with specific requirements

Sector Wise Refactories Consumption

in India
Aluminimum Others
5% 4%
Glass
5%
Cement
11%

Iron & Steel

75%

Source: Status & Outlook of India Refractory Industry, B. V. Raja

Raw materials used in the production of basic Refractories are magnesites, dolomite, chrome ore,
spinel and carbon. Basic Refractory bricks such as Magnesia-chrome and Magnesia- spinel are made
up of synthetic magnesia clinker or dead burned natural magnesite; that forms spinel during firing of
the brick.

3
 Present Scenario of Industry

Being fully reliant on end user industries including steel and aluminum, the Indian
refractory industry is currently encompassing the downward cycle. Although this has not affected the
growth rate of the industry at all, yet it is a matter of great concern. The global economic slowdown
has affected the local manufacturing sectors badly with demand from auto, aviation and railways
remains stagnant since the blip of meltdown felt about 12 months ago. Being immune to the global
industrial development, India's refractory industry has witnessed a dramatic squeeze in margins
amidst poor demand from end users and raising raw material prices. Sudden fall in demand has also
caused huge inventory pile ups thereby pressurizing manufacturers to clean up stockpiles at the price
decided by the end users.

The Indian refractory manufacturers are squeezed between the raw material suppliers
and steel makers. The negotiating power of refractories makers is very poor, mainly due to its size, as
it is catering to an industry far bigger in size, primarily steel. Raw material prices are on fire. But
unlike steel makers, it is difficult for refractory manufacturers to pass on the burden of increasing raw
material prices. Even for them, who operate in high end technology segments, the real price rise of
the end products in the last two years has been actually negative. Margins are under severe pressure.

Fresh steel production capacity to the tune of 4.8 million tons will come on stream in
2009-10 taking the total finished steel capacity for the industry to around 70 million tons. In view of
this, finished steel production is expected to grow by 6.5 percent in 2009-10. The government's
emphasis on infrastructure spending in order to stimulate economic growth is expected to keep
demand for long products healthy. Real estate construction activity would pick up gradually in the
second half of 200910 due to low interest rates and fall in property rates and hence the demand of
steel and its backward integration products. Such projects may provide stimulus for refractory
companies also.

According to available reports, installed production capacity as on December 2006 was

roughly around 20 lakh tons per annum. Conservatives estimate that it went up by around 5 to 10
percent in 2007 and remained stagnant in 2008. Similarly, the production capacity that stood at 10
lakh tons per annum is estimated to have grown by at least 10 percent in 2007. But it is expected that
by 2010, along with the increase in steel production in the country, the demand for refractories will
touch 12 lakh tons per annum. Industry experts, however, draw a different picture. Items, which are
enjoying good demand, do not have excess capacity. Makers of these refractories are operating
currently at 80 percent capacity utilization. But, apprehensions are that there would be a shortage in
the market once the expansions plans by Indian steel producers start rolling at the expected pace.

4
 Tata Refractories Limited

Introduction:
Tata Refractories Limited (TRL) was set up in 1958 by Tata Steel at Belpahar in Orissa,
an eastern state of India. TRL has today grown in to the leading Refractories manufacturer in India
meeting the demands of sophisticated refractories for the steel, glass, non- ferrous and petro-
chemical Industries both in India and abroad. TRL today, is the largest refractories maker in India. It
has pioneered refractories making in the country and is the number one refractories company in
India with around 22% of the market share. With an annual capacity of 245,600 MT the company
has also equity participation from SAIL, the largest public sector steel producer of India. Its main
Works is strategically located at Belpahar in the district of Jharsuguda in the state of Orissa which is
nearer to major steel plants and some raw material sources. TRL has a DBM Plant and operations in
Salem (Tamil Nadu), operations in Jamshedpur, and captive mines in Chhuinpalli and Talabasta in
Orissa. A new green field plant has been setup in China to manufacture Magnetite based bricks. Also
a new operation has come up in Gujarat to manufacture High Alumina Castables and Bauxite based
bricks.

This is the story of a 50 year old Company with a record of uninterrupted profitability turning sick for
a variety of reasons and thereafter “turning around” through a series of innovative and entrepreneurial
initiatives. It should be a lesson for all organizations who either tend to get complacent because of
continued success or become technologically obsolescent in an environment of fast changing business
scenarios or both.

TRL is the first Refractories Company and also one among very few companies in
India to have successfully implemented Integrated Management System in 2006 after adopting
Quality Management System (QMS) (Current Standard ISO 9001: 2000) during the year 1994-95

It major client are integrated mini & other steel plant & various non-ferrous, Glass,
petro chemical & fertilizer industries. TATA REFRACOTRIES LTD also extends technical services
to its customers 7 helps in designing & application of refectories.

5
Product Line of TRL:
 Basic Bricks:

 High Alumina Bricks

 Silica Bricks
 Dolomite Bricks
 Monolithic Refractories
 Flow Control Products

Every Company has its Mission, Vision and Value, TRL also has its mission vision and
values which is shows how TRL different from other company. Here are the mission,
vision and value of TRL.

VISION

A Global Refractories Company.

MISSION

TATA Refractories shall be a high performance and technology driven organization committed
to create value for all its stakeholders.

VALUES
 Customer delight
 Leadership by example
 Integrity and transparency
 Fairness
 Furthering excellence

COMPETITORS OF TRL:

As other fields have competitions, the Refractories market also has a competition.

 Orissa Cement
 Bharat Refractories
 ACC Cement
 IFGL Refractories
 Vishuvyas Refractories

6
 Working Capital Management

Every business needs investment to procure fixed assets, which remain in use for a longer
period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’. Business also
needs funds for short-term purposes to finance current Operations. Investment in short term assets
like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘Working Capital’. The ‘Working
Capital’ can be categorized, as funds needed for carrying out day-to-day operations of the Business
smoothly. The management of the working capital is equally important as the management of long-
term financial investment. Every running business needs working capital. Even a business which is
fully equipped with all types of fixed assets required is bound to collapse without:

(i) Adequate supply of raw materials for processing;

(ii) Cash to pay for wages, power and other costs;
(iii) Creating a stock of finished goods to feed the market demand regularly
(iv) The ability to grant credit to its customers.

All these require working capital. Working capital is thus like the lifeblood of a business.
The business will not be able to carry on day-to-day activities without the availability of adequate
working capital.

Working capital cycle involves conversions and rotation of various constituents components
of the working capital. Initially ‘cash’ is converted into raw materials.

Subsequently, with the usage of fixed assets resulting in value additions, the raw materials
get converted into work-in- progress and then into finished goods. When sold on credit, the finished
goods assume the form of debtors who give the business cash on due date. Thus ‘cash’ assumes its
original form again at the end of one such working capital cycle but in the course it passes through
various other forms of current assets too. This is how various components of current assets keep on
changing their forms due to value addition. As a they rotate and business operations continue. Thus,
the working capital cycle involves rotation of various constituents of the working capital

Working Capital Management is concerned with current assets current liability and their
relationship to the firm. Working Capital policies affects the future returns and risk of the company;
consequently they have an bearing ultimate bearing on shareholder wealth.

Generally Working Capital Divided into two parts:

(i) Gross Working Capital

(ii) Net Working Capital
(i) Gross Working Capital: Gross Working Capital refers to the firm’s investment in current assets.
Current assets are the assets which can be converted in to cash within an accounting year and include
cash, short term securities, debtors, and stocks.

7
(ii) Net Working Capital: Net Working Capital refers to the difference between current assets and
current liabilities. Current liabilities those claims of outsiders which are expected to matured for
payment within an accounting year and include creditor, bills payables, and outstanding expanses.
Net working capital can be positive or negative. A positive net working capital will arise when
current assets exceeds current liabilities. Negative net working capital occurs when current liabilities
are in excess of current assets

Component of Working Capital:

Component of Working Capital Basis of Valuation

Stock of raw material Purchase cost of raw materials

Stock of work in process At cost or market value, whichever is
lower
Stock of finished goods Cost of production
Debtors Cost of sales or sales value
Cash Working expenses Working expenses

Working Capital Cycle of TRL

8
 Above is the working Capital Cycle Of the Tata Refractories Limited, which shows how
cash converted into work-in-process after that finished goods and how debtors again converted into
cash. The length of the operating cycle of TRL is the sum of inventory conversion period and
debtor conversion period. The inventory conversion period is the total time taken for producing and
selling the product. Typically it includes, raw material conversion period, work-in-progress
conversion period, stores and spares conversions period, fuel conversion period, and finished
goods conversion period. The debtor conversion period is the time required to collect the
outstanding amount from the customer

Operating cycle is the time duration required to convert sales, after the conversion of resources into
inventories, into cash. The operating cycle of TRL includes three phases:

 Acquisition of resources, such as raw materials, labour, power, and fuel etc.
 Manufacture of the product which includes conversion of raw material into work-in-progress
in to finished goods.
 Sale of the product either for cash or credit. A credit sale creates accounts receivable for
collection

9
 CHAPTER-2

METHODOLOGY

10
 METHODOLOGY

This report is based on observation, reference records and published data of at TRL, Belpahar.

Information and required data were collected from two sources, which are –

Primary Sources- Information gathered from discussion with officers in the departments of Finance and
Materials on various aspects of Working Capital form primary source of data for the analysis.

Secondary Sources-Annual Reports (2003-2004 to 2007-2008), magazines and journals in knowledge centre
in TRL. A large number of data were also collected from Internet sources.

Following steps have been taken carefully while preparing the report:

 Observation and handling of activities in the Finance department.

 Preparation of Financial statements, Cash Flow statement, Operating Cycle and other related statement

11
 CHAPTER-3

DATA ANALYSIS & LIMITATION

12
 Data Analysis
Each and every company needs norms and actual for fulfillment of their daily needs and to achieve
the predetermine target. So here is some of norms and actual of TRL of last 5 years from the year
2003-2008

WORKING CAPITAL MANAGEMENT IN TRL

WORKING CAPITAL; AS ON 31.03.2008 Rs. in Cr

ACTUAL
AS PER AS ON
ITEMS NORMS NORM 31.03.2008 DIFF
24.8 32
RAW MATERAIL 45DAYS OPF CONSMN (45DAYS) (59DAYS) -4.23
15DAYS COST OF 20.03 13.47
WORK IN PROGRESS PRODUCTION (15DAYS) (11DAYS) 7.2
STORES & SPARES 2.52 5.15
FUEL 120DAYS OF CONSUMPTION (120DAYS) (246DAYS) -6.56
2.41 3.56
FUEL 15DAYS OF CONSUMPTION (15DAYS) (23DAYS) 2.63
30DAYS COST OF 44.85 39.66
FINISHED GOODS PRODUCTION PLUS E.D (30DAYS) (27DAYS) 1.15

OTHERS ACTUAL 46.59 46.59 -5.19

113.67 109.44
DEBTORS 70 DAYS OF SALES (70DAYS) (68DAYS) 0

TOTAL CURRENT
ASSETS 254.87 249.87 -5
60.1 73.01
CREDITORS 45DAYS,COST OF
(OPERATION) PRODUCTION (45DAYS) (66DAYS) 12.91

OTHER CREDITORS &

PROVISIONS ACTUAL 25.29 25.29 0
Incl. not due within one
year

TOTAL CURRENT
LIABILITY 85.39 98.3 12.91

NETWORKING
CAPITAL 169.48 151.57 17.91
(Source from Annual Report2007-2008)

13
 WORKING CAPITAL AS ON 31.03.2007 Rs. in Cr
ACTUAL AS
AS PER ON
ITEMS NORMS NORM 31.03.2007 DIFF
16.39 19.02
RAW MATERAIL 30DAYS OPF CONSMN (30DAYS) (35DAYS) 2.63
15DAYS COST OF 17.66 14.06
WORK IN PROGRESS PRODUCTION (15DAYS) (12DAYS) -3.6
90DAYS OF 2.52 3.82
STORES & SPARES FUEL CONSUMPTION (90DAYS) (137DAYS) 1.3
15DAYS OF 1.96 2.68
FUEL CONSUMPTION (15DAYS) (21DAYS) 0.72
30DAYS COST OF 40.08 25.52
FINISHED GOODS PRODUCTION PLUS E.D (30DAYS) (18DAYS) -14.56

OTHERS ACTUAL 37 37 0
86.12 103.75
DEBTORS 60 DAYS OF SALES (60DAYS) (73DAYS) 17.63

AL CURRENT ASSETS 201.73 205.85 4.12

CREDITORS 45DAYS,COST OF 52.98 65.01
(OPERATION) PRODUCTION (45DAYS) (56DAYS) 12.03

OTHER CREDITORS &

PROVISIONS ACTUAL 17.69 17.69 0
Incl.not due within one year

TOTAL CURRENT
LIABILITY 70.67 82.7 12.03

NETWORKING
CAPITAL 131.06 123.15 -7.91
(Source from Annual Report 2006-2007)

14
 WORKING CAPITAL; AS ON 31.03.2006 Rs. in Cr
ACTUAL
AS ON
AS PER 31.03.200
ITEMS NORMS NORM 6 DIFF
22.3 25.2
RAW MATERAIL 35DAYS OPF CONSMN (45DAYS) (51DAYS) 2.97
15DAYS COST OF 14.42 15.39
WORK IN PROGRESS PRODUCTION (15DAYS) (16DAYS) 0.97
90DAYS OF 4.66 3.42
STORES & SPARES FUEL CONSUMPTION (90DAYS) (66DAYS) -1.24
15DAYS OF 1.57 1.05
FUEL CONSUMPTION (15DAYS) (10DAYS) -0.52
30DAYS COST OF 24.09 22.56
FINISHED GOODS PRODUCTION PLUS E.D (30DAYS) (24DAYS) -1.53

OTHERS ACTUAL 37 37 0
75.61 78.13
DEBTORS 70 DAYS OF SALES (60DAYS) (62DAYS) 2.52

TOTAL CURRENT
ASSETS 227.08 230.25 3.17
CREDITORS 45DAYS,COST OF 43.19 63.35
(OPERATION) PRODUCTION (45DAYS) (66DAYS) -20.16

OTHER CREDITORS &

PROVISIONS ACTUAL 53.99 53.99 0
Incl.not due within one year

TOTAL CURRENT
LIABILITY 70.67 82.7 12.03

NETWORKING CAPITAL 131.06 123.15 -7.91

(Source from Annual Report2005-2006)

15
 WORKING CAPITAL: AS ON 31.03.2005 Rs. in Cr
ACTUAL AS
ITEMS NORMS AS PER NORM ON 31.03.2005 DIFF
19.48 30.31
RAW MATERAIL 35DAYS OPF CONSMN (45DAYS) (70DAYS) 2.97
15DAYS COST OF 9.75 14.07
WORK IN PROGRESS PRODUCTION (15DAYS) (18DAYS) 0.97
STORES & SPARES 90DAYS OF 4.4 3.91
FUEL CONSUMPTION (90DAYS) (80DAYS) -1.24
15DAYS OF 1.13 0.68
FUEL CONSUMPTION (15DAYS) (9DAYS) -0.52
30DAYS COST OF 24.09 19.28
FINISHED GOODS PRODUCTION PLUS E.D (30DAYS) (24DAYS) -1.53

OTHERS ACTUAL 37 37 0
65.67 66.67
DEBTORS 70 DAYS OF SALES (60DAYS) (61DAYS) 2.52

TOTAL CURRENT
ASSETS 174.95 185.45 10.5
CREDITORS 45DAYS,COST OF 37.03 65.02
(OPERATION) PRODUCTION (45DAYS) (79DAYS) -27.99

OTHER CREDITORS
& PROVISIONS ACTUAL 44.34 44.34 0
Incl.not due within one
year

TOTAL CURRENT
LIABILITY 81.37 109.36 -27.99

NETWORKING
CAPITAL 95.58 76.09 -17.49
(Source from Annual Report2004-2005)

16
 WORKING CAPITAL; AS ON 31.03.2004 Rs. in Cr
ACTUAL
AS PER AS ON
ITEMS NORMS NORM 31.03.2004 DIFF
12.19 23.97
RAW MATERAIL 35DAYS OPF CONSMN (35DAYS) (68DAYS) 11.78
15DAYS COST OF 9.75 11.64
WORK IN PROGRESS PRODUCTION (15DAYS) (18DAYS) 1.89
STORES & SPARES 90DAYS OF 4.26 3.67
FUEL CONSUMPTION (90DAYS) (78DAYS) -0.59
15DAYS OF 1 0.92
FUEL CONSUMPTION (15DAYS) (14DAYS) -0.08
30DAYS COST OF 22.62 20.42
FINISHED GOODS PRODUCTION PLUS E.D (30DAYS) (27DAYS) -2.2

OTHERS ACTUAL 25.01 25.01 0

60.25 49.82
DEBTORS 70 DAYS OF SALES (70DAYS) (58DAYS) -10.43

TOTAL CURRENT
ASSETS 135.08 135.45 0.37
CREDITORS 45DAYS,COST OF 29.25 40.61
(OPERATION) PRODUCTION (45DAYS) (62DAYS) -11.36

OTHER CREDITORS &

PROVISIONS ACTUAL 30.44 30.44 0
Incl.not due within one
year

TOTAL CURRENT
LIABILITY 59.69 71.05 -11.36

NETWORKING
CAPITAL 75.39 64.4 -10.99

(Source from Annual Report2003-2004)

17
 WORKING CAPITAL TURNOVER
TRL RHI
2.31
2.07 2.06 2.12
1.85 1.92 1.83 1.82
1.77

1.27

2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION

Looking at a glance on the above graph, it is seen that working capital had decreased during 2005-06
as compared to 2006-07 and 2007-08 .It was due to decrease in debtors, cash and bank balances and
adoption of new borrowings and recovery of old dues. Working capital turnover of RHI till 2005-
2006 were less than TRL, later it improves its position in 2006-2007 and 2007-2008

GRAPH 02

NET WORKING CAPITAL CYCLE

TRL RHI VERSUVIUS
126
106
89 89 95 94
86 86
77 78
69
61 57
49
38

2003-04 2004-05 2005-06 2006-07 2007-08

INTERPRETATION

The graph of Net Working Capital shows an irregular trend .It shows decreasing trend in financial
years 2006-07 and 2007-08 as compared to 2005-06 caused by the increase in current liabilities and
provisions. This is a result of Mission 2000 programme. The resulting increase in working capital was
due to increase in the amount of raw material purchased and increment in provision.

The Net Working Capital Turnover of Versuvius exceeded its competitors in all the years under
study. The working capital position of Versuvius were comparatively better than TRL

18
TRL DEBTORS MANAGEMENT

Debtors over Current Asset:

Debtors over Current Asset Table No.-7

YEARS DEBTORS CURRENT ASSETS RATIOS

2007-2008 1094461154 2497217831 43,83%
2006-2007 1037557010 2091980916 49,60%
2005-2006 781327686 2302450905 33,94%
2004-2005 666741534 1854490292 35,95%
2003-2004 49,82,40490 1354516543 36,78%

Debtors/Current Assets
RATIOS

49.60%
43.83%
35.95% 36.78%
33.94%

2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

INTERPRETATION:

If we go through the gross current asset of TRL we can see that about 49% of its represented by
debtors in the financial year 2006-2007, which is about Rs 102.507 crores more than its norms. However it
may be seen that in subsequent years TRL has reduced the gap and brought the debtors position level at par
level of norms . As debtors is a important person in the working capital management, TRL has properly
analyzed in details how exactly debtors are managed here.

Average Collection Period (ACP):

It also helps to find the firm’s average investment in account receivable. Average collection
period of TRL for five year is shown below in the form of the table and graph.

YEARS DEBTORS CREDIT ACP

SALES
2007-2008 1,09,44,61,154 5,84,59,23,088 67.398 Days
2006-2007 1,03,75,57,010 5,16,75,44,869 72.282 Days
2005-2006 78,13,27,686 4,55,70,76,293 61.723 Days
2004-2005 66,67,41,534 4,00,54,21,306 59.926 Days
2003-2004 49,82,40,490 3,17,07,24,228 56.57 Days

19
 Average Collection Period
72.282 ACP
67.398
61.923
59.926
56.57

2003-04 2004-05 2005-06 2006-07 2007-08

INTERPATION:

By seeing five financial year from 2003-2004 to 2006-2007 we can say that average collection
period is very high in this five year which means TRL’s investment in account receivable is also higher . TRL
has set up a group of persons which comprising of members from marketing and finance department. This
group is mainly set to identify the lacuna in the system of collection in time and also given more attention for
collecting the old dues.

Consider As Doubtful Debt:

YEARS 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

CONSIDERED DOUBTFUL 1258142 2958142 2901255 17883524 15666605

Consider as Doubtful
Consider as Doubtful

17883524
15666605

2901255 2958142
1258142

2003-04 2004-05 2005-06 2006-07 2007-08

20
Interpretation:

Consulting above graph it was found that the amount of doubtful debt during 2003-2004 was very
high which later decreased by considerable amount and reduce to in lacks at it was possible by taking
drastic measures on the part of company.

Norms Of TRL in Comparison with Actual (Days) :

Debtors in Days
Year Norms Actual
2003-04 70 58
2004-05 70 61
2005-06 70 62
2006-07 60 73
2007-08 70 68

Debtors In Days
80 70 70 70 73
68
70
60 70
62 60
No of Days

50 58 61
40
30
20
10
0
2003-04 2004-05 2005-06 2006-07 2007-08
Norms 70 70 70 60 70
Actuals 58 61 62 73 68
Year

Interpretation:

The trend of debtors has followed a upward trend in the year 2006-07 to retain the old customer in the
competitive market scenario. The norms have been accordingly decreased to maintain aggressive
collection policy.

Subsequently in the year2007-08 due to strict collection policy debtors (no of days) have decreased
and accordingly norms were kept as 70 again.

21
Term of Payment in TRL Analysis with Its Specified Customers:

In TRL the term of payment is generally made with different basis, by which the
customers of the TRL are pay, the money with definite period. In the procedure TRL has made
standard relation with the customers and gives more scope to them for make payment with limited
time. It will be help to customers of TRL for increase their product purchase reasonable time .in this
procedure get benefit by both customers of TRL and TRL. Actually in term of payment are very easy
for customers to accept because it shows clear cut procedure of payment in a definite period.
Generally the term of payment made by TRL towards its customers in four types, which are 30days
payment, Letter of credit (LC), Post dated cheque (PDC)/Stock in sales and Advance payment. In this
four term of payments are very help to TRL as well as its customers to make payment within the time
or in specified time. For analysis the customers of TRL we have to categories them in this four
method , by which we can easily know the which customer paid in which term and specified them
for next better relation and sales more deal with them. So we can get more order from them and as a
result get more profit.

 30 DAYS PAYMENT:

In this term TRL gives 30 days to its customers to make payment .in this term customers
has to pay 20% in advance, 50% at the time of dispatch the goods and left 30% within 30 days
.generally big companies are come under this term because they have get product in quick time so
they make payment in time, by which they get more scope by TRL next time when they need product
in short time. By which sale will be increase by TRL and get more profit.

 LETTER OF CREDIT (LC)

A letter of credit (LC) is signed instrument undertaking banker of buyer of a to pay seller a
certain sum of money on presentation of document, evidencing shipment of a specified goods and subject to
compliance with the stipulated term and condition. It is bank promise to pay upon the satisfactory compliance
with LC terms & condition by the beneficiary. Three part of this term are issuer, applicant and beneficiary.
Issuer-the entity that issue credit i.e. a bank or financial institution. In TRL banks deal with customers are
State Bank of India (SBI) and Central Bank of India (CBI).Applicant – It is the customer who request the
issuer the credit he wants for beneficiary. In TRL various customers make payments in this are JSW steel and
power limited, Hindustan copper etc.

 SALES TO STOCKIST
Sales to stock is term in which different stocker purchased the products directly
from company and sell to customers in some extra benefit. In this Terms Company has no so risk
about payment because company deal with stocker not with the customers. In TRL provide the
products to stocker in directly payment term by they do not take any type risk at the time of sales. In
this term payment may be late but ensure that payment will be made in specified time.

 ADVACE PAYMENT

In this term payment is made in advance before purchased. In TRL generally deal
this term with small undertakings. These small customers are generally purchased small amounts of
products so that TRL want get advanced by that they produce according to orders. In this process
payment is made easily but formalities must be maintained

22
TRL Cash management

Ratios:

Ratio 2003-04 2004-05 2005-06 2006-07 2007-08

Year
Quick Ratio 2.71 1.83 2.16 2.04 2.35
Absolute Liquid Ratio 0.055 .1215 0.052 0.042 0.076

Ratios
Quick Ratio
2.71 2.35
2.16
1.83 2.04
Absoluate
Liquid Ratio

0.055 0.1215 0.052 0.076

0.042

2003-04 2004-05 2005-06 2006-07 2007-08

Interpretation:

 Quick Ratio:

Analysing table and the figures presented on the graph , it revel that a quick ratio from
2003-2004 to 2007-2008 where 2.71; 1.83; 2.16; 2.04; and 2.35.In, fact quick ratio establishes
relation between quick asset and current liabilities. The rule of thumb for Quick Ratio is 1:1 which is
supposed to be standard to be maintained by almost all firms Quick Ratio for TRL over the period
under study show quick asset are in excess over the current liabilities which are not desirable. It is
assumed that large amount of current asset excluding inventories were used.

 Absolute Liquid Ratio:

The Above Table represents the cash ratio in relation to total current assets. The figures
have been plotted on the graph and revaled the position that during 2003-2004 to 2007-2008, the cash
ratio to current asset where 0.055; 0.1215; 0.052; 0.042; 0.076 respectively. In all cases the cash
amount was very negligible in relation to current asset during 2004-2005.The company should not
maintain such large amount of cash in hand or at bank which may be miss appropriated or otherwise
misutilised
 1.Cash flow into and out of the firm – In TRL the cash which comes from debtors through the
sale of product(Bricks) is the cash inflow and the cash which is paid to creditors for the purchase of
raw-materials(Dolomite, Silica, etc), spares and parts, machinery etc is the cash outflow.

2. Cash flow within the firm – Cash flow within TRL would constitute:

a) TRL is paying wages and salary to their employees and labour.

b) It has made separate department for provident fund (PF) trust.
c) For the payment of gratuity TRL has tie up with LIC gratuity.
d) For super annotation TRL is deducting 15% of basic salary which is deposited with
LIC for 55 years after which a monthly pension is given to employee for lifetime.

3.Cash balances held by the firm at a point of time by financing deficit or investing surplus
cash – At the time of deficit of cash TRL takes short term loans(STL) from their respective
bankers(SBI, Samada and CBI, Belpahar) and at the time of surplus cash it does not invest in
marketable securities until it pays its debts

Managing Cash Collections and Disbursement:

(i) Accelerating Cash Collections:

A firm can collect more cash and reduces its balance. Cash requirement balance if it can
speed up its cash collection. The first obstrugles in decreasing the collection period is the extra time
enjoyed by the customers in clearing of bills can be accelerated by decreasing the gape between the
time a customer pay bill and the time the cheque is collected and funds become available by the firms
for use.

TRL has adopted various strategies for accelerating cash collection. Such as Cash
Management A/C with

 ICICI Bank and HDFC Bank. CMS a/c makes online payment transactions possible which
leads to highly reduction in processing time than the traditional way.
 ICICI Bank Charges 0.05 paisa per thousand in per day collection.
 HDFC Bank Not Charges any thing for collection.

TRL is now planning to close its account in ICICI and open its account with the AXIS
Bank and this bank will not charge any thing for collection.

24
(ii) Stretching Accounts Payables:

One simple strategy of efficient cash management is to stretch the account payables. A
firm should pay its account payable as late as it possible without dominating its credit policy or
standing. It gives benefit of the cash discount available on prompt payment.

TRL collection a procedure is fast in same way it also makes prompt payment to their
suppliers. So TRL is not adopting the policy of stretching account payables.TRL uses various ways
for the payment to their supplier according to their convent:

(a) Multicity Cheques: The SBI Belpahar issues this cheque. With this cheque being
presented for payment in any branch of S.B.I then the amount due thereon will be immediately paid
and TRL a/c will be immediately debited on the same day.

(b) At Par Cheque: The bank issuing this cheque in SBI on the same day CBI Gomadera. The
bank deducts no charges when it is encased.

(c) Magnetic Ink Character Recognition (MICR): It is a system that is used by the bank in
which the electronic data is used instead of paper. Therefore TRL have started using MICR to
automate the clearing process. TRL maintain an account with RBI in which debit entire for inward
entire and credit entire for outward clearing.

(iii) Other Income:

There are various other sources from which the TRL get income. And they are:
(a) Scrape Sales
(b) Hospital: Jehangir Ghandy Hospital.
(c) Application of Refractories product

25
 CASH FLOW ACTUAL VS PROJECTION

FOR THE PERIOD FROM APR'07 TO MARCH'08

( Rupees in Crores )

Apr'07 to Mar'08 DIFF.

No. PARTICULARS Actual Projection

RECEIPT

1. Collection from Debtors 543.56 601.00 (57.44)

2. Miscellaneous Income 12.16 6.00 6.16

3. Recourse bill discounting 41.84 - 41.84

TOTAL 597.56 607.00 (9.44)

PAYMENT

1 Total Payments 572.80 604.57 (31.77)

2 Borrowings, Other than CC (Net) 6.31 20.90 (14.59)

3 Repayment of bill discounting 29.43 29.43

TOTAL 608.54 625.47 (16.93)

CASH CREDIT

Surplus/(Deficit) (10.98) (18.47) 7.49

Opening Balance (8.75) (8.75) -

Closing Balance (19.73) (27.22) 7.49

Sanctioned Cash Credit 38.00 38.00

Interpretation:
It can be seen from above table that only 90 percent i.e.Rs.543.56 Crores had been collected
from debtors and remaining 10 percent i.e. Rs.57.44 Crores are expected to be collecting in next
financial year. So here TRL has to be more conscious about its collection procedure. To achieve this,
cash management efficiency will have to be improved through a proper control of cash collection and
disbursement. The twin objective in managing the cash flows should be to accelerate cash collections
as much as possible and to decelerate or delay cash disbursements as much as possible

26
TRL’s Inventory Management:
By studying balance sheet of previous five years, it is observed that inventory form substantial
part of current assets. It is one of the major factors affecting the working capital cycle. In order to
reduce the working capital turnover, the company imposed inventory control scheme. In order to
analyse the inventory control in details, each item had been taken separately

In many organizations, materials form largest single expenditure item. An analysis of the
financial statements of a large numbers of private and public sector organizations indicates that
materials account for nearly 60% of total revenue expenditure.

Raw Material (Rs in lakh)

2003-04 2004-05 2005-06 2006-07 2007-08

Total sales 319 404 460 460 528

R.Material 121 159 182 197 199
Consumption
(%) 38 39 40 42.86 37.69

% Raw Metrial v/s Sales

Series1

42.86

40
39
38

37.69

1 2 3 4 5

Interpretation:

Raw materials constitute approximately 40% of total sales of different years under study.

TRL import nearly 50-55% of the raw materials .Sixty percent of the imported raw materials are
from China and rest from other parts of the world. There are 250 types of raw materials.

Nothing worthwhile can be achieved without proper planning. In order to reduce the raw material
cost proper planning and control is needed most.

27
 Raw Materials in Days
70 Norms
68
Actual
51 59

35
45

35 35 35 30

2003-04 2004-05 2005-06 2006-07 2007-08

Interpretation:

The above chart represents the trend of raw materials in Days.The raw material consumption has
decreased in 2006-07 but could not reached the norms of 30 days due to introduction of traded
products subsequently the consumption has increased in 2007-08 due to introduction of new products
and accordingly norms have decreased.

WIP IN NO OF DAYS
20
18
16
14
No of Days

12
10
8
6
4
2
0
2003-04 2004-05 2005-06 2006-07 2007-08
Norms 15 15 15 15 15
Actuals 18 18 16 12 11
Year

Interpretation:

The above chart represents the trend of work-in-progress in days. In Work- in Progress has followed
a downward trend from 2005-06&substantially decreased in 2006-07 introduction of traded
products has been the major reason behind.
 Stores In Days
246

90 90 137
90

120
90
78 80 66
2003-04 2004-05 2005-06 2006-07 2007-08

Norms Actuals

Interpretation:

The above chart shows the trend of stores for the last 5years. Stores consecutively have increased
drastically from 2006-07, in 2007-08 due to additional repair work. Also, the continuous running of
machine for 24 hrs a day requires large quantity to be consumed.

Fuel in Days

25
21
20
No Of Days

15 15 15
15 23
10 10 15 15
14
5 9
0
2003-04 2004-05 2005-06 2006-07 2007-08
Norms 15 15 15 15 15
Actuals 14 9 10 21 23

Years

Interpretation:

The above chart shows the trend of stores for the last 5years. Fuel consumption has increased
drastically from 2006-07 to 2007-08 due to introduction of additional KLINS and coals were used as
a source of fuel generation. In addition to that pet coke has emerged as another product for fuel
generation.

29
 LIMITATION

 This study has been conducted within a short period of 45days. Thus, it was not possible to
enter into minute aspect of finance at TRL. Belpahar.

 Due to the internal audit carried out by the outside auditors in the finance department the
higher officials could not provide too much time for detailed discussion.

 The Study has only made on the finical implication of Working Capital Management and
does not involve other financial and non-financial aspect of managing cash.

 The total report is only dependent in the Annual Report published by TRL

 Working Capital Management is a very wide topic and it is difficult to analyze thoroughly
within the short period of time

30
 CHAPTER-4

CONCLUSION & SUGGESTION

31
 CONCLUSION AND SUGGESTION

Working capital it is the life blood of any company. so it is natural that differ major
departments like production, marketing, purchase, inventory, maintenance along with the finance
department have to function efficiently for maintaining a good working capital management.

By studying the working capital of TRL the efficiency of different departments are come
into picture along with that of finance department. Though TRL is managing its working capital well,
a thorough study of the working capital management of the company brings out many opportunities
for improvement of the company.

Though TRL is trying to overcome its shortcomings at various levels, here are some
suggestions for TRL, which may help to improve the working capital position.

1. TRL has introduced a group of people for overcoming from drawbacks of collecting money
from their customer. At one area where TRL is lacking and it has to take immediate action in
regularity in collection from debtors. It is seen many times that the focus on collections is
irregular.
2. If we will see that 30 days credit payment M/S TRL actually receives its money by the end of
55th or 60th day. If possible they can try to reduce the number of credit days by offering the
goods at lower price or by offering some discount to there customer.
 Track and purse late payers.
 Getting external help if TRL’s efforts fail.
 TRL marketing personals have to be hard on issue.
 Solve the problems of the customers vis. Problem of invoice not received, problem of
wrong invoice etc.
3. The production departments can try to improve the quality and minimize the rejections with
aid of suitable techniques.
4. The finished stocks should be stored properly otherwise some of the products which get
hydrated very fast will be damaged quickly and they will be treated as non-moving current
asset.
5. Special care should be taken to reduce the non-moving finished stock that should be evaluated
and production departments have to plan to minimize occurrence of such causes.
6. In TRL coal is supplied from MCL which is near to Belpahar working unit. TRL can negotiate
with MCL and receive coal on regular basis due to that the storage burden of coal for the
company will reduce..
7. Material management department along with finance department can try to bargain with
supplier to reduce the price and change the mode off payment, which is suitable for the
company.
8. Individual person assigned for different task which directly or indirectly affects the working
capital should be made realise their responsibilities. This can be done by giving the persons at
work more authority, responsibility, remuneration for increasing their efficiency. All different
works relating persons, as it is needed as together form a team.

32
9. TRL is financed from two major banks with whom TRL is doing business since long time. In
my opinion it should try assessing the working capital finance with other leading banks of
India, whose branches are not more than 20 K.ms from the office. Who knows the new banks
may provide better or comparative finance.

10. Material management department along with finance department can try to bargain with
supplier to reduce the price and change the mode off payment, which is suitable for the
company.
11. The production departments can try to improve the quality and minimize the rejections with
aid of suitable techniques.
12. The finished stocks should be stored properly otherwise some of the products which get
hydrated very fast will be damaged quickly and they will be treated as non-moving current
asset.
13. Material management department along with finance department can try to bargain with
supplier to reduce the price and change the mode off payment, which is suitable for the
company.
14. Debtor’s realization in not very much smooth and regular which should be looked into with
some kind of innovative credit policy as a result of which helps the drawing power under
Maximum Permissible Bank Finance to a favorable condition.The utilization of current assets
towards repayment of creditors and other liabilities should be proper and accurate in order to
derive maximum drawing power under MPBF. What we have seen between the financial year
2005-06 and 2006-07 MPBF drawing power has been sustainably reduced due to realization of
loans and advances to repay the creditors which should not be the practices in general.
15. The company should plan the repayment schedule of its loan and advances in such a way that a
minimum burden should fall on the company’s liquidity and working capital requirements.

16.Repayment of bank borrowings particularly working capital finance through surplus cash to
reduce the interest cost

33
 CHAPTER-5
APPENDIX & BIBLOGRAPHY

34
 APPENDIX

BALANCE SHEET AS ON 31ST MARCH 2004,05,06

Particulars As on 31/03/2004 As on 31/03/2005 As on 31/03/2006

FUNDS EMPLOYED
1.Share Capital 11,00,00,000 11,00,00,000 20,90,00,000
2.Reserves and Surplus 38,62,91,362 61,46,64,680 161,65,65,593
3.Share Application Money Pending Allotment 26,44,64,680
4.Total Shareholder's Funds 49,62,91,362 98,91,34,520 182,55,65,593
5.Loans
(a)Secured 40,86,54,812 37,15,94,969 80,34,24,189
(b)Unsecured 12,67,79,147 12,95,91,749 8,77,10,85
6.Deferredb Payment Credit 12,98,57,895 7,87,77,632 2,02,28,416
7.Deferred Tax Liability(Net) 8,65,34,833 12,72,07,749 13,85,51,901
8.Provision For Employee Separation Compensation 18,74,90,094 16,22,16,980 13,84,69,881

9.Total Funds Employed 143,56,08,143 185,85,23,599 301,39,50,835

APPLICATION OF FUNDS
10.Fixed Assets
(a)Gross blocks 185,84,04,064 225,08,14,488 313,00,95,009
(b)Less: Depreciation 1,10,18,68,978 1,16,32,54,660 125,49,49,206
(c)Net Block 75,65,35,086 1,08,75,59,828 187,51,45,803
11. Investment 1,19,50,530 1,00,96,270 1,00,96,325
12.Current Assete,Loans and Advances
(a)Stores and Spare Parts (at cost) 4,49,45,895 4,46,55,042 4,35,67,566
(b)Loose Tools 9,23,578 11,69,508 10,77,258
(c)Stock in Trade 56,02,67,707 63,65,90,022 63,21,91,956
(d)Sundry Debtors 49,82,40,490 66,67,41,534 78,13,27,686
(e)Cash and Bank Balances 2,19,89,892 9,27,98,670 3,47,76,842
(f)Income Accrued On Deposits 1,16,424 25,739 9,750
(g)Loans and Advances 22,80,32,557 41,25,09,777 80,94,99,847
Total Current Assets 135,45,16,543 185,44,90,292 230,24,50,905
13.Less:CURRENT LIABILITIES & PROVISIONS
(a)Current Liabilities 51,77,75,891 76,35,78,201 67,02,52,012
(b)Provisions 16,96,18,125 33,00,44,590 50,34,90,186
68,76,94,016 109,36,22,791 117,37,42,198
14.Net Current Assets 66,71,22,527 76,08,67,501 112,87,08,707
15.Total Assets [Net] 143,56,08,143 185,85,23,599 301,39,50,835

35
 BALANCE SHEET AS ON 31ST MARCH 2008 AND 2007
Particulars As on 31/03/2007 As on 31/03/2008
FUNDS EMPLOYED
1.Share Capital 20,90,00,000 20,90,00,000
2.Reserves and Surplus 166,86,67,304 179,96,37,740
3.Share Application Money Pending Allotment
4.Total Shareholder's Funds 187,76,67,304 200,86,37,740
5.Loans
(a) Secured 113,71,48,864 124,34,93,987
(b) Unsecured 239,43,000 1,69,15,448
6.Deferredb Payment Credit
7.Deferred Tax Liability (Net) 175,065,246 13,81,95,577
8.Provision For Employee Separation Compensation 11,22,54,335 8,74,21,010

9.Total Funds Employed 332,60,78,749 349,46,63,762

APPLICATION OF FUNDS
10.Fixed Assets
(a)Gross blocks 325,62,44,372 330,64,06,453
(b) Less: Depreciation 137,54,29,725 153,77,49,761
(c) Net Block 188,08,14,647 176,86,56,692
11. Investment 33,89,34,595 33,89,34,595
12.Current Asset, Loans and Advances
(a) Stores and Spare Parts (at cost) 6,40,02,684 8.53,67,154
(b) Loose Tools 11.64,815 18,22,760
(c) Stock in Trade 58,61,30,368 85,13,94,581
(d) Sundry Debtors 103,75,57,010 109,44,61,154
(e)Cash and Bank Balances 3,42,38,276 6,47,80,695
(f)Income Accrued On Deposits 52,627 7,945
(g) Loans and Advances 36,88,35,136 39,93,83,542
Total Current Assets 254,66,60,234 249,72,17,831
13.Less: CURRENT LIABILITIES & PROVISIONS
(a)Current Liabilities 89,95,46,583 85,75,18,398
(b)Provisions 54,07,84,144 25,26,26,958
144,03,30,727 111,01,45,356
14.Net Current Assets 110,63,29,507 138,70,72,475
15.Total Assets [Net] 332,60,78,749 349,46,63,762

36
PROFIT AND LOSS AND ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2008 AND 2007

Particulars 31st march 2008 31st March 2007

INCOME
1. Sale of Products and Services 584,59,23,088 516,75,44,869
Less: exercise duty 57,38,24,714 57,20,23,668
527,20,98,374 459,55,21,201
2. Other income 2,66,93,209 4,40,54,013
3.Total Income 529,87,91,583 463,95,75,214
EXPENDITURE
4. Manufacturing and Other Expenses 464,17,32,539 410,69,91,619
5. Depreciation 18,10,51,81 17,17,71,165
6. interest 11,74,80,260 8,82,37,087
7. Less: Expenditure included in above
Items (other than interest ) capitalized (1,45,08,497) (4,00,65,089)
8. Employee Separation Compensation 54,04,319 66,90,836
Total Expenditure 493,11,59,802 433,36,25,618
PROFIT BEFORE TAXES 36,76,31,781 30,59,49,696
9. Provision for Income Tax :
a. Current (12,60,00,000) (5,00,00,000)
b. Deferred 3,68,69,669 (6,29,52,787)
c. Fringe Benefit Tax (38,00,000) (33,52,637)
d. Taxation for earlier years (5,81,49,171) 1,48,492
PROFIT AFTER TAXES 21,65,52,279 18,97,92,664
10. Balance brought forward from last Year 19,30,09,320 23,87,98,499
11. Amount available for appropriation 40,95,61,599 23,85,91,163
12. Appropriations:
a. Proposed dividend 7,31,50,000 7,31,50,000
b. Corporate dividend tax 1,24,31,843 1,24,31,843
c. Transferred to General Reserve 15,00,00,000 15,00,00,000
Balance Carried to balance sheet 17,39,79,756 19,30,09,320
Earning per share 10.36 9.08
Nil Nil
Face value per share 10 10

37
PROFIT AND LOSS AND ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2004, 2005, 2006

Particulars 31st march 2006 31st March 2005 31st March

INCOME 2004
1. Sale of Products and Services 455,70,76,293 400,54,21,306
Less: exercise duty 63,31,74,649 47,24,81,890 317,07,24,228
402,39,01,644 353,29,39,416 37,28,14,875
2. Other income 4,71,73,897 3,10,32,355 279,79,09,353
3.Total Income 407,10,75,541 356,30,71,771 1,70,20,326
EXPENDITURE 281,49,29,679
4. Manufacturing and Other Expenses 354,40,72,995 306,62,56,350
5. Depreciation 11,13,17,185 8,15,97,822 242,00,72,065
6. interest 3,16,49,521 3,37,40,749 8,22,55,900
7. Less: Expenditure included in above 4,94,81,837
Items (other than interest ) capitalized (14,47,43,641) (9,61,31,330)
8. Employee Separation Compensation 1,20,63,999 1,10,53,529 (3,18,02,514)
Total Expenditure 355,43,60,059 309,65,17,120 2,90,73,092
PROFIT BEFORE TAXES 51,67,15,482 46,65,54,651 254,90,80,380
9. Provision for Income Tax : 26,58,49,299
a. Current (14,45,00,000) (13,26,00,000)
b. Deferred (1,13,44,152) (4,06,72,961) (8,60,00,000)
c. Fringe Benefit Tax (68,29,895) Nil (1,43,80,862)
d. Taxation for earlier years Nil (27,20,604) Nil
PROFIT AFTER TAXES 35,40,41,435 29,05,61,131 Nil
10. Balance brought forward from last Year 12,93,97,586 5,10,24,268 16,54,68,437
11. Amount available for appropriation 48,34,39,021 34,15,85,399 2,27,83,956
12. Appropriations: 18,82,52,393
a. Proposed dividend 8,29,99,800 5,50,00,000
b. Corporate dividend tax 1,16,40,722 71,87,813 3,30,00,000
c. Transferred to General Reserve 15,00,00,000 15,00,00,000 42,28,125
Balance Carried to balance sheet 23,87,98,499 12,93,97,586 10,00,00,000
Earning per share 21.33 26.41 5,10,24,268
21.33 25.73 15.04
Face value per share 10 10 15.04
10

38
 BIBLOGRAPHY
 www.tataref.com

 www.indiarefractory.com

 www.ocl.com

 www.Ifgl.com

 www.tata.com

 www.tatasteel.com

 www.moneycontrol.com

 www.scribd.com

 www.wikipedia.com

 Tata Refractory Annual report(20003-04 to 2007-08)

 Tata Refractory Mazagines (Magazine published by CFA)

 TBEM Application 2009

 Financial Management by: I.M. Pandey

 Financial Management by: Sharma Gupta(From 18.1 to 21.20)

 Status & Outlook of India Refractory Industry (B. V. Raja)

 Refractory Sector Immune To Global Economic Meltdown
(Steel World Research Team)

39