ACKNOWLEDGEMENTS

According to the dictionary, wisdom has three components: Knowledge, Insight and Good Sense,
or Judgment. One can get Management knowledge from a management course syllabus, but the
insight and good sense that knowledge into wisdom comes only from experience.

I would thank Mr. ________________________________ my project guide, for his considerate

and immense help without which this report would not have been possible.

I express my gratitude to Mr. S. K. Nayak (Asst. General Manager Durgapur Steel Plant )and
the employees in the company for lending me valuable support for the completion of my project.

Finally I would like to thank every one of my family members and friends who have directly or
indirectly contributed to successful completion of my project.

PREFACE

In this modern world the growing importance of management and various

aspects of communication lead us to serve the world best of our knowledge. In the
competitive economy the quality and the performance of the management
determines the success of an organization. However the art and practices of
management is quite different environment. Thus by visiting Durgapur Steel Plant
I got chance to learn the various aspect of the world outside the books that is so
wide and expected.

Project also enables the management students to see themselves the working
condition under which they have to work in the future. It thus enables the students
to undergone those experiences, which will help them later when they join any
organization.

This project is about the working capital management. For an organization to have
efficient working management policy is basic need for survival.

Working capital

management is life blood of an organization.

I have tried my level best to insert correct & complete information in this report. True learning is
born out of experience and observation. I found a great link between the theatrical and the
practical knowledge that is helpful to build a concrete base for the future vocational life.

TABLE OF CONTENTS

PARTICULARS

PAGE NO.

S.No.
Executive Summary
1

Company Profile
Introduction of Parent Co. Sail
Vision and CREDO
Profile of Durgapur Steel Plant
Facilities
Products

Design of the study

Introduction of the study
Objectives of the study
Research Methodology
Limitations

Theoretical Background of Working Capital

Management
Meaning of Working Capital Management
Constituents of Working Capital
3

Elements of Working Capital

Two different Approach of Working Capital
Kinds of Working Capital
Importance of Adequate Working Capital
Excess or Inadequate Working Capital
Factors determining Working Capital Requirement
Management of working capital
Sources of Working Capital
Financing of Permanent Working Capital
Financing of Temporary Working Capital
4

Working capital management of Durgapur Steel Plant

Findings

Suggestions

Bibliography

EXECUTIVE SUMMARY

Working capital means the part of the total assets of the business that change from one
form to another form in the ordinary course of business operations.
In a perfect world, there would be no necessity for current assets and liabilities
because there would be no uncertainty, no transaction costs, information search costs, scheduling
costs, or production and technology constraints. The unit cost of production would not vary with
the quantity produced. Borrowing and lending rates shall be same. Capital, labour, and product
market shall be perfectly competitive and would reflect all available information, thus in such an
environment, there would be no advantage for investing in short term assets. However the world
we live is not perfect. It is characterized by considerable amount of uncertainty regarding the
demand, market price, quality and availability of own products and those of suppliers. There are
transaction costs for purchasing or selling goods or securities. Information is costly to obtain and
is not equally distributed.
There are spreads between the borrowings and lending rates for investments and
financings of equal risks. Similarly each organization is faced with its own limits on the
production capacity and technologies it can employ there are fixed as well as variable costs
associated with production goods. In other words, the markets in which real firm operated are not
perfectly competitive. These real world circumstances introduce problems which require the
necessity of maintaining working capital. For example,, an organization may be faced with an
uncertainty regarding availability of sufficient quantity of crucial imputes in future at reasonable
price. This may necessitate the holding of inventory, current assets. Similarly an organization
may be faced with an uncertainty regarding the level of its future cash flows and insufficient
5

amount of cash may incur substantial costs. This may necessitate the holding of reserve of short
term marketable securities, again a short term capital asset. In corporate financial management,
the term Working capital management (net) represents the excess of current assets over current
liabilities.
Working capital may be regarded as the life blood of business. Working capital is
of major importance to internal and external analysis because of its close relationship with the
current day-to-day operations of a business. Every business needs funds for two purposes

Long term funds are required to create production facilities through purchase of fixed
assets such as plants, machineries, lands, buildings & etc

Short term funds are required for the purchase of raw materials, payment of wages, and
other day-to-day expenses. It is otherwise known as revolving or circulating capital

The project is A STUDY ON WORKING CAPITAL MANAGEMENT OF DURGAPUR

STEEL PLANT. The main objective of the study is to find out the soundness, liquidity and
profitability of the company.
The study is formulated by the research design for analyzing the profitability, soundness
and liquidity of the company.
The research design used for this study is analytical research design. Secondary data is
collected from journals, magazines, reports and books.
The statistical tool for the study is ratio analysis. Graphs are also used for the
diagrammatic representation of the interpretation. The study was mainly based on the annual
reports of Durgapur Steel Plant.

CHAPTER -1
THE COMPANY PROFILE
Introduction of parent Co. SAIL

Steel Authority of India Limited (SAIL) is the largest steel-making company in India and one of the
seven Maharatnas of the countrys Central Public Sector Enterprises. SAIL produces iron and steel at
five integrated plants and three special steel plants, located principally in the eastern and central
regions of India and situated close to domestic sources of raw materials. SAIL manufactures and sells
a broad range of steel products.

Integrated Steel Plants

Steel Plant

Location

Products
Rails (13/26m), Long Rails, (65-260m), Blooms, Billets,

Bhilai Steel Plant

Chattisgarh

Slabs, Channels, Joists, Angles, TMT Rebars, Wire Rods,

Crane Rails, Plates, Pig iron & Coal Chemicals

Durgapur Steel
Plant

West Bengal

TMT Rebars, Wheels & Axles, Pig iron & Coal Chemicals
Plate Mill Plates, HR Plates, HR Coils, Slabs, CR Sheet/

Rourkela Steel
Plant

Blooms, Billets, Joists, Narrow Slabs, Channels, Angles,

Odisha

Coil, Galvanised Sheets (plain & Corrugated), ERW Pipes,

Spiral Weld pipes, CRNO, Pig iron & Coal Chemicals
Hr Coils, Slabs, HR Sheets. Plates, CR Coils. Sheets, GP

Bokaro Steel Plant

Jharkhand

Sheets. coils, GC Sheets, Galvanealed Steel, HRPO, Pig iron

& Coal Chemicals

IISCO Steel Plant

West Bengal Wire rods, Bars & Rebars, Joists, Channels, Angles, Blooms,
Billets, Universal & Special section (Z-bar, MS Arch), Pig
7

iron & Coal Chemicals

Salem Steel Plant

Tamil Nadu

Cold Rolled Stainless Steel, Hot Rolled Carbon & Stainless

Steel Products, Micro-Alloyed Carbon Steel
Alloy Steel Squares & Rounds, Wear Resistant Plates,

Alloy Steel Plant

West Bengal

Forgings, Carne Wheels, Forged Rolls/ Plaets, Special

Quality Slabs & Stainless Setel Slabs (low Ni, 300 & 400
series)

Visveswaraya Iron
& Steel Plant

Karnataka

Chandrapur Ferro
Alloy Plant

Maharashtra

High Quality Rolled & Forged Alloy & Special Steel

Products
High/ Medium/ Low carbon Ferro-Manganese, SilicoManganese

Vis ion
To be a respected world class corporation and the leader in Indian steel business in quality,
productivity, profitability and customer satisfaction.
CREDO

We build lasting relationships with customers based on trust and mutual benefit.

We uphold highest ethical standards in conduct of our business.

We create and nurture a culture that supports flexibility, learning and is proactive to
change.
We chart a challenging career for employees with opportunities for advancement and

rewards.
We value the opportunity and responsibility to make a meaningful difference in people's

lives.

PROFILE OF DURGAPUR STEEL PLANT

Set up in the late 50's with an initial annual capacity of one million tonnes of crude steel per year,
the capacity of Durgapur Steel Plant (DSP) was later expanded to 1.6 million tonnes in the 70's.
A massive modernisation programme was undertaken in the plant in early 90's, which, while
bringing numerous technological developments in the plant, enhanced the capacity of the plant to
2.088 million tonnes of hot metal, 1.8 million tonnes crude steel and 1.586 million tonnes
saleable steel. The entire plant is covered under ISO 9001: 2000 quality management system.
The modernized DSP now has state-of the-art technology for quality steel making. The
modernized units have brought about improved productivity, substantial improvement in energy
conservation and better quality products. DSPs Steel Making complex and the entire mills zone,
comprising its Blooming & Billet Mill, Merchant Mill, Skelp Mill, Section Mill and Wheel &
Axle Plant, are covered under ISO: 9002 quality assurance certification.
With the successful commissioning of the modernized units, DSP is all set to produce 2.088
million tones of hot metal, 1.8 million tones of crude steel and 1.586 million tones of saleable
steel annually.
Location
Situated at a distance of 158 km from Calcutta, its geographical location is defined as 230 27'
North and 880 29' East. It is situated on the banks of the Damodar river. The Grand Trunk Road
and the main Calcutta-Delhi railway line pass through Durgapur.
Environment control
Durgapur Steel Plant has always made relentless efforts to maintaining a healthy and clean
environment. The units in DSP are provided with necessary pollution control facilities and the
liquid effluents and chimney emissions from the plant are well within norms.
DSP has undertaken massive afforestation to maintain clean environment. Some 3,266 acres of
land have been covered with 14 lakh plantations. In order to develop healthy awareness about the
environment amongst the younger generation, eco-clubs have been formed in DSP schools.
9

Centre for Human Resource Development

DSP has always attached maximum importance on proper training and development of its
employees. Its Centre for Human Resource Development has all modern facilities including the
state-of-the-art Electrical and Electronics laboratory, Hydraulics and Pneumatics laboratory and
workshop for effective training and development of its employees.

Facilities

1. Raw Materials
Iron ore, coal and limestone are the three basic raw materials for the steel industry. Durgapur
Steel Plant draws its coal from the adjacent Jharia-Ranigunj coal belt. A good amount of prime
coking coal, having fairly low ash content, is also imported. Bulk of iron ore lumps and fines
come from the mines at Bolani in Orissa. Lime stone comes from a variety of sources:
Birmitrapur (Orissa), Jaisalmer (Rajasthan), and Jukehi and Nandwara (Madhya Pradesh).
To improve and ensure consistency in raw material quality, the facilities, which have been
installed, are:

Beneficiation/washing facilities, both for lump ore and fines at Bolani

Screening of lump iron ore inside the plant,

Selective crushing of coal at Coal Handling Plant,

Base blending facilities for Sinter Plant,

Silo-cum- Blending bunkers

10

As part of the modernisation programme, new raw material handling storage and blending
facilities with selective crushing of coal have been installed in order to ensure consistency in raw
material quality.
The beneficiation/washing facilities, both for lump ore and fines at Bolani, have a capacity to
process 3.44 million tonnes (wet basis) per annum so as to be capable of catering to the entire
requirement of the plant after modernisation.
Durgapur is the only steel plant in the country to have a coal washery at the plant site.
Durgapur Steel Plant consumes about 7.4 million tonnes of different raw materials annually
which comprises over 1.84 million tonnes of coal and 2.9 million tonnes of iron ore lump and
fines. Besides the two major raw materials, the plant also requires limestone, dolomite,
manganese ore, bauxite, silico manganese, ferro manganese, ferro silicon, etc.

2. Coke Ovens & Coal Chemicals

No of batteries

-5

No. of ovens per battery

- 78

The coke ovens and coal chemicals zone is divided into four basic sections namely coal
preparation plant, coal carbonisation plant, coke handling plant and coal chemicals. Presently,
DSP is operating only three batteries.
The Blast Furnace grade coke produced in Coke Ovens is directly used in Blast Furnaces while
the undersized coke is used for sinter making.
The volatile matters, which emanate during the process of coke making subsequently produce a
variety of by-products like naphthalene oil, heavy creosote oil, light oil, crude tar partially
distilled tar, Raja brand fertiliser, nitration grade benzene, nitration grade toluene, industrial
grade toluene, light solvent naphtha etc.
11

The coke oven gas is generally used in combination with the Blast Furnace gas and BOF gas as
fuel and is carried through pipelines to the different areas of the plant. The adjoining Alloy Steels
Plant under SAIL is also supplied with this fuel gas from DSP.

3. Sinter Plant
In order to enhance the productivity of blast furnaces, a high percentage of sinter charge is a
prerequisite. Sinter is an agglomeration of iron ore fines, coke and limestone in the form of
cakes. To ensure sinter burden in the blast furnaces at 75 per cent, a total of 3 million tonnes of
sinter was envisaged for a production of about 2 million tonnes of hot metal. A technologically
modern and fuel efficient sintering machine having 198 sq metres sintering area has been added
as part of the modernisation scheme to produce 1.7 million tonnes of sinter. The balance
requirement will be met from the revamped old sinter plant.
Sinter mix, a mixture of fines of iron ore, limestone, coke, dolomite and flue dust, blended
proportionally at the RMHC, is a prepared material which is self fluxing. In ignition strands it is
burnt under controlled conditions to form a porous cake type substance called sinter, which used
in blast furnaces enhances productivity and reduces coke rate.

4. Raw Material Handling Plant

Durgapur Steel Plant requires annually over 7.4 million tonnes of different raw materials,
which comprises over 1.84 million tonnes of coal and 2.9 million tonnes of iron ore lump and
fines. Besides the two major raw materials, the plant also requires limestone, dolomite,
manganese ore, bauxite, silico manganese, ferro manganese, ferro silicon, etc.
5. Blast Furnaces
Blast furnaces are referred to as the mother unit of an integrated steel plant. Iron ore as
available in nature is basically an oxide. It is charged into a blast furnace either as lump ore or in
12

the form of sinter and reduced to molten iron by the coke at temperatures ranging from 1, 200
1, 400 degrees centigrade. The limestone, acting as flux, absorbs the impurities in the molten iron
and goes out as slag. The major portion of liquid hot metal is transferred to steel melting shop for
conversion to steel and the rest portion is cast into pig iron in pig casting machines. Blast furnace
slag high in lime-content is used for cement making.
There are three numbers of blast furnaces operating presently at DSP. The useful volume of two
furnaces is 1,400 cubic meters each and that of the other one is 1,800 cubic meters. The furnaces
are presently operating at a productivity level of 1.3-1.4 tonnes/cubic meter/day. The furnaces are
equipped with sophisticated and modern computerised control system and are operated with high
blast temperatures (1,100 degree centigrade) and high top pressure (0.7 Kg/ sq. cm). The cast
houses are provided with facilities like twin tap holes, rocking runners etc. There are also two
numbers of Slag Granulation Plants, which convert molten blast furnace slag into granulated
forms for ready use in the cement industry. There are three pig casting machines, with a total
capacity of 2,12,000 tonnes/year
No 3

No 1

No 2

Capacity (t/day)

1, 250

1, 820

1, 820

2, 340

Useful volume (cum)

1, 323

1, 400

1, 400

1, 800

Stoves

Productivity (t/cu m/day)

1.000

1.3

1.3

1.3

(being modernised)

No 4

6. Steel Melting Shop

Mixers - 2 x 1, 300 t
Converters - 3 x 110 t (nominal heat size)

13

Molten iron is further refined at the Steel Melting Shop (SMS) to produce steel, which is hard
and malleable.
At DSP, there are 3 converters (Basic Oxygen Furnace) of 110-130 tonnes each. The SMS also
has a Vacuum Arc Degassing (VAD) unit for making special grades of steel.
A major portion of the steel is routed through the Continuous Casting Plant. Another major
portion of the steel is taken to the teeming bay, where it is top poured into 8 tonne ingot moulds
for making ingot steel. A portion of highly controlled steel is cast at the Special Casting Bay into
fluted ingots and special quality blooms. Fluted ingots are bottom poured and are used for
making wheel steel for DSPs Wheel & Axle Plant. A portion of the liquid steel is also bottom
poured to make axle ingots.
Continuous Casting Plant
The state of the art CCP has 2 Nos machines having 6 strands each. The other basic details are as
follows:
Design
Casting
No

limitstime

80-150

85

sq

minutes,

of

.mm,
Cut-off

casting
lengths-

ladle

radius6

treatment

6
/

metres
12

metre

stations-2

Mould level controller - Automatic (Radio-active Co-60)

The steel ladle from BOF is taken to the ladle treatment station. At the ladle treatment station,
liquid steel is rinsed with nitrogen to homogenise its temperature and composition. After the
rinsing, the ladle containing liquid steel is placed on the turret and brought over the tundish. The
tundish acts as a buffer and enables the liquid steel to move homogeneously down through the
six nozzles, provided at the bottom of the tundish into moulds. The automatic mould level
controller controls the steel level in the mould. The subsequent primary and secondary cooling
transforms the liquid steel into billets of the required dimensions and is drawn out with the help
of a withdrawal and straightener unit and cut into the required length by the shear provided in
each strand. The continuous casting process is the result of a unique synchronisation between
Basic Oxygen Furnace and CCP. Once a ladle is emptied, another ladle is brought into casting
position and the casting continues.
14

The billets are gradually shifted to the cooling beds and then stacked orderly at the despatch end
for outside despatch. The details about the cast number and quality of the billets are marked on
the billet stack. The Merchant Mill of Durgapur Steel Plant utilises billets for rolling TMT bars
and other merchant rounds, while a sizeable portion is sold in the domestic and foreign markets.

7. Rolling Mills
Ingots weighing 8 tonnes each are heated in the soaking pits (numbering 20) for about 7 to 12
hours at around 1, 200 degrees centigrade and thereafter rolled in the 42 primary and the 32
secondary blooming mills. These are rolled further into different shapes and sizes in different
finishing mills.
Blooming mill
Installed

Mill

Ingot

capacity

weight

1.47

million

tonnes/year

tonnes

42"

Mill:

42"
Output

102"

bloom

size

reversible
(min)

300

Blooming
mm

Mill
250

32"
32"

mm
Mill:

84"

reversible

Intermediate

Mill

Output bloom size (min) - 180 mm x 180 mm

Billet Mill
Installed
Type

Mill
-

capacity

0.957

Continuous

tonnes
Morgan

yr.
design

Horizontal stands - 6, Vertical stands - 2

Product Range
Billets

- 100 mm square to 125 mm square

15

Sleeper bars

- 352 mm x 12.5 mm

Skelp slabs

- 140 mm x 75 mm to 240 mm x 90 mm

The ingots after heating are rolled in the Blooming Mill to make blooms of the sizes mentioned
in the table and then a part of the same are then further rolled in the Billet Mill for making rolled
billets or slabs as per the above details.
Section mill
The Section Mill rolls out light and medium structural like joists, channels and angles.
Mill capacity

- 0.2 million tonnes / year

Re-heating furnaces

- 2 x 40 t/hr

Roughing Mill

- 2 high reversible

Intermediate Mill

- 2 stands of 3 high non-reversible

Finishing Stand

- 2 high non-reversible

Product range:

Joists

Channels

Angels

200 mm x 100 mm, 175 mm x 85 mm

150 mm x 75 mm, 116 mm x 100 mm
200 mm x 75 mm, 175 mm x 75 mm
150 mm x 75 mm, 125 mm x 65 mm
150 x 150 mm, 130 x 130 mm
110 x 110 mm, 100 x 100 mm

Fish plate bars for 52 kg rails

16

Merchant Mill
The Merchant Mill produces plain round and Thermo-Mechanically Treated (TMT) bars in the
range of 16mm - 28mm. The entire product range of TMT bars and rods at DSP is branded and
has been able to create a niche market.
Capacity

- 0.28 million tonnes / year

Type of mill

- continuous Morgan design

Horizontal stands

- 13, Repeaters - 4

Product range
Plain rounds

- 12 - 32 mm dia

TMT bars

- 12 - 25 mm dia

Skelp Mill
The Skelp Mill produces skelp in the range of 146 to 235 mm primarily for tubes and pipes
making industry.
Capacity

- 0.25 million tonnes / year

Type of Mill

- Continuous Loewy design

Horizontal stands

- 11

Vertical stands

-6

Product range
Strips & Skelps - 75-242 mm wide to 1.47-2.34 mm thick

17

Railway Products
Durgapur Steel Plant is the only major indigenous supplier of wheel sets, loco wheels, carriage
and wagon wheels, and axles to the Indian Railways. As per demand of the Railways, the plant
has developed loco wheels, which were imported earlier. The Wheel & Axle Plant is producing
wheels manufactured as per the latest IRS specifications, i.e. R-19/93 for carriage and wagon
wheels, R-34/99 for loco wheels and R-16/95 for axles.
The wheel plant of the Wheel & Axle Plant is provided with six PLC controlled band saws for
accurate slicing of the 14 and 16 fluted ingots. A fully computerised 63/12 MN oil hydraulic
press is there for forging and punching of the wheel blanks along with a fully computerised
vertical wheel mill and other down stream facilities. All the wheels are 100 per cent rimquenched, tempered and tested as per IRS specifications.
Machining of these forged rolled and heat-treated wheel blanks are carried out in the 15 CNC
machines. All the wheels are ultrasonically tested and inspected by RITES on behalf of the
Indian Railways. A number of sophisticated and modern online testing facilities are there to
conform to the stringent testing requirements of the Indian Railways.
Wheel & Axle Plant
Annual production of finished wheels

- 1,00,000 nos.

Production rate in rolling/forging

- 25 nos./hr

Production rate in machining

- 22 nos./hr

8. Engineering shops
Durgapur Steel Plant has a number of captive engineering shops for repairs and supply of spare
parts. The Central Engineering Maintenance has a Machine Shop, Structural Shop, Fitting and
Assembly Shops. The Foundry produces Ingot moulds and bottom plates for the steel melting
shop. There are also Auxiliary Repair Shops such as Electrical, Wagon and Loco repair.

18

9. Research and Control laboratories

The Research & Control laboratories are entrusted with the responsibility of maintaining quality
of products and also developing new products. It is well equipped for carrying out sophisticated
chemical, metallurgical and other tests.

10. Computerisation
An extensive computerisation has been undertaken in DSP for personnel, commercial, process
control, production and maintenance applications. The Production Planning and Control network
is thoroughly used for tracking of customer orders, material, monitoring of quality parameters
and ensuring availability of accurate, real time data to all agencies needing access to the data.

11. Quality Assurance

In order to be fully competitive on the quality front, Durgapur Steel Plant has set out to acquire
ISO 9000 certification for all its units. The Merchant Mill is the first to secure the prestigious
ISO 9002 certificate. Subsequently, steel melting shop, basic oxygen furnace shop, continuous
casting plant, and wheel and axle plant were also awarded the ISO 9002 certification and
recently the Skelp Mill has been awarded the ISO 9002 certification.

PRODUCTS

19

PRODUCT-MIX

TONNES/ANNUM

Merchant Products

2,80,000

Structural

2,07,000

Skelp

1,80,000

Wheels & Axles

58000

Semis

8,61,000

Total Saleable steel

15,86,000

CHAPTER -2
DESIGN OF THE STUDY

INTRODUCTION OF THE STUDY

Working capital is a financial metric which represents operating liquidity available to a
business, organization, or other entity, including governmental entity. Along with fixed assets
such as plant and equipment, working capital is considered a part of operating capital

A company can be endowed with assets and profitability but short of liquidity if its assets cannot
readily be converted into cash. Positive working capital is required to ensure that a firm is able to
continue its operations and that it has sufficient funds 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.

20

Working capital nowadays has been identified as a major thrust area by almost all the firms
throughout world in order to manage the current assets and consequentially current liabilities.

Understanding a company's cash flow health is essential to making investment decisions. A good
way to judge a company's cash flow prospects is to look at its working capital management
(WCM). The better the company manage its working capital, the less the company needs to
borrow. Even companies with cash surpluses need to manage working capital to ensure that those
surpluses are invested in ways that will generate suitable return for investors.

OBJECTIVES OF THE STUDY

To understand the working capital management of Durgapur Steel Plant.
To find out the efficiency of working capital management in Durgapur Steel Plant.
To gain familiarity with the various components of working capital in Durgapur Steel
Plant.
To determine the effect of liquidity on the profitability of the company.

To analyze the short-term financial position of the company.

To calculate various ratios relating to working capital.
To understand the various problems faced by the company and the industry as a whole
in proper implementation of working capital management. The necessary precaution if
possible to undertaken to prevent and control them.
To suggest the steps to be taken to increase the efficiency in management of working
capital.

RESEARCH METHODOLOGY

Research Design

21

A research design is the arrangement of the condition for collection and analysis
of data. Actually it is the blueprint of the research project.
Research design used was Exploratory type.

Data Collection

Primary Data: Primary data was collected with the help of interview of official
staff of finance department.
Secondary Data: The secondary data comprises of various Books, Annual
Reports and balance sheet, Journals, various MIS, magazines and website of the
company.

Data Analysis
Data analysis was done with the help of different ratios.

LIMITATIONS OF STUDY
The analysis was made with the help of the secondary data collected from
the company.
Ratios was calculated for last five financial year data.
The study is academic in nature.
The final conclusion can be also affected by some of the extraneous
variables.

22

CHAPTER 3
THEORETICAL

BACKGROUND

OF

WORKING

CAPITAL

MANAGEMENT

Meaning of Working Capital Management:Working capital means the part of the total assets of the business that change from
one form to another form in the ordinary course of business operations.
The word working capital is a made of two words working and capital.
The word working means day to day operation of the business, whereas the word
capital means monetary value of all assets of the business.
Working capital may be regarded as the life blood of business. Working
capital is of major importance to internal and external analysis because of its close
relationship with the current day to-day operations of a business. Every business
needs funds for two purposes.
1. Long term
2. Short term
1. Long term funds are required to create production facilities through purchase of
fixed assets such as plants, machineries, lands, buildings & etc

23

2.

Short term funds are required for the purchase of raw materials, payment of

wages, and other day-to-day expenses.

It is otherwise known as revolving or circulating capital
It is nothing but the difference between current assets and current liabilities. i.e.
Working Capital = Current Asset Current Liability.
Businesses use capital for construction, renovation, furniture, software, equipment,
or machinery. It is also commonly used to purchase inventory, or to make payroll.
Capital is also used often by businesses to put a down payment down on a piece of
commercial real estate. Working capital is essential for any business to succeed. It is
becoming increasingly important to have access to more working capital when we
need it.

Constituents of Working Capital:Current Assets

Current Liabilities

Cash in hand / at bank

Bills Payable

Bills Receivable

Sundry Creditors

Sundry Debtors

Outstanding expenses

Short term loans

Accrued expenses

Investors/ stock

Bank Over draft

Temporary investment

Prepaid expenses

Accrued incomes

Elements of Working capital

24

1. Cash and equivalents: - This most liquid form of working capital requires
constant supervision. A good cash budgeting and forecasting system provides
answers to key questions such as: Is the cash level adequate to meet current
expenses as they come due? What is the timing relationship between cash inflow
and outflow? When will peak cash needs occur? When and how much bank
borrowing will be needed to meet any cash shortfalls? When will repayment be
expected and will the cash flow cover it?
2. Accounts receivable: - Many businesses extend credit to their customers. If
you do, is the amount of accounts receivable reasonable relative to sales? How
rapidly are receivables being collected? Which customers are slow to pay and what
should be done about them?
3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets,
so naturally it requires continual scrutiny. Is the inventory level reasonable
compared with sales and the nature of your business? What's the rate of inventory
turnover compared with other companies in your type of business?
4. Accounts payable: - Financing by suppliers is common in small business; it is
one of the major sources of funds for entrepreneurs. Is the amount of money owed
suppliers reasonable relative to what you purchase? What is your firm's payment
policy doing to enhance or detract from your credit rating?
5. Accrued expenses and taxes payable: - These are obligations of your
company at any given time and represent a future outflow of cash .

Two different concepts of working capital

Balance sheet or Traditional concept

Operating cycle concept.

1. Balance sheet or Traditional concept:

25

It shows the position of the firm at certain point of time. It is calculated in the basis
of balance sheet prepared at a specific date. In this method there are two type of
working capital:

Gross working capital

Net working capital

Gross working capital: -

It refers to the firms investment in current

assets. The sum of the current assets is the working capital of the business. The
sum of the current assets is a quantitative aspect of working capital. Which
emphasizes more on quantity than its quality, but it fails to reveal the true financial
position of the firm because every increase in current liabilities will decrease the
gross working capital.

Net working capital: - It is the difference between current assets and

current liabilities or the excess of total current assets over total current liabilities.

Working capital= current assets - current liabilities

Net working capital:

- It is also can defined as that part of a firms current

assets which is financed with long term funds. It may be either positive or negative.
When the current assets exceed the current liability, the working capital is positive
and vice versa.

2. Operating cycle concept: -

The

duration

or

time

required

completing the sequence of events right from purchase of raw material for
cash to the realization of sales in cash is called the operating cycle or working
capital cycle.

26

Raw

Cash

Material

Debtors
&

Operati
ng

Bills
Receiva
bles

Cycle
Sales

Work
In
Process

Finished
Goods

KINDS OF WORKING CAPITAL

27

Gross Working Capital

Gross working capital refers to the amount of funds invested in current assets that
are employed in the business process. This is a going concern concept, since it is
these aspects that financial managers are concerned with if they are to bring about
productivity from other assets. The gross concept is used here, since one of the
principal functions of the finance officer is to provide the current amount of the
working capital at the right time in order for the firm to realize the greatest return
on its investment.
Net Working Capital:Net Working Capital concept is different between current
assets and current liabilities. This concept is useful to groups interested in
determining the amount and nature of the assets that may be used to pay the
current liabilities. Moreover, the amount that is left after these debts are paid may
be used to meet future operational needs.
Net Working Capital= Current Assets Current Liabilities
Permanent

or Fixed

Working Capital: Permanent or fixed working capital is

minimum amount which is required to ensure effective utilization of fixed facilities

and for maintaining the circulation of current assets. Every firm has to maintain a
minimum level of raw material, work- in-process, finished goods and cash balance.
This minimum level of current assts is called permanent or fixed working capital as
this part of working is permanently blocked in current assets. As the business grow
the requirements of working capital also increases due to increase in current assets.

Temporary or Variable

Working Capital: Temporary or variable working

capital is the amount of working capital which is required to meet the seasonal
demands and some special exigencies. Variable working capital can further be
classified as seasonal working capital and special working capital. The capital
required to meet the seasonal need of the enterprise is called seasonal working
capital. Special working capital is that part of working capital which is required to
meet special exigencies such as launching of extensive marketing for conducting
28

research, etc..Temporary working capital differs from permanent working capital in

the sense that is required for short periods and cannot be permanently employed
gainfully in the business

IMPORTANCE OF ADEQUATE

WORKING CAPITAL

1. Solvency of the Business: - Adequate working capital helps in maintaining

the solvency of the business by providing uninterrupted of production.
2. Goodwill: Sufficient amount of working capital enables a firm to make
prompt payments and makes and maintain the goodwill.
3. Easy loans: Adequate working capital leads to high solvency and credit
standing can arrange loans from banks and other on easy and favorable
terms.
4. Cash Discounts: Adequate working capital also enables a concern to avail
cash discounts on the purchases and hence reduces cost.
5. Regular Supply of Raw Material: Sufficient working capital ensures
regular supply of raw material and continuous production.
6. Regular

Payment

of

Salaries,

Wages

and

Other

Day

to

Day

Commitments: It leads to the satisfaction of the employees and raises the

morale of its employees, increases their efficiency, reduces wastage and
costs and enhances production and profits.
7. Exploitation of Favorable Market Conditions: If a firm is having
adequate working capital then it can exploit the favorable market conditions
such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices.
8. Ability to Face Crises: A concern can face the situation during the
depression.

29

9. Quick And Regular Return On Investments: Sufficient working capital

enables a concern to pay quick and regular of dividends to its investors and
gains confidence of the investors and can raise more funds in future.
10.High Morale: Adequate working capital brings an environment of securities,
confidence, high morale which results in overall efficiency in a business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run its
business operations. It should have neither redundant or excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short working
capital positions are bad for any business. However, it is the inadequate working
capital which is more dangerous from the point of view of the firm.

Disadvantages of inadequate working capital:- Every

business

needs some amounts of working capital. The need for working capital arises due to
the time gap between production and realization of cash from sales. There are time
gaps in purchase of raw material and production;& sales; & realization of cash.

FACTORS

DETERMINIG

THE

WORKING

CAPITAL

REQUIREMENTS
Nature Of Business: The requirements of working is very limited in public utility
undertakings such as electricity, water supply and railways because they offer cash
sale only and supply services not products, and no funds are tied up in inventories
and receivables. On the other hand the trading and financial firms requires less
investment in fixed assets but have to invest large amt. of working capital along
with fixed investments.

30

Size of the Business: Greater the size of the business, greater is the requirement
of working capital.
Production Policy: If the policy is to keep production steady by accumulating
inventories it will require higher working capital.
Length of Production Cycle: The longer the manufacturing time the raw material
and other supplies have to be carried for a longer in the process with progressive
increment of labor and service costs before the final product is obtained. So working
capital is directly proportional to the length of the manufacturing process.
Business Cycle: In period of boom, when the business is prosperous, there is need
for larger amt. of working capital due to rise in sales, rise in prices, optimistic
expansion of business, etc. On the contrary in time of depression, the business
contracts, sales decline, difficulties are faced in collection from debtor and
the firm may have a large amt. of working capital.
Rate of Growth of Business: In faster growing concern, we shall require large
amt. of working capital.

MANAGEMENT OF WORKING CAPITAL:

Working capital, in general practice, refers to the excess of current assets

over current liabilities. Management of working capital therefore, is concerned with the problems
that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. In other words it refers to all aspects of administration of
both current assets and current liabilities.

Working capital management is three dimensional in nature:

31

(a) Dimension I is concerned with the formulation of policies with regard to profitability, risk and
liquidity.
(b) Dimension II is concerned with the decisions about the composition and level of current
assets.
(c) Dimension III is concerned with the decisions about the composition and level of current
liabilities.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT/POLICY:

The following are the general principles of a sound working capital

management policy:

1. Principle of Risk Variation:

Risk here refers to the inability of a firm to meet its obligations as and when
they become due for payment. Larger investment in current assets with less dependence on
short-term borrowings increases the opportunity for gain or loss.

2. Principle of Cost of Capital:

The various sources of raising working capital finance have different cost of
capital and the degree of risk involved. Generally, higher the risk lower is the cost and lower the
risk higher is the cost. A sound working capital management should always try to achieve a
proper balance between these two.
32

3. Principle of Equity Position:

This principle is concerned with planning the total investment in current
assets. According to this principle, the amount of working capital invested in each component
should be adequately justified by a firms equity position.

4. Principle of Maturity of Payment:

This principle is concerned with planning the sources of finance for working
capital. According to this principle, a firm should make every effort to relate maturities of
payment to its flow of internally generated funds.

SOURCES OF WORKING CAPITAL

The working capital requirements of a concern can be classified as:
1) Permanent or Fixed working capital requirements
2) Temporary or Variable working capital requirements

The various sources for the financing of working capital are as follows

Sources of
Working
Capital

33

Temporary or Variable

Permanent or Fixed

Shares
Debentures
Ploughing back of Profits
Loans from Financial
Institutes

Indigenous Bankers
Installment Credit
Advances
Accrued Expenses and
Deferred Income
Commercial Paper
Commercial Banks/Bank
Finance

Financing of Permanent/Fixed or Long-Term Working

Capital

Public Deposits
Trade Creditors

Permanent working capital should be financed in such a manner that the enterprise

Factoring

may have its uninterrupted use for a sufficiently long period. There are five
permanent sources of working capital.
1) Shares: Issue of shares is the most important source for raising the permanent
or long term capital. A company can issue various types of shares as equity shares,
preference shares and deferred shares. According to companies act a company
cannot issue deferred shares. Preference shares carry preferential rights in respect
of dividend at fixed rate and in regard to the repayment to the capital at the time of
winding up the company. Equity shares do not have any fixed commitment charge
and the dividend on these shares is to be paid subject to the availability of sufficient
profits. As far as possible a company should raise the maximum amount of
permanent capital by the issue of shares.

34

2)

Debentures:

debenture

is

an

instrument

issued

by

the

company

acknowledging its debt to its holder. It is also an important method of raising long
term or permanent working capital. The debenture holders are the creditors of the
company. The interest on debentures is a charge against profit and loss account.
When the debentures are secured they are paid on priority to other creditors. The
debentures may be of various kinds such as naked or unsecured debentures;
secured

or

mortgaged

debentures,

redeemable

debentures,

irredeemable

debentures, convertible debentures and non-convertible debentures.

3)Ploughing Back of Profits: Ploughing back of profits means the reinvestments
by concern of its surplus earnings in its business. It is an internal source of finance
and is most suitable for an established firm for its expansion, modernization and
replacement etc. This method of finance has a number of advantages as it is the
cheapest rather cost free source of finance; there is no need to keep securities;
there is no dilution of control; it ensures stable dividend policy and gains confidence
of the public. But excessive resort to Ploughing back of profits may lead to
monopolies, misuse of funds, & speculation, etc.

Financing

of

Temporary/Variable

or

Short-Term

Working Capital
1) Indigenous Bankers: Private money lenders and other country bankers used to
be the only source of finance prior to the establishment of commercial banks.
Inspite of the establishments new financial institutions indigenous bankers also
advance financial help to a few large-scale industries, particularly during time of
stress both for fixed capital and working capital but mainly they have provided
finance to small scale industries. They used to charge a very high rate of interest
and exploited the customers to the largest extent possible.
2) Installment Credit: This is another method by which the assets are purchased
and the possession of goods is taken immediately but the payment is made in
installments over a predetermined period of time. Generally, interest is charged on
the unpaid price or it may be adjusted in the price. But in any case, it provides

35

funds for sometime and is used as a source of short-term working capital by many
business houses which have difficult fund position.

3) Advances: Some business houses get advances from their customers and
agents against orders and this source is a short term source of finance of them. It is
a cheap source of finance in order to minimize their investment in working capital,
some firms having long production cycle, especially the firms manufacturing
industrial products prefer to take advances from their customers.
4) Accrual Expenses and Deferred income: Accrued expenses are the expenses
which have been incurred but not yet due and hence not yet paid also. The major
accruals items are wages and taxes; these are what a firm owes to the employees
and to the government Accruals vary with the level of activity of the firm. When the
activity level expands the accruals increases, and when activity level contracts
accrual decreases. Therefore accruals are treated as part of spontaneous financing.
5) Commercial Paper: Commercial paper is an important money market
instrument in advanced countries like U.S.A. to raise short term funds. In India RBI
introduced commercial paper in the Indian money market on the recommendation
of Vaghul Working Group. Commercial paper is a form of unsecured promissory note
issued by the firms to raise short term funds.

36

CHAPTER -4
WORKING CAPITAL MANAGEMENT OF DURGAPUR STEEL PLANT

A]

NET WORKING CAPITAL

An analysis of the net working capital will be very help full for knowing the

operational efficiency of the company. The following table provides the data relating
to the net working capital of Durgapur Steel Plant.
NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIS
(Rs. In 000)
Years

Current Asset

Current

NWC

Liabilities
2010-11

4563099.00

2041543.00

2521556.00

2011-12

9599646.00

3887765.00

5711881.00

2012-13

9077617.00

2829079.00

6248538.00

2013-14

11003428.00

3889899.00

7113529.00
37

2014-15

11946666.00

4165659.00

7781007.00

Chart showing NWC

9000000
8000000
7000000

NWC

6000000
5000000

NWC

4000000
3000000
2000000
1000000
0
2010-11

2011-12

INTERPRETATION:-

2012-13

2013-14

2014-15

Year

The above chart shows that during the year 2010-11 the company has
2521556.00 N.W.C. In the year 2011-12 huge increase in the N.W.C is 5711881.00
and in the year 2012-13 the company has 6248538.00 N.W.C, in the year 2013-14
the company has 7113529.00 N.W.C. The N.W.C of the company is increasing
compared to the previous years, in the year 2014-15 the company has 7781007.00
N.W.C.
This means the company in a positive position & N.W.C has improved vary fast as
compared to the previous years which show liquidity Position of the DURGAPUR
STEEL PLANT has always more & sufficient working capital available to pay off its
current liabilities.

B] RATIO ANALYSIS

INTRODUCTION:

38

Ratio Analysis is a powerful tool of financial analysis. Alexander Hall first

presented it in 1991 in Federal Reserve Bulletin. Ratio Analysis is a process of
comparison of one figure against other, which makes a ratio and the appraisal of the
ratios of the ratios to make proper analysis about the strengths and weakness of the
firms operations. The term ratio refers to the numerical or quantitative relationship
between two accounting figures. Ratio analysis of financial statements stands for
the process of determining and presenting the relationship of items and group of
items in the statements.

1. LIQUIDITY RATIOS:
Liquidity refers to the ability of a firm to meet its current obligations as
and when these become due. The short-term obligations are met by realizing
amounts from current, floating or circulating assets.
Following are the ratios which can help to assess the ability of a firm to meet
its current liabilities.

1.

Current ratio

2.

Acid Test Ratio / Quick Ratio / Liquidity Ratio

3.

Absolute liquid ratio

2. TURNOVER/ACTIVITY RATIOS:
These are the ratios which indicate the speed with which assets are
converted or turned over into sales.
1.

Inventory Turnover Ratio.

2.

Debtors/ Accounts receivables Turnover Ratio.

3.

Creditors/Accounts Payables Turnover Ratio.

4.

Working Capital Turnover Ratio.

1. CURRENT RATIO:39

It is a ratio, which express the relationship between the total current Assets and
current liabilities. It measures the firms ability to meet its current liabilities. It
indicates the availability of current assets in rupees for every one rupee of current
liabilities. A ratio of greater than one means that the firm has more current assets
than current liabilities claims against them. A standard ratio between them is 2:1.

Current Ratio: Current Assets

Current Liabilities
Year

(Rs. In 000)

Current

Current

Current

Assets

Liabilities

Ratio

2010-11

4563099.00

2041543.00

2.23

2011-12

9599646.00

3887765.00

2.47

2012-13

9077617.00

2829079.00

3.21

2013-14

11003428.00

3889899.00

2.83

2014-15

11946666.00

4165659.00

2.87

Chart showing Current Ratio

Currennt Ratio

3.5
3
2.5
2
Current Ratio

1.5
1
0.5
0
2010-11

2011-12

2012-13

2013-14

2014-15

Year

INTERPRETATION:It is seen from the above chart that during the year 2010-11 the current
ratio was 2.23, during the year 2011-12, it was 2.47 and in the year 2012-13 it
40

was 3.21. This shows the current ratio increases every year but in the year
2013-14 the current ratio was dropped to 2.83 due to increase in current
liabilities. In the year 2014-15 the current ratio has increases to 2.87. The
current ratio is above the standard ratio i.e., 2:1. Hence it can be said that
there is enough current assets in DURGAPUR STEEL PLANT to meet its current
liabilities.

2. ACID TEST RATIO / QUICK RATIO / LIQUIDITY RATIO:This ratio establishes a relationship between quick/liquid assets and current
liabilities. It measures the firms capacity to pay off current obligations immediately.
An asset is liquid if it can be converted in to cash immediately without a loss of
value; Inventories are considered to be less liquid because inventories normally
require some time for realizing into cash. This ratio is also known as acid-test

ratio. The standard quick ratio is 1:1. is considered satisfactory.

Quick Ratio =

Quick Assets (current assets - Inventory)

Current Liabilities
(Rs. In 000)

Year

Current

Inventories Quick Assets Current

Assets
2010-11

Liabilities

4563099.0
0

2011-12

9599646.0
0

2012-13

9077617.0
0

2013-14

11003428.0
0

1532455.00 3030644.00 2041543.

Quick
Ratio
1.48

00
2161071.00 7438575.00 3887765.

1.91

00
3336430.00 5741187.00 2829079.

2.03

00
2622901.00 8380527.00 3889899.

2.15

00
41

2014-15

11946666.0

2360611.00 9586055.00 4165659.

2.30

00

Chart showing Quick Ratio

Quick Ratio

2.5

1.5
Quick Ratio

0.5

2010-11

2011-12

201213
Year

201314

2014-15

INTERPRETATION:During the year 2010-11 the quick ratio was 1.48, in the year 2011-12 it
increases to 1.91 This shows the company maintains satisfactory quick ratio, in the
year 2012-13 the quick ratio increases to 2.03, in the year 2013-14 it increases 2.15
and in the year 2014-15 it increases 2.30, due to increase in quick assets. The quick
ratio is above the standard ratio i.e., 1:1. Hence it shows that the liquidity position
of the company is adequate.
3. ABSOLUTE LIQUID RATIO:Absolute liquid ratio may be defined as the relationship between Absolute
liquid assets and current liabilities. Absolute liquid assets include cash in hand and
cash at bank.
The standard ratio is 0.5: 1.

Absolute Liquidity Ratio =

Cash & Bank Balance

Current Liabilities

(Rs. In 000)

42

Absolute Liquidity Ratio

Years

Cash & Bank

Current

Balance

Liabilities

Absolute Liquidity
Ratio

2010-11

493742.00

2041543.00

0.24

2011-12
0.5

1205660.00

3887765.00

0.31

0.45
2012-13

1033152.00

2829079.00

0.36

0.35
2013-14

1720815.00

3889899.00

0.44

1978938.00

4165659.00

Absolute
0.47
Liquidity
Ratio

Chart showing Absolute Liquidity Ratio

0.4

0.3

2014-15
0.25
0.2
0.15
0.1
0.05
0

INTERPRETATION:
2010-11

2011-12

2012-13

2013-14

2014-15

Year

During the year 2010-11 the Absolute liquidity ratio was 0.24, during the year
2011-12 it was 0.31 and in the year 2012-13 it was 0.36, in the year 2013-14 it was
0.44. This shows that the Absolute liquidity ratio increases every year but it is below
the standard ratio. In the year 2014-15 the Absolute liquidity ratio has increases
0.47. Hence it shows that the liquidity position of the company is satisfactory.

TURNOVER RATIOS

1. INVENTORY TURNOVER RATIO:Inventory turnover ratio is the ratio, which indicates the number of times the
stock is turned over i.e., sold during the year. This measures the efficiency of the
sales and stock levels of a company.

A high ratio means high sales, fast stock

turnover and a low stock level. A low stock turnover ratio means the business is
slowing down or with a high stock level.
Inventory Turnover Ratio

Net Sales

43

Closing Inventory

(Rs. In

000)
Year

Net Sales

Closing
inventory

Inventory Turnover
ratio

2010-11

19542081.00

1532455.00

12.75 Times

2011-12

31321229.00

2161071.00

14.49 Times

2012-13

27894285.00

3336430.00

8.36 Times

2013-14

38496046.00

2622901.00

14.68 Times

2014-15

42345651.00

2360611.00

17.94 Times

Chart showing Inventory Turnover Ratio

20
18
16

ITR

14
12

Inventory
Turnover Ratio

10
8
6
4
2
0
2010110

2011-12

2012-13

2013-14

2014-15

Year

INTERPRETATION:

44

It is seen from the above chart that During the year 2010-11 the Inventory t/o
ratio is 12.75 times, in the year 2011-12 it increased to 14.49 times, But in the year
2012-13 it decreased to 8.36 times . There was a subsequent increase in the year
2013-14 and 2014-15 to 14.68 times and 17.94 times respectively.
This shows the company has converted inventory to sales quickly and less money is
tied up in stock.

2. INVENTORY HOLDING PERIOD :This period measures the average time taken for clearing the stocks. It
indicates that how many days inventories take to convert from raw material to
finished goods.

Inventory Holding Period

Days in a year

Inventory turn over ratio

(Rs. In

000)
Year

Days in a Year

Inventory Turnover

Inventory Holding Period

Ratio
365

12.75 Times

28.63 Days

2011-12

365

14.49 Times

25.19 Days

2012-13

365

8.36 Times

43.66 Days

2013-14

365

14.68 Times

24.86 Days

2014-15

365

17.94 Times

20.34 Days

Number of days

2010-11

Chart showing Inventory Holding Period

50
45
40
35
30
25
20

Inventory
Holding
Period

15
10
5
0

45
2010-11

2011-12

2012-13
Year

2013-14

2014-15

INTERPRETATION:

Inventory holding period was fluctuating over the years. It was 28.63 days in
the year 2010-11. It decreased to 25.19 days in the year 2011-12, it increased to
43.66 days in the year 2012-13. There was a subsequent decrease in the year 201314 and 2014-15 to 24.86 days and 20.34 days respectively.
This shows the company is minimizing these inventory-holding days thereby
reduces investment in inventory. This shows companys inventory management is
efficient.

3. DEBTORS / ACCOUNTS RECEIVABLES TURNOVER RATIO:Debtors turnover ratio indicates the speed of debt collection of the firm. This
ratio computes the number of times debtors (receivables) has been turned over
during the particular period.
Debtors Turnover Ratio =

Net Sales

Average Debtors

46

Note: in DURGAPUR STEEL PLANT, we have taken the total net sales instead of the
credit sales, because the credit sales information has not available for the
calculation of DTR.
(Rs. In 000)
Year

Net Sales

Average

Debtors Turnover

Debtors

Ratio

2010-11

19542081.00

2201381.00

8.88 Times

2011-12

31321229.00

4958527.00

6.32 Times

2012-13

27894285.00

1805948.00

15.44 Times

2013-14

38496046.00

3787274.00

10.16 Times

2014-15

42345651.00

4355365.00

9.72 Times

Chart showing Debtors Turnover Ratio

18
16

DTR

14
12

Debtors
Turnover
Ratio

10
8
6
4
2
0
201011

2011-12

2012-13
Year

201314

2014-15

47

INTERPRETATION:
It is clear that debtor turnover ratio fluctuating over the years. It was 8.88
times in the year 2010-11. It decreased to 6.32 times in the year 2011-12, It again
increased to 15.44 times in the year 2012-13 but it decreased to 10.16 times and
9.72 Times in the year 2013-14 and 2014-15 respectively. This shows the company
is not collecting debt rapidly and companys collection policy is liberal.

4. DEBTORS COLLECTION PERIOD :Debtors collection period measures the quality of debtors since it measures
the rapidity or the slowness with which money is collected from them a shorter
collection period implies prompt payment by debtors. It reduces the chances of bad
debts. A longer collection period implies too liberal and inefficient credit collection
performance.

Average Collection Period

Days in a Year
Debtors Turnover Ratio

(Rs. In 000)
Year

Days in a

Debtors Turnover

Debtors Collection

Year

Ratio

Period

2010-11

365

8.88 Times

41.10 Days

2011-12

365

6.32 Times

57.75 Days

2012-13

365

15.44 Times

23.64 Days

2013-14

365

10.16 Times

35.92 Days

2014-15

365

9.72 Times

37.55 Days

48

Chart showing Debtors Collection Period

Number of days

70
60
50
Debtors
Collection
Period

40
30
20
10
0
2010-11

2011-12

2012-13

2013-14

2014-15

Year

INTERPRETATION:
Debt collection period is changing over the years. It was 41.10 days in the
year 2010-11. It increased to 57.75 days in the year 2011-12, but in the year 201213 it decreased to 23.64 days. There was a subsequent increase in the year 201314 and 2014-15 to 35.92 days and 37.55 days respectively.
This shows the inefficient credit collection performance of the company. Company
is not paying proper attention on debt collection or the quality of debtors is not
good.

5. CREDITORS/ACCOUNTS PAYABLES TURNOVER RATIO:Creditors turnover ratio is the ratio, which indicates the number of times the
debts are paid in the year. This ratio is calculated as follows.

Creditors Turnover Ratio =

Net Purchases

Average Creditors
49

Note: In the DURGAPUR STEEL PLANT, we have taken the total Purchases instead of
the credit purchases, because the credit purchases information has not available for
the calculations of CTR.
(Rs. In 000)
Year

Net

Average

Creditors Turnover

Purchases

Creditors

Ratio

2010-11 11691090.00

1673515.00

6.98 Times

2011-12 17778675.00

3492127.00

5.09 Times

2012-13 18896828.00

2649781.00

7.13 Times

2013-14 23605773.00

2658999.00

8.88 Times

2014-15 27146639.00

3057849.00

8.88 Times

Chart showing Creditors Turnover Ratio

10
9
8

CTR

7
6
5

Creditors
Turnover
Ratio

4
3
2
1
0
2010-11

2011-12

2012-13

2013-14

2014-15

Year

50

INTERPRETATION:
It is clear that creditor turnover ratio is changing over the years. It was 6.98
times in the year 2010-11. It decreased to 5.09 times in the year 2011-12. There
was a subsequent increase in the year 2012-13 and 2013-14 to 7.13 times and 8.88
times respectively. In the year 2014-15 it is same as compared to 2013-14. It shows
that company has making prompt payment to the creditors.

6. CREDITORS PAYMENT PERIOD:The Creditors Payment Period represents the average number of days
taken by the firm to pay the creditors and other bills payables.

Average Payment Period

Days in a Year

Creditors Turnover Ratio

(Rs. In 000)
Year

Days in a

Creditors Turnover

Average Payment

Year

Ratio

Period

2010-11

365

2011-12

365

2012-13
Number of days

2013-14
2014-15

80
70
60

6.98 Times

52.29 Days

5.09 Times
Chart showing Creditors Payment Period
365
7.13 Times

71.71 Days
51.19 Days

365

8.88 Times

41.10 Days

365

8.88 Times

41.10 Days

50

Creditors
Payment
Period

40
30
20
10

51

0
2010-11

2011-12

2012-13
Year

2013-14

2014-15

INTERPRETATION:

Average payment period is changing over the years. It was 52.29 days in the
year 2010-11. It increased to 71.71 days in the year 2011-12, but in the year 201213 and 2013-14, it decreased to 51.19 days and 41.10 days respectively. In the year
2014-15, it is same as compared to 2013-14. It indicates that the company has
taken the steps to prompt payment to the creditors.

7. WORKING CAPITAL TURNOVER RATIO:This ratio indicates the number of times the working capital is turned over in the
course of the year. This ratio measures the efficiency with which the working capital
is used by the firm. A higher ratio indicates efficient utilization of working capital
and a low ratio indicates otherwise. But a very high working capital turnover is not a
good situation for any firm.

Working Capital Turnover Ratio =

Net Sales
Net Working Capital

52

(Rs. In 000)
Year

Net Sales

Net Working

WCTR

Capital
2010-11

19542081.

2521556.00

7.75 Times

5711881.00

5.48 Times

6248538.00

4.46 Times

7113529.00

5.41 Times

7781007.00

5.44 Times

00
2011-12

31321229.
00

2012-13

27894285.
00

2013-14

38496046.
00

2014-15

42345651.
00

Chart showing Working Capital Turnover Ratio

9
8
7
WCTR

6
5

WCTR

4
3
2
1
0
2010-11

2011-12

2012-13

2013-14

2014-15

Year

INTERPRETATION:

53

The working capital t/o ratio is fluctuating year to year that was high in the
year 2010-11, 7.75 times; there was a subsequent decrease in the year 2011-12
and 2012-13 to 5.48 times and 4.46 times. But it increases in the year 2013-14 and
2014-15 to 5.41 and 5.44 times respectively. This shows the company is utilizing
working capital effectively and working capital is converted into sales very fast.

C] FUND FLOW STATEMENTS

Principles of working capital for calculation purpose

CURRENT ASSETS

If the current assets increase as a result of this, working capital also

increases.

If the current assets decreases as a result of this working capital decreases.

CURRENT LIABILITIES

If the current liabilities increases as a result of this working capital decreases.

If the current liabilities decreases as a result of this working capital Increase.

Statement of Changes in Working Capital:

54

The purpose of preparing this statement is for finding out the increase or decrease
in working capital and to make a comparison between two financial years.

Table 1: Statement of Changes in Working Capital for the Year

2010-2011

Particulars

As on 31- As on
3- 2009
31-32010

Effect on working
capital

Increase

Decreas
e

__

468850.00

762571.00

__

__

9925.00

CURRENT ASSETS
Inventories

2001305.00

1532455.0
0

Sundry debtors

1438810.00

2201381.0
0

Cash & Bank balance

503667.00

493742.00

55

Other current assets

134364.00

148822.00

14458.00

__

Loans and Advances

193081.00

186699.00

__

6382.00

(A)Total Current Assets

4271227. 4563099

__

67320.00

143533.00

__

__

368085.

00

.00

1606195.00

1673515.0

CURRENT LIABILITIES
Sundry creditors

0
Provisions

511561.00

(B)Total

Current 2117756.

Liabilities

(A)-(B)

00

Net

Working 2153471.

Capital

Increase

00

in

368028.00

2041543
.00
2521556
.00
__

Working 368085.0

Capital

0*

TOTAL

00*

2521556. 2521556 920562.

930487.

00

00

.00

00

INTERPRETATION:

56

In the above table, it is seen that during the year 2009-10 and 2010-11 there
was a net increase in working capital of Rs 368085.00. It indicates an adequate
working capital in DURGAPUR STEEL PLANT.

This is because of
1. Increase current assets such as Sundry debtors by Rs 762571.00, other current
assets by Rs 14458.00. And decrease in Inventories by Rs 468850.00, Cash &
Bank balance by Rs 9925.00, Loans and Advances by Rs 6382.00.
2. Increase in current liabilities such as in Sundry creditors by Rs 67320.00 and
decrease in Provisions by Rs 143533.00.

Table 2: Statement of Changes in Working Capital for the Year

2011-2012

Particulars

Effect on working
capital

As on 31- As on
3- 2011
31-32012

Increase Decrease

1532455.00

628616.00

__

2757146.0

__

CURRENT ASSETS
Inventories

2161071.0
0

Sundry debtors

2201381.00

4958527.0
0

Cash & Bank balance

493742.00

1205660.0

0
711918.00

__

__

70562.00

1009429.0

__

0
Other current assets

148822.00

78260.00

Loans and Advances

186699.00

1196128.0
0

0
57

(A)Total Current Assets

4563099. 9599646
00

.00

1673515.00

3492127.0

CURRENT LIABILITIES
Sundry creditors

__

1818612.00

__

27610.00

__

3190325.

0
Provisions

368028.00

(B)Total

Current 2041543.

Liabilities

(A)-(B)

00

Net

Working 2521556.

Capital

00

Increase

in

Working 3190325.

395638.00

3887765
.00
5711881
.00
__

00*

Capital

TOTAL

00*

5711881. 5711881 5107109 5107109.

00
.00
.00
00

INTERPRETATION:

In the above table, it is seen that during the year 2010-11 and 2011-12, there was
huge net increase in working capital by Rs 3190325.00
This is because
58

1. There is Increase in current assets such as Inventories by Rs 628616.00,

Sundry debtors by Rs 2757146.00, Cash & Bank balance by Rs 711918.00, Loans
and Advances by Rs 1009429.00. And decrease in other current assets by Rs
70562.00.

2. There is Increase in current liabilities such as Sundry creditors by Rs

1818612.00, Provisions by Rs 27610.00.

Table 3: Statement of Changes in Working Capital for the Year

2012-2013

Particulars

Effect on working
capital

As on 31- As on
3- 2012
31-32013

Increase Decrease

2161071.00

3336430.0

1175359.0

CURRENT ASSETS
Inventories

Sundry debtors

4958527.00

1805948.0

__

__

3152579.00

__

172508.00

0
Cash & Bank balance

1205660.00

1033152.0
0

Other current assets

78260.00

189683.00

111423.00

__

Loans and Advances

1196128.00

2712404.0

1516276.0

__

0
(A)Total Current Assets

9599646. 9077617
00

.00

59

CURRENT LIABILITIES
Sundry creditors

3492127.00

2649781.0

842346.00

__

216340.00

__

0
Provisions

395638.00

(B)Total

Current 3887765.

Liabilities

(A)-(B)

00

Net

Working 5711881.

Capital

00

179298.00

2829079
.00
6248538
.00
__

Increase

in

Working 536657.0

0*

Capital

TOTAL

__
536657.0
0*

6248538. 6248538 3861744 3861744.

00
.00
.00
00

INTERPRETATION:

In the above table, it is seen that during the year 2011-12 and 2012-13, there was
also net increase in working capital by Rs 536657.00.
This is because
1. There is Increase in current assets such as Inventories by Rs 1175359.00, other
current assets by Rs 111423.00, Loans and Advances by Rs 1516276.00 and
decrease in Sundry debtors by Rs 3152579.00, Cash & Bank balance by Rs
113618.00.

60

2.

There is Decrease in current liabilities such as Sundry creditors by Rs

842346.00, Provisions by Rs 216340.00.

Table 4: Statement of Changes in Working Capital for the Year

2013-2014

Particulars

As on 31- As on 313- 2013

3-2014

Effect on working
capital

Increase Decrease
CURRENT ASSETS
Inventories

3336430.00

2622901.00

__

713529.00

Sundry debtors

1805948.00

3787274.00

1981326.0

__

0
Cash & Bank balance

1033152.00

1720815.00

Other current assets

189683.00

206206.00

Loans and Advances

2712404.00

2666232.00

(A)Total Current Assets

9077617. 1100342

687663.00

__

16523.00

__

__

46172.00

00

8.00

Sundry creditors

2649781.00

2658999.00

__

9218.00

Provisions

179298.00

1230900.00

__

1051602.00

CURRENT LIABILITIES

(B)Total

Current 2829079.

Liabilities

(A)-(B)

Net

00
Working 6248538.

3889899.
00
7113529.
61

Capital

00

00
__

Increase

in

Working 864991.0

0*

Capital

TOTAL

__
864991.0
0*

7113529. 7113529. 2667512 2667512.

00
00
.00
00

INTERPRETATION:

In the above table, it is seen that during the year 2012-13 and 2013-14, there was
also net increase in working capital by Rs 864991.00.
This is because
1. There is Increase in current assets such as Sundry debtors by Rs 1981326.00,
Cash & Bank balance by Rs 687663.00, Other current assets by Rs 16523.00 and
decrease in Inventories by Rs 713529.00, Loans and Advances by Rs 46172.00.

2. There is Increase in current liabilities such as Sundry creditors by Rs 9218.00,

Provisions by Rs 1051602.00.

Table 5: Statement of Changes in Working Capital for the Year

2014-2015

Particulars

As on 31- As on 313-2014
3-2015

Effect on working
capital

Increase Decrease

62

CURRENT ASSETS
Inventories

2622901.00

2360611.00

__

Sundry debtors

3787274.00

4355365.00

568091.00

__

Cash & Bank balance

1720815.00

1978938.00

258123 .00

__

Other current assets

206206.00

185585.00

Loans and Advances

2666232.00

3066167.00

(A)Total Current Assets

1100342

1194666

8.00

6.00

Sundry creditors

2658999.00

Provisions

1230900.00

__

262290.00

20621.00

399935.00

__

3057849.00

__

398850.00

1107810.00

123090.00

__

__

667478.0

CURRENT LIABILITIES

(B)Total

Current

Liabilities

(A)-(B)

3889899. 4165659.
00

Net

Working

Capital

00

7113529. 7781007.
00

Increase

in

Working

Capital

TOTAL

667478.0
0*

00
__

0*

8270981. 8270981. 1349239 1349239.

00
00
.00
00

63

INTERPRETATION:
In the above table, it is seen that during the year 2013-14 and 2014-15 there was
also net increase in working capital by Rs 667478
This is because
1. There is increase in current assets such as Sundry debtors by Rs 568091.00,
Cash & Bank balance by Rs 258123.00 Loans and Advances by Rs 399935.00 and
decrease in Inventories by Rs 262290.00, other current assets by Rs 20621.00.

2. There is increase in current liabilities such as Sundry creditors by Rs 398850.00

and decrease in Provisions by Rs123090.00.

CHAPTER - 5
FINDINGS
Following are the findings of the study:
Working capital of the DURGAPUR STEEL PLANT was increasing and
showing positive working capital per year.
The DURGAPUR STEEL PLANT has higher current and quick ratios are i.e.,
2.87 and 2.30 respectively.

Inventory turnover ratio is very low in the year 2012-13. In the year

2013-14 it has increased by 6.32 times as compared to 2012-13 and in the

last year 2014-15 it has again increased by 3.26 times as compared to 201314.

Debtors turnover ratio is very high in the year 2012-13. In the year 2013-14 it
has decreased by 5.28 times as compared to 2012-13 and in the last year 2014-15
it has again decreased by 0.44 times as compared to 2013-14.

64

 Creditors turnover ratio has increased in the years of 2012-13 and 2013-14. It is
same in the last year 2014-15 as compared to 2013-14.

Working capital turnover ratio is very low in the year 2012-13. In the year 2013.-

14 it has increased by 0.95 times as compared to 2012-13 and in the last year
2014-2015 it has again increased by 0.03 times.

CHAPTER - 6
SUGGESTIONS

Following are the suggestions:

Working capital of the company is increasing every year. Profit is also increasing

every year. This is good sign for the company. It has to maintain it further, to run the
business in long term.

The Current and quick ratios are almost up to the standard requirement. So the
Working capital management of DURGAPUR STEEL PLANT is satisfactory and it has
to maintain it further.

The company has sufficient working capital and has better liquidity position. By
efficient utilizing this short-term capital, then it should increase the turnover.

65

 The company should take precautionary measures for investing and collecting
funds from receivables and to reduce the bad debts.

Creditors turnover ratio has increasing from 2012-13 to 2013-14 and in the last
year 2014-2015 it is same as compared to 2013-14. Company is making prompt
payment to its creditors. This is good sign for the companys goodwill. On-time
payment to suppliers will increase the credibility of the firm. It has to maintain it
further to survive in the market.

CHAPTER - 7
BIBLIOGRAPHY

66

Books.

M.Y.Khan / P.K Jain, Financial Management Text, Problems Cases, 5 TH

Edition,Tata

McGraw Hill Publishing Company Limited, New Delhi, 2007.

Prasanna Chandra, Financial Management Theory and Practice, 5TH Edition,
Tata McGraw Hill Publishing Company Limited, New Delhi, 2001.

I M Pandey, Financial Management , Vikas publications, 2005

Annual Report of DURGAPUR STEEL PLANT

JOURNALS

Working capital management: Coordinating Investment and Financing Policies Journal of Finance.

M.B.Fordy.

Web site
www.google.com
www.wikipedia.org
www.transtutors.com
www.sail.co.in

67