ACKNOWLEDGMENT

“Task successful” makes everyone happy. But the happiness will be gold without
glitter if we didn’t state the persons who have supported us to make it a success.

I express my gratitude to Director Prof. B. Mohini of SDE, Andhra University,

Visakhapatnam for her advices in the MBA (Finance) course.

I express my gratitude to the Head of the Department of MBA course,

Prof. P. Madhusudan Rao, SDE, Andhra Univerity, Visakhapatnam for his constant
supervision, guidance and co-operation throughout the project.

I would like to express my thankfulness to our project internal guide

K.S. Gopan, Manager (F&A), Visakhapatnam Steel Plant, Visakhapatnam for his constant
motivation and valuable help throughout the project work.

I would like to gratitude to our project external guide Prof. V.K.Mohan, SDE,
Andhra University, Visakhapatnam for his continuous motivation and valuable throughout the
project work.

I express my gratitude to the Assistant General Manager of HRD department Dr.

ORM Rao, Administrative office, Visakhapatnam Steel Plant, Visakhapatnam for his
constant supervision, valuable guidance and co-operation throughout the project.

Finally I would like to thank our Parents, Relatives for their co-operation to
complete this project.
 ABSTRACT

In this project, we describe Working Capital Management to know about Financial Status of
RINL. The key idea in Working Capital Management consists of explaining the major sources of
raw materials, all kinds of ratios, all graphs with different ratios.
 DECLARATION

I hereby declare that the project work titled “WORKING CAPITAL MANGEMENT” done
under the guidance of internal guide K.S. Gopan, Manager (F&A), RINL Visakhapatnam
and external guide Prof. V.K. Mohan, SDE, Andhra University, Visakhapatnam, being
submitted to SDE, Andhra University, Visakhapatnam is of my own and has not been submitted
to any other University or Educational institution for any other Post Graduation.
1. Executive Summary
This project on Capital Management is accomplished in Rashtriya Ispat Nigam Limited,
Visakhapatnam Steel Plant. The entire Industry Internship Program has been divided into 2 splits
and they are as follows:

1. Theoretical Part (Study Project)

2. Practical Part (Operational work)

Theoretical Part mainly deals with 3 important questions and they are

1. What is the current situation of the company?

2. How much fund does a company need to pay its bills?
3. Where can capital be raised for the requirement?

Current situation of the company is studied by analysing performance by using ratios and
comparative statements over the years. This helped in understanding the current situation of the
company. From this we’ll conclude on how much is needed to sustain the business. As RINL-
VSP is a manufacturing entity anything happens in a days’ time. An order of 1000 Crores may
come in a day or on the other side for a period of 5 days they may not be a single order. So, for
this organization prediction of working capital cannot be done. Planning of Capital expenditure
is possible basing on the projects proposed. By this 2 nd question is answered. Lastly the 3rd
question is answered by the available options for the organization i.e. to find out the best source
of capital to be funded for the requirement. 26 banks were in associated with RINL-VSP till date.
From this we answered our last question.

The routine for the entire 4.5 months is explained in detail in the report. A quick overview on
how it went is as follows. A typical day starts at 10 AM in the admin block of RINL-VSP. The
work starts at operational sale department assisting project lead in issuance and receiving of
checks from clients, dealers, creditors, employees
and contractors. The front-end work will be for 2 hours and then starts the background work.
Under this summing up of transactions for the day and raising loans to cover deficit from various
banks is processed. Afternoon session is a lecture from the lead about various debt instruments
and how activities being processed in the organization. For the first 2 months, this routine has
been followed. The last 2.5 months is being focused on closing of books that is calculation of
interests from borrowings like Over Draft, Cash Credit, Short term loans and long term loans.

This project report follow goes like, initially a quick snapshot of financials of the company and
then followed by the operational work i.e. how the routine went on field by the activities
performed during the working hours in the company. And then followed by the study project i.e.
ratio analysis the meaning, how it helps in understanding the performance over the years and
present status of the company. Next is the schedule which contains of borrowings of the
company both short and long term loans availed by the company. The followed by leanings from
this project and at the end Conclusion and references are summarized later.

The main objective of this project is to optimize cost of capital. Till date RINL-VSP hasn’t
availed debt instruments like Non-Convertible Debentures and External Commercial
Borrowings. A detailed study is being done for the procedure to avail those two instruments.
Proposal is advised to the management to go for the above 2 instruments.

Annexure contains the financial statements, comparative and common size statements, overview
of ratios in graphical representation.
2. Company Profile

2.1 Description of the Internship

Title of the Project: Working Capital Management.

Name of the Student: Gundu Raghuveer Dutta.

University Name: SDE, Andhra University.

College ID Number: 14MB00026.

Company: Rashtriya Ispat Nigam Limited, Visakhapatnam Steel Plant.

Type: Public Limited Company.

Industry: Steel.

Founded: 17th April 1970.

Location: Visakhapatnam, Andhra Pradesh.

Area: 33000 acres.

No. of Employees: 17837 as on 31-3-2016.

Department: Finance and Accounts Department.

Internal Guide: Kiran Sadananda Gopan.

Designation and Contact number: Manager (F&A), Ph- 8330930890.

External Guide: Prof. V.K. Mohan.

Designation and Contact number: Professor, SDE, Andhra University, 9848289827.

Website: https://www.vizagsteel.com/index.asp
2.2 Introduction to the Company
Rashtriya Ispat Nigam Limited, a Navratna PSE with 100% ownership held by Government of
India, is the corporate entity of Visakhapatnam Steel Plant- the country’s first shore based
integrated steel plant at Visakhapatnam, Andhra Pradesh.
RINL-VSP is the first Indian Steel Plant to be certified with “Capability Maturity

Model Integrated (CMMI)- Level 3” for its implementation of IT systems and is also the first
Central Public Sector Enterprises to be certified for ISO 50001 for Energy Management System.
The company has been consistently, surpassing its rated capacity of production for the last 15
years and making net profits since 2001-02. RINL with its 17837-strong workforce & quality
products have already made a presence across the globe and leader in the Indian Market in long
products. RINL is a pioneer in community engagement practices and policies. This company is
one of the first Steel PSU’s to embrace the Swachh Bharat initiatives and aggressively
campaigned for fulfilment of various activities and targets under the Swachh Bharat Abhiyan. To
support the initiative following are the technologies are implemented.

2.2.1 VSP Technology: State of Art.

➢
7-meter-tall Coke Oven Batteries with coke dry quenching.
➢
Biggest Blast Furnaces in the country.
➢
Bell-less top charging system in Blast Furnace.
➢
100% slag granulation at BF Cast House.
➢
“Tempcore” and “Stelmor” cooling process in LMMM and WRM departments.
➢
Extensively waste heat recovery systems.
➢
Comprehensive pollution control measures.
 2.2.2 Major Sources of Raw Materials are as follows:

Raw Material Source

Iron ore Lumps & Fines Bailadill, Kirandul

BF Lime Stone Jaggayyapeta

SMS Lime Stone UAE

BF Dolomite Madharam

SMS Dolomite Madharam

Boiler Coal Talcher

Imported coking coal Australia

Medium coking coal Giddi/Swang/Rajrappa/Kargali

2.2.3 Main Products and Services

RINL, with its exclusive product mix of longs is the largest producer of long products in the
country. The principal products of RINL are as follows:
➢
Plain wire rods
➢
Rebars
➢
Rounds
➢
Squares
➢
Angles
➢
Channels

The company also markets by-products like coal chemicals like Ammonium Sulphate,
Naphthalene, Coal tar, Pitch, Benzol products and Granulated BF slag.
 2.2.4 Delivery Mechanism

A network of 5 regional offices, 23 Branch offices, stockyards, 5 Consignment Sales Agents and
133 Retailers spread across the country carter to the delivery requirements, which is further
complemented by DLDs and RDs to ensure availability of quality steel in rural areas at
affordable prices. Retailers, DLDs and RDs provide efficient channel to ensure the availability of
RINL products at various points of consumption that cannot be directly accessed by the
company.

2.2.5 Propose, Vision, Mission and Values

Vision 2025 “To be the most efficient steel maker having the largest single location shore based
steel plant in the country”. RINL is the largest integrated steel plant to be set up as the PSE,
basically to propel growth in infrastructure in the country and play a crucial role in India’s
industrialization and economic development. Being a

PSE, its purpose includes promoting self-reliance in core sectors of the national economy,
employment generation, development of backward areas and local communities etc. the
company has been making profits since last 11 years, operating above rated capacity during last
12 years and is on the verge of realizing its first phase of expansion to 6.3 Mtpa.

2.2.6 Employee Profile

Total employee base can be categorized into non-executive and executive grades. Apart from the
regular employees on the rolls of the company, the company also engages contractual labour
force for carrying out non-core activities in the production facilities. 66% of man power consists
of non-executives and the other 34% is executives.
 2.2.7 Statutory and Regulatory Environment

Being a Government of India owned PSE, RINL complies with all the applicable regulations and
has been adapting the recent DPE guidelines on CSR, CG, R&D etc. RINL has been certified for
all three system standards i.e. ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007. Further
RINL is the first PSE and first in steel sector India adopt ISO 50001 standards for Energy
Management System.

2.2.8 Competitive Environment

RINL being an exclusive producer of longs where it has a market leadership with a market share
of 8% in a highly-fragmented market with about 70% of the total volume supplied by more than
1000 small secondary producers. Fluctuation in their capacity utilization creates frequent
imbalances in demand and supply equations in the market. Also, the commodity nature of the
steel makes the steel producers vulnerable to vagaries of business cycles, price fluctuations and
competition on prices. This is the evident from the fact that in the last three years, steel industry
in India is witnessing negative growth in the margins which are under pressure from sluggishness
in domestic markets and volatility in raw material prices and dollar exchange rate.

Also, major steel producers in the country can be categorized into 2 distinct categories e.g. those
having captive mines for major raw materials (whose operating margins are >13%) and those
that source major raw materials from domestic and international markets (with operating margins
between 7-10%). RINL falls in the second category, being the only one.

Following is the table where Market sectors, competitors and retention of RINL’s market share.
 2012- 2015-
Category Competitors
2013 2016
Market
14040 18421
Size SAIL, Tata, JSW, re-
Manufacturing
RINL 1307 2497 rollers

% share 9 14

Market
22000 29349
Size SAIL, ISP, JSW, re-
Construction
RINL 1704 2800 rollers

% share 7 9

PSE steel unit without captive mines for major raw materials. RINL banks on its operational
efficiency to overcome this handicap and ensures that this wide gap is narrowed down during its
production processes and closes the difference as can be seen from the comparison of operating
margins.

RINL focuses on leveraging its advantage of scale and operational efficiency to produce quality
steel at competitive prices. Further, focus of RINL, (which was basically designed to produce
commercial grades of steel) has been on process improvements to develop capability to produce
value added steel to differentiate itself from secondary players in its range of products and thus,
the company over a period has created an image of “Best Value Supplier” in the market place.

Expansion to 6.3Mtpa and further to 7.3 Mtpa by 2015 will not only help in retaining its
leadership position in longs but would also ensure moving out of commodity steel market to
value added category.
2.2.9 Approach for future growth

The approach of the organization for future growth is showcased below:

Approach Objective

Brownfield
To realize full potential of growth to 20 Mtpa by 2025
Expansion

Completion of ongoing modernization efforts to increase

plant capacity by 1 Mtpa by up-gradation of blast furnaces,

Modernization of
revamp of Converter & Sinter machines and improve
existing equipment
operational efficiency to contemporary levels progressively

from 2013-2015

Growth through JV's

To ensure business diversification and raw material
& Strategic
securitization
partnerships
2.3 Financials

The 46 years old Rashtriya Ispat Nigam Limited Visakhapatnam Steel Plant which
is into manufacturing of steel products. This organization consists of 33000 acres
land and 17640 employees till date. Steel plant derives its revenue in the following
manner:
❖
Sale of iron and Steel: 9667 Crs
❖
Sale of by products and Others: 392 Crs
❖
Interest Earned (loans to employees): 89 Crs
❖
Other revenue: 297 Crs
❖
Internal Consumption: 36 Crs.

REVENUE
Sale of Iron and Steel Internal Consumption Other Revenue Interest Earned Sale of
By Products
4%
1%
3%

0%

92%

The major chunk of the revenue is derived from iron and steel i.e. 92% which is the primary
business of this organization. Next followed by Sale of By products with 4%.
1
Let’s check on the other side of revenues i.e. Distribution of Gross Income over
various divisions.
❖
Stores and Spares Consumed: 595 Crores.
❖
Power and Fuel: 875 Crores.
❖
R & M, freight. Other expenses: 1724 Crores.
❖
Excise Duty: 1143 Crores.
❖
Depreciation: 347 Crores.
❖
Provision for Taxation: 3 Crores.
❖
Employees Benefits: 1923 Crores.
❖
Stock Accretion: 1150 Crores.
❖
Raw Materials Consumed: 4142 Crores.

EXPENDITURE
Raw Materials Consumed Provision For
Stock Accretion Taxation
Depreciation Excise Duty R&M, Freight
Power and Fuel Stores & Spares

6% 12%
9%

17%

42%
11%
3%
0%

It was clear that company is running into losses by 1421 Crores. i.e. Gross income
of 10481 less 11902 of expenditure.
2.4 Graphs
Graphs of other important numbers for the year were as follows.

Annual Turnover

TURNOVER
1600
0
1400
0
1200
0
1000
0

8000

6000

4000

2000

0
1985 1990 1995 2000 2005 2010 2015 2020

Profit After Tax

Profit / (Loss) after

Tax
2500

2000

1500

1000

500

0
1985 1990 1995 2000 2005 2010 2015 2020
-500

-1000

-1500

-2000
Fixed Assets Gross Block

Fixed Assets Gross Block

25000

20000

15000

10000

5000

0
1985 1990 1995 2000 2005 2010 2015 2020

Employees

Employees
20000

18000

16000

14000

12000

10000

8000

6000

4000

2000

0
200
1985 1990 1995 0 2005 2010 2015 2020
Reserves and Surplus

Reserves & Surplus

8000

6000

4000

2000

0
1985 1990 1995 2000 2005 2010 2015 2020
-2000

-4000

-6000

Loans and Buyers Credit

Loans/Buyers Credit
12000

10000

8000

6000

4000

2000

0
1985 1990 1995 2000 2005 2010 2015 2020
3. The Work
The practical part of the project is explained under this head. Office working hours starts at 10
AM and ends at 5 PM. It is divided into 2 main sessions (morning and afternoon). Following are
the activities performed during the internship program. Confidential numbers were replaced with
replica numbers. The follow goes basing on the time from the beginning of the program till the
end.

1. Assisting for issuance of checks in Operational sale department.

2. Background work for the transactions done for the morning hours.
3. Procedures for availing funds from various banks in case of deficit.

4. Calculation of day today and monthly interest for the loans availed for the year.
5. Recording of balances with bank using bank statements.
6. Preparing Scheduled for Commercial Paper.

7. Summarizing Over draft, cash credit, short term loans, long term loans and Commercial
Paper for the year.
8. Visiting Banks for various works assigned by the lead.

Each activity is explained in detail with the worksheet and formulas worked in MS Excel.

1. Assisting for issuance of checks in Operational sale department.

Initial hours i.e. from 10 AM to 12 PM will be worked over the counter. These complete 2 hours
will be of assisting lead. Following are the activities done in Operational sale department.

1. Issuance of checks along with payment voucher to various creditors for the payments.
 2. Receiving of checks from debtors for the sale transactions back in days.
3. Receiving of orders basing on the specifications mentioned in the note.
4. Payments for contract labour for the day or for week.

The entire transactions are done over the checks, RTGS, NEFT, Electronic fund transfer etc.
maximum cash payments are being avoided. A basic limit of cash is being maintained to meet
any abnormal transactions for the day. Contract labours are paid basing on the time book
recorded by the Supervisor or by the Contractor’s acknowledgment supported by signature.

2. Background work for the transactions done for the morning hours.

After the counter is closed a background work is being done by saving the data in the cloud.
Calculation of the deficit will be done for the next one hour. Basing on the number of
transactions this work will be executed in calculating the fund required to cover the deficit.

3. Procedures for availing funds from various banks in case of deficit.

After calculation, we’ll be ending up with an amount. If surplus left for the day means the excess
is credited to the bank. If in case deficit means a conversion of working capital fund may be done
or to raise a short term loan or an overdraft can be made to cover the deficit. This helps in
managing the working capital requirement for the day. This ends the morning session for the
entire Industry Internship Program.

4. Calculation of day today and monthly interest for the loans availed for the
year.

From February 15th till April 12th, afternoon session has been changed from lectures to work
related to closing of books. The primary work is to calculate the interest
from borrowings from Overdraft, cash credit, short term loans and long term loans.
The procedure is explained step by step on how the task is completed.

i. Understanding the worksheet scheduled for recording of borrowings with coded formulas
in the cell. It is being divided by columns with Bank Name and the debt which they
provided. A snapshot on how it looks like is as follows:

SBI
SBI Allahabad SBI
Date CC (Capex SBI FRT
CC CC CC (OD)
part
11.8 10.9 12.5 13.6 9.1
01-Mar-2017
02-Mar-2017
03-Mar-2017
04-Mar-2017
05-Mar-2017
06-Mar-2017
07-Mar-2017
08-Mar-2017
09-Mar-2017
10-Mar-2017
11-Mar-2017
12-Mar-2017
13-Mar-2017
14-Mar-2017
15-Mar-2017
16-Mar-2017
17-Mar-2017
18-Mar-2017
19-Mar-2017
The above snapshot is associated to the month of march from 1 st to 19th. SBI, Allahabad
and many other banks are reordered column wise basing on the interest rates and the
type of borrowings i.e. here it is Cash credit provided by SBI for Capex and Cash credit
from Allahabad. Likewise recording for the whole 365 days from various banks, various
instruments and with different interest rates are recorded in this step.

ii. Recording of loan balances for each day for the calendar year with the data from
bank statements.

SBI
SBI Allahabad SBI
Date CC (Capex SBI FRT
CC CC CC (OD)
part
11.8 10.9 12.5 13.6 9.1
01-Mar-2017 1368.644 2334.082 225.156 -965.438 6.496085
02-Mar-2017 1352.844 2334.193 225.156 -981.349 11.91821
03-Mar-2017 1306.434 2334.193 225.156 -1027.76 7.981038
04-Mar-2017 1356.427 2334.193 225.156 -977.766 9.004627
05-Mar-2017 1356.427 2334.193 225.156 -977.766 12.79263
06-Mar-2017 1356.069 2334.193 225.156 -978.123 17.573
07-Mar-2017 1356.166 2335.01 225.156 -978.844 17.48048
08-Mar-2017 1305.44 2335.01 225.156 1305.44 12.42499
09-Mar-2017 1344.76 2335.01 225.156 1344.76 13.02758
10-Mar-2017 1353.857 2335.01 225.156 1353.857 4.024505
11-Mar-2017 1353.861 2335.01 225.156 1353.861 9.456501
12-Mar-2017 1353.857 2335.01 225.156 1353.857 16.31798
13-Mar-2017 1234.836 2335.01 225.156 1234.836 13.20521
14-Mar-2017 1185.313 2335.01 225.156 1185.313 8.887324
15-Mar-2017 1167.624 2335.01 225.156 1167.624 6.196623
16-Mar-2017 1147.681 2335.01 225.156 1147.681 6.884345
17-Mar-2017 1223.919 2335.01 225.156 1223.919 4.341602
 18-Mar-2017 1087.125 2335.01 225.156 1087.125 4.205938
19-Mar-2017 1087.125 2335.01 225.156 1087.125 8.893018

With the help of bank statements loan closing balance is recorded in that bank under the rate of
interest for that instruments corresponding to the date.

iii. Calculation of Interest

For calculation of interest the procedure goes like this:

a. Totalling the loan balances for the entire month.

b. With the help of the following formula interest is calculated;
i. Total loan amount for the month*Rate of Interest/365 days

With that interest for that month is calculated in respect cash credit is calculated. When coming
to day to day interest is calculated for a particular loan amount is explained as follows. For
example:

Allahabad
Date SBI STL SBI STL IDBI STL HDFC STL
STL
10.50 10.60 10.70 10.80 11.00
01-Mar-2017 800.00 0.00 0.00 230.00 200.00
02-Mar-2017 800.00 0.00 0.00 230.00 200.00
03-Mar-2017 800.00 0.00 180.00 230.00 100.00
04-Mar-2017 800.00 0.00 180.00 230.00 100.00
05-Mar-2017 800.00 0.00 180.00 230.00 100.00
06-Mar-2017 800.00 0.00 180.00 230.00 200.00
07-Mar-2017 800.00 130.00 180.00 230.00 200.00
08-Mar-2017 800.00 130.00 180.00 230.00 200.00
09-Mar-2017 800.00 130.00 180.00 230.00 200.00
10-Mar-2017 800.00 130.00 180.00 230.00 200.00
11-Mar-2017 800.00 130.00 180.00 230.00 200.00
 12-Mar-2017 800.00 130.00 180.00 230.00 200.00
13-Mar-2017 800.00 130.00 180.00 0.00 200.00
14-Mar-2017 800.00 130.00 180.00 0.00 200.00
15-Mar-2017 800.00 130.00 180.00 0.00 200.00
16-Mar-2017 800.00 130.00 180.00 0.00 200.00
17-Mar-2017 800.00 130.00 180.00 450.00 200.00
18-Mar-2017 800.00 130.00 180.00 450.00 200.00
19-Mar-2017 800.00 130.00 180.00 450.00 200.00
20-Mar-2017 800.00 130.00 180.00 450.00 200.00
21-Mar-2017 800.00 130.00 180.00 450.00 200.00

In the above snapshot SBI short term loans (10.5%) were 800 Crores throughout the month so
for calculating interest we can use the same formula as we used to calculate interest for Cash
Credit. Same comes to SBI STL (10.6%) and IDBI STL (10.7%).

Coming to HDFC it cleared a loan amount of 230 crores on 13 th march and raised a fresh loan of
450 crores on 17th march. So, for calculating interest for that day we need to total the loan
amount from 1st march to 12th march. And to calculate interest on the total sum.

Like this interest is calculated for all the banks in which loans are availed and with different debt
instruments.

5. Recording of balances with bank using bank statements.

Arriving at bank balance from all the banks using march bank statements. Numbers are in crores:
 Bank Name Closing Balance As on 31-3-2017
HDFC DGFT 37
Bank of India 22
HSBC 56
IndusInd 7
State Bank of India 76
Canara -98.00
The Bank of Tokyo- Mitsubishi UFJ, Ltd 57
SBH 67
Andhra Bank 98
Union Bank of India 46
UOB 50
UCO 36
HDFC 54
KMB 57
DBS 6.99
SBI Commercial -95
SBI Steel Project 67
Axis -25
IDBI -48
IDBI – CP 54
Bank of Baroda 69
Yes Bank 59
Allahabad Bank 5.7
Deutsche Bank AG 22
ICICI 58
Axis-CA 80
SBI Freight 68
Total 886.69
6. Preparing Scheduled for Commercial Paper.
Presenting Commercial paper details and calculation of interest are as follows:

Commercial Paper 1 2 3 4 5
Loan Date 6-Apr-16 1-Aug-16 6-Nov-16 8-May-16 2-Jan-17
Repayment Date 5-Jul-16 30-Oct-16 4-Feb-17 4-Aug-16 2-Apr-17
Interest Rate 8.10 8.20 8.30 8.40 8.50
Amount 290.00 343.34 292.12 397.58 245.65
No. of days 90 90 90 88 90
As on date 19-04-2017 19-04-2017 19-04-2017 19-04-2017 19-04-2017
No. of days as on
Date 379 262 165 347 108

Loan Amt 109910.00 89955.97 48200.00 137958.78 26530.71

Interest 8902.71 7376.39 4000.60 11588.54 2255.11
24.3909863 20.20928661 10.96054791 31.74941827 6.178383962

Face Value 300,00,00,000 350,00,00,000 300,00,00,000 400,00,00,000 250,00,00,000

Receipt 290,00,00,000 343,34,34,003 292,12,12,112 397,57,57,400 245,65,47,000

Interest (`) 10,00,00,000 6,65,65,997 7,87,87,888 2,42,42,600 4,34,53,000

The end interest is calculated by subtracting receipts from face value.

7. Summarizing Overdraft, cash credit, short term loans, long
term loans and Commercial Paper for the year.
After recording loan amounts for that day and calculating interest for each loan
amount, we summarized all the totals in one working sheet:

INTEREST AMT
LOAN AMT INTEREST WT. AVG
(Rs. Crores)

Over Draf 10000.00 90985.95 9.10 2.49

Cash Credit 13562.00 114422.10 8.44 3.13
Short term Loans 4099.00 36686.08 8.95 1.01
Long term Loans 27661.00 242094.12 8.75 6.63
Commercial Paper 11769.58 93450.43 7.94 2.56
Working Capital Loans 39430.58 335544.56 8.51 9.19
Capital Expenditure 32985.11 276307.14 8.38 7.57

The weighted average cost of capital is calculated by taking the sum product of the loans taken
multiplied by the interest rates/ total loans. In this way summarizing all the balances of loans,
borrowings, weighted average cost of capital and interest amounts are calculated.

Except the numbers rest of the part i.e. procedure, calculations, recording and formulas were true
and fair.

This ends the operational work on sight. Now the lecture part i.e. study project is explained on
how the lead explained the concepts work in practical. For the first 2 months’ afternoon session,
i.e. from 3 to 5 PM is allotted for this study project.
4. Project: Capital Management

4.1 Introduction
Financial Management mainly deals with how the CAPITAL is being accumulated and how it is
spent. Capital Management comes into picture in governing the management of capital in any
entity. An ideal Finance manager need to answer 3 main questions:

1. What is the current situation of the company?

2. How much short-term cash flow does a company need to pay its bills?
3. Where can capital be raised for the requirement?

The 3 main questions lay a better flow for a manager to make decisions. Current situation of a
company can be acknowledged by understanding ratios and analyzing numbers in financial
statements. This brings a clear picture of how the company is running. Basing on the results of
these analysis, second question is answered. If the portrait of the company looks good, then no
issues. Expertise comes only if it is on the other side. How much it requires managing the deficit.
Subsequently, with a fund requirement manager needs to discover where can he borrow. The
requirement to be raised with a low cost of capital. Optimization of cost of capital is the best sign
for a financial manager to be in success.

This entire project is carved in such a way that it explains each question in detail of how
Rashtriya Ispat Nigam Limited Visakhapatnam Steel Plant is dealing effectively. First comes the
analysis of Ratios which tells the performance of the company and next the requirement in which
division and how much is required. Then follows the available options to source the requirement.
Basing on the credit period and required fund one must decide which is the best from the
available sources.
Here comes the first question “What is the current situation of the company?” and what exactly
went wrong to the company to suffer a loss of 1421 Crores in the current year. Ratio Analysis
helps him to find out the right reason for this Loss. Let’s pitch on to some of the key ratios and
their significance over the performance of the company. By calculating the following ratios:

4.2Ratio Analysis

❖
Liquidity Ratios
o Current Ratio
o Acid test Ratio
❖
Leverage Ratios
o Capital
▪
Structure Ratios
Capital Gearing Ratio
▪
Proprietary Ratio
o Coverage Ratio
▪
Debt Service Coverage Ratio
▪
Interest Coverage Ratio
❖
Activity Turnover Ratio
o Capital Turnover Ratio
o Working Capital Turnover
▪
Inventory
▪
Receivables
▪
Payables
❖
Profitability Ratio
o Based on Overall Returns
 ▪
Return on Assets
▪
Return on Capital Employed

So, let’s start by explaining what exactly a ratio tells and how the company is performing over it.
Liquidity Ratio:
This ratio is also known as short term solvency. It tells the inability to payoff short term
liabilities affects its credibility as well as its credit rating. Continues default on the part of
business leads to commercial bankruptcy. Eventually such commercial bankruptcy may lead to
its sickness and dissolution. Short term lenders and creditors of a business are very much
interested to know its state of liquidity because of their financial stake. 2 main ratios under
liquidity:
1. Current Ratio
The main question this ratio addresses are “Does your business have enough current assets to
meet the payment schedule of its current debts with a margin of safety for possible losses in
current assets?”
The basic formula for this ratio is: Current Assets/ Current Liabilities

Following is the Schedule of Current assets and Current Liabilities of this organization:
Current Assets 2016 2015 2014 2013
Inventories 3907.5 5179.51 3863.04 3828.6

Trade Receivables 958.11 1035.43 803.65 1009.65

Cash and Bank Balances 45.56 63.94 175.89 1625.02

Short term Loans and Advances 3440.21 3259.83 3443.81 3417.75

Other Current Assets 147.79 98.75 114.27 96.73

Total 8499.17 9637.46 8400.66 9977.75

 Current Liabilities
Short term Borrowings 6585.64 7444.89 3739.93 3658.44

Trade payables 733.56 600.6 829.93 737.94

Other current Liabilities 6328.91 6979.28 5484.05 5615.19

Short term Provisions 0 34.61 157.65 173.1

Total 13648.11 15059.38 10211.56 10184.67

Current Ratio 0.622736 0.639964 0.822662 0.979683

We can tell current liabilities were overloaded than the Current assets. the main reason for this is
because of the Foreign Exchange Forward Contract Payables which consists of 2704.99 Crores.
In other current liabilities.

2. Acid Test Ratio

The acid test ratio also known as quick ratio is a much more conservative measure of short-term
liquidity than the current ratio. It helps answer the question: “if all sales revenues should
disappear, could my business meet its current obligations with the readily convertible quick
funds on hand?”

Formula: Quick Assets/ Current Liabilities The

schedule is as follows:
Quick Assets 2016 2015 2014 2013

Trade Receivables 958.11 1035.43 803.65 1009.65

Cash and Bank Balances 45.56 63.94 175.89 1625.02
Short term Loans and
Advances 3440.21 3259.83 3443.81 3417.75
Other Current Assets 147.79 98.75 114.27 96.73
Total 4591.67 4457.95 4537.62 6149.15
 Current Liabilities
Short term Borrowings 6585.64 7444.89 3739.93 3658.44

Trade payables 733.56 600.6 829.93 737.94

Other current Liabilities 6328.91 6979.28 5484.05 5615.19

Short term Provisions 0 34.61 157.65 173.1

13648.11 15059.38 10211.56 10184.67

Acid Test Ratio 0.336433 0.296025 0.444361 0.603765

As it is a manufacturing entity this ratio defers from current ratio as it as salable inventory in its
records. It lacks ideal ratio of 1 which is because of huge current liabilities under the heads of
Short Term Borrowings and other current liabilities.

Leverage Ratio:
Leverage ratios may be defined as those financial ratios which measure the long-term stability
and structure of the firm. These ratios assure the lenders of the long-term funds about:
1. Periodic payment of interest during the period of the loan and
2. Repayment of principle amount on maturity.

Capital Gearing Ratio:

This ratio explains the proportion of fixed interest (dividend) bearing capital to funds belonging
to equity shareholders i.e. equity funds or net worth.

Formula: (Preference Share Capital+ Debentures+ Other Borrowed funds)

(Equity Share Capital+ Reserves and Surplus- Losses)

28
 Capital gearing ratio 2016 2015 2014 2013
Short term borrowings 6585.64 7444.89 3739.93 3658.44
long term borrowings 3805.48 66.52 1203.53 1241.56
Reserves and Surplus 4983.35 6404.08 6400.89 6130.5
Shareholders’ Equity 4889.85 5189.85 5739.85 6346.82
Capital gearing ratio 1.052457 0.647874 0.407179 0.392713

It signifies the advantage of financial leverage to the equity shareholder. Due to the long-term
debt raised this ratio increased.
Proprietary Ratio
It indicates the proportion of total assets financed by shareholders. Formula:
Proprietary Fund/ Total Assets.
Proprietary Ratio 2016 2015 2014 2013
Share Capital 4889.85 5189.85 5739.85 6346.82
Reserves and Surplus 4983.35 6404.08 6400.89 6130.5
Total Assets 28738.49 27860.13 24671.83 24652.52
Proprietary Ratio 0.343553 0.416148 0.492089 0.506128

Coverage Ratios:
The coverage ratios measure the firm’s ability to service the fixed liabilities. These ratios
establish the relationship between fixed claims and what is normally available out of which these
claims are to be paid. The fixed claims consist of:
a. Interest on loans
b. Preference Dividend

c. Amortization of principal or repayment of the instalment of loans or redemption of

preference capital on maturity.
Following are the 2 main important coverage ratios:

Debt Service Coverage Ratio:

Lenders are interested in debt service coverage to judge the firm’s ability to pay off
current interest and instalments.
Formula: Earnings available for debt service/ Interest +Instalments.
Earning for debt service is calculated by, Net profit (EAT) + Non- cash Operating
expenses like Depreciation and other amortizations+ Interest.
Debt service coverage ratio 2016 2015 2014 2013
Depreciation 346.81 270.63 271.48 186.88

PAT -1420.64 62.38 366.45 352.83

Interest 650.7 434.73 338.12 359.25

Debt service coverage ratio -0.65027 1.766016 2.886697 2.502324

Ideally it must be 1.5 to 2 of debt service coverage ratio. Unfortunately, due to losses in the
current year of -1402. Due to which the ratio is being negative.

Interest Coverage Ratio:

Times interest earned ratio is a synonym for Interest coverage ratio. It indicates the firm’s ability
to meet interest obligations. Formula is as follows.
Interest Coverage Ratio: EBIT/ Interest.

A high interest coverage ratio means that an enterprise can easily meet its interest obligations even if
earnings before interest and taxes suffer a considerable decline. A lower ratio indicates excessive use of
debt or inefficient operations.

Interest Coverage Ratio 2016 2015 2014 2013

EBIT -1137.3 532.75 885.39 870.66

Interest 650.7 434.73 338.12 359.25

Interest Coverage Ratio -1.74781 1.225473 2.618567 2.423549

Trend is completely downward for the last 4 years. Current year losses made the ratio to be
negative.

Activity Ratio:

There are other names for these ratios such as Efficiency Ratio, Performance Ratio and turnover
Ratio. This ratio helps in evaluate the efficiency with which the firm manages and utilizes its
assets. For this reason, they are often called Asset Management Ratios. These ratios usually
indicate the frequency of sales with respect to its assets. these assets maybe capital or working
capital or average inventory.

Capital Turnover Ratio:

This ratio indicates the firm’s ability of generating sales/ COGS per rupee of long-term
investment. The higher the ratio is the more efficient is the utilization of owner’s and long-term
creditors’ funds. Net assets are calculated as Net Fixed assets and net current Assets (CA- CL).

Capital turnover 2016 2015 2014 2013

Sales 10132.9 10432.17 13431.48 13565.28

Total Assets 28738.49 27860.13 24671.83 24652.52
Long term Borrowings 3805.48 66.52 1203.53 1241.56
Deferred Tax Liabilities 448.3 444.89 419.01 229.21
Other Long term 109.81 138.27 165.56 105
Long term Provisions 853.59 557.14 531.43 414.77
Short term Borrowings 6585.64 7444.89 3739.93 3658.44
Trade payables 733.56 600.6 829.93 737.94
Other current Liabilities 6328.91 6979.28 5484.05 5615.19

31
 Short term Provisions 0 34.61 157.65 173.1
Capital turnover 1.026304 0.899796 1.106315 1.087196

Capital turnover ratio is a positive sign comparing with the previous years. Utilization of long
term debt is being used to the fullest. This can be derived from this ratio.

Working Capital Turnover Ratio:

The working capital turnover ratio is also referred to as net sales to working capital.

It indicates a company’s effectiveness in using its working capital. The working capital turnover
ratio is calculated as follows: net annual sales divided by the average amount of working capital
during the same 12-month period.

Working capital turnover further segregated into inventory turnover, debtors turnover ratio and
creditors turnover ratio.

Working Capital 2016 2015 2014 2013

Inventories 3907.5 5179.51 3863.04 3828.6

Trade Receivables 958.11 1035.43 803.65 1009.65

Cash and Bank Balances 45.56 63.94 175.89 1625.02

Short term Loans and

3440.21 3259.83 3443.81 3417.75
Advances

Other Current Assets 147.79 98.75 114.27 96.73

Total 8499.17 9637.46 8400.66 9977.75

Short term Borrowings 6585.64 7444.89 3739.93 3658.44

Trade payables 733.56 600.6 829.93 737.94

 Other current Liabilities 6328.91 6979.28 5484.05 5615.19
Short term Provisions 0 34.61 157.65 173.1
Total 13648.11 15059.38 10211.56 10184.67

Working Capital -5148.94 -5421.92 -1810.9 -206.92

Sales 10132.9 10432.17 13431.48 13565.28

Working Capital T/o -1.96796 -1.92407 -7.41702 -65.5581

As current liabilities exceed current assets working capital resulted in negative number. At the
end working capital t/o turned out to be negative.

Inventory Turnover Ratio:

This ratio also known as stock turnover ratio establishes the relationship between the COGS
during the year and average inventory held during the year. It measures the efficiency with
which a firm utilizes or manages its inventory. It is calculated
as follows:

Inventory Turnover Ratio: Sales/ Average Inventory.

Inventory T/O Ratio 2016 2015 2014 2013
Sales 10132.9 10432.17 13431.48 13565.28

Opening Stock 3129.95 2065.05 2083.7 1777.96

Closing Stock 1873.47 3129.95 2065.05 2083.7

Average Inventory 2501.71 2597.5 2074.375 1930.83

Inventory T/O Ratio 4.05039 4.016235 6.474953 7.025621

This ratio indicates that how fast inventory is used or sold. A high ratio is good from the view
point of liquidity and vice versa. A low ratio would indicate that inventory is not used/sold/lost
and stays or in the warehouse for a long time. Comparing with the previous years the trend
slightly high.

Receivables Turnover Ratio:

In case firm sells goods on credit, the realization of sales revenue is delayed and the receivables
are created. The cash is realised from these receivables later. It is calculated as follows:

Debtor Turnover Ratio: Credit Sales/ Average Accounts Receivable.

The speed with which these receivables are collected affects the liquidity position of the firm.
The debtor’s turnover ratio throws light on the collection and credit policies of the firm. It
measures the efficiency with which management is managing its accounts receivables.

In this organization, it ranges up to 40% credit sales from the turnover. Following is the schedule
of debtor’s turnover.

Debtors Turnover Ratio 2016 2015 2014 2013

Credit Sales 4053.16 4172.868 5372.592 5426.112

Average Receivables 996.77 919.54 906.65 1009.65

Debtors Turnover Ratio 4.066 4.538 5.926 5.374

Payables Turnover Ratio:

This ratio is calculated on the same lines as receivable turnover ratio is calculated. This ratio
shows the velocity of payables payment by the firm. It is calculated as follows:
Payables turnover ratio: Credit Purchases/ Average Accounts Payable

Creditors Turnover Ratio 2016 2015 2014 2013

Credit Purchases 1656.636 2051.016 2786.9 3218.596

Average Payables 667.08 715.265 783.935 737.94

Creditors Turnover Ratio 2.483 2.867 3.555 4.362

A low creditor’s turnover ratio reflects liberal credit terms granted by supplies.

While a high ratio that accounts are settled rapidly. By the results, we can say that suppliers are
favour to the organization.

Profitability Ratios:

Under this sector, we’ll be focusing on profitability ratios based on investments.

Return on Investment is the most important ratio of all. It is the percentage of return on funds
invested in the business by its owners. In short, this ratio tells the owner whether all the effort put
into the business has been worthwhile. The concept of investment varies and accordingly there
are 2 main ratios in this category.

Return on Assets:

The profitability ratio is measured in terms of relationship between net profits and assets
employed to earn that profit. This ratio measures the profitability of the firm in terms of assets
employed in the firm. Based on various concepts of net profit and assets the ROA may be
measured as follows:

ROA: Net Profit after Taxes/ Average Total Assets.

 ROA 2016 2015 2014 2013
EAT -1420.64 62.38 366.45 352.83

Total Assets 28738.49 27860.13 24671.83 24652.52

ROA -0.0502 0.002375 0.014859 0.014312

Return on Capital Employed (ROCE)

It is another variation of ROI. The ROCE is calculated as follows:

ROCE: EBIT/Capital Employed*100

ROCE 2016 2015 2014 2013

EBIT -1137.3 532.75 885.39 870.66

Total Assets 28738.49 27860.13 24671.83 24652.52

Current Liabilities 13648.11 15059.38 10211.56 10184.67

Capital Employed 15090.38 12800.75 14460.27 14467.85

ROCE -0.07537 0.041619 0.061229 0.060179

ROCE should be always be higher than the rate at which the company borrows.
4.3 Borrowings
On this mark, Ratio analysis is done. This supports us to answer the second important question
“How much is required?” unlike other sectors, manufacturing sector’s fund requirement are
unpredictable. As we can say Marketing can happen anytime. A major order in a day can be
happen. A regular client may post a lesser order than he ordered before and there are several
possibilities which can happen at any time during the period. Everything looks so blue if entity
manages its liabilities effectively.

So, we need to accept the fact that we cannot predict our required fund in working capital but we
do predict some long-term projects which are popularly known as

Capital Expenditure. Let’s check out some of the key numbers which dealt with long-term
borrowings (Capex) and short term Borrowings.

Long Term Borrowings:

These are a period for more than one accounting period. Mostly these were availed
for capital expenditure. Following is the schedule of these borrowings for the last 4
years:

Long term Loans From Banks 2016 2015 2014 2013

Secured Loans 3318.5 66.52 1203.53 1241.56

Unsecured Loans 486.9 0 0 0

Total 3805.4 66.52 1203.53 1241.56

There is a huge upward trend in 2016 of 3732 Crores. Further break breakdown of
secured loans are as follows
 ➢
1135.86 Crores from SBI secured by primary security as pari passu first charge on current
assets of the company and collateral security as pari passu
first charge on fixed assets of the company.
➢
The loan is repayable on quarterly basis with an instalment of 75 Crores.
➢
Loan amount of 2182.68 Crores from SBI secured by pari passu first charge on FA of the
company. The loan is repayable by 30th June 2018 as bullet repayment.
➢
USD loan amounting to 73.50 Million equivalent to 486.94 Crores from EXIM bank is
repayable as bullet repayment by 10th December 2018.

Short term Loans

On the other hand of categories of borrowings in relation to time is Short-term borrowings.

These were loans with a period of less than 12 months and mostly these were availed to cover
working capital requirement. Details of short term borrowings are as follows:

Short Term Borrowings 2016 2015 2014 2013

Secured Loans
Working Capital Borrowings 811.8 1133.86 589.44 586.22

(Secured By hypothecation of current

assets)

Unsecured Loans
Working Capital Borrowings 1541.62 1085.89 229.63 203.8

Short term Loans 860.05 1489.78 487.31 0

Short term Foreign currency loans 2090.62 2252.25 2433.55 2520.84

Other Unsecured Loans

 Commercial Papers 1281.55 1483.11 0 347.58

Total 6585.64 7444.89 3739.93 3658.44

Trend of short term borrowings are fluctuating. If maintained near in 2013 to 2014. But with the
sudden raise of working capital borrowings and short loans in 2015 short term borrowings raised.

Apart from long term and short term borrowings there are vast numbers in other liabilities and
trade payables. They are as follows:

Other Liabilities 2016 2015 2014 2013

Sundry Creditors 463.62 395.08 644.98 746.09

Foreign Exchange Forward Contract

Payables 2704.99 2333.19 2621.18 2604.02

Other Payables 2689.34 2620.87 1571.61 1548.04

Total 5857.95 5349.14 4837.77 4898.15

Trade Payables 2016 2015 2014 2013

MSME 55.3 29.08 60.32 54.73

Others 678.26 571.52 769.61 683.21

Total 733.56 600.6 829.93 737.94

Credit from foreign is being raised in the current year, which resulted in increase of
400 crores this year.
4.4 Sources of Funds
To defend these numbers such as long and short term borrowings, trade payables, foreign
exchange forward contracts there are many sources to pool funds. This answer our 3 rd question
“Where can capital be raised?”. Before going to assorted options to raise funds, let’s see how
many banks are in relationship with Steel Plant.

Following are the banks which are in relationship with Steel Plant for more than 5 years old.
There are 26 banks in total.

1. Bank of India
2. State Bank of India
3. Bank of Baroda
4. Canara Bank
5. State Bank of Hyderabad
6. Allahabad Bank
7. IDBI Bank
8. UCO Bank
9. Union Bank of India
10. Axis Bank
11. Indusind Bank
12. HDFC Bank
13. Deutsche Bank
14. Bank of Tokyo- Mitsubishi
15. ICICI bank
16. Citi Bank
17. Standard Chartered Bank
18. Andhra Bank
 19. HSBC Bank
20. Vijaya Bank
21. Kotak Mahindra Bank
22. DBS Bank
23. United Overseas Bank
24. Yes Bank
25. ANZ Bank
26. EXIM Bank

There are many services these banks are providing to Steel Plant. Following are some of the
services which are offered and availed by steel plant. These services will supplement thee funds
for Working Capital Requirement, Short term and Long term borrowings. The only reason where
the existence of Banks comes into picture only when the working Capital turns negative for short
term borrowings. Some of them are as follows:
➢
Over Draft
➢
Cash Credit
➢
Short term Loans
➢
Exchange Traded Instruments
➢
Buyers Credit
➢
Term Loans
➢
Commercial Papers

These some of the services availed by Steel Plant. Theory for each are explained as follows.

Over draft and Cash Credit runs on the same plane with a minute difference. Over Draft is credit
given for any transaction which is above the bank balance. This is
given by bank to its clients basing on their reputation and relationship with the bank. Cash credit
are commonly offered for businesses than individuals. They require that a security be offered up
as collateral on the account in exchange for cash. This security can be a tangible asset, such as
stock in hand, raw materials or some other commodity. The credit limit extended on the cash
credit account is normally a percentage of the value of the security offered.

Short term loans are normal loans which are to be repaid within 12 months. And term loans are
for more than one calendar year. These were taken keeping security like assets, bonds etc.
Exchange traded fund is an investment fund traded on stock exchanges, much like stocks. An
ETF holds assets, commodities, or bonds, and trades close to its net asset value over the course
of trading day. Most ETFs track an index, such as a stock index or bond index.

Buyer Credit is a short-term credit available to an importer (buyer) from overseas lenders such as
banks and other financial institution for goods they are importing. The overseas banks usually
lend the importer (buyer) based on the letter of comfort
(a bank guarantee) issued by the importer’s bank.

These were some of the major services availed by steel plant. Apart from these there are many
other sources it can raise funds through and they are explained as follows.
➢
ESOP
➢
Foreign Currency Convertible Bonds (FCCB)
➢
Rights Issue
➢
Leasing
o Financial Lease
o Operational Lease
➢ IPO
 ➢
Non-Convertible Debentures
➢
External Commercial Borrowings

An employee stock ownership plan is qualified- contribution employee benefit plan designed to
invest primarily in the stock of sponsoring employer. ESOP’s are “qualified” in the sense that the
ESOP’s sponsoring company, the selling shareholder and participants receive various tax
benefits. ESOPs are often used as corporate finance strategy are also used to align the interests of
company’s employees with those of the company’s shareholders.

Foreign currency convertible bond (FCCB) is a type of convertible bond issued in a currency
different than the issuer’s domestic currency. In other words, the money being raised by the
issuing company is in the form of a foreign currency. At the end of the maturity bondholder can
convert into stock.

Rights issue is all about issue of shares offered at a special price by company to its existing
shareholders in proportion to their holding of old shares. Operating lease is a lease whose term is
short compared to the useful life of the asset or piece of equipment being leased. An operating
lease is commonly used to acquire equipment on a relatively short-term basis. Coming to other
type of lease i.e. Finance lease is a way of providing finance- effectively a leasing company buys
the asset for the user and rents it to them for an agreed period.

Initial Public Offering (IPO) or stock market launch is a type of public offering in which shares
of a company usually are sold to institutional investors that in turn, sell to the public on a
securities exchange for the first time. At present Steel Plant is not fulfilling the eligibility criteria
but in near future it may go for this plan.
Apart from the above services and available options there are 4 more important debt instruments
where a detailed study has been done in this project and they are as follows:
➢
Commercial Papers
➢
Non-convertible Debentures
➢
External Commercial Borrowings
➢
Term Loans

The Reserve Bank of India has, from time to time issued several guidelines/ instructions/ to
eligible market participants regarding Commercial Paper, Non-Convertible Debentures, External
Commercial Borrowings and term loans. The main purpose of issuing these guidelines to ensure
that market participants to have current instructions at one place, a master Direction
incorporating all the existing guidelines/directives on the subject has been prepared for reference
of the market participants and other concerned. The study includes the complete in and out about
the instruments i.e. introduction, procedure, eligibility requirement, ratings, tenor and many other
topics. (mentioned in references and sources).

At this mark, the study project has been enfolded up.

5. Learnings and suggestions

Experience from practical environment enabled my knowledge over concepts and understanding
over the subject more clear and strong. Every experience is memorable. Following are some of
the learnings from this project:
➢
Understanding of operational activities of the entity.
➢
Various sources available to fund working capital requirement and capital expenditure.
 ➢
Procedure for availing debt instruments like NCD and ECB.
➢
Interest calculation for the short-term loans and long term loans.
➢
Analysing performance of the company using ratios.
➢
Interactions with experienced people and taking some inputs.

In an entity like this proposal may take a long way to implement. Availing debt instruments from
Non-Convertible Debentures and external commercial borrowings would help the management
to optimize overall cost of capital. RINL-VSP is fulfilling all the eligibility criteria in availing
those instruments.
6. Annexures
Annexure-1

Balance Sheet and Income Statements (in Crores)

2016 2015 2014 2013

Vizag Steel Plant

Balance Sheet

Equity and Liabilities

Shareholder's Funds
Share Capital 4889.85 5189.85 5739.85 6346.82
Reserves and Surplus 4983.35 6404.08 6400.89 6130.5

Non-Current Liabilities
Long term Borrowings 3805.48 66.52 1203.53 1241.56
Deferred Tax Liabilities 448.3 444.89 419.01 229.21
Other Long term 109.81 138.27 165.56 105
Long term Provisions 853.59 557.14 531.43 414.77

Current Liabilities
Short term Borrowings 6585.64 7444.89 3739.93 3658.44
Trade payables 733.56 600.6 829.93 737.94
Other current Liabilities 6328.91 6979.28 5484.05 5615.19
Short term Provisions 0 34.61 157.65 173.1

Total 28738.49 27860.13 24671.83 24652.53

Assets
 Non-Current Assets

Fixed Assets
Tangible Assets 11826.39 5305.41 4530.03 3787.07
Intangible Assets 37.49 51.33 2.75 2.74
Capital work in progress 6979.93 11492.98 10665.07 9965.24
Intangible assets under
development 2.7 2.57 30.11 22.2
Non-Current Investments 642.59 362.53 362.53 362.58
Long term loans and Advances 649.79 926.53 620.45 498.36
Other Noncurrent Assets 100.43 81.32 60.23 36.58

Current Assets
Inventories 3907.5 5179.51 3863.04 3828.6
Trade Receivables 958.11 1035.43 803.65 1009.65
Cash and Bank Balances 45.56 63.94 175.89 1625.02
Short term Loans and Advances 3440.21 3259.83 3443.81 3417.75
Other Current Assets 147.79 98.75 114.27 96.73

Total 28738.49 27860.13 24671.83 24652.52

Profit and Loss Statement

Income
Revenue from Operations 10132.9 10432.17 13431.48 13565.28
Less: Excise Duty -1143.4 -1117.81 -1403.15 -1454.59
Other Income 347.68 256.29 306.99 455.42

Total Revenue 9337.18 9570.65 12335.32 12566.11

 Cost of materials consumed 4141.59 5127.54 6967.25 8046.49
Changes in Inventories 1149.72 -820.19 7.06 -303.74
Employee Benefits 1923.2 1918.16 1751.1 1469.07
Finance Costs 650.7 434.73 338.12 359.25
Depreciation and Amortization 346.81 270.63 271.48 186.88
Other Expenses 2913.15 2541.76 2453.04 2296.75

Total Expenses 11125.17 9472.63 11788.05 12054.7

Profits before Prior Period items -1788 98.02 547.27 511.41

Prior period Items 370.77 5.33 1.88 15.06

Profit before Extraordinary Items -1417.23 103.35 549.15 526.47

Extraordinary Items 0 0 0 0

Profit Before tax -1417.23 103.35 549.15 526.47

Tax Expense
Current Tax(MAT) 0 21.7 116.76 103.98
Less: MAT Credit Entitlement 0 -21.7 -116.76 -96.88
Earlier years adjustments 0 0 -7.1 -1.69
Deferred Tax 3.41 40.97 189.8 168.23

Profit/loss from Continuous -1420.64 62.38 366.45 352.83

Profit/loss from discontinuous 0 0 0 0
Tax Expense of Discounting
Operations 0 0 0 0
Profit/loss from discontinuous 0 0 0 0
 Profit and Loss for the Period -1420.64 62.38 366.45 352.83

Annexure-2

Common Size Financial Statements:

Vizag Steel Plant
2016 2015 2014 2013
Balance Sheet

Equity and Liabilities

Shareholder's Funds
Share Capital 17.01 18.63 23.26 25.75
Reserves and Surplus 17.34 22.99 25.94 24.87

Non-Current Liabilities
Long term Borrowings 13.24 0.24 4.88 5.04
Deferred Tax Liabilities 1.56 1.60 1.70 0.93
Other Long term 0.38 0.50 0.67 0.43
Long term Provisions 2.97 2.00 2.15 1.68

Current Liabilities
Short term Borrowings 22.92 26.72 15.16 14.84
Trade payables 2.55 2.16 3.36 2.99
Other current Liabilities 22.02 25.05 22.23 22.78
Short term Provisions 0.00 0.12 0.64 0.70

Total 100.00 100.00 100.00 100.00

Assets
 Non-Current Assets

Fixed Assets
Tangible Assets 41.15 19.04 18.36 15.36
Intangible Assets 0.13 0.18 0.01 0.01
Capital work in progress 24.29 41.25 43.23 40.42
Intangible assets under development 0.01 0.01 0.12 0.09
Non-Current Investments 2.24 1.30 1.47 1.47
Long term loans and Advances 2.26 3.33 2.51 2.02
Other Noncurrent Assets 0.35 0.29 0.24 0.15

Current Assets
Inventories 13.60 18.59 15.66 15.53
Trade Receivables 3.33 3.72 3.26 4.10
Cash and Bank Balances 0.16 0.23 0.71 6.59
Short term Loans and Advances 11.97 11.70 13.96 13.86
Other Current Assets 0.51 0.35 0.46 0.39

Total 100.00 100.00 100.00 100.00

Profit and Loss Statement

Income
Revenue from Operations 100.00 100.00 100.00 100.00
Less: Excise Duty -11.28 -10.72 -10.45 -10.72
Other Income 3.43 2.46 2.29 3.36

Total Revenue 92.15 91.74 91.84 92.63

Expenses

Cost of materials consumed 40.87 49.15 51.87 59.32

Changes in Inventories 11.35 -7.86 0.05 -2.24
Employee Benefits 18.98 18.39 13.04 10.83
Finance Costs 6.42 4.17 2.52 2.65
Depreciation and Amortization 3.42 2.59 2.02 1.38
Other Expenses 28.75 24.36 18.26 16.93

Total Expenses 109.79 90.80 87.76 88.86

Profits before Prior Period items -17.65 0.94 4.07 3.77

Prior period Items 3.66 0.05 0.01 0.11

Profit before Extraordinary Items -13.99 0.99 4.09 3.88

Extraordinary Items

Profit Before tax -13.99 0.99 4.09 3.88

Tax Expense
Current Tax(MAT) 0.00 0.21 0.87 0.77
Less: MAT Credit Entitlement 0.00 -0.21 -0.87 -0.71
Earlier years adjustments 0.00 0.00 -0.05 -0.01
Deferred Tax 0.03 0.39 1.41 1.24

Profit/loss from Continuous -14.02 0.60 2.73 2.60

Profit/loss from discontinuous
Tax Expense of Discounting Operations
Profit/loss from discontinuous

Profit and Loss for the Period -14.02 0.60 2.73 2.60
Annexure-3
Comparative Financial Statement

Vizag Steel Plant 2016 2015 2014 2013

Balance
Sheet

Equity and Liabilities

Shareholder's Funds
Share Capital 94.21949 90.41787 90.43663 100
Reserves and Surplus 77.81524 100.0498 104.4106 100

Non-Current Liabilities
Long term Borrowings 5720.806 5.527075 96.93692 100
Deferred Tax Liabilities 100.7665 106.1765 182.8062 100
Other Long term 79.41708 83.51655 157.6762 100
Long term Provisions 153.2092 104.8379 128.1264 100

Current Liabilities
Short term Borrowings 88.45853 199.065 102.2275 100
Trade payables 122.1379 72.36755 112.4658 100
Other current Liabilities 90.68142 127.2651 97.66455 100
Short term Provisions 0 21.95369 91.07452 100

Total 103.1527 112.9228 100.0783 100

Assets
 Non-Current Assets

Fixed Assets
Tangible Assets 222.9119 117.1164 119.6183 100
Intangible Assets 73.03721 1866.545 100.365 100
Capital work in progress 60.73212 107.7628 107.0227 100
Intangible assets under development 105.0584 8.53537 135.6306 100
Non-Current Investments 177.2515 100 99.98621 100
Long term loans and Advances 70.13157 149.3319 124.4984 100
Other Noncurrent Assets 123.4998 135.0158 164.6528 100

Current Assets
Inventories 75.4415 134.0786 100.8995 100
Trade Receivables 92.53257 128.8409 79.59689 100
Cash and Bank Balances 71.2543 36.35227 10.82387 100
Short term Loans and Advances 105.5334 94.65766 100.7625 100
Other Current Assets 149.6608 86.41813 118.1329 100

Total 103.1527 112.9228 100.0783 100

Profit and Loss Statement

Income
Revenue from Operations 97.13128 77.66955 99.01366 100
Less: Excise Duty 102.2893 79.66433 96.46361 100
Other Income 135.6588 83.4848 67.40811 100

Total Revenue 97.56056 77.58737 98.16339 100

Expenses
 Cost of materials consumed 80.77148 73.59489 86.58744 100
Changes in Inventories -140.177 -11617.4 -2.32436 100
Employee Benefits 100.2628 109.5403 119.1979 100
Finance Costs 149.6791 128.5727 94.1183 100
Depreciation and Amortization 128.1491 99.6869 145.2697 100
Other Expenses 114.6115 103.6167 106.8048 100

Total Expenses 117.4454 80.3579 97.788 100

Profits before Prior Period items -1824.12 17.91072 107.012 100

Prior period Items 6956.285 283.5106 12.4834 100

Profit before Extraordinary Items -1371.29 18.81999 104.3079 100

Extraordinary Items

Profit Before tax -1371.29 18.81999 104.3079 100

Tax Expense
Current Tax(MAT) 0 18.58513 112.2908 100
Less: MAT Credit Entitlement 0 18.58513 120.5202 100
Earlier years adjustments 0 420.1183 100
Deferred Tax 8.323163 21.58588 112.8217 100

Profit/loss from Continuous -2277.4 17.02279 103.8602 100

Profit/loss from discontinuous
Tax Expense of Discounting Operations
Profit/loss from discontinuous

Profit and Loss for the Period -2277.4 17.02279 103.8602 100
 Ratios Overview

ROA Proprietary Ratio

0.02 0.6

0.01 0.5
0
0.4
201 2013. 2014. 2015. 2016.
2012.5 3 52014 52015 52016 5
-0.01
0.3
-0.02
-0.03 0.2

-0.04 0.1
-0.05
0
-0.06 2012 2013 2014 2015 2016 2017

Operating Profit Total Assets Turnover

Ratio Ratio
0.08 0.6
0.06
0.04 0.5
0.02
0.4
0
-
0.02012. 201 2013. 2014. 2015. 2016.
5 3 52014 52015 52016 5 0.3
-0.04
-0.06 0.2
-0.08
0.1
-0.1
-0.12 0
-0.14 2012 2013 2014 2015 2016 2017
 Debt Ratio Debt to equity Ratio
1.2 2.5

1 2
0.8
1.5
0.6
1
0.4

0.2 0.5

0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

Fixed assets turnover

ratio Debt service coverage ratio
1.2 3.5
3
1
2.5
0.8 2
0.6 1.5
1
0.4
0.5
0.2 0
2012
0 -0.5 2013 2014 2015 2016 2017
2012 2013 2014 2015 2016 2017 -1

Capital gearing ratio ROCE

0.08
1.2
0.06
1
0.04
0.8 0.02

0.6 0
2012
0.4 -0.02 2013 2014 2015 2016 2017
-0.04
0.2 -0.06
0 -0.08
2012 2013 2014 2015 2016 2017
-0.1
 Current Assets Inventory
Turnover T/o
1.8 4
1.6 3.5
1.4 3
1.2
2.5
1
2
0.8
1.5
0.6
0.4 1

0.2 0.5
0 0
201 2014. 2015. 2016.
2012.5 32013.5 2014 5 2015 5 2016 5 2012 2013 2014 2015 2016 2017

Interest Coverage Net Profit

Ratio Ratio
3 0.04
2.5 0.02
2 0
2012
1.5 -0.02 2013 2014 2015 2016 2017
1 -0.04
0.5 -0.06
0 -0.08
201 2014. 2015. 2016.
2012.5 32013.5 2014 5 2015 5 2016 5 -0.1
-0.5
-1 -0.12
-1.5 -0.14
-2 -0.16
7. References
• Corporate Finance 6th Edition
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=5743&Mode=0#
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/8MCEC010710_F.pdf

https://www.vizagsteel.com/myindex.asp?tm=1&url=insiderinl/FinancialPer formance.asp

https://www.nseindia.com/products/content/debt/corp_bonds/cp_settlement. htm
 Coming to know Financial Position of RINL in all ratios:-

(1.) The sales turnovers, gross margins, cash profits, net profits are decreased in every year since
year 2013 to 2016 due to high investments and less sales, lack of production, some less of quality in
product.

(2.) Company profit shares are reduced since 2013 to 2016, and debts are increased. Company
got competition with other companies, their cash is decreased in hand and bank since 2013 to 2016.

(3.) Trade payables are enhanced since year 2013 to 2016.

(4.) Due to less current assets turnover ratio.

Current assets turnover ratio is 18.75% increased in year 2014 when it is compared to year
2013 because of having less current assets and more sales in RINL. Again this ratio is 45.45% decreased
in year 2015 when it is compared to year 2014 because of having very more current assets and very less
sales in our company. But in year 2016, this current turnover ratio is 8.3% increased when it is compared
to year 2015 because of having some more sales in Visakhapatnam Steel Plant.

Inventory turnover ratio is lightly reduced in year 2013-2014 due to low sales of goods and
having higher average inventory than in year 2012-2013 in our company. In year 2014-2015 & 2015-
2016, this ratio is still decreased due to same case.
 Return on Assets ratio is lightly enhanced in year 2013-14 due to having more net income
than in year 2012-2013 in our RINL. This ratio is decreased in year 2014-2015 & 2015-2016 because of
this company was having less net income than in year 2013-2014.

In years 2014, 2015, 2016 proprietary ratio is decreased because of RINL had very less
equity shares.

In year 2014, operating profit ratio is increased than in year 2013 because of having more
operating profit than in year 2013. But in years 2015, 2016 this ratio is decreased than in year 2014
because of company having less operating profit.

In years 2014, 2015, 2016 Total Assets turnover ratio is decreased because of RINL had very
less sales revenues.

In years 2014, 2015, 2016 Debt ratio and Debt to equity ratios are increased because of
Visakhapatnam Steel Plant had more liabilities and less assets.

In years 2014, 2015, 2016 Fixed assets turnover ratio is decreased due to our RINL had less
net revenues.

In years 2014, 2015, 2016 Capital gearing ratio is increased due to our company had more
fixed cost bearing funds.

In year 2014 Interest coverage ratio is increased due to the company had more EBIT than in
2013, but in 2015, 2016 this ratio is decreased due to our company had less EBIT than in 2014.

In year 2014 net profit ratio is increased due to company had more net profit than in year
2013. But in years 2015, 2016 this ratio is decreased due to our RINL had less net profit than in 2014.