A Study On

WORKING CAPITAL MANAGEMENT OF SECL

Submitted for partial fulfillment of the

Requirements for the Award of the Degree of

Master of Commerce

By

(ABHILASHA SADHU)
Enrollment No. GGV/13/4010

UNDER THE SUPERVISION OF

Mr. Gosala Raju

(Assistant Professor )

DEPARTMENT OF COMMERCE
SCHOOL OF MANAGEMENT & COMMERCE
GURU GHASIDAS VISHWAVIDYALAYA
BILASPUR (C.G.)

MAY 2018 (Term- 2017-18)

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 CANDIDATE’S DECLARATION

I, Abhilasha Sadhu, a student of M.COM (Semester IV) in Department of Commerce, Guru

Ghasidas Vishwavidyalaya, hereby declare that the project report entitled “Working Capital
management of SECL” is submitted for partial fulfillment of the requirements for the award of
the degree of Master of Commerce, comprise only my original work and due acknowledgement
has been made in the text to all other materials used. The results embodied in this project report
have not been submitted to any other university or Institute for the award of any other degree.

Date Abhilasha Sadhu

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 SUPERVISOR’S CERTIFICATE

This is to certify that Abhilasha Sadhu, Enrollment No. - GCV/13/4010 has completed his
project entitled “Working capital management of SECL” under my guidance and supervision.
To the best of my knowledge it is his original work and is fit for evaluation for the M.COM.
Project.

Mr.Gosala Raju
Assistant Professor
Department of Commerce
Guru Ghasidas Vishwavidyalaya

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 ACKNOWLEDGEMENT

I sincerely express my deep sense of gratitude to Dr. Vineet Singh, Head, Department of
Commerce, Guru Ghasidas Vishwavidyalaya for his extraordinary cooperation, valuable
guidance and supervision. I wish to acknowledge my sincere gratitude and indebtness to my
project guide Mr.Gosala Raju, Assistant Professor, Department of Commerce, Guru Ghasidas
Vishwavidyalaya for helping me at every step and guiding me in every way possible. This
project would not have been successful without his help and continuous guidance throughout. I
would like to thanks other faculty members and all the faculty members of Department of
commerce, university small title in capital letter for their valuable suggestions and useful
comments throughout this project work.
I sincerely acknowledge the efforts of all those who have directly or indirectly helped me in
completing my project work.

It is the kindness of these acknowledged persons that this Project work sees the light of the day.

I submit this Project work of mine with great humility and utmost regard.

Date: Abhilasha Sadhu

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 Tables of content

Chapter No. Page No.

CHAPTER-1: INTRODUCTION ------------- 7-18

1.1Working Capital 6
1.2 Ratio Analysis 11
1.3 Objective of study 18
1.4 Limitation of study 18

CHAPTER-2: REVIEW OF LITERATURES----------------- 19-25

2.1: National 19
2.2 International 24
CHAPTER-3: RESEARCH DESIGN AND METHODOLOGY--------- 26-27

3.1 Introduction 26
3.2 Statement of Research Objectives. 26

CHAPTER-4: COMPANY PROFILE------------------------------------------28-36

4.1: Introduction 28
4.2 Formation of Coal India Limited 31
4.3 A profile of SECL 32

CHAPTER-5: DATA ANALYSIS AND ANALYSIS-------------------------37-57

5.1 Ratio Analysis 37
5.2 Working Capital Level and Analysis 52

CHAPTER-6: CONCLUSION AND RECOMMENDATION -------------58-59

6.1 Conclusion 58
6.2 Recommendation 59

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 CHAPTER-1

INTRODUCTION

1.1WORKING CAPITAL

Working capital is a measure of both a company’s efficiency and its short-term financial health;
working capital is the money available with a company for carrying out its day-to-day operations
.Working capital is calculated as:

Working capital =current asset-current liability

Definition:

According to Guttmann & Dougall-

“Excess of current assets over current liabilities”.

According to Weston & Brigham –

“Working capital refers to a firm's investment in short term assets, such as cash amounts
receivables, inventories etc

According to Park & Gladson-

“The excess of current assets of a business (i.e. cash, accounts receivables,

inventories) over current items owned to employees and others (such as salaries & wages
payable, accounts payable, taxes owned to government)”.

Working Capital Management

Working capital management is concerned with the problems arise in attempting to manage the
current assets, the current liabilities and the inter relationship that exist between them. The term
current assets refers to those assets which in ordinary course of business can be, or, will be,
turned in to cash within one year without undergoing a diminution in value and without
disrupting the operation of the firm. The major current assets are cash, marketable securities,
account receivable and inventory. Current liabilities ware those liabilities which intended at their
inception to be paid in ordinary course of business, within a year, out of the current assets or
earnings of the concern.

The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding
expenses. The goal of working capital management is to manage the firm’s current assets and

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current liabilities in such way that the satisfactory level of working capital is mentioned. The
current assets should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety.

Need of working capital management

As already observed, the objective of financial decision making is to maximize the shareholders
wealth. To achieve this, it is necessary to generate sufficient profits can be earned will naturally
depend upon the magnitude of the sales among other things but sales cannot convert into cash.
There is a need for working capital in the form of current assets to deal with the problem arising
out of lack of immediate realization of cash against goods sold. Therefore sufficient working
capital is necessary to sustain sales activity. Technically this is referred to as operating or cash
cycle.

The goal of working capital management is to ensure that a firm is able to continue its
operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming
operational expenses. The management of working capital involves managing inventories,
accounts receivable and payable, and cash.

Gross working capital and Net working capital

There are two concepts of working capital management:

1) Gross working capital

Gross working capital refers to the total investment of firm in current assets. Current assets are
the assets which can be convert in to cash within year and it includes cash, short term securities,
debtors, bills receivable and inventory.

2) Net working capital

Net working capital can be explained as difference between current assets and current liabilities.
It is used to know about the short term liquidity of the business. Current liabilities are those
claims of outsiders which are expected to mature for payment within an accounting year and
include creditors, bills payable and outstanding expenses. Net working capital can be positive or
negative. If the net working capital is positive, it indicates that the short-term funds available
from current assets are more than adequate to pay for current liabilities as they come due for
payment. If the figure is negative, then the business does not have sufficient funds available

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for payment of its current liabilities. Efficient working capital management requires that firm
should operate with some amount of net working capital, the exact amount varying from firm to
firm and depending, among other things; on the nature of industries. Net working capital is
necessary because the cash outflows and inflows do not coincide.

The cash outflows resulting from payment of current liabilities are relatively predictable, but the
cash inflows cannot be predicted accurately. The more predictable the cash inflows are, the less
net working capital will be required.

The concept of working capital was, first evolved by Karl Marx. Marx used the term “variable
capital‟ means outlays for payrolls advanced to workers before the completion of work. He
compared this with 'constant capital’ which according to him is nothing but ‘dead labour’. This
‘variable capital’ is wage fund which remains blocked in terms of financial management, in
work-in process along with other operating expenses until it is released through sale of finished
goods. Although Marx did not mentioned that workers also gave credit to the firm by accepting
periodical payment of wages which funded a portioned of W.I.P, the concept of working capital,
as we understand today was embedded in his ‘variable capital’.

Types of working capital

There are two types of working capital i.e. ‘Permanent or Fixed working capital’ and ‘Temporary
or ‘Fluctuating working capital’.

1. Fixed working capital

There is a need of having minimum level of current assets at all times in order to carry on the
business activities effectively .Permanent working capital is the net amount invested in all types
of current resources, which are required carry on business activities; and there is a positive
correlation between the size of business and the amount of permanent working capital.

2. Temporary working capital

Any amount over and above the permanent level of working capital is temporary, fluctuating or
variable, working capital. There is a close relationship prevailing between temporary working
capital and the level of production and sales. If the demand of the product is more it will lead to
more production which in turn will increase the need of temporary working capital and decrease
in demand of product leads to decrease in need of temporary working capital.

If working capitals are represented graphically it can be seen that ‘Fixed working capital’ is
fairly constant and ‘Temporary working capital’ keeps fluctuating with the change in demand
and other factors.

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Determinants of Working Capital

The amount of working capital is depends upon following factors:

1) Nature of business

It is an important factor for determining the amount of working capital needed by various

companies. Some businesses are such, due to their very nature, that their requirement of fixed
capital is more rather than working capital. The trading or manufacturing concerns will require
more amount of working capital along-with their fixed investment of stock, raw materials and

finished products. The businesses which sell services and not the commodities and that too on
cash basis require less amount of working capital.

E.g. public utility services like railways, infrastructure oriented project etc requires less of
working capital; on the other hand, there are some businesses like trading activity, where
requirement of fixed capital is less but more money is blocked in inventories and debtors.

2) Length of production cycle

The average length of the period of manufacture, i.e., the time taken between the commencement
and end of the manufacturing process is an important factor in determining the amount of the
working capital. If the time taken for production of goods is less the working capital requirement
will automatically be low. In some business like machine, tools industry etc, the time gap
between the acquisition of raw material and the production of end product or finished product,
itself is quite high. As such amount may be blocked either in raw material or work in progress or
finished goods or even in debtors. All such factors lead to the increase in need of working
capital.

3) Size and growth of business

It can be observed that size of the company has a direct relation with the working capital needs.
Big concerns have to keep higher working capital for investment in current assets and for paying
current liabilities.

4) Business/ Trade cycle

If the company is the operating in the time of boom, it may increase the production and sales
and to take the benefit of favourable market, the business might want to buy more raw material
and for that the working capital requirement may be more and there will be more and more
amount of funds blocked in stock and debtors etc. similarly in the case of depressions also,

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working capital may be high as the sales terms of value and quantity may be reducing, there may
be unnecessary piling up of stack without getting sold, the receivable may not be recovered in
time etc.

5) Terms of purchase and sales

The terms of purchase also affect the working capital requirement, at time due to competition in
the market, it becomes necessary for the business to extend more and more credit to customers,
as result which more and more amount is locked up in debtors or bills receivables which increase
the working capital requirement. On the contrary, if the purchase is made on credit and the sale
on cash then the requirement of working capital will be less.

6) Profitability

The profitability of the business may vary in each and every individual case, which in turn
depends on numerous factors, but high profitability will positively reduce the strain on working
capital requirement of the company, because the profits to the extent that they earned in cash
may be used to meet the working capital requirement of the company.

7) Growth and expansion of business:

With the growth of a company the requirement of working capital generally increases

8) Operating efficiency

If the business is carried on more efficiently, it can operate in profits which may reduce the
strain on working capital; it may ensure proper utilization of existing resources by eliminating
the waste and improved coordination etc.

9) Turnover of circulating capital:

The speed with which the circulating capital completes its round I.e., conversion of cash into
inventory of raw material into inventory of finished goods and then again into cash also plays an
important role in determination of working capital need. The business where finished goods are
easily converted into cash has less requirement of working capital.

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1.2RATIO ANALYSIS

Ratio may be defined as “a number expressed in terms of another number.” It shows relationship
of one figure with another figure. It is found by dividing one number by the other number. It may
be expressed as a percentage or in terms of “times” or proportion or as quotient.

According to Robert N. Anthony “A ratio is simply one number expressed in term of another”.

Ratio Analysis, therefore, means the process of computing, determining and presenting the
relationship of related items and group of items of the financial statement.

“The relationship between two accounting figures, expressed mathematically, is known as

financial ratio. Ratio analysis is the process of identifying the financial strengths and weakness
of an enterprise by properly establishing relationships between the items of the balance sheet and
profit and loss account”.

“The essence of financial soundness of a company lies in balancing its goals, commercial
strategy, product market choices and resultant needs. The company

should have financial capability and flexibility to pursue its commercial strategy. Ratio analysis
is a very useful analytical technique to raise pertinent question on a number of managerial issues.
It provides bases or clues to investigate such issues in detail”.

Ratio analysis is the one of the powerful tools of the financial analysis. “A ratio can be defined as
the indicated quotient of mathematical expression” and as “the relationship between two or more
things”.

Accounting ratios can be expressed in various ways such as: -

i. A pure ratio, say ratio of current assets to current liabilities is 2:1 or,

ii. A ratio, say current assets are two times of current liabilities or iii. A percentage, say current
assets are 200% of current liabilities. Each method of expression has a distinct advantage over
the other. The analyst will select that method which will best suit his convenience and purpose.

Types of Ratios and their uses: -

Ratios may be classified in a number of ways keeping in view the particular purpose. Ratios
indicating profitability are calculated on the basis of the Profit and Loss Account, those
indicating financial position are computed on the basis of the Balance Sheet and those which
show operating efficiency or productivity or effective use of resources are calculated on the basis
of figures in the Profit and Loss Account and the profitability and financial position of the

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business/company. To achieve this purpose effectively, ratios may be classified into the
following four important categories:

A. Liquidity Ratio,

B. Leverage Ratio / Solvency Ratio,

C. Activity Ratio / Turnover Ratio,

D. Profitability Ratio.

A) LIQUIDITY RATIOS

To study the liquidity position of the concern in order to highlight the relative strength of the
concern in meeting their current obligation liquidity ratios are calculated. These ratios are used to
measure the enterprise’s ability to meet short-term obligations. These ratios compare short-term
obligation to short-term (or current) resources available to meet these obligations. From these
ratios, much insight can be obtained about the present cash solvency of the enterprise and the
enterprises ability to remain solvent in the event of adversity. A proper balance between the two
contradictory requirements, i.e. Liquidity and Profitability is required for efficient financial
management. The important liquidity ratios are: -

1. Current Ratio: - This is the most widely used ratio. It is the ratio of Current Assets to
Current Liabilities. It shows an enterprise ability to cover its current liabilities with its current
assets. It is expressed as follows:

Current Ratio = Current Asset/Current Liability

Generally, Current Ratio of 2:1 is considered ideal for any concern i.e. current assets should be
twice the amount of current liabilities. If the current assets are two times the current liabilities,
there will be no adverse effect on business operations when current liabilities are paid off. If the
ratio is less than 2 difficulties may be experienced in the payment of current liabilities and day-
to-day operations of the

Business may suffer. If the ratio is higher than 2, it is very comfortable for the creditors but, for
the concern, it indicates accumulation of idle funds and a lack of enthusiasm for work. However
this standard of 2:1 is only quantitative and may differ from industry to industry.

2. Liquid or Acid Test or Quick Ratio: - This is the Ratio of Liquid Assets to Liquid Liabilities.
It shows an enterprises ability to meet current liabilities with its most liquid (quick assets). It is
expressed as follows: -

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 Liquid Ratio = Quick Asset/Current Liability

(Quick Assets = Current Assets – Inventory or Stock)

The quick ratio of 1:1 ratio is considered ideal ratio for a concern because it is wise to keep the
liquid assets at least equal to the liquid liabilities at all time. Liquid assets are those assets, which
can be readily converted into cash and will include cash balance, bills receivable, sundry debtors,
and short-term investments. Inventories and prepaid expenses are not included in liquid assets
because the emphasis is on the ready availability of cash in case of liquid assets. Liquid liabilities
include all items of current liabilities except bank overdraft. This ratio is the “acid test” of a
concerns financial soundness.

B) LEVERAGE RATIO / SOLVENCY RATIO

Long term creditors like debenture holders, financial institution etc., are more concerned with
long-term financial strength of an enterprise. The leverage/ capital structure ratios are very
helpful in judging the long-term solvency position of an enterprise. Leverage ratio may be
calculated from the Balance Sheet items to determine the proportion of debt in total financing.
Many variations of these ratios exist; all these ratios indicate the same thing i.e., the extent to
which the enterprise has relied on debt in financing assets. Leverage ratios are also computed
from the income statement items by determining the extent to which operating profits are
sufficient to cover the fixed charges. The important long-term solvency/leverage/capital structure
ratios are as follows:

1. Debt-Equity Ratio: - This ratio relates debts to equity or owners funds. Here, Equity is used
in a broader sense as net worth (i.e., capital + retained earnings) while debt normally means
long-term interest bearing loans.

Debt Equity Ratio= Debt/ Equity

External equities are outsiders fund while internal equities represent shareholders funds.
Outsiders‟ fund includes Long-term debt / liabilities. Shareholders’ funds or equity consists of
preference share capital, equity share capital, profit & loss a/c (Cr. Balance), Capital reserves,
revenue reserves and reserves representing marked surplus, like reserves for contingencies,
sinking funds for renewal of fixed assets or redemption of debentures etc., less fictitious assets.
In other words, shareholders funds or equity is equal to Equity share capital + preference share
capital + reserves & surplus etc.

This ratio is very useful for analysis for long-term financial condition. This
ratio signifies the excess of proprietor‟s funds over outsiders‟ funds and thereby indicates the
soundness of the financial / capital structure of the business enterprise.

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3. Debt Ratio: - Several debt ratios may be used to analyze the long-term solvency of an
enterprise. The enterprise may be interested in knowing the proportion of the interest bearing
debt (also called funded debt) in the capital structure. It may, therefore, compute debt ratio by
dividing total debt by capital employed or net assets.

Debt Ratio = Total Debt / Total Debt + Net Worth

4. Capital Employed to Net worth Ratio: - There is yet another alternative way of expressing
the basic relationship between debt and equity. One may want to know, how much funds are
being contributed together by lenders and owners for each rupee of the owners contribution. This
can be found out by calculating the ratio of capital employed or net assets or net worth.

Capital Employed to Net Worth Ratio = Capital Employed / Net Worth

(Capital Employed = Shareholders fund + Long-term liabilities)

C) ACTIVITY OR TURNOVER RATIO

These ratios are very important for a concern to judge how well facilities at the disposal of the
concern are being used or to measure the effectiveness with which a concern uses its resources at
its disposal. In short, these will indicate position of assets usage. These ratios are usually
calculated on the basis of sales or cost of sales and are expressed in integers rather than as a
percentage. Such ratios should be calculated separately for each type of assets. The greater the
ratio more will be efficiency of assets usage. The lower ratio will reflect underutilization of the
resources available at the command of concern. The concern must always plan for efficient use
of the assets to increase the overall efficiency. The following are the important activity or
turnover ratios usually calculated by a concern:

1. Sales to capital Employed (or Capital Turnover) Ratio: - This ratio shows the efficiency of
capital employed in the business by computing how many times capital employed is turned over
in a stated period. The ratio ascertained as follows:

CTR = Net Sales / Capital Employed

The higher the ratio, the greater are the profits. A low capital turnover ratio would mean that
sufficient sales are not being made and profits are lower.

2. Sales to Fixed Assets (or Fixed Assets turnover) Ratio: - This ratio measures the efficiency
of the assets use. The efficient use of assets will generate greater sales per rupee invested in all
the assets of a concern. The inefficient use of the assets will result in low sales volume coupled

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with higher overhead changes and under utilization of the available capacity. Hence the
management must strive for using total resources at optimum level, to achieve higher ratio. This
ratio expresses the number of times fixed assets are being turned over in a stated period. It is
calculated as under:

FA Turnover Ratio = Sales / Net FA

(Net Fixed Assets = Fixed Assets Less Depreciation)

This ratio shows how well the fixed assets are being used in the business. The ratio is important
in case of manufacturing concern because sales are produced not only use of current assets but
also by amount invested in fixed assets. The higher in the ratio, the better is the performance. On
the other hand, a low ratio indicates that fixed assets are not being efficiently utilized.

3. Sales to working capital (or Working Capital Turnover) Ratio: - This ratio is shows the
number of times working capital is turnover in a stated period. It is calculated as below: -

FA Turnover Ratio = Sales / Net working capital

(Net Working Capital = Current Assets – Current Liabilities)

The higher is the ratio, the lower is the investment in working capital and the greater are the
profits. However, a very high turnover of working capital is a sign of overtrading which may put
the concern into financial difficulties. On the other hand, a low working capital turnover ratio
indicates that working capital is not efficiently utilized.

4. Total Assets Turnover Ratio: - This ratio is calculated by dividing the net sales by the value
of total assets.

Total Assets Turnover Ratio = Net Sales / Total Assets

(Total Assets = Net Fixed Assets + Investments + Current Assets)

A high ratio is an indicator of overtrading of total assets while a low ratio reveals idle capacity.
The traditional standard for this ratio is two times.

5. Inventory or Stock Turnover Ratio: - This ratio indicates the number of times inventory is
rotated during the year. It is calculated as follows:

ITR = Cost of Sales/Average Stock

(Average Inventory = (Opening inventory + Closing Inventory)

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6. Receivable (or Debtors) Turnover Ratio: - Receivable turnover ratio is the comparison of
sales with uncollected amounts from debtors or customers to whom goods were sold on credit
basis. If the enterprise is having a large amount of debtors, it will have a low ratio. Conversely,
with prompt collection from debtors, the debtor’s balance will be low and the debtors‟ turnover
ratio will be high. In other words, the debtors or receivable turnover is the test of liquidity of a
business enterprise.

Receivable Turnover Ratio = Credit Sales /Average total receivable

7. Creditors Turnover (or Accounts Payable) Ratio: - This ratio gives the average credit
period enjoyed from the creditors and is calculated as under:

Creditors Turnover Ratio= credit purchase/ average account payable

(Average Account Payable = (Average Creditors + Average Bills Payable)

A low ratio indicates that the creditors are not paid in time while a high ratio gives an idea that
the business in not taking full advantages of credit period allowed.

D) PROFITABILITY RATIO

Profitability is the overall measures of the companies with regard to efficient and effective
utilization of resources at their command. It indicates in a nutshell the effectiveness of the
decision taking by the management from time to time. Profitability ratios are of at most
importance for a concern. These ratios are calculated to enlighten the end result of business
activities, which is the sole criterion of the overall efficiency of a business concern. The
following are the important profitability ratios:

1. Gross Profit Ratio: - This ratio tells gross profit on trading and is calculated as under:

GPR = (Gross Profit/Net Sales)*100

(Gross Profit = Net Profit + Interest + Prior Period Item + Extra Ordinary Expense –
Extra Ordinary Income)

Higher the ratio the better it is, a lower ratio indicates unfavourable trends in the form of
reduction in selling prices not accompanied by proportionate decrease in cost of goods or
increase in cost of production.

2. Net Profit Ratio: - This ratio explains per rupee profit generating Capacity of sales. If the
cost of sales is lower, then the net profit will be higher and then we divide it with the net sales,
the result is the sales efficiency. The concern must try for achieving greater sales efficiency for

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maximizing the Ratio. This ratio is very useful to the proprietors and prospective investors
because it reveals the over all profitability of the concern. This is the ratio of net profit after taxes
to net sales and is calculated as follows:

NPR = (Profit after tax / Sales) * 100

The ratio differs from the operating profit ratio in as much as it is calculated after deducting non-
operating expenses, such as loss on sale of fixed assets etc., from operating profit and adding
non-operating income like interest or dividends on investments, profit on sale of investments or
fixed assets etc., to such profit.

Higher the ratio, the better it is because it gives idea improved efficiency of the concern.

3. Return on capital Employed: - This ratio is an indicator of the earning capacity of the capital
employed in the business. This ratio is calculated as follows:

Return on capital Employed = (operating profit/ capital employed)*100

(Operating Profit = Profit before interest on long-term borrowings and tax)

(Capital Employed = Equity Share Capital + Preference Share Capital + Undistributed

profit + Reserve & Surplus + Long-term Liabilities – Fictitious Assets – Non-business
Assets )

6. Return on Investment (ROI): - The term investment may refer to total assets or net assets.
The funds employed in net assets are known as capital employed.

ROI= EBIT/Net Asset or capital employed

(Net Assets = Net Fixed Assets + Current Assets – Current Liabilities (excluding Bank
loans)

Capital Employed = Net Work + Debt

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1.3 OBJECTIVE OF STUDY

The main objective of the study is given below:

1. To study the working capital of SECL

2. To study the cost of capital of SECL

3. To study the optimum level of current assets and current liabilities of the company.

4. To study the liquidity position of SECL with the help of various working capital related ratios.

5. To know about the capital structure of SECL

6. To study the components of working capital.

7. To study the sources of finance of the SECL.

8. To estimate the working capital requirement of SECL.

9. To study the operating and cash cycle of the company.

10. To determine the financial performance of SECL.

1.4 SCOPE & LIMITATIONS OF THE STUDY

Scope of the study

The scope of the study was identified during the study. The study of working capital is based on
tools like, Ratio Analysis, working capital leverage, operating cycle etc. Further the study is
based on last 5 years Annual Reports of South Eastern Coalfield Limited.

Limitations of the study

Following limitations were encountered while preparing this project:

1) Limited data:- The project was completed using the annual reports of SECL. It means
project has included only one way of data collection i.e. secondary data. Primary data cannot be
collected as the information is confidential.

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 2) Limited period:- As the project is based on the annual report of last 5 years, the changes in
trends might not be enough to show the real working capital of SECL.

CHAPTER-2

LITERATURE REVIEW

2.1 REVIEW OF LITERATURE: NATIONAL

1. Bhatt V. V. (1972) widely touches upon a process of evaluating working capital finance
applications of large manufacturing concerns. It states that similar process needs to be
formulated for other sectors such as agriculture, trade etc. The author believes that banks while
providing short-term finance, concentrate on their adequacy of security and repayment capacity.
On being satisfied with these two yardsticks they do not generally carry out any detail appraisal
of the working of the concerns.

2. Chakraborthy S. K. (1974) tries to distinguish cash working capital v/s balance sheet working
capital. The analysis is based on the following dimensions: a) Working capital in common
parlance b) Operating cycle concept b) Computation of operating cycle period in all the four
cases. The purpose of the analysis is to demonstrate operating cycle concepts based on published
annual reports of the firms.

3. Natarajan Sundar (1980) is of the opinion that working capital is important at both, the
national and the corporate level. Control on working capital at the national level is exercised
primarily through credit controls. The Tandon Study Group has provided a comprehensive
operational framework for the same. In operational terms, efficient working capital consists of
determining the optimum level of working capital, financing it imaginatively and exercising
control over it. He concludes that at the corporate level investment in working capital is as
important as investment in fixed assets. And especially for a company which is not growing,
survival will be possible only so long as it can match increase in operational cost with improved
operational efficiency, one of the most important aspects of which is management of working
capital.

4. Kaveri V. S. (1985) has based his writing on the RBI‟s studies on finances of large public
limited companies. This review of working capital finance refers to two points of time i.e., the
accounting years ending in 1979 and 1983 and is based on the data as given in the Reserve Bank

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of India on studies of these companies for the respective dates. He observes that the Indian
industry has by and large failed to change its pattern of working capital financing in keeping
with the norms suggested by the Chore Committee. While the position of working capital
management showed some investment between 1975-79 and 1979-83, industries have not
succeeded in widening the base of long-term funds to the desired extent. The author concludes
with the observation that despite giving sufficient time to the industries to readjust the capital
structure so as to shift from the first method to the second method, progress achieved towards
this end fell short of what was desired under the second method of working capital finance.

5. Bhattacharyya Hrishikes (1987) tries to develop a comprehensive theory and tool of working
capital management from the system‟s point of view. According to this study, capital is often
used to refer to capital goods consisting of a great variety of things, namely, machines of various
kinds, plants, houses, tools, raw materials and goods-in-process. A finance manager of a firm
looks for these things on the assets side of the balance sheet. For capital he turns his attention to
the other side of the balance sheet and never commits a mistake. His purpose is to balance the
two sides in such a way that net worth of the firm increases without increasing the riskiness of
the business. This balancing is financing, i.e., financing the assets of the firm by generating
streams of liabilities continuously to match with the dynamism of the former. The study is an
improvement of the concept of Park and Gladson who were not able to capture the entire
technofinancial operating structure of a firm.

6. Rao K.V. and Rao Chinta (1991) observe the strong and weak points of conventional
techniques of working capital analysis. The result has been obviously mixed while some of the
conventional techniques which could comprehend the working capital behavior well; others
failed in doing the job properly. The authors have attempted to evaluate the efficiency of working
capital management with the help of conventional techniques i.e., ratio analysis. The article
concludes prodding future scholars to search for a comprehensive and decisive yardstick in
evaluating the working capital efficiency

7. Hossain Saiyed Zabid and Akon Md. Habibur Rahman (1997) emphasise the basic objective
of working capital management i.e., to arrange the needed working capital funds at the right
time, at right cost and from right source with a view to achieving a trade-off between liquidity
and profitability. The analysis reveals that BTMC had followed an aggressive working capital
financing policy taking the risk of liquidity. There was uninterrupted increasing trend in negative
net working capital throughout the period of the study which suggested that BTMC had
exploited the entire short-term sources available to it without considering the actual needs.

8. Ahmed Habib (1998) points out that when the interest rate is included; money loses its
predictive power on output. The study explicates this finding by using a rational expectations
model where production decisions of firm required debt finance working capital. Working capital

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is an important factor and its cost, the rate of interest, affects the supply of goods by firms.
Monetary policy shocks, thus, affect the interest rate and the supply side, and as a result price
and output produced by firms. The model indicates that this can cause the predictive power of
monetary shocks on output to diminish when the interest rate is used in empirical analysis. The
model also alludes to the effects of monetary policy on the price level through the supply side
(cost push) factors.

9. Prof. Mallick Amit and Sur Debasish (1998) attempt to make an empirical study of AFT
Industries Ltd, a tea producing company in Assam for assessing the impact of working capital on
its profitability during the period 1986-87 to 199596. The author has explored the co-relation
between ROI and several ratios relating to working capital management. On the whole, this
study of the corelation between the selected ratios in the area of working capital management
and profitability of the company revealed both negative and positive effects. Moreover, the WCL
of the company recorded a fluctuating trend during the period under study.

10. Hossain, Syed Zabid (1999) throws light on the various aspects of working capital position.
He has evaluated working capital and its components through the use of ratio analysis. For each
aspect of analysis certain ratios are computed and then results are compared with the standard
ratio or industry average.

11. Singaravel, P. (1999) focuses on the interdependency among working capital, liquidity and
profitability, of which sufficiency of liquidity comes in the first preference followed by
sufficiency of working capital and profitability. The article is an in-depth analysis of liquidity
and its interrelationship with working capital and profitability. As the working capital, liquidity
and profitability are in triangular position, none is dispensable at the satisfaction of the other.
Excess of stock-in-trade over bank over-draft and excess of liquid assets over current liabilities
other than bank over-draft generate working capital for the business. Alternatively working
capital requirements are made for long-term funds which affect the profitability.

12. Garg Pawan Kumar (1999) focuses on the study of working capital trend and liquidity
analysis in the selected public sector enterprises of Haryana. The study suggests forecasting of
working capital requirement confined mainly to various components of working capital. After
considering the facts the author realized the need for proper assessment and forecasting of
working capital in the public sector undertaking. For this purpose, he has suggested the analysis
of production schedule, sales trend, labour cost etc., should be taken into consideration. He
further suggested the need for better management of components of working capital.

13. Batra G. S. and Sharma A. K. (1999) analyze the working capital position of Goetze (I) Ltd.
with the help of various ratios. They are of the view that the working capital position in the
company is quite satisfactory although they have suggested a few measures for further
improvement in management of working capital, like necessity of greater attention in the

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inventory control; active sales department, speedy dispatch of orders and reduction of
dependency on trade creditors.

14. Batra Gurdeep Singh (1999) gives an overview of working capital and its determinants.
According to the author working capital management involves deciding upon the amount and
composition of current assets and how to finance them. He emphasizes on the hedging approach
to finance current assets. He also adds that a management can use ratio analysis of working
capital as a means of checking upon the efficiency with which working capital is being used in
the enterprises.

15. Bansal S. P. (1999) observes that due to the conservative policy of the corporation i ) Short-
term creditors position regarding their claim is threatened due to lack of funds, ii ) The company
was not following uniform policy regarding the collection of debtors, and iii ) Inefficiency on the
part of the management causes over investment in inventories. As a result a serious situation
arose due to shortage of working capital. The author warns the corporation that if it did not plan
its cash needs properly, it would be lead to bankruptcy.

16. Chalam G. V. and Manohar Babu B. V. (1999) observe that liquidity performance is very low
as compared to the ideal norms. It is suggested that for managing working capital effectively the
operating and other required budgets should be prepared by the respective levels of the
management on short-term as well as long-term basis. It is further suggested that these are the
people concerned who can really influence the process of production activity to such an extent
that there should be optimum utilization of the investment in working capital.

17..Rao Govinda D. (1999) believes that changes in quantum of working capital are ascertained
and analyzed. The author has attempted to find out the causes of the changes in the size of
working capital in the sample companies during the period under study. He found several causes
of changes in working capital, mainly (a) sources of funds and (b) applications of funds. In the
end, the changes in working capital are analyzed with the help of the changes in working capital
and funds flow statement.

18. Garg Pawan Kumar (1999) suggests that working capital should be financed with both the
sources – long-term as well as short-term sources of funds. He further suggests that permanent
working capital should be obtained with the help of long-term sources of finance while variable/
fluctuating working capital should be collected through short-term sources of finance. Efficient
utilization of working capital enhances operating efficiency as well as income of the units. 25.
Singh O. N. (1999) discusses the credit needs of farmers / agriculture sector and then emphasizes
on the need for having a system of working capital finance in agriculture on the lines of the
industry and commerce finance, of course with some changes. He advocates a system which is
equally equipped and appropriate to meet the needs of both the farmers as well as the bankers.
His basic purpose is to strengthen the capital base of the farmers.

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19. Rao Govinda D. and Rao P. M. (1999) believes that management of working capital is a
continuous process requiring proper monitoring and studying of the relationship of all variables
with constant, and drawing inferences. This provides proper direction to the managers.

20.Jain P. K. and Yadav Surendra S. (2001) study the corporate practices related to management
of working capital in India, Singapore and Thailand. In this paper the authors have tried to
understand the working capital management and current assets and current liabilities, and their
inter-relationship. Further the authors have shown an aggregative analysis of current assets and
current liabilities in terms of major liquidity ratios. It also states working capital position in
terms of these ratios pertaining to various industries. From the paper one can infer that the
available data in respect of the sample companies from the three countries confirm the wide
inter-industry variations in liquidity ratios. Towards the end, the authors suggest that serious
consideration needs to be given by the respective governments as well as industry groups in
these three countries in order to take corrective measures to take care of and rectify the areas of
concern.

21. Jain P. K. and Yadav Surendra S. (2007) study the different facets of working capital
management. The issues addressed include relationship between CAs and CLs, the financing of
working capital, and ways of dealing with excess or shortage of working capital. The study is
based on an analysis of a thirteen year period data from 1991 to 2003 covering 137 public sector
enterprises. In a nutshell, it is reasonable to contend that the sample PSEs (Public Sector
Enterprises) are faced with long duration of net working capital cycle (time necessary to
complete the following three events: 1. Conversion of cash into inventory 2. Conversion of
inventory into debtors and 3. Conversion of debtors into cash less credit available from
creditors) necessitating substantial working capital to be carried by them, eventually affecting
their profitability in adverse manner.

22. Thappa Sankar (2007) focuses on the importance of proper working capital management of
Sun Pharmaceutical Company. The paper throws light on the concepts of working capital,
working capital policy, components of working capital and factors affecting working capital in
the Sun Pharma Industries Ltd during the last five years, and identifies certain factors which are
responsible for the improvement of working capital of the company. The article concludes with a
warning to the Company that if satisfactory level of working capital is not maintained, the
company would become bankrupt.

23. Ganesan Vedavinayagam (2007) studies the impact of working capital management on
profitability through ANOVA test where the financial statements of 349 telecom units or
enterprises are analyzed. The relationship between working capital management efficiency and
profitability and the impact of working capital management on the same has been tested. At the
end of the study the author has minutely observed that the working capital management

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efficiency in telecommunication industry is poor. And he suggests that the telecommunication
industry should improve working capital management efficiency.

2.2REVIEW OF LITRATURE: INTERNATIONAL

1. Smith Keith V. (1973) believes that Research which concerns shorter range or working capital
decision making would appear to have been less productive. The inability of financial managers
to plan and control properly the current assets and current liabilities of their respective firms has
been the probable cause of business failure in recent years. Current assets collectively represent
the single largest investment for many firms, while current liabilities account for a major part of
total financing in many instances. This paper covers eight distinct approaches to working capital
management. The first three - aggregate guidelines, constraints set and cost balancing are partial
models; two other approaches - probability models and portfolio theory, emphasize future

2.Deloof Marc. (2003) presents a picture of how working capital management affects the
profitability of Belgium firms. The writer has made use of empirical analysis for the sample
firms. It was observed that most of the firms have a large amount of cash invested in working
capital. It can, therefore, be deduced that the way in which working capital is managed will have
a significant impact on the profitability of the firms.

3. Howorth Carole and Westhead Paul (2003) have tried to find out the working capital
management routines of a large random sample of small companies in the UK. Considerable
variability in the take-up of eleven working capital management routines was detected. Principal
components analysis and cluster analysis confirmed the identification of four distinct “types” of
companies with regard to the patents of working capital management. While the first three
„types‟ of companies focused upon cash management, stock or debtors routines respectively, the
fourth „type‟ was less likely to take-up any working capital management routines. The objective
of the study is to encourage additional research rather than to provide an exhaustive overview of
all the factors associated with the take-up of working capital management routines by small
companies. The results suggest that small companies focus only on areas of working capital
management where they expect to improve marginal returns.

4.Filbeck Greg and Krueger Thomas M. (2005) base their study on the ratings of working capital
management published in CFO magazines. The findings of the study provides insight into
working capital performance and working capital management, which is explained by macro
economic factors, interest rates, competition, etc., and their impact on working capital
management. The article further studies the impact of working capital management on stock
prices.

4. Meszek Wieslaw and Polewski Marcin (2006) examine the profiles of selected construction
companies from the viewpoint of working capital formation and their management strategies

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applied to working capital. The analysis is based on the financial ratios. The authors conclude
with the observation that complex working capital management requires controlling
methodology to be developed. A specific character of the construction industry, including
operational factors and market requirements make working capital management a task exceeding
the financial sphere, as it embraces the issues of organization of investment processes, the
organization of production processes and logistics.

5.Samiloglu F. and Demirgunes K. (2008) intend to analyse the effect of working capital
management on firm‟s profitability. To consider statistically significant relationship between the
firm‟s profitability and the components of cash conversion cycle at length, a sample consisting
of Istanbul Stock Exchange (ISE) listed manufacturing firms for the period from 1989 to 2007
has been analysed under a multiple regression model. Empirical findings of the study show that
accounts receivable period, inventory period and leverage affect firm‟s profitability negatively,
while growth (in sales) affects firm‟s profitability positively.

6.Mohamad Nor Edi Azhar Binti and Saad Noriza Binti Mohd, (2010) attempt to bridge the gap
in the related literature by offering empirical evidence about working capital management and its
effects on the performance of Malaysian listed companies from the perspective of market
valuation and profitability. The objective of the study is to examine the effects of working capital
components. The authors have made an in depth empirical research on the association between
working capital management and the firm‟s performance. On the basis of the findings, it can be
concluded that working capital components and performance in Malaysia disclose both positive
and negative association. The study reveals that out of the five components selected for the
study, CATAR shows positive significant relationships with Tobin Q, ROA and ROIC. On the
other hand, three components CCC, CACLR and CLTAR illustrate negative significant relations
with Tobin Q, ROA and ROIC. DR is negatively significant with ROA only but significant with
ROIC, while positively significant with Tobin Q.

7. Rosenbluth Frances (2010) makes a close study of the role that networks can play in boosting
women's representation in the personal, professional and political arenas. It has been found that
women lag behind men in their access to professional networks. At the end of the study the
author concludes with the observation that gender equality will remain out of reach until women
and men have a statistically equal shot at being productive, which at the top of the career ladder
invariably includes the difficult-to-quantify but real value of network pow

CHAPTER-3

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 RESEARCH METHODOLOGY

3.1INTRODUCTION

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done systematically. In that various steps,
those are generally adopted by a researcher in studying his problem are included, along with the
logic behind them.

It is important for research to know not only the research method but also know methodology.
”The procedures by which researcher go about their work of describing, explaining and
predicting phenomenon are called methodology.”

Methodology is the systematic, theoretical analysis of the methods applied to a field of study. It
comprises the theoretical analysis of the body of methods and principles associated with a branch
of knowledge and the procedures used for generating, collecting and evaluating data. All this
means that it is necessary for the researcher to design his methodology for his problem as the
methods generally differ from problem to problem.

3.2 TYPES OF DATA COLLECTION

Data collection is important step in any project and success of any project will be largely depend
upon now much accurate you will be able to collect and how much time, money and effort will
be required to collect that necessary data, this is also important step. Data collection plays an
important role in research work. Without proper data available for analysis you cannot do the
research work accurately.

There are two types of data collection methods available.

 Primary data collection

 Secondary data collection

1) Primary data

The primary data is that data which is collected fresh or first hand, and for first time which is
original in nature. Primary data can collect through personal interview, questionnaire etc. to
support the secondary data.

2) Secondary data collection method

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The secondary data are those which have already collected and stored. Secondary data easily
get those secondary data from records, journals, annual reports of the company etc. It will save
the time, money and efforts to collect the data. Secondary data is also made available through
trade magazines, balance sheets, books etc.

For this project secondary data is collected, the data collection was aimed at study of working
capital management of SECL.

The project is based on-

1. ANNUAL REPORT OF SECL 2012-2013

2. ANNUAL REPORT OF SECL 2013-2014

3. ANNUAL REPORT OF SECL 2014-2015

4. ANNUAL REPORT OF SECL 2015-2016

5. ANNUAL REPORT OF SECL 2016-2017

CHAPTER-4

27 | P a g e
 COMPANY PROFILE

4.1 INTRODUCTION

India is currently among the top 3 fastest growing economy in the world. With the increase in
growth rate the need of energy is also increasing and that’s where ‘Coal’ steps in ,Coal has been
and shall remain the prime source of commercial energy in India. It meets nearly 60 % of the
total commercial energy requirement of the country. In India coal acts as a major input in various
industries such as power, steel and cement. . India only comes next to China and U.S.A in coal
production i.e. India is the third largest coal producing country in the world.

Object 3

History of Coal Industry in India:

Coal and oil are two primary natural fuels. Coal constitutes approximately 85% of total fossil
fuel reserves in the world. The Gondwana coal contributes about 99% of the country‟s coal
resources. They are located in peninsular India and the too in the southeastern quadrant bounded
by 78 E longitudes & 24 N latitude, thus leaving a major part of country devoid of any coal
deposits. The major Gondwana Coalfields are represented by isolated basins, which occur along
prominent present day rivers viz Damodar, Sone, Mahanadi, and Kanhan & Godavari. The
relative minor resources of tertiary coal are located on the either extremities of peninsular India.

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The mining industry in India is next to agriculture in terms of resource generation and
employment opportunity. Coal mining occupies a major position, contributing nearly 60 % of
commercial energy requirement of India, followed by iron-ore, limestone and bauxite. Coal has
traditionally been a vital input to the industrial heritage of India nearly 200 year ago, in Ranigunj
coal field, about 120 miles west of Calcutta. Coal mining gradually spread to other parts of India
as the railway network developed. By 1900, almost 80% of the country's coal production of 6
million tons came from Jharia and Raniganj coalfields. In 1975 the government consolidated
control over the coal industry by transferring the ownership & management of all nationalized
coalmines to the newly established coal India limited headquarter in Kolkata , Coal India
presently contributes 90% of the total coal production in India. It is the largest public sector in
terms of employment to the tune of 636,000 people producing 250 million tons of coal per year.
It operates through eight subsidiaries.

l. ECL - 1975: Eastern coalfield ltd, comprising of the eastern division of CMAL with head
quarter at Burdwan.

2. BCCL - 1975: Bharat Coking Coal Ltd. Comprising of BCCL together with Sudanidin &
Moonidih mines of NCDC with head quarter at Dhanbad.

3. CCL - 1975: Central coalfield ltd, comprising of the central division of CMAL/ NCDC with
head quarter at Ranchi.

4. NCL-1986: northern coal field ltd, with its registered office at Israeli (M.P).

5. WCL-1975: western coalfield ltd, with its registered office at Napery

(Maharastra).

6. SECL-1986: southeastern coalfields ltd, comprising of western division of CMAL

with head quarter at Nagpur.

7. CMPDIL-1975: central mining planning & design institute ltd, with head quarter at Ranchi.

8. MCL-1992: Mahanadi coalfields ltd, with its registered office at Sambalpur (Orrisa).

All the shares of above-mentioned subsidiaries are held by the President of India

through the holding company of coal industries holds all the shares of above

mentioned subsidiaries. Coal India currently operates 449 mines & 15 washeries

spread over nine states to produce & beneficent coal for meeting the demand of the

29 | P a g e
consumers all over the country. 4 major consuming sector i.e. power, steel, railway

& the organized industrial sector units of varying size numbering about 2000

consume cement. 18% presently consume Seventy five percent of coal. The balance

7% is consumed by a very large no. of consumers viz brick kilns domestic

consumer etc through coal depots & retail shops.

State wise distribution of coal resource

4.2 FORMATION OF COAL INDIA LTD

With the dawn of independence a greater need for efficient coal production was felt in the first
five-year plan. Coal being the most crucial energy resource, was considered necessary to
expedite development of modernization of the coal industry. Thus, by the end of 1955-56 our

30 | P a g e
country produced 38.4 million tonnes. During the second five-year plan too the coal production
was stepped up further to 60 million tonnes per annum. In 1956, National Coal Development
Corporation (NCDC) was formed with 11 collieries belonging to railways as its nucleus. NCDC
was given the task of exploring new coal fields and expediting development of new coal mines
in the out laying coal fields. Subsequently, in the context of conservation, safety, scientific
development of coal reserves, systematic and proper mining of coking coal and increasing
demands from iron and steel industries the Govt. of India took over all the coking coal mines on
16th of October 1971 and nationalized them on 1st of May 1972. A company known as Bharat
Coking Coal Ltd. was formed to manage the coking coal mines.

The Objectives of Nationalization were:

1. Planned development of available coal resources.

2. Improvement of safety standards.

3. Ensuring adequate investment for optimal utilization consistent with growth.

4. Improving the quality of life of the work force.

5.Prohibiting wasteful, selective and slaughter mining.

With the takeover of coking coal mines by the Govt. as mentioned above, the private coal mine
owners stopped capital investment for renewal of machineries/equipments as well as for the
development of new mines. The living conditions of the miners remained sub-standard. The
private mine owners indulged in unhealthy mining practices including slaughter mining with the
sheer objective of maximizing their short-term gains. For nearly seven to ten years, the non –
cooking mines were owned by the Coal Mines Authority Ltd. and were managed through three
divisions i.e. Eastern, Western and Central Divisions. On 1st Nov. 1975, Coal India Ltd was
formed as a Holding Company with its registered office at 10, Netaji Subhash Road, Calcutta.
700001. BCCL and NCDC were transferred to CIL. Coal India Ltd has seven coal producing
Subsidiary Companies and one Subsidiary for planning, designing and research.

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 The Head Quarters of Coal India Ltd and its subsidiary companies

S.No. Name of Company Formation Head Quarters

1 Coal India Ltd. (Holding Co.) 1972 Kolkata (West
Bengal)
2 Eastern Coal Fields Ltd. 1975 Sanetoria (West
Bengal)
3 Bharat Coking Coal Ltd. 1973 Dhanbad (Jharkhand)
4 Central Coal Fields Ltd. 1975 Ranchi (Jharkhand)
5 Western Coal Fields Ltd. 1975 Nagpur (Maharashtra)
6 South Eastern Coal Fields Ltd. 1986 Bilaspur
(Chhattisgarh)
7 Northern Coal Field Ltd. 1986 Singrauli (Madhya
Pradesh)
8 Mahanadi Coal Fields Ltd 1992 Sambalpur (Orissa)

4.3 A PROFILE OF SOUTH EASTERN COAL FIELD LTD. (SECL)

South Eastern Coalfields Limited is the largest coal producing company in the country. The coal
reserves of South Eastern Coalfields Limited are spread over two States, namely, Chhattisgarh
and Madhya Pradesh and the Company is operating 89 mines with 37 Mines in the State of
Madhya Pradesh and 54 Mines in the State of Chhattisgarh besides a Coal Carbonization Plant
namely Dankuni Coal Complex (DCC) at Dankuni in West Bengal on lease basis from Coal
IndiaLimited.

For effective administrative control and operation,the mines have been grouped in three
Coalfields, namely, Central India Coalfields (CIC), Korba Coalfields and Mand-Raigarh
Coalfields with 13 operating Areas.

SECL is one of the fully owned subsidiary of Coal India Limited,it came into existence in
1985.The company has its headquarter at Bilaspur, Chhattisgarh. Ever since the formation ,SECL

32 | P a g e
has exceeded its physical and financial targets. Coal mining is the most prominent industry in
C.G. and in M.P. in terms of employment generation and infrastructure development. The coal
mining areas are spread over from Sarguja and Korba district of C.G. up to Shadol and Umaria
district further North West in M.P. due to opening of coal mines in these region, rail connection,
power supply, telecommunication, other industries etc. have expanded over the past decades.

A new area known as Dipka Area has been separated from Gevra Area w.e.f. 1st of April 2006.
Coal mining is the most prominent industry in Chhattisgarh in terms of employment generation,
economic infrastructure development and generation of revenue for the state and the central
Govt. Due to opening of coal mines in this region, rail connections and power supply lines, roads
and tele-communication have expanded over the past decades and a large number of power
houses and other industries have come up. The coal based industry have in turn generated
multiplier effect in the economy of Chhatisgarh and Madhya Pradesh and the region has become
the most important center of industrial economy of Chhatisgarh and Madhya Pradesh.

The Statewise, type wise composition of those 90 mines is given in Table below:

Type of Mine Chhattisgarh Madhya Pradesh Total UG Mines 41 29 70 OC Mines 11 08 19

Mixed Mines 01 - 01 Total 53 37 90

Districts where SECL is spread:

MADHYA PRADESH

1. SHAHDOL- Sohagpur area

2. UMARIA- Johilla area

3. ANUPPUR- Hasdeo & j&k area

CHHATTISGARH

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. KORBA- Korba, Gevra & Kusmunda

2. RAIGARH- Raigarh area

3. KOREA- Baikunthpur,Chirimiri & Hasdeo area

4. SURGUJA- Bishrampur & Bhatgaon

5. BILASPUR- SECL HQ.

-. SECL IS THE LARGEST COAL PRODUCING COMPANY IN INDIA.

- SECL OPERATES THROUGH 12 ADMINISTRATIVE AREAS.

- PRODUCTION OF COAL IS 140.00 MILLION TONNES AS IN 2016-2017.

VISION OF THE COMPANY

To be one of the leading energy suppliers in the country, by adopting the best practices and
leading technology from mine to market.

MISSION OF THE COMPANY

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To produce and market the planned and economically in an eco-friendly manner with due regard
to safety, conservation and quality.

COAL MINING PROJECTS

In SECL, 117 major coal projects (79 UG and 38 OC) for a total capacity of 260.52 MTY have
been approved. Out of these, 59 projects (48 UG & 11 OC) are completed projects, 34 projects
(09 UG & 25 OC) are On-going projects, 10 Projects (UG) are Existing projects and 14 Projects
were dropped/shelved till date. From the 34 On-going projects under implementation (as on
March, 2016) with rated capacity of 203.24 MT, production during the year 2016-17 was 84.435
MT. To augment the production and achieve the targeted production of SECL in the future, 7
new projects are in the pipeline for approval. Mand-Raigarh Coalfields in Raigarh Area spreads
over an area of 3700 sq.km and have 7153.29 MT of coal reserve (Proved) upto 300 meter depth
and 1365.80 MT of coal reserve (proved) from 300-600 meter depth as on 01.04.2016 and has
potential to produce huge quantity of power grade coal. Presently, only 4 mines having total
capacity of 9.50 MT are in operation in this area. As per CIL’s Roadmap for 1 Billion Tonne
Coal production by 2019-20, SECL’s coal production target has been projected as 239.60 MT
envisaging an incremental production of 99.60 MT over actual production in 2016-17. The
incremental production from Ongoing projects will be 116.86 MT, from Future projects will be
8.00 MT, while production is expected to decline from existing/completed projects.

FINANCE DEPARTMENT OF THE COMPANY

Finance department play a major role in any organization. Its main objective is to provide
strength and stability to organization. All activities of industries and concern are fully depending
on finance. Therefore, in SECL, all section are properly arranged and planed. This organization
is run by ministry of government so and this organization is undertaking by SECL.

All plan and procedure of finance is prepared under the authority of SECL. All sections have one
finance department. All fund are decided and polices are making related to distribution and
section of funds.

Finance department of CWS is arranging fund for the each shop which is required to the fulfill
the needs of section of workshop. As per requirement of section fund is issue by the finance
department. Like in planning section fund is issue to purchase of material, in engine repair shop
fund is issue to repair of engine etc.

Financial planning is done annually basis. Generally all financial plans are prepare with the help
of previous year data of each section of shop. Required fund is issue by the finance manager.

Functions of Finance Department:

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1. Construction of bills: This is the main function of Finance department, under this, the whole
project estimation can be done and company makes necessary fund allocation to those projects.

2. Supply Bill: This section concerned with supply of all necessary inputs required to the plant.

3. Maintenance Bills: In this, section the whole maintenance of the plant and

CHAPTER-5
36 | P a g e
 DATA ANALYSIS AND INTERPRITATION

5.1RATIO ANALYSIS

LIQUIDITY RATIO

1. Current Ratio

Current Ratio = Current Asset/Current Liability

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Current asset 15572.18 16895.13 16742.08 12964.25 13237.51

Current liability 5400.18 4788.74 5541.87 5869.76 9243.32

Current ratio 2.88 3.52 3.02 2.20 1.43

Object 5

Interpretation

From the above figures it is evident that Current Ratio has decreased from 2.88 to 1.43. The
decrease has been on account of decrease in Cash and Bank balances and Advances. Ideal
Current Ratio is taken as 2:1 however it is quantitative rather than qualitative thus despite the
Current Ratio being less than 2 the company’s liquidity position is sound.

2. Quick Ratio

Quick Ratio= Quick asset/ Current Liability

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PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Quick asset 11630.94 12278.64 11650.97 7344.48 5994.52
Current liability 5400.18 4788.74 5541.87 5869.76 9243.32
Quick ratio 2.15 2.56 2.10 1.25 .65

Object 7

Interpretation

The satisfactory liquidity ratio or quick ratio is 1:1.As we can see the company’s Liquid Ratio
has decreased from 2.15 to .65. This decrease is mainly on account of decrease in Cash and Bank
balance and Loan and Advances.

This shows sound liquidity position of the company.

SOLVENCY RATIO

1. Debt Equity Ratio

Debt Equity Ratio = Debt/ Equity

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Debt 194.64 0.00 0.00 0.00 0.00

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Equity 359.70 359.70 359.70 359.70 298.78
Debt to Equity 0.02 0.00 0.00 0.00 0.00
ratio

Object 9

Interpretation

This ratio reflects share of debt in the total capital. The company’s Ratio of 0.00 indicates that
there is no level of debt in the company. Reduction of Debt – Equity Ratio from 0.02 to 0.00
shows that the company has liquidated its debt in time. The Debt-Equity of 0.00 also shows that
the company is totally relying on shareholders fund for doing the business.

2. Debt-Net worth Ratio

Debt Net Worth Ratio = Debt/Net worth

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Debt 194.64 0.00 0.00 0.00 0.00
Net worth 8625.69 10047.98 9544.11 5100.75 3352.19
Debt-Net worth 0.02 0.00 0.00 0.00 0.00
Ratio

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 Object 11

Interpretation

The ratio has decreased from 0.02 to 0.00, it shows that the company is wholly financed by its
own fund and it has no debt burden.

3. Debt Ratio

Debt Ratio = Debt/ (Debt + Net worth)

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Debt 194.64 0.00 0.00 0.00 0.00
Debt+ Net worth 8820.33 10047.98 9544.11 5100.75 3352.19
Debt ratio 0.022 0.00 0.00 0.00 0.00

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 Object 13

Interpretation

This ratio reflects share of debt in the Capital Employed. The company’s debt ratio of 0.00 in 16-
17 indicates that there is no Debt in the company. Reduction of Debt Ratio from 0.022 in 12-13
to 0.00 in 12-13 shows that the company is continuously relying on own funds.

PROFITABILITY RATIO

1. Gross Profit Ratio

Gross Profit Ratio = (Gross Profit/Net Sales)*100

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Net Sales 16288.39 16856.60 16294.98 16.745.67 18486.10
Gross Profit 6290.37 7202.68 5659.54 5173.46 3186.57
Gross Profit 38.67% 42.77% 34.74% 30.90% 17.28%
Ratio

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 Object 15

Interpretation

There is no norm or standard to interpret gross profit ratio (GP ratio). Generally, a higher ratio is
considered better. It can be observed that the company’s performance was best during the year
2013-2014 i.e. 42.77% but it has declined to 17.28% in year 2016-2017.It shows that company’s
profitability has declined.

2. Net Profitability Ratio

Net Profitability Ratio = (Net Profit/ Net Sales)*100

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Net Sales 16288.39 16856.60 16294.98 16.745.67 18.486.10
Net Profit 4299.03 4772.3 3659.93 3247.9 2038.57

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Net Profit Ratio 26.39% 28.31% 22.46% 19.40% 11.03%

Object 17

Interpretation

Net profit ratio is a tool to measure the total profitability of the firm. The year 2013-2014 shows
the maximum profitability. But after 2013-2014 there is a constant decline in net profit ratio i.e.
from 28.31% to 11.03%, it indicates that although total sales have increase but total profitability
of firm is constantly decreasing.

3. Return on Gross Capital Employed

Return on Gross Capital Employed =

(Profit before Interest and Tax/Total Asset)*100

(Total Asset = All assets ignoring Fictitious Assets )

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

PBIT 6290.37 7202.68 5659.54 5173.46 3186.57
Total Asset 20610.96 22218 23340 20265 22844.51
ROCE 30.52% 32.42% 24.25% 25.53% 13.95%

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 Object 20

Interpretation

Return on capital employed shows the returns a company is getting on its total funds i.e. debt
and equity, ROCE was highest in year 2013-2014 i.e. 32.42% and it is lowest in year 2016-2017
i.e. 13.95%. The company has seen a major decline in its returns.

4. Debtors in No. of Months Sales (DMS) –

DMS = Sundry Debtors / per month gross sales.

Per month gross sales = gross sales /12

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Sundary Debtors 1350.29 1336.78 2277.71 2650.61 2721.88
PMGS 1784.01 1850.34 1833.71 2075 2434.62
DMS .76 .72 1.24 1.28 1.17

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 Object 23

Interpretation

This ratio shows the relation between net sales and debtors or credit sales. The ratio has
increased from .76in year 2012-2013 to1.17 in 2016-2017 it means credit sales have increased.

5. Earnings per Share

E.P.S = NPAT/No. Of equity Shares

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Net profit 4,299.03 4772.30 3659.93 3249.90 2038.57
After tax( in
crores)
No. of Equity 3597000 3597000 3597000 3597000 2987750
Shares
E.P.S 11951.72 13267.45 10174.95 9,029.47 5709.81

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 Object 25

Interpretation

Earnings per share shows the amount earned on an individual share of the company in rupees.
The E.P.S of the company is constant declining i.e. from rupees 11951.72 in year 2012-2013 to
rupees 5789.01 in year 2016-2017, it means that amount earned on one single share has
decreased over the years.

TURNOVER RATIO

1. Capital Turnover Ratio

Capital Turn Over Ratio = Net Sales / Capital Employed

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Net Sales 16288.39 16856.60 16294.98 1674567 18486.10
Capital 13461.47 15464.77 15088 11090 8518.94
Employed
CTR 1.21 1.09 1.08 1.51 2.17

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 Object 27

Interpretation

This Ratio ensures whether the capital employed has been effectively used or not. The increase
in the ratio to 1.21 in 2012-13 from 2.17 in 2016-17 shows better utilization of resources in the
year 2016-2017.

2. Receivable Turnover Ratio –

Receivable Turnover Ratio = Credit Sales /Average total receivables

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Credit Sales 1336.78 1269.94 3826.55 5036.15 4817.72
ATR 1350.29 1336.78 2277.71 2650.61 2721.88
Receivable .99 .95 1.68 1.90 1.77
Turnover Ratio

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 Object 30

Interpretation

Accounts receivable turnover is the number of times per year that a business collects its
average accounts receivable. The ratio is intended to evaluate the ability of a company to
efficiently issue credit to its customers and collect funds from them in a timely manner.
Receivable turnover ratio has increased from .99 times to 1.77 times; a high turnover ratio
indicates a combination of a conservative credit policy and an aggressive collections
department, as well as a number of high-quality customers.

3. Fixed Assets Turnover Ratio

FA Turnover Ratio = Sales / Net FA

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Fixed Asset 3329.01 3400.55 3908.82 4028.84 4520.35
Sales 16288.39 16856.60 16856.60 16294.98 18486.10
Fixed Asset 4.89 4.95 4.31 4.04 4.08
Turnover Ratio

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 Object 32

Interpretation

As we know in case of Sales to Fixed Assets Ratio that the higher the ratio the better in the
performance. From the above data there is decrease in ratio from 4.89 to 4.08. This means that
the utilization of fixed assets is very ineffective.

4. Working Capital Turnover Ratio

WCT Ratio = Sales / Working Capital

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Sales 16288.39 16856.60 16856.60 16294.98 18486.10
Working Capital 10172 12106.39 11200.21 7094.49 3994.19
WCT Ratio 1.60 1.39 1.50 2.29 4.62

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 Object 34

Interpretation

This ratio indicates the number of times working capital is rotated in a course of year. The WCT
ratio has increased from 1.60 times in 2012-13 to 4.62 in 2016-17. A high turnover ratio
indicates that management is being extremely efficient in using a firm's short-term assets
and liabilities to support sales.

5. Total Assets Turnover Ratio –

Total Assets Turnover Ratio = Net Sales / Total Assets

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Sales 16288.39 16856.60 16856.60 16294.98 18486.10
Total Asset 20610.96 22218 23340 20265 22844.51
Total Asset .79 .75 .72 .80 .81
Turnover Ratio

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 Object 36

Interpretation

This ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio is
always more favourable. Higher turnover ratios mean the company is using its assets more
efficiently. There is an increase in the ratio from .79 times in 2012-2013 to .81 times in 2016-
2017; it means company is using its assets more efficiently in 2016-2017.

5.2WORKING CAPITAL LEVEL AND ANALYSIS

1. Size of Working Capital

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

A) Current Asset

Inventory 820.84 1005.13 1332.09 1839.69 1700.07

Trade Receivables 1350.29 1336.78 2277.71 2650.61 2721.88

Cash and Bank 10280.65 10941.86 9373.26 4693.87 3272.64

Current 183.16 178.21 123.16 95.72 153.88

investment
Short term loan 1514.95 2164.11 2920.59 2941.49 206.30
and advances

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CTA 00.00 00.00 00.00 00.00 4285.56

Other current 1422.29 1269.04 715.27 742.87 897.18

assets
Total C.A 15572.18 16895.13 16742.08 12964.25 13237.51
B) C.L
Short term 0.00 0.00 0.00 0.00 250.00
borrowings
Trade payable 96.17 96.65 107.27 97.83 983.50

Other C.L 3054.28 3026.10 4144.21 4173.19 6364.85

Provisions 2249.73 1665.99 1290.39 1598.74 1644.97

Total C.L 5400.18 4788.74 5541.87 5869.76 9243
Net W.C 10172.00 12106.39 11200.21 7094.49 3994.51

2. Working Capital Analysis

Object 38

3. Size of Current Asset

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Current Asset
Inventory 820.84 1005.13 1332.09 1839.69 1700.07
Trade Receivables 1350.29 1336.78 2277.71 2650.61 2721.88

Cash and Bank 10280.65 10941.86 9373.26 4693.87 3272.64

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Current 183.16 178.21 123.16 95.72 153.88
investment
Short term loan 1514.95 2164.11 2920.59 2941.49 206.30
and advances
CTA 00.00 00.00 00.00 00.00 4285.56

Other current 1422.29 1269.04 715.27 742.87 897.18

assets
Total 15572.18 16895.13 16742.08 12964.25 13237.51

4. Composition of Current Asset

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Inventory 5.27% 5.95% 7.95 14.19% 12.84%

Trade 8.67% 7.91% 13.60% 20.45% 20.56%

Receivables

Cash and Bank 66% 64.76% 55.98% 36.20% 24.72%

Current 1.17% 1.05% .73% .74% 1.56%

investment

Short term loan 9.72% 12.80 17.44% 22.69% 32.37%

and advances

CTA 00.00% 00.00% 00.00% 00.00% 00.00%

Other current 9.13% 7.15% 4.27% 5.73% 6.78%

assets

Total Current 100% 100% 100% 100% 100%

Asset

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 Object 40

5. Current Asset Analysis

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Current asset 15572.18 16895.13 16742.08 12964.25 13237.51

Object 42

6. Size of Current Liability

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PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Short term 0.00 0.00 0.00 0.00 250.00

borrowings
Trade payable 96.17 96.65 107.27 97.83 983.50

Other C.L 3054.28 3026.10 4144.21 4173.19 6364.85

Provisions 2249.73 1665.99 1290.39 1598.74 1644.97

Total C.L 5400.18 4788.74 5541.87 5869.76 9243

7. Composition of Current Liability

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Short Term 0.00% 0.00% 0.00% 0.00% 2.70%
Borrowings
Trade Payable 1.78% 2.02% 1.94% 1.67% 10.64%
Other Current 56.56% 63.19% 74.78% 71.09% 68.86%
Liability
Provisions 41.66% 34.79% 23.28% 27.23% 17.80%

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 Object 44

8. Current Liability Analysis

PARTICULARS 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Total C.L 5400.18 4788.74 5541.87 5869.76 9243

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 Object 46

CHAPTER-6

CONCLUSION AND RECOMMENDATIONS

6.1 CONCLUSION

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1. Working capital has increased from years 2012-2013 to 2013-2014 but has constantly
declined after that i.e. has shown a declining trend over the years.

2. The company has shown Positive working capital per year it indicates that company has
the ability to payments off its short terms liabilities in time.

3. Working capital has been positive because current assets are more than current
liabilities every year.

4. The excess of current asset over current liability means company’s current assets were
always more than requirement it affects the profitability of the company.

5. Current assets are more than current liabilities it indicates that company uses long term
funds for short term requirement.

6. The composition chart of ‘Current Asset’ shows that Cash and Bank and Trade
receivables constitute the major part of current asset.

7. The percentage of trade receivable in total current assets has increased over years it
shows inefficient receivables collection management.

8. Trade payables constitute a very small part in total current liabilities it indicates that
the creditors of the company are very less in number or the reliance of company on credit
purchase is very low.

9. The percentage of cash and trade receivables in current asset shows that the sale of the
company is on cash as well as credit basis.

10. The percentage of trade receivables in current liability indicates that the company trade
mostly in cash purchases.

6.2RECOMMENDATIONS

1) Company should raise funds through short term sources for short term requirement of
funds, which comparatively economical as compare to long term funds.

2) Company should increase its current asset in order to achieve ideal current ratio i.e. 2:1

3) Company has to take control of cash balance as it has seen gradual decrease over years.

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4) Company should work on increasing its quick assets, as the lack of quick asset has
adversely affected the quick ratio of the company and the company was not able to
maintain the ideal quick ratio i.e. 1:1.

5) Working Capital of the company has decreased many folds in the span of five years and
the reduction in working capital affects the day to day business of the company. For the
smooth working of company’s daily activity the company should increase its working
capital.

BIBLIOGRAPHY

Books Referred

1. I. M. Pandey - Financial Management - Vikas Publishing House Pvt. Ltd. -

Ninth Edition 2006

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2. Bhabatosh Banerjee - Fundamentals of Financial Management-PHI Learning
Publications- 2nd Edition 2015

3. Jagadish R. Raiyani - Financial Ratios and Financial Statement Analysis - New

Century Publication - 2011

4. K.V. Smith- management of Working Capital- Mc-Grow- Hill New York

Websites References

1. www.secl.gov.in

2. www.google.co.in

3. www.workingcapitalmanagement.com

4.www.investopidia.com

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