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  • 8/7/2019 FINAL PRJCT 4TH SEM


    Appendix I


    Major Project ReportSubject Code: 536422(36)





    Submitted for partial fulfillment of requirement for the award of



    Master of Business Administration




    BHILAI (C.G.)

    Session 2009-11

    Supervision By Submitted byGuide-Prof.S.Bhattacharya Lata ChandraDepartment-Faculty of Management Roll No. 5053609075

    MBA IV Sem, SecA




    Satya Vihar, Vidhansabha- Chandrakhuri Marg, Mandir Hasaud,Raipur (C.G.) 492007


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    Appendix II


    I the undersigned solemnly declare that the report of the project work

    entitled Working Capital Management at Sarda Energy and Minerals

    Ltd., is based my own work carried out during the course of my study under

    the supervision of Mr. Gaurav Thakkar.

    I assert that the statements made and conclusions drawn are an outcome

    of the project work. I further declare that to the best of my knowledge and

    belief that the project report does not contain any part of any work which has

    been submitted for the award of any other degree/diploma/certificate in this

    University or any other University.

    ____________________(Signature of the Candidate)

    Name-Lata Chandra

    Roll No.5053609075


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    Appendix IV


    This is to certify that the project entitled Working Capital Management of SARDA,

    Submitted by LATA CHANDRA, Roll No. 5053609075 and Enrollment No.

    AE6615 has been examined by the undersigned as apart of the examination for the

    award of Master of Business Administration degree of Chhattisgarh Swami

    Vivekanand Technical University, Bhilai (C.G.).

    ________________ ________________

    __________________ __________________

    Name & Signature of Name & Signature of

    Internal Examiner External ExaminerDate: Date:

    Forwarded byAcademic Head

    Department of Management


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    Appendix V


    I would like to acknowledge my deep sense of gratitude to Sarda Energy And

    Minerals Ltd., for giving me this wonderful opportunity for allowing me to do

    project here. It gives me immense pleasure to present this project report on


    MINERALS LTD. in partial fulfillment of Master of Business Administration.

    No work can be carried out without the help and guidance of various persons. I

    am happy to take this opportunity to express my gratitude to those who have

    been helpful to me in completing this project report.

    At the outset I would like to thank Mr. Gaurav Thakkar for his valuable advice

    and guidance during my project completion, also Mr. P.K.Jain, Director(finance), Mr.Sandeep Laddha, Sr.Vice President at Sarda Energy And

    Minerals Ltd. for timely help concerning various aspects of project. I also

    thank to all staff members of finance department for helping me to complete this


    I would be failing in my duty if I do not express my deep sense of gratitude to

    Prof.S.Bhattacharya. Without his guidance it wouldnt have been possible for

    me to complete this project work.

    Lastly I would like to thank my parents, friends and well wishers who

    encouraged me to do this research work and all those who contributed directly

    or indirectly in completing this project to which I am highly obliged.


    (Signature of the student)


    Roll. No 5053609075

    MBA IV Semester

    Section A


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    Table of Contents Appendix VI

    Declaration i

    Certificate by Guide ii

    Certificate by Examiner iii

    Acknowledgement iv

    Chapter Title Page No.Chapter 1. Introduction to the


    Chapter 2. Company Profile / IndustryProfile----------------------------------------------10

    a. About theCompany-------------------------------------------------------------------11

    b. Vision &Values-------------------------------------------------------------------------12

    c. SARDAs six codes for corporatesustainability----------------------------------15

    d. Products Of Company-----------------------------------------------------------------17

    e. Corporateresponsibility--------------------------------------------------------------20

    Chapter 3. ResearchMethodology--------------------------------------------------------------26

    a. Objectives--------------------------------------------------------------------------------27

    b. Researchdesign------------------------------------------------------------------------28

    c. DataCollection-------------------------------------------------------------------------30

    Chapter 4. Data Analysis and


    a. Working Capital Management-Concept------------------------------------------32

    b. Factors determining WorkingCapital---------------------------------------------39

    c. OperatingCycle------------------------------------------------------------------------41

    d. Current Assets & Current Liabilities of SEML at Mar2009-10---------------46


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    e. Graphical Interpretations:



    Cash &Bank-----------------------------------------------------------------------------50

    Loans &Advances----------------------------------------------------------------------50



    Statement Of Working Capital (2009-10)-----------------------------------------51


    f. Calculation & Analysis:


    Quick AcidRatio------------------------------------------------------------------------56

    Absolute LiquidRatio------------------------------------------------------------------58

    Inventory TurnoverRatio-------------------------------------------------------------60

    Debtors TurnoverRatio---------------------------------------------------------------61

    Average CollectionPeriod------------------------------------------------------------62

    Creditors TurnoverRatio-------------------------------------------------------------63

    Working Capital TurnoverRatio----------------------------------------------------65

    g. Study of FinancialAnalysis-----------------------------------------------------------68

    Balance Sheet.



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    Cash Flow Statement

    Chapter 5. Conclusion &Suggestions----------------------------------------------------------73

    BIBLIOGRAPHY------------------------------------------------------------------------------ 77

    Appendix VII


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    The steel industry




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    The steel industry, in general, is on the upswing, due to strong growth in demand propelled

    particularly by the demand for steel in China. The world scenario coupled with strong

    domestic demand has benefited the Indian steel Industry.

    Indias per capita income has increased at a rapid pace and according to the advance

    estimates of the central statistical organization (cso). Indias per capita income is estimated to

    be over USD 825.07 in 2007-08. Indian steel industry has entered into a new growth zone

    considering the average growth rate in steel output for the last 5 years the rapid rise inproduction has resulted in India becoming the worlds fifth largest producer of steel. Demand

    for steel will continue to grow in traditional sectors such as infrastructure and consumer

    durables etc.

    Worldwide production of steel was 1344 million tons in 2009-10 against 1249 million tons of

    last year the production of the steel in India in 2008-09 was 53.08 million tons. consumption

    of steel in India grew by 11.72% to 51.80 million tons in 2009-10.

    Per capita consumption of steel in India is only 29kgs as against 400 kgs in the developed

    countries and world average of 140kgs. The world apparent consumption of finished steel in

    2009-10 is likely to rise by 5-6% and increase in supply is likely to be around 3-5%.

    Demand for steel is continuously increasing particularly in view of growth in infrastructure

    sector and new capacities are set up in india. As a part of building infrastructure, India has

    started a tremendous programme of highway construction across the country. As a result,

    domestic steel demand has risen.

    Working Capital Management


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    Working capital management has significant role in a financial management due to the fact it

    plays a pivotal role in keeping the wheels of a business enterprises running. In common

    parlance the management of current assets is called the Working Capital management. In any

    business firm whether it is trading business or manufacturing business, they need some asset,

    in terms of money. As we know that money is the life blood of any business. Shortage of

    funds for working capital has caused many business to fail and in many cases has retarded

    their growth. Lack of efficient and effective utilization of working capital leads to earn low

    rate of return on capital employed or even compel sustain losses. The need for skill working

    capital management has become greater in recent years. These assets may be for short term or

    temporary purpose or long-term purposes. Long term funds may required for many purposes

    like acquisition of fixed asset, diversification and expansion of business on modernization of

    plants and machinery and research and development.

    But funds are also needed for short-term purposes i.e. for day-to-day requirement. We will

    hardly finds that any business does not required any amount of working capital for its normal

    operations. The requirements of working capital varies from firm to firm, its depending

    upon the nature of the business like production policies, market conditions, season ability of

    operations, conditions of supplies etc. working capital used for procurement or raw material,

    payment of wages to workmen and for meeting the routine expenses.

    The system requires some times lag between sales of goods and receipt of payment. So a need

    for short term funds in the form of current assets are required in lack of immediate realization

    of cash against goods sold.

    Another problem may arise if the finished goods are in the stocks and within the given periodit could not be sold and some goods like raw materials, semi finished good are also in the

    stock many funds blocked in different types of inventory. For the successful running of the

    business requires sufficient amount of funds.


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    Sarda Energy & Minerals Limited (SEML) is one of the lowest cost

    producers of steel (sponge iron, billets, ingots, TMT bars) and one of the

    largest manufacturers and exporters of ferro alloys in India.

    Headquartered in Raipur, Chhattisgarh, the company merged with

    Chhattisgarh Electricity Company Limited (CECL) in 2007 with a vision

    to becoming a leading energy and minerals company.

    Over the last three decades the company has continuously diversified its

    product portfolio to include many customized value added products. The

    company firmly believes in benchmark product quality, customer centric

    approach, people focus, ethical business practices and good corporate

    citizenship. Building on these values, SEML has become the supplier of


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    choice for many domestic and international customers across more than

    60 countries.

    SEML differentiates itself from its peers by not being just another steel

    company. It foresaw the importance and emergence of energy and

    minerals as two critical ingredients for developing economies and

    particularly for India. Synergy in Energy became the basis of all its

    future endeavors. Today, SEML is one of the very few companies to

    become completely self-sufficient

    in terms of its energy requirements and is well on its way to achieve self

    sufficiency in other mineral resources. The company has acquired iron

    ore, coal and manganese mines in India and is

    aggressively looking for mineral resources across the globe. SEML is

    listed on the Bombay Stock exchange and is traded as SARDAEN

    Vision and values


    To be a globally respected energy and minerals company creating

    superior value for our stakeholders on a sustainable basis.


    Our values are reflected in:

    Quality:-We believe in setting benchmarks through the quality of ourproducts and services.

    Customer focus:-We believe in high customer satisfaction and becoming

    a part of our customer's success story.

    People:-We believe in our people and constant upgradation of their skills

    and leadership capabilities.

    Integrity and ethics:-We believe in our commitments and strive to

    achieve high ethical standards.


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    Corporate social responsibility- We believe in caring for our

    environment and our communities.

    Time line

    1979 The Sarda Group took over Raipur Alloys and Steel Limited

    (RASL) (earlier Raipur Wires & Steel Limited), a sick and closed entity.

    1981 Commissioned a 10 MT electric arc furnace to produce ingots.

    1984Installed a continuous casting machine/ billet casting machine, the

    fourth company in India to do so at that time.

    1987Implemented the first automated oxygen lancing plant in Madhya

    Pradesh to feed oxygen in the arc furnace.

    1990Implemented the first automated ultra-high power furnace (25

    MTPD) and ladle refining furnace (25 MTPD) in Madhya Pradesh.

    1993Commissioned first sponge iron plant (100 MTPD) with modern

    SIL technology.

    1995 Commissioned second sponge iron plant (100 MTPD).

    2001Commissioned a 24-MW captive power plant in Chhattisgarh

    Electricity Company Limited (CECL). CECL installed 2x9-MVA

    closed-top ferro alloys furnaces. RASL commenced production in 2x6

    MT induction furnaces.

    2002Implemented an integrated Oracle-based ERP solution.

    2003Commenced a fly ash brick plant of 6000 units per day to utilize

    hazardous fly ash from captive power plant. CECL installed third 9

    MVA ferro alloys furnace.

    2004Commenced extraction from RASL iron ore mines in Rajnandgaon

    (Dongarbore, Chhattisgarh). RASL augmented its sponge iron capacity

    through another 500 MTPD kiln. Doubled the fly ash brick-making

    capacity to 240 lakh units per annum.

    2005CECL installed fourth 9 MVA ferro alloys furnace. CECL installed

    second 24 MW power plant. RASL achieved QMS certification of ISO



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    2006Augmented steel-making capacity by 100,000 MTPA ( 2X15

    tonnes). Installed the fifth 9 MVA ferro alloys furnace. Achieved the

    coveted Star Export House status from the Government of India.

    2007Sarda Energy & Minerals Limited came into existence on 2 August

    2007 following the merger of CECL with RASL.

    2008Increased steel-making capacity by another 100,000 TPA (2x15

    tonnes). Commissioned a 4.8 MW hydro power project through an SPV.

    Implemented SAP ERP system.


    Company Management At SEML, the Board of Directors plays a vital

    role in charting the future course of the company. The board comprises

    of four Executive and four Non-Executive Independent Directors. The

    Non-Executive and Independent Directors are eminent professionals

    having rich experience in business and finance.


    Kishore Sarda, born on 12 June, 1952, did his

    Bachelors in Mechanical Engineering from

    National Institute of Technology (formerly

    Vishveshvarya Regional College of Engineering),

    Nagpur, MH, India. He has also taken courses in

    Strategic Management and Human Resources from

    IIM, Ahmedabad and XLRI, Jamshedpur Mr.

    Sarda has over three decades of experience


    He is the Chairman of SEML's Board and Managing Director and is

    responsible for steering SEML towards the path of growth. Since, taking

    over SEML (erstwhile Raipur Alloys & Steel

    Ltd.) a sick and closed unit in 1979, he has been instrumental in turning

    around the company and expanding its product portfolio to include high

    value added steel products, minerals and energy.

    He is associated with the Friends of Tribal Society in the capacity of

    Vice President of the Raipur chapter and was the Ex-Chairman of

    Confederation of Indian Industry (CII), Chhattisgarh Chapter.


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    was born on 24 September 1952 and has been on

    SEML's Board since 25 November 1997. He has

    done his Bachelors in Mechanical Engineering

    from Government Engineering College, Jodhpur.

    He has over three decades of experience in the

    steel industry and is associated with SEML with

    more than two decades. Before joining SEML he

    has worked with various organizations like Zenith

    Steel & Pipes Limited, Usha Alloys & Steel

    Limited, Special Steels Limited etc

    .With his rich experience in the field, he provides direction to the

    company's mining operations as well as its corporate planning function.

    He is Regional Director of SIMA (Sponge Iron Manufacturers

    Association), New Delhi, Chairman - Power HT-Sub Committee, URLA

    Industries Association and Chairman - Mining Panel, CII, Chhattisgarh



    PankajSarda, born on 24 October, 1979 is the son

    of Kamal Kishore Sarda. He completed his

    Bachelors in Industrial Engineering from Nagpur

    University, Nagpur, MH, India in 2001 and

    Masters of Science in Industrial Administration

    from Purdue University, USA in 2004.He was

    appointed to SEML's Board as Whole Time

    Director in November 2007 and has more than five

    years of industry experience.

    Ghanshyam Mundra was born on 20 July 1961 and is a Chartered

    Accountant with more than 25 years of experience in the field of finance

    and accounting. He is associated with SEML since the beginning of his

    career and was appointed to SEML. Board in December 2000 as

    Wholetime Director


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    1. Pursue constructive change

    SEML dwell on the endless possibilities for the future. Notwithstanding the limitations of today, we can

    choose what we want to be and drive the change.

    2. Embrace success and failure with a smile

    SEML know if we do not aim high, we can never attain excellence. At the same time, we accept the

    freedom to fail, because we believe failure often precedes progress.

    3. Measure your performance

    SEML believe if something cannot be measured, it does't get done. We set benchmarks against which we

    measure our performance, keeping us ahead.

    4. Be customer savvy

    SEML owe our existence to our customers. Our corporate blueprint is directed to servicing and delighting


    5. Encourage transparency

    SEML have createrd a culture of openness based on mutual respect and trust. We welcome disagreement

    in our pursuit for the right perspective.

    6. Give back generously

    SEML recognize that a single business entity can start a responsible socio-economic cycle.


    Sarda Energy & Minerals Hong Kong Limited (SEMHL) SEMHL was incorporated as a wholly

    owned subsidiary of SEML in Hong Kong during 2007-08. The primary focus of the company would be to

    establish a strong international trading arm. China being a major manufacturing hub and an important

    destination of international trade, a representative office has also been set up in Beijing.Sarda Global Venture Pte LimitedAnother wholly owned subsidiary of SEML was established in

    Singapore during 2007-08 for business related acquisitions. The company will actively seek mineral

    resources acquisitions internationally.

    Parvatiya Power Private Limited Parvatiya Power was incorporated for implementation of hydro power

    plants. Presently, 4.8 MW Loharkhet Hydro Power Project has been installed and commissioned in

    February 2008. The Project is located near village Munar of Bageshwar district in the state of Uttaranchal.

    It is a run-of-the-river scheme for power generation by exploiting potential of Sarju River, a tributary of

    Kali Ganga River.

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    Chhattisgarh Hydro Power Private Limited The company was established in the year 2005 for setting

    up a 24 MW Gullu Hydro Power Plant in the state of Chhattisgarh. It has also identified other potential

    sites in the state and is planning to develop the same. The Company is currently involved in land

    acquisition, obtaining statutory clearances and identifying contractors for civil and hydro mechanical


    Madhya Bharat Power Corporation Limited The Company was incorporated for implementation of 96

    MW Rongni Chu hydro power project in Sikkim. The project envisages utilizing the flow of the Rongni

    Chu, a tributary to the Teesta River for the generation of power in the run of the river scheme. The

    Company is currently in the process of identifying contractors for civil and hydro mechanical work of the

    project. The work of land acquisition and all project clearances are in full swing.

    Raipur Infrastructure Company Ltd The JV Company was incorporated for operating a private railway

    siding for unloading the raw materials being transported through the railways. Our stake in the company is

    33 percent.

    Madanpur South Coal Company Ltd The JV Company has been allotted a coal block in the Madanpur

    area of Chhattisgarh in consortium. The company is in the final stages of receiving of various clearances

    and permissions to commence its operations. SEML has 24.91 percent share in the joint venture.

    Chhattisgarh Investments Ltd. Chhattisgarh Investments Ltd. was incorporated two decades ago as a

    closely held public limited company. The Company has interests in investments, socio-forestry and

    horticulture, with over 800 acres agricultural estate at Kharora, about 40 Kms. from Raipur. About one

    million trees of various species such as Teak, Hybrid Eucalyptus, Sobabul, Khamar, Bamboo etc have

    been planted.


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    Sarda Energy & Minerals Ltd. is one of the leading integrated steel producers using the direct reduction

    process for steel making. SEMLs annual DRI making capacity is 360,000 MT and crude steel making

    capacity is 240,000 MTPA. SEML is also one of the largest exporters of ferro alloys from India with an

    annual production capacity of 75,000 MT. The captive iron ore and coal mines provide SEML a robust

    competitive advantage and guarantees continued supply of critical inputs at all times.

    Sponge iron

    SEML was one of the first companies to install a sponge iron plant in the Siltara,

    Raipur area. Sponge Iron or Direct Reduced Iron is produced by reducing Iron Ore

    (in the form of lumps/pellets) using non-coking coal in a rotary kiln. The coal acts as the fuel as well as a

    reducing agent & Oxygen is removed from the Ore to produce Sponge Iron. Since the reduction takes

    place in the solid phase only it is called Direct Reduction. The finished product has pores like a sponge due

    to removal of Oxygen, thus it is also known as Sponge Iron. The hot flue gases produced in the reactor

    during the process are used in Waste Heat Recovery Boilers to produce Steam. This helps us in

    economizing our power generation costs.

    Majority of the Sponge Iron produced at SEML is used for its own captive use to produce steel ingots and

    billets through induction furnace route. Our annual DRI production capacity is 360,000 MT with 2 X 500

    MTPD and 2 X 100 MTPD rotary kilns installed at our Siltara works.


    Ingots are produced in induction furnace using either sponge iron or scrap. At SEML, we use our captive

    sponge iron to manufacture steel ingots. This gives us an edge over our competitors as we are in complete

    control of our raw material as well as finished product quality. Induction furnace provides a clean, energy -

    efficient and highly controlled process as compared to most other means of steel melting. The steel is

    molted by inductive heating of the metal in a crucible. After it is refined, the molten steel is tapped into

    refractory lined ladles. The molten steel is then poured into a series of ingots molds. After the ingots

    solidify, the ingot molds are placed in soaking pits for heating and to equalize the internal and external

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    temperature. Following the soak, the ingots are hot rolled in large primary rolling mills to produce slabs,

    blooms, or billets depending on the final product desired.

    SEML has a total ingot production capacity of 40,000 MTPA.


    Billets are semi-finished steel products with a square cross section usually up to 155mm x 155mm. This

    product is either rolled or continuously cast and is then transformed by rolling to obtain finished products

    like wire rod, merchant bars and other sections. At SEML, billets are produced using continuous casting

    process. The molten steel is continuously cast via a tundish into a water-cooled copper mold causing a thin

    shell to solidify. This strand is then withdrawn through a set of guiding rolls and further cooled by

    spraying with a fine water mist. The solidified shell continues to thicken until the strand is fully solidified.

    Finally, the strand is cut into desired lengths and these are either discharged to a storage area or to the hot

    rolling mill. Our annual billet production capacity is 200,000 MT and we produce billets ranging from

    100mmX100mm to 160mmX160mm.

    Thermo mechanically treated(TMT)

    SEML has a 10 year patent to produce High Quality TMT Bars under its brand name, 'Hytech' TMT.TMT

    is a special heat treatment process, involving rapid quenching of the hot rolled bar in a special water

    system converting the surface layer into a hardened structure, followed by tempering process involving

    flow of heat from the core of the bar to the surface and finally atmospheric cooling of the finished product

    on the cooling bed. This transforms the outer layer of the bar into tempered martensitic state, while

    internally the bar is a fine perlite core.

    Ferro alloys

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    Ferro alloys are high value added products usually used in imparting special properties steel. SEML is one

    of the largest producers and exporters of ferro manganese with exports to more than 60 countries. For its

    contribution to ferro alloys export, SEML has been awarded Star-Export house status from the

    Government of India. The ferro alloys division constitutes the bulk of SEMLs top-line as well as bottom-


    Ferro alloys are produced in sub-merged arc furnaces using electro-thermic process. The main raw

    materials are manganese ore, fluxes like dolomite & quartz and reductants like coke, charcoal & coa. Ore

    which is in metallic oxide form is smelted in the furnace. The reduction reactions are endothermic and

    necessary heat is supplied by captive electricity through graphite electrodes in the centre of the furnace.

    The electricity passing through the electrode to the metal creates arc which smelts the metal forming ferro

    alloys of desired quality. SEML has total installed capacity of 45 MVA at its Siltara, Raipur plant. The

    installed capacity is being increased by 25% to 60 MVA due to improvements in operational efficiency.

    ECO briks

    SEML very strongly believes in environment conservation and preservation. SEML manufactures eco-

    friendly bricks mainly from the fly-ash generated from our captive power plant. The manufactured bricks

    facilitate substantial consumption of fly-ash, an environmental hazard.

    Fly-ash bricks have good compressive strength, low water absorption, high density and low shrinkage

    value as compared to burnt clay bricks. Raw materials required for manufacturing of bricks are Flyash,

    lime gypsum and sand. The process of manufacturing fly ash bricks is based on the reaction of lime with

    silica of fly-ash to form calcium silcate hydrates (C-S-H) which binds the ingredients to form a brick.The

    Company is putting up a new fully automated fly ash brick-manufacturing facility of 160,000 bricks per

    day, which is expected to be commissioned in first quarter of next financial year.


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    In view of its long term strategic plan, SEML is very strongly focused on gaining 100% raw material self-

    sufficiency. For SEML the key inputs constitute of coal, iron ore and manganese ore. The company

    already has acquired two mines with estimated coal reserves of nearly 100 million MT; 67 million MT

    open cast reserves in a mine situated near Raigarh, CG and 36 million MT share in a mine in Madanpur

    area in Chhattisgarh. The total reserve of Madanpur mine is 108 million MT, of which 36 million MT is

    SEML's share. The annual coal available to SEML from these mines would be around 2.3 million

    MT.SEML's operational iron ore mine is located in the Rajnandgaon, CG with potential reserves of 20

    million MT and annual output of around 200,000 MT. In addition to this, the Company has got an in-

    principle approval from the Government of India for five more mines possessing sufficient reserves to

    meet our requirement for the next 25 years.The Company acquired mining rights for manganese ore from

    private parties in Goa. The potential reserve of the mine is nearly 6 million MT. In addition to that,

    reconnaissance permits/ in-principle approvals were granted in favor of the Company for three mines in

    Madhya Pradesh.


    At SEML, we strongly believe in deriving 'Synergy in Energy'. Energy, in essence has been the foundation

    of our success. SEML prides itself in being one of the select companies which is 100% self-sufficient in its

    energy requirements. Currently, we have installed 3X30 MW thermal power plants at our Siltara plant.

    The energy generated is consumed 100% in our sponge iron, billet, ingot and ferro alloys plants. We also

    plan to setup an 80 MW thermal power plant in Raigarh, CG near our coal mines and 1100 MW merchantthermal power plant in phases, also in Chhattisgarh.

    SEML firmly believes in utilization of renewable energy and in that respect has commissioned a 4.8 MW

    hydro power plant in the state of Uttranchal. Two more hydro power plants of 96 MW and 24 MW are

    proposed to be set up in Sikkim and Chhattisgarh respectively.



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    Environment & energy conversation

    Today our society faces one of the most urgent environmental issues producing goods & services with

    minimal impact on our climate. This calls for active participation and responsible actions from individuals,

    communities, organizations, governments, corporations, companies et al. SEML firmly believes that by

    energy conservation & optimization and recycling waste it can help minimize the impact on the

    environment and at the same time enhance operational efficiency.

    SEML has a dedicated team of experts for identifying areas for energy optimization and conservation.

    SEML has installed waste heat recovery boilers in its sponge iron plants for utilizing valuable heat energy

    for generation of steam for power generation. SEML generates approximately 12 MW of electricity

    through waste heat. Renewable energy resource such as hydro power is another area where the company is

    firmly committed. The company has recently commissioned a 4.8 MW hydro power plant in the state of

    Uttaranchal and 24 MW in the state of Chhattisgarh is in pipeline.

    Utilization of hazardous waste such as fly-ash from captive thermal power plant is another endeavor that

    the company has taken up aggressively. The company is installing a state-of-the-art fly ash brick-making

    facility with a capacity of 30 million bricks annually. The company has also taken steps to further reduce

    the emission level of the power plant chimney through ammonia dozing. Electrostatic Precipitators have

    been installed with all the sponge iron kilns and steam generators to maintain the pollution within the

    prescribed limits.

    Health and safety

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    SEML will not compromise on its commitment to the health, safety and security of our people, customers,

    suppliers, sites, products and communities. This commitment has always been deeply embedded in the

    way we work, the decisions we make and the actions we take.

    Our goal is to attain world-class health & safety business practices and, more important, to be the safest

    company in our industry. That means zero tolerance for unsafe conditions, unsafe equipment, and unsafe

    actions, decisions and attitudes.



    Yearly High Low : : BSE

    Year Ending High (Rs.) High Date Low (Rs.) Low Date

    16/07/2010 340.80 27/04/2010 172.00 01/04/2010

    31/12/2009 248.35 17/10/2009 50.00 06/03/2009

    31/12/2008 685.00 08/01/2008 52.00 31/10/2008

    31/12/2007 695.00 14/12/2007 121.85 13/02/2007

    29/12/2006 199.40 02/05/2006 58.00 20/02/2006

    30/12/2005 158.25 17/03/2005 63.85 24/01/2005

    31/12/2004 80.40 28/12/2004 26.25 15/07/2004

    31/12/2003 42.80 22/12/2003 4.00 26/03/2003

    31/12/2002 9.40 13/03/2002 1.70 11/01/2002

    31/12/2001 5.05 26/11/2001 1.00 26/06/2001

    Why SEML

    At SEML we harness people power i.e. provide an environment where individuals can build upon their

    strengths and choose to work in the area of their liking be it production, finance, accounts, marketing,

    quality control, human resources etc. Working with a diverse group of passionate, enthusiastic and talented

    people who on a daily basis try to find ways of doing same things in better way is what makes the SEML

    experience different.

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    If you share this passion of making everyday work an enjoyable experience and building a career that you

    can be proud of, you should be asking why not SEML?

    Work Environment & Culture SEML offers a very open, professional and entrepreneurial environment,

    where each day people having varied and rich business experience collaborate to deliver superior products

    & services to our customers. But the SEML culture goes far beyond improving product quality. We place a

    huge emphasis on the overall development of our people and their quality of life.

    Ethical Conduct At SEML we believe that success is equally important as the methods we adopt to

    achieve them. We expect all SEML people to strictly abide by the Code of Conduct which sets out the

    basic tenets on how we conduct our business around the world.

    Diversity Fostering an environment where people embrace diversity in entirety is very crucial for today's

    global workplace. At SEML, we encourage a culture that is open and welcomes people from diverse

    backgrounds having different viewpoints, ideas and different opinions.

    Work-Life Balance At SEML we realize the demands that today's fast paced life puts on our people's time

    - in the workplace, at home or in the local community. That's why we are working towards an environment

    where work and personal life cease as competing with each other.

    Learning & Development SEML's success depends hugely on the skills and knowledge that its people

    bring to the workplace. To ensure that our people are always in the forefront of their respective fields, we

    encourage continuous learning. On a regular basis, employees are encouraged to attend various seminars,

    guest lectures and workshops for personal development.

    Top Tier Compensation At SEML, we strongly believe that compensation should be tied to your

    performance and the overall success of the company. This is why SEML has established a pay-for-

    performance approach to compensation, in which all employees are required to identify their Key Result

    Areas (KRA) and work towards achieving the same.

    Reward & Recognition At SEML, we believe in acknowledging your good work and superior

    performance and showing our appreciation for the same. There are various ways in which we recognize

    and reward good performance such as cash bonuses, public appreciation and awards to name a few.

    Opportunities and threatsWith the near majority mandate to the ruling UPA from the Indian people in the recent parliamentary

    elections, the process of long awaited reforms will speed up, ultimately enhancing infrastructure

    development spending and increasing GDP growth rate. This will present opportunities to the steel

    industry, increasing steel demand. The Company is well set to exploit this opportunity. Commissioning of

    the pellet plant and coal mines will give the Company an edge over its competitors. The captive

    availability of key raw materials will hedge the Company against raw material price volatility. Further, the

    commissioning of the ongoing projects will improve the Companys performance and help it optimise

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    resource utilisation. As regards the ferro alloys market, China levied a 20 per cent export tariff on most

    ferro alloys, likely to create a good opportunity for Indian ferro alloys exporters to tap markets in Europe,

    Korea, the US and a host of other countries at competitive price. This will further open up an opportunity

    for the Company to increase its ferro alloys production and ultimately, its exports. However, the Company

    feels that the economy will remain sluggish till the first half of the current financial year, impacting the

    industry and thereby the Company. But with the available infrastructure and scale of operations, the

    Company expects to overcome the present condition smoothly.

    Risks And concerns

    Recessionary trends in the global economic scenario adversely affected demand and pricing of

    commodities including steel. 20 The raw material resources at the global level are controlled or influenced

    by a few. In India also major explored mines are controlled by limited players. This puts severe pressure

    on margins. Infrastructural bottlenecks in raw material and finished goods transportation remains a serious

    concern. However, captive mine availability and the flexibility to sell power in an adverse market scenario

    mitigates the Companys risks.

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    Research Methodology


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    The present study has been taken up with the following objectives:

    1. To learn how the various theoretical aspects of the Working Capital Management fare in reality.

    2. To Study the practice of Working Capital Management in detail in SEML.

    3. To study the cash management, receivable management and management of inventory at SEML.

    4. To know the short term solvency of SEML.

    5. To know the utilization of finance provided by banks for working capital.

    To identify problems, if any, in the Working Capital Management of SEML., and to suggest solutions to

    solve them


    The study of working capital helps us to know the current assets and current liability of an organization. It

    gives a clear picture or idea about the organizations working capital that how much amount they are kept

    in advance to meet their day-to-day expenses.

    An organization kept some amount to maintain or meet their day-to-day expenses. If the organization

    maintains only that much of working capital they needed then we can say that they manage their working

    capital correctly or they follows the exact working capital management.

    If working capital is excess than the excess amount of working capital is idle.

    If the working capital is not sufficient for meeting the day-to-day expenses then it creates a problem for

    furnishing all the activities.

    So it is necessary to maintain exact working capital according to the expenses of the organization.

    SIGNIFICANCE OF STUDYThe significance ofadequate working capital in commercial undertakings can never be over emphasized.

    A concern needs funds for its day to day running. Adequacy or inadequacy of these funds would determine

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    the efficiency with which the daily business may be carried on. Management of working capital is an

    essential task of the finance manager. He has to ensure that the amount of the working capital available

    with his concern is neither to large nor to small for its requirements. A large amount of working capital

    would mean that the company has idle funds. Since funds have a cost, the company has to pay the amount

    as interest on such funds.

    The various studies conducted by the Bureau of Public Enterprises have shown that one of the reasons for

    the poor performance of public sector undertaking in our country has been the large amount of funds

    locked up in working capital. This result in over capitalization. Over capitalization implies that a company

    has too large funds for its requirements, resulting in a low rate of return a situation is implies a less than

    optimal use of resources. A firm has, therefore, to be very careful in estimating its working capital


    If the firm has inadequate working capital, it is said to be under capital, it is said to be under-

    capitalization. Such a firm runs the risk of insolvency. This is because; Paucity of working capital may

    lead to a situation where the firm may not be able to meet its liabilities. It is interesting to note that many

    firms which are otherwise prosperous (having good demand for their products and enjoying profitable

    marketing conditions may fail because of lack of liquid resources.



    It is also termed as formulative research studies. The main purpose of such studies is that of formulating a

    problem for more precise investigation or of developing the working hypotheses from an operational point

    of view. The major emphasis in such studies is on the discovery of ideas & insights. As such the research

    design appropriate for such studies must be flexible enough to provide opportunity for considering

    different aspects of a problem under study. Inbuilt flexibility in research design is needed because the

    research problem, broadly defined initially, is transformed in to one with more precise meaning inexploratory studies, which fact may necessitate changes in the research procedure for gathering relevant

    data. Generally, the following three methods in the context of research design for such studies are talked


    a.) The survey of concerning literature: It happens to be the most simple & fruitful method of

    formulating precisely the research problem or developing hypothesis. Hypotheses stated by earlier workers

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    are reviewed & their usefulness be evaluated as a basis for further research. It may also be considered

    whether the already stated hypotheses suggest new hypothesis. In this way the researcher should review

    and build upon the work already done by others, but in cases where hypotheses have not yet been

    formulated, his task is to review the available material for deriving the relevant hypotheses from it.

    Besides, the bibliographical survey of studies, already made in ones area of interest may as well as made

    by the researcher for precisely formulating the problem. He should also make an attempt to apply concepts

    & theories developed in different research contexts to the area in which he is himself working. Sometimes

    the works of creative writers also provide a fertile ground for hypothesis formulation & as such may be

    looked in to by the researcher.

    b.) The experience survey: It means the survey of people who have had practical experience with the

    problem to be studied. The object of such a survey is to obtain insight into the relationships between

    variables & new ideas relating to the research problem. For such a survey people who are competent & can

    contribute new ideas may be carefully selected as respondents to ensure a representation of different types

    of experience. The respondents so selected may then be interviewed by the investigator. The researcher

    must prepare an interview schedule for the systematic questioning of informants. But the interview must

    ensure flexibility in the sense that the respondents should be allowed to raise issues & questions which the

    investigator has not previously considered. Generally, the experience desirable to send a copy of the

    questions to be discussed to the respondents well in advance. This will also give an opportunity to the

    respondents for doing some advance thinking over the various issues involved so that, at the time of

    interview, they may be able to contribute effectively. Thus, an experience survey may enable the

    researcher to define the problem more concisely & help in the formulation of the research hypothesis. This

    survey may as well provide information about the practical possibilities for doing different types of


    c.) The analysis of insight-stimulating examples: is also a fruitful method for suggesting

    hypotheses for research. It is particularly suitable in areas where there is little experience to serve as a

    guide. This method consists of the intensive study of selected instances of the phenomenon in which one

    is interested. For this purpose the existing records, if any, may be examined, the unstructured interviewing

    may take place, or some other approach may be adopted. Attitude of the investigator, the intensity of the

    study & the ability of the researcher to draw together diverse information into a unified interpretation are

    the main features which make this method an appropriate procedure for evoking insights.


    The information for the study has been obtained from two sources:

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    Primary data

    Secondary data


    The primary data is collected from the discussion with the concerned officer and the staff of the SEML. I

    collected the data from the classes which they are held in between the training session.


    The secondary data is obtained from the annual reports, financial statements, balance sheet & profit loss

    account which I we got from the organization. Financial records and other information like journals of the

    organizations & some other information I got through financial books.

    However in this period of project work most of the information I got from the secondary source as

    compared to primary source. The calculation part is done on the basis of the secondary data by using the

    annual reports.


    More dependency on published data rather than actual data. Totally dependent upon

    the annual report. Because the financial data are confidential in nature.

    In case of working capital company didnot disclose all data which is related to the WIC

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    Data Analysis and Interpretations


    Capital required for a business generally classified under two categories

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    1. Fixed capital

    2. Working capital

    Every business needs funds for two purposes:

    a. Establishment of business

    b. Carry out day-to-day business

    Long-term funds are required to create production facilities through purchase of fixed assets such as plant

    and machinery, land, building etc. Investments in these assets represent that part of firms capital which is

    blocked on a permanent or fixed basis and is called fixed capital. Funds are also need for short-term

    purposes for the purchase of raw materials, payment of wages and other day-to day expenses, etc. These

    funds are known as working capital. In simple words, working capital refers to that part of firms capital

    which is required for financing short term or current assets such as cash, marketable securities, debtors and



    Working capital defined as the excess of current assets over current liabilities

    Concepts Of Working Capital

    One of the most important areas in the day-to-day management of the firm is the management of

    working capital. Working capital management is the functional area of finance that covers al the current

    accounts of the firm. It is concerned with management of the level of individual current assets as well as

    the management of the working capital. Financial management means procurement of funds and effective

    utilization of these procured funds. Procurement of funds in firstly concerned for financing working capital

    requirement of the firm and secondly for financing fixed assets.

    The working capital can be used in two different ways:

    Gross Working Capital: The gross working capital refers to investment in all the current assets taken

    together. The total of investments in all current assets is known as Gross Working Capital.

    Net Working Capital: The term net working capital refers to excess of the total current assets over totalcurrent liabilities. It may be noted that the current liabilities refers to these liabilities which are payable

    within a period of one year.

    Working capital

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    Current assets Current liabilities

    Cash Accounts Payable

    Accounts receivable Notes payable

    Notes receivable Accrued expenses

    Marketable securities Taxes payable

    Inventory Short term loans

    Prepaid expenses Bank overdraft

    Total current assets Total current liabilities

    Net working capital = CA-CL

    Kinds of Working Capital

    11. Permanent working capital:

    Permanent working capital is the minimum amount of current assets, which is needed to conduct a

    business even during the dullest season of the year. The minimum level of current assets is called

    permanent or fixed working capital as this part is permanently blocked in current Assets. This amount

    varies from year to year, depending upon the growth of the company and the stage of the business cycle

    in which it operates.

    12. Temporary working capital:

    Temporary working capital represents a certain amount of fluctuations in the total current assets during a

    short period. These fluctuations are increased or decreased and are generally cyclical in nature.

    Additional current assets are required at different times during the operating year. Variable working

    capital is the amount of additional current asset that are required to meet the seasonal needs of a firm, so

    is also called as the seasonal working capital. For example: additional inventory will be required for

    meeting the demand during the period of high sales When the peak period is over variable working

    capital starts decreasing or very little during the normal period.

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    Working Capital Management

    Working capital management has significant in a financial management due to the fact it plays a pivotal

    role in keeping the wheels of a business enterprises running. In common parlance the management of

    current assets is called the Working Capital management. In any business firm whether it is trading

    business or manufacturing business, they need some asset, in terms of money. As we know that money is

    the life blood of any business. Shortage of funds for working capital has caused many business to fail and

    in many cases has retarded their growth. Lack of efficient and effective utilization of working capital leads

    to earn low rate of return on capital employed or even compel sustain losses. The need for skill working

    capital management has become greater in recent years. These assets may be for short term or temporary

    purpose or long-term purposes. Long term funds may required for many purposes like acquisition of fixed

    asset, diversification and expansion of business on modernization of plants and machinery and research

    and development.

    But funds are also needed for short-term purposes i.e. for day-to day requirement. We will hardly finds

    that any business does not required any amount of working capital for its normal operations. The

    requirements of working capital varies from firm to firm, its depending

    upon the nature of the business like production policies, market conditions, season ability of operations,

    conditions of supplies etc. working capital used for procurement or raw material, payment of wages to

    workmen and for meeting the routine expanses.

    As we all know that only a successful sales progress can earn profit for the business but these days credit

    system is [prevailing in the present competitive market. So the sales do not convert into cash instantly.

    This system requires some times lag between sales of goods and receipt of payment. So a need for short

    term funds in the form of current assets are required in lack of immediate realization of cash against goods


    Another problem may arise if the finished good are in the stocks and within the given period it could not

    be sold and some goods like raw materials, semi finished good are also in the stock many funds blocked indifferent types of inventory. For the successful running of the business requires sufficient amount of funds.

    So the management of these funds or current assets is termed as working Capital Management. It is the

    most vital ingredient of a business. Working Capital management if carried out effectively, efficiently and

    consistently will assured the health of an organization.

    Decision criteria

    By definition, working capital management entails short term decisions - generally, relating to the next oneyear periods - which are "reversible". These decisions are therefore not taken on the same basis as Capital

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    Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or


    One measure of cash flow is provided by the cash conversion cycle - the net number of days from

    the outlay of cash forraw material to receiving payment from the customer. As a management tool,

    this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts

    receivable and payable, and cash. Because this number effectively corresponds to the time that the

    firm's cash is tied up in operations and unavailable for other activities, management generally aims

    at a low net count.

    In this context, the most useful measure of profitability is Return on capital (ROC). The result is

    shown as a percentage, determined by dividing relevant income for the 12 months by capital

    employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is

    enhanced when, and if, the return on capital, which results from working capital management,

    exceeds the cost of capital, which results from capital investment decisions as above. ROC

    measures are therefore useful as a management tool, in that they link short-term policy with long-

    term decision making.

    Management of working capital

    Guided by the above criteria, management will use a combination of policies and techniques for the

    management of working capital. These policies aim at managing the current assets (generally cash and

    cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns

    are acceptable.

    Cash management. Identify the cash balance which allows for the business to meet day to day

    expenses, but reduces cash holding costs.

    Inventory management . Identify the level of inventory which allows for uninterrupted production

    but reduces the investment in raw materials - and minimizes reordering costs - and hence increases

    cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ);

    Economic production quantity

    Debtors management . Identify the appropriate credit policy, i.e. credit terms which will attract

    customers, such that any impact on cash flows and the cash conversion cycle will be offset by

    increased revenue and hence Return on Capital (orvice versa); see Discounts and allowances.
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    Short term financing . Identify the appropriate source of financing, given the cash conversion

    cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be

    necessary to utilize a bankloan (or overdraft), or to "convert debtors to cash" through "factoring".

    Working capital management involves the relationship between a firm's short-term assets and its short-

    term liabilities. 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.

    Why firms hold cash?

    The finance profession recognizes the three primary reasons offered by economist John Maynard Keynes

    to explain why firms hold cash. The three reasons are for the purpose of speculation, for the purpose of

    precaution, and for the purpose of making transactions. All three of these reasons stem from the need forcompanies to possess liquidity.


    Economist Keynes described this reason for holding cash as creating the ability for a firm to take

    advantage of special opportunities that if acted upon quickly will favor the firm. An example of this would

    be purchasing extra inventory at a discount that is greater than the carrying costs of holding the inventory.


    Holding cash as a precaution serves as an emergency fund for a firm. If expected cash inflows are notreceived as expected cash held on a precautionary basis could be used to satisfy short-term obligations that

    the cash inflow may have been bench marked for.


    Firms are in existence to create products or provide services. The providing of services and creating of

    products results in the need for cash inflows and outflows.

    How firms Manage cash?

    Firms can manage cash in virtually all areas of operations that involve the use of cash. The goal is to

    receive cash as soon as possible while at the same time waiting to pay out cash as long as possible. Below

    are several examples of how firms are able to do this.

    Policy for Cash Being Held Here a firm already is holding the cash so the goal is to maximize the

    benefits from holding it and wait to pay out the cash being held until the last possible moment. Previously

    there was a discussion on Float which includes an example based on a checking account. That example is

    expanded here.
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    Assume that rather than investing $500 in a checking account that does not pay any interest, you invest

    that $500 in liquid investments. Further assume that the bank believes you to be a low credit risk and

    allows you to maintain a balance of $0 in your checking account.

    This allows you to write a $100 check to the water company and then transfer funds from your investment

    to the checking account in a "just in time" (JIT) fashion. By employing this JIT system you are able to

    draw interest on the entire $500 up until you need the $100 to pay the water company. Firms often have

    policies similar to this one to allow them to maximize idle cash.

    Sales The goal for cash management here is to shorten the amount of time before the cash is received.

    Firms that make sales on credit are able to decrease the amount of time that their customers wait until they

    pay the firm by offering discounts.

    For example, credit sales are often made with terms such as 3/10 net 60. The first part of the sales term

    "3/10" means that if the customer pays for the sale within 10 days they will receive a 3% discount on the

    sale. The remainder of the sales term, "net 60," means that the bill is due within 60 days. By offering an

    inducement, the 3% discount in this case, firms are able to cause their customers to pay off their bills early.

    This results in the firm receiving the cash earlier.


    The goal here is to put off the payment of cash for as long as possible and to manage the cash being held.

    By using a JIT inventory system, a firm is able to avoid paying for the inventory until it is needed while

    also avoiding carrying costs on the inventory. JIT is a system where raw materials are purchased and

    received just in time, as they are needed in the production lines of a firm.

    Inventory Management:

    Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a

    business. Insufficient stocks can result in lost sales, delays for customers etc.

    The key is to know how quickly your overall stock is moving or, put another way, how long each item of

    stock sit on shelves before being sold. Obviously, average stock-holding periods will be influenced by the

    nature of the business. For example, a fresh vegetable shop might turn over its entire stock every few days

    while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case

    somebody needs them.

    Nowadays, many large manufacturers operate on a just-in-time (JIT) basis whereby all the components to

    be assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This helps

    to minimize manufacturing costs as JIT stocks take up little space, minimize stock-holding and virtually

    eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold stock for a very short

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    time, they are able to conserve substantial cash. JIT is a good model to strive for as it embraces all the

    principles of prudent stock management.

    The key issue for a business is to identify the fast and slow stock movers with the objectives of

    establishing optimum stock levels for each category and, thereby, minimize the cash tied up in stocks.

    Factors to be considered when determining optimum stock levels include:

    What are the projected sales of each product?

    How widely available are raw materials, components etc.?

    How long does it take for delivery by suppliers?

    Can you remove slow movers from your product range without compromising best sellers?

    Remember that stock sitting on shelves for long periods of time ties up money which is not working for

    you. For better stock control, try the following:

    Review the effectiveness of existing purchasing and inventory systems.

    Know the stock turn for all major items of inventory.

    Apply tight controls to the significant few items and simplify controls for the trivial many.

    Sell off outdated or slow moving merchandise - it gets more difficult to sell the longer you keep it.

    Consider having part of your product outsourced to another manufacturer rather than make it


    Review your security procedures to ensure that no stock "is going out the back door!"

    Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and

    interest charges.


    Nature of the business

    Size of business/scale of operation

    Production policy

    Manufacturing process/length of production cycle

    Seasonal variation

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    Rate of stock turnover

    Credit policy

    Business cycles

    Rate of growth of business

    Earning capacity and dividend policy

    Price level changes

    Working capital cycle

    The following are the important factors generally influencing the working capital requirements:

    1. The Nature Or Character Of The Business The working capital requirements of a firm basically

    depend upon the nature of its business. Generally public utility under takings require small amount

    of working capital than any trading and financial firms.

    2. Size Of Business/Scale Of Operation The working capital requirements of a concern are directly

    influenced by the size of its business which may be measured in terms of scale of operations.

    3. Production Policy In certain industries the demand is subject to wide fluctuations due to seasonal

    variations. The requirement of working capital, in such cases, depends upon the production policy.

    4. Manufacturing process/ Length of production cycle In a manufacturing business, the

    requirements of working capital in direct proportion to length of manufacturing process.

    5. Seasonal Variation In certain industries raw material is not available through out the year. They

    have to buy raw materials in bulk during the season to ensure an uninterrupted flow and process

    them during the entire year.

    6. Rate Of Stock Turnover A firm having a high rate of stock turnover will need lower amount of

    working capital as compared a firm having a low rate of turn over.

    7. Credit Policy The credit policy of a concern in its dealings with debtors and creditors influence

    considerably the requirements of working capital.

    8. Business Cycle Business cycle refers to alternate expansion and contraction in general business


    9. Rate Of Growth Of Business The working capital requirements of a concern increase with the

    growth and expansion of its business activities.

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    10.Earning Capacity And Dividend Policy The working capital requirement determination also

    depends upon the earning capacity and dividend policy.

    11.Price Level Changes hanges in the price level also affect the working capital requirements.

    12.Working Capital Cycle In a manufacturing concern, the working capital cycle starts with the

    purchase of raw material and ends with realization of cash from the sale of finished products. This

    cycle involves purchase of raw materials and stores, its conversion into stocks of finished goods

    through work-in-process with progressive increment of labor and service costs, conversion of

    finished stock into sales, debtors and receivables and ultimately realization of cash and this cycle

    continues again from cash to purchase of raw material and so on.


    Any company can not neglect the need for working capital. The need for working capital arise due to the

    time gap between the production and realization of cash from sales. The working capital is needed for the

    following purpose:

    1. For the purchase of raw materials, components and spares.

    2. To pay wages and salaries.

    3. To incur day-to-day expenses and overhead costs.

    4. To meet the saving costs as packing, advertisement etc.

    5. To provide credit facilities to the customers.

    6. To maintain the inventory of raw material, work-in-progress, store and spares and finished goods.

    Greater the size of the company generally lager will be the requirement of working capital the amount of

    working capital need a goes on increasing with the growth and expansion of the business till it attains

    maturity. At maturity the amount of working capital is called the normal working capital.

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    The operating cycle begins with the acquisition of materials and ends with the collection of

    receivables. It may be broadly classified into the following four stages viz.,

    (i) Raw materials and stores storage stage.

    (ii) Work- in process stage.

    (iii) Finished goods inventory stage.

    (iv) Receivables collection stage.

    The duration of the operating cycle for the purpose of estimating working capital requirements is

    equivalent to the sum of the durations of each of these stages less the credit period allowed by the suppliers

    of the firm.

    Symbolically, the duration, of the working capital cycle can be put as follows:



    O= Duration of operating cycle.

    R=Raw materials and stores storage period;

    W=Work in process period.

    F= Finished stock storage period; D= Debtors collection period;

    C= Creditors payment period.

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    Each of the components of the operating cycle can be calculated as follows

    R=Average stock of raw materials and stores /Average Raw Materials and stores consumption per


    W= Average work-in-process inventory/ Average cost of production per day

    F= Average finished stock inventory/ Average cost of goods sold per day

    D=Average book debts/Average credit sales per day

    C=Average trade creditors/ Average credit purchases per day

    After computing the period of one operating cycle, the total number of operating cycle that can be

    completed during a year can be computed by dividing 365 days with the number of operating days in a

    cycle. The total operating expenditure in the year when divided by the number of operating cycles in a year

    will give the average amount of the working capital requirements.

    Working capital can be defined as excess ofcurrent assets over current liabilities.


    Current assets are those assets which will be converted into cash within the current accounting period of

    within the next year as a result of ordinary operations of the business.

    Resources of current assets:-

    Cash and bank Balance


    Period expanses

    Short Term Advances

    Temporary investments

    Cash is used for purchasing the raw materials, to pay wages and other manufacturing things. After

    manufacture the product, finished goods puts in the stock-in-inventory and then goods will be sold for the

    receivable accounts.

    CURRENT LIABILITIESCurrent liabilities are those debts of the firm that have to be paid during the current accounting period or

    within a year. Current liabilities includes:-

    Creditors for goods purchased

    Outstanding expenses

    Short term borrowing

    Advance received against sales

    Taxes and Dividends Payable

    Other liabilities maturing within a year

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    The necessity of maintaining adequate amount of working capital as follows:-

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

    forms pay its debts on time by working capital continuously. His will only possible if the working

    capital be adequate.

    2. Goodwill:-Sufficient working capital enables a company to create and maintain goodwill through

    prompt payments.

    3. Easy Loans:-A companys adequate working capital creates favorable and easy conditions to arrange

    the loans.

    4. Cash Discounts:-Adequate working capital avail cash discount and reduces cost.

    5. Regular supply of Raw Materials:-Sufficient working capital regulates continuous production as it

    ensures regular supply of raw materials.

    6. Regular Payment of Salaries, Wages and others day-to-day commitments . company which ample

    working capital can make regular payments to its employees which in turn raises the morale and their

    efficiency and reduces wastages and enhances production and profit.

    7. Exploitation of favorable market conditions.:-Company having adequate working capital can exploit

    favorable conditions as purchasing its requirements in bulk when the prices are lower and by holding itsinventories for higher prices.

    8. Ability to face prices:-The crisis in emergencies like depression can be faced easly by company having

    adequate working capital.

    9. Quick and regular return on investment:-Sufficiency of working capital enables a company to pay

    quick and regular dividend to its investor as their may not be much pressure to plaugh back profits

    which creates a favourable market to raise additional funds in the future.

    10. High Morale :-Adequacy of working capital creates an environment of security, confidence high

    morale reates overall efficiency in a company.

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    Permanent or Fixed Temporary or Variable

    Share Commercial Banks

    Debenture Indigenous Bakers

    Public Deposit Trade Credit

    Ploughing Back of Profit Installment Credit

    Loans from Financial Instructions AdvancesAccounts

    Receivable Credit


    A firm may have to face the following adverse consequences from inadequate working capital.

    1. Growth may be stunted. It may become difficult for the firm to undertake profitable protects due to

    non-availability of funds.

    2. Implementation of operating plans may become difficult and consequently firm profits goals may not

    be achieved.

    3. Operating inefficiency may creep in due to difficulties in meeting even day to day commitment.

    4. Fix assets may not be efficiently utilized due to lack of working funds, thus lowering the rate of return

    on investment in the process.

    5. Attractive credit opportunities may have to be lost due o paucity of working capital.

    6. The firm losses its reputation when it is not in a position to honour its short terms obligation. As a

    result the firm is likely to face tight credit terms.

    On the other hand excessive working capital may pose the following dangers:

    1. excess of working capital may result in unnecessary accumulation of inventories, increasing the

    chances of inventory mishandling, waste and theft.

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    2. It may provide an undue incentives for adopting too liberal a credit policy and stackening of

    collection of receivable, causing a higher incidence of bad debts. This has an adverse effect on


    3. Excessive working capital may make management complacent leading eventually to managerial


    4. If may encourage he tendency to accumulate inventories for making speculative profits, causing a

    liberal dividend policy which becomes difficult to maintain when affirm is unable to make

    speculative profit.

    Standards of working capital management:

    I. There is no one single criteria for judging the efficient arrangement of working capital.

    II. Factors to be taken into account for organizing on efficient lines.

    Ability to meet short-term commitments in time, make payment of bills on due dates.

    Ability to find adequate cash at the right time to present forecast levels of business.

    Ability to maximize sales turnover with minimum possible cash.

    Minimum possible inventory turnover- Turnover norms are fixed.

    Whether adequate credit on favorable terms is obtained from suppliers.

    Whether reasonable credit is extended to customers as a sales and monitoring strategy.





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    Stores and Spares 674.86

    Raw materials 7,062.88

    Opening Stock 4,093.61




    Add:Cost of Material Produced ( Miningexpenses) 11.71




    Closing Stock 7,062.88

    Finished goods 7,460.70

    TOTAL 15,198.44

    SUNDRY DEBTORS Exceeding six months 369.36

    Other Debts 1,439.44

    TOTAL 1,808.80

    Less : Provision for Doubtful Debts 369.32

    TOTAL (Unsecured and considered good) 1,439.48

    Cash in hand 19.22

    Balance with Scheduled BanksIn Current accounts 67.50

    In Deposit accounts 2,379.85

    TOTAL 2,466.57


    (Unsecured and considered good )

    Loans to Employees 66.34

    Advances recoverable in cash or in kind

    or for value to be received :

    To Suppliers net of Doubtful Advances 2,106.75To Others 1,951.80

    To Subsidiaries 2,528.40

    Cenvat Credit & PLA (unutilized) 1,068.57

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    Security and other deposits 485.60

    Income-tax advance and TDS (Net of provision) 914.80

    TOTAL 9,122.26



    CURRENT LIABILITIESSundry Creditors 4,895.56

    Other liabilities 1,563.50

    Interest accrued but not due 105.52

    Unclaimed Dividend 38.64

    Advances and deposits 1,792.19



    For Proposed Dividend (including Dividend distribution tax) 1,194.93


    TOTAL 9,590.34



    INTERPRETATION ;-By analyzing the 6 years data we see that the inventories are increased year by

    year. We are looking increasing pattern in inventories. We can see that inventories are grown by in 07-08 ,

    08-09 and 09-10 respectively from previous year. By this growth we can say that the company is growing

    very rapidly . A company uses inventory when they have demand in market and SEML plant is having a

    great demand in steel sector. That is biggest reason for increase in inventories. From other point of view

    we can say that the liquidity of firm is blocked in inventories but to stock is very good due to uncertainty

    of availability of raw material in time


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    INTERPRETATION :-In the table and figure we see that there is continuous fall in the debtors after the

    2008 of SEML in the successive years. A simple logic of the company is that debtors are maintained in

    the corporate office i.e. in SAIL. all amount of debtors are maintained i.e. related to nearest regional

    purchasers and products are sold in hard cash no credit transactions are maintained . Company policy of

    debtors is very good as it decreases the risk of bad debts is always present in high debtors. If company

    decreases the Debtors they can use the money in many investment plans.


    INTERPRETATION :- If we analyze the above table and chart we find that it follows an increasing

    trend. In the year 2008 it had maintained a huge amount of cash and bank balance which has with respect

    to the year 2009 & 2010 because due to recession company has to manage cash as production pattern was

    diversifying from 3 shifts to 2 shifts or 1 shifts so not huge amount of cash is invested in working capital

    but to hold. Although companys cash is slightly increasing but this is not so poor sign for company

    because they are not holding the so much cash in hand but using the cash for better projects .Company is

    utilizing the fixed cash for exploding the projects that is good for growth.


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    INTERPRETATION :-If we analyze the table and the chart we can see that it follows an increasing trend

    which is a good sign for the company but in the year 2009-10 it shows a somehow stabilized cum

    decreasing trend.The increasing pattern shows that company is giving advances for the expansion of plants

    and machinery which is good sign for better production of steel and other goods. Although companys

    cash is blocked but this is good that company is doing modernization of plants in time to compete with

    other competitors in market. But it is stabilized in the year 2009-10 as markets getting slow down because

    there is low market consumption in the market and companies had started to diversify their key areas to

    gain profits.


    INTERPRETATION:-From the above table we can see that provision shows a stability between 2008-10

    . Though the profits of the company are increased benefits are shared with the employees & provisions arealso increased which is good that company is creating goodwill in market by paying benefits to their

    employees in time to time. Other provisions are also for the benefit of employees and public. This is good

    sign for Company growth.


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    INTERPRETATION :-If we analyze the above table then we can see that it follow an increasing trend.

    The important component of current liabilities is sundry creditors and other liabilities. In 07-08 it increases

    and in 08-09 it Decreased by . In 07-08 it was increased because of growth in other liabilities .This isliability for company so this should be less. When companies have minimum liabilities it creates a better

    goodwill in market. High current liabilities indicate that company is using credit facilities by creditors.


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    INTERPRETATION :-If we analyze the above table then we can see that it follow an increasing trend

    between 2005 to 2009 but decreases in 2010.



    Meaning of Ratio:- A ratio is simple arithmetical expression of the relationship of one number to another.

    It may be defined as the indicated quotient of two mathematical expressions.

    According to Accountants Handbook by Wixon, Kell and Bedford, a ratio is an expression of the

    quantitative relationship between two numbers.

    Ratio Analysis:- Ratio analysis is the process of determining and presenting the relationship of items and

    group of items in the statements. According to Batty J. Management Accounting Ratio can assist

    management in its basic functions of forecasting, planning coordination, control and communication.

    It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It

    is helpful tool to aid in applying judgement, otherwise complex situations.

    Ratio analysis ca