A REPORT

ON

Working capital management at RSP

By

Kamal preet singh

A Project Interim Report submitted in

partial fulfilment of the requirements of
MBA program of:
IIPM SCHOOL OF MANAGEMENT,KANSBHAL

Distribution list:

Company Guide: Mr. R.K.PRASAD

Manager (Finance &
Accounts) Sales Accounts

1
 Acknowledgement:

I would like to acknowledge with thanks the assistance

received from some people in completing this
report.

The completion of this work would not have been

possible without the help of my company guide, Mr.
R.K.PRASAD Manager (Finance & Accounts) Sales
Accounts, who has always been there to assist me,
and guide me throughout my project. He has helped
me understand the objective of the company for
giving this project. I sincerely thank him for his kind
assistance and patience.

I would also like to thank my faculty guide,

Prof.SASMITA GIRI without her assistance and
guidance I could not have even thought of doing this
project. I sincerely thank him for imparting his
wisdom and giving me timely feedback whenever I
needed it.

I would also like to thank the entire staff of the

organization for their constant support and
guidance towards accomplishment of my project
goal.

Lastly, I would like to acknowledge my gratitude to

IIPM-SOM for giving me the opportunity to work on
this project and to all my friends and colleagues
with whom I have worked as a team during the last
45 days.

2
3
 DECLARATION
I, kamalpreet singh MBA student of IIPM SCHOOL OF
MANAGEMENT under BIJU PATNAIK UNIVERSITY OF
TECHNOLOGY (BPUT). Here by declare that summer
project report on “Working Capital Management” with
special emphasis on “Rourkela Steel Plant” is being
submitted by me to iipm school of mgmt, kansbhal in
my own field work, research and analysis.

It is only for academic purpose and it has not been

published or presented any where else.

The findings and analysis are original and are true to

the best of my knowledge.

I bear full responsibility for information given

in this report.

KAMALPRE
ET SINGH
Roll No.-
0906262033

4
5
 CONTENTS
 EXECUTIVE SUMMARY
 COMPANY PROFILE
 INTRODUCTION TO THE STUDY
 LITERATURE REVIEW
 OBJECTIVE ,SCOPE &PROBLEM IDENTIFICATION
 RESEARCH METHODOLOGY
 ANALYSIS &INTERPRETATION

 WORKING CAPITAL MANAGEMENT AT RSP

 Concept of Working Capital
 Classification of Working Capital
 Working Capital financial policies
 Determinants of Working Capital

 DATA ANALYSIS AND INTERPRETATION WORKING

CAPITAL MANAGEMEN

6
 EXECUTIVE SUMMARY

The major objective of the study is to understand properly the working capital of RSP & to
suggest measures to overcome the shortfalls if any. Funds needed for short term needs for the
purpose like raw materials, payment of wages and other day to day expenses are known as
working capital. Decisions relating to working capital (Current assets-Current liabilities) and
short term financing are known as working capital management. It involves the relationship
between a firm’s short-term assets and its short term liabilities. By definition, working capital
management entails short-term definitions, generally relating to the next one year period. The
goal of working capital management is to ensure that the firm is able to continue its operation
and that it has sufficient cash flow to satisfy both maturing short term debt and upcoming
operational expenses. Working capital is primarily concerned with inventories management,
Receivable management, cash management & Payable management.

Inventories management at RSP:

RSP is a large scale manufacturing company involved in production of steel. Therefore, it

has to maintain large quantity of inventories at production units for its smooth running and
functioning.

Cash management at RSP:

RSP has been accumulating huge cash surpluses over last several years, which enables the
organization to maintain adequate cash reserves and to generate required amount of cash.

Receivables management at RSP:

RSP has set up its marketing office at all metro cities in India i.e. Mumbai, Kolkata, New
Delhi, Chennai.This marketing office obtains sales order from steel users in India as well as
globally. On the basis of order received for different products it marks production planning of
different HR Plates, HR Coils, SW Pipes, Galvanised Sheeets etc.

7
 COMPANY PROFILE OF ROURKELA STEEL
PLANT
Rourkela Steel Plant

The growth of Rourkela from a tiny unknown village to

one of the most modern temple of Steel Technology has
been a history of trails and tribulation inter spread with
moments of stress and period of success and glory
having all the ingredients of a complete human drama.

Rourkela Steel Plant , the first integrated steel plant in

the Public sector in India, was set up with German
collaboration with an installed capacity of 1 million
tones.

The plant was modernized in the mid 1990s with a number of new units with state-of-the-art
facilities. Most of the old units have also been revamped for effecting substantial
improvement in the quality of product, reducing the cost and ensuring cleaner environment.

It all started in 1948, just one year after Independence when Government of India appointed
three consultants to survey and study problems connected with setting up of a modern steel
plant. This was followed by an agreement on December 31, 1953 between Government of
India and a consortium consisting of Essen & Damage Aktiengeseliscaft, Duisburg to set up a
steel plant of initial capacity of 0.5 MT. Subsequently a supplementary agreement was signed
in July, 1955 to set up a 1.0 MT plant. The Cokeoven battery No. 1 was commissioned on 3rd
December, 1958 and first of the three Blast Furnace was commissioned on 3rd February,
1959.

RSP was the first plant in India to incorporate LD technology of steel making. It is also the
first steel plant in SAIL and the only one presently where 100% of the slabs rolled are
produced through the cost effective and quality centered continuous casting route. RSP is the
only plant in SAIL to produce silicon steels for the power sector, high quality pipes for the oil
and gas sector and tin plates for the packaging industry. Almost all major units of the plant
are covered under ISO: 9002 certification, while its Silicon Steel Mill and Sintering Plant II
have been awarded ISO: 14001 certification for Environment Management.

The plant is being modernized in two phrases. After modernization ,the plant would produce
2 million toes of hot metal,1.9 million tones of liquid steel and 1.67 million tones of saleable
steel.

8
  LOCATION
Rourkela Steel Plant is situated at an altitude of 219 meters above the sea level and at
the point of 84.9 longitude and 22.2 degree latitude, at Rourkela in the district of Sundergarh
which is well known as the industrial belt of Orissa. The Rourkela is situated at a distance of
413 Kms .from Kolkata on Howrah-Mumbai main line and near National Highway –23.

Rourkela is flanked by the river Brahmani on the southern side and river Koel a
tributary to Brahmani on the northern side .Rourkela Steel Plant is situated in the left bank of
river Brahmani .The steel township is situated on the left bank of river Koel. Both the river
Sankh and Koel are flowing from Jharkhand meet at a point called Vedvyas- a place of
historic importance and situated in the state of Orissa at a distance of 8-10 Kms from
Rourkela.

Values and Beliefs of Rourkela Steel Plant

The company values honesty and truthfulness above everything else in all its
interaction. Our thoughts, words and action shall be the same .we shall try our utmost
to fulfill promises and honor commitment. The company seems to be restless-always
seeking new horizons of opportunity.
Their goal is to first catch up with the best of Indian standards in all areas, then
raises those standards to global levels and finally compete with the worlds

► Going Beyond
The company only way to find the limits the possible is by going beyond them to the
impossible .No wonder; RSP earned the distinction of being the first steel plant in the country

9
 to cast CRNO steel. More important is the fact that the prime acceptance of CRNO steels a
high-value item, increased substantially from 76% to 94%

► Swing Accent
The most important outcome of this new-formed realization is the swing in the accent
in production from quantity to quality. In short the employees have become much more
change driven.

► Innovation
The company values innovative thinking, innovative approaches and innovative solutions in
our regular work life .we will always look for better ways of doing things. We will seek new
ideas to solve problems; we will experiment with new concepts, ideas and solution.

► Excellence
The company values highly all efforts that lead to high standards in everyday work
and results .We shall attempts to be the best-in-class in anything we choose to work on. We
shall encourage any individual or collective effort in promoting excellence.

► Trust
The company believes that trust is an important ingredient for effective functioning
within the organization and with the outside world. While we shall protect our legitimate
business interests, we would also approach the people issues and association with straight
forward ness, optimism and positive outlook.

► Self Motivation
The company endorses that the employees actually want to participate in the overall
functioning .Left to them; more often than not they take the possible decision. According to
the management managers only have to steer a bit and provide support whenever needed.
That’s what employees like .they not only feel that they are running the show –in fact they
are.

► Technological Edge
The dramatic improvement in the productivity could be attributed to the new
technology. Moreover the increasing use of concast slabs has provided a much needed
technological edge to RSP .They can satisfy their customer requirements in much more
convincing manner.

► Aligning with the market

To leverage its access to technology and pursue its turnaround process to a logical
conclusion, RSP is revving up its marketing strategy in consultation with the office of the sale

10
 (SRM) of SAIL’s Central Marketing Organization (CMO).The focus is on aligning the
production process with the marketing plan

► Leadership
Our company believes that sustained progress and growth are achieved through
leadership characterized by inexhaustible personal energy and exceptional ability to
energies others .we shall promote leaders within the ranks who unleash latent energy with in
the organization.

► Adaptability
Our company believes that flexibility and adaptability are essential conditions to
survive and thrive in chaotic fast moving world. While we hold true to our basic beliefs and
values, we shall continuously introspect and reassess the needs for change in the way we do
business

The overriding objective of all the changes being brought about in RSP centers
around total customer satisfaction .The Company is certainly on a much sounder footing
getting prepared to deliver a performance of international standards-a promise that would
set the wheel of success rolling.

SPECIAL FEATURES OF RSP

 First Steel Plant in Asia to adopt LD process of steel making
 India’s first public sector integrated steel plant of SAIL unit to produce all it’s
through the continuous casting route.
 First Steel Plant in the SAIL family to produce 100% of steel through the cost
effective and quality centered continuous casting route
 First Steel Plant in India to adopt external desulphurization of hot metal by calcium
carbide injection process
 Only Plant producing large diameter API grade Pipes conforming to must rigid
standards
 Only Plant SAIL producing Cold Rolled Non Oriented (CRNO) sheets for use in the
electrical industries

11
  First plant to adopt vacuum degassing metallurgy primarily for production of silicon
steel for the CRNO sheets
 All the major production department and some service departments and some service
department certified with ISO 9001:2000 QMS
 Silicon Steel Mill, Environment Engineering Department and sinter Plant-II, Hot
Strip Mill & Plate Mill certified with ISO 14001:2004.

ORGANISATION
Main Plant and other Units of RSP:

a) Coke Ovens 3 Batteries of 70 ovens each and 2 Batteries of 80 ovens each

b) Blast Furnaces 3 BFs of 1130M3 useful volume and 1 BF of 1658 M3 useful volume
c) Steel Melting Shop I 3 mixers of 1100 Ton each, 2 LDs of 60/66 Tons / blow and 1 single strand
slab caster of 0.305 MT of slabs per year
d) Steel Melting Shop II 2 mixers of 1300 Ton each, 2 LDs of 150 Tons each and 2 single strand
slab casters of 1.355 MT of slabs per year
e) Sinter Plant I 2 sinter machines of 1.5 MT per year
f) Sinter Plant II 1 sinter Machine of 1.57 MT per year
g) Hot Strip Mill 2 Pusher Furnaces of 100 ton per hour each
2 Walking beam furnaces of 225 ton / hr each
3 Stand Roughing Mill and 4 hi 6 stand Finishing Mill
h) Plate Mill 1 Walking beam furnace of 100 Ton / hr
3.1 meter wide and 4 hi Reversing Mill of 3,40,000 Tons of plates per year.
i) Pipe Plants * ERW Pipe Plant of 75,000 tons per year with high frequency welding
( 400 KHz)
j) Cold Rolling Mill 2 Pcikling lines
1 Cold Reversing Mill
1 Five Stand Tandem Mill
Hood Annealing continuous Annealing
2 Skin Pass Mill
Sheet Shearing Line
Continuous Galvanising Line of 1,60,000 tons per year
k) Silicon Steel Mill 4 hir Revewrsing Mill of 73,000 Tons per year of CRNO
l) Captive Power Plant-I 5 units to produce 128 MW of power
m) Personnel & Admn.
Deptt.
n) Finance Department
o) Materials Management
Deptt.
p) Medical
q) Town Services
r) Human Resource
Development Centre.

12
► PRODUCTS
The main product Mix of Rourkela Steel Plant is: -

PRODUCT – MIX TONNE/ANNUM

Plate Mill Plates. 4,89,820
HR Plates 3,15,323
HR Coil 7,63,105
ERW Pipes 75,000
SW Pipes 55,000
CRSheets 4,33,000
Galvanizing Sheets (GP &GC) 1,60,000
Electrolytic Tin Plates 65,000
Silicon Steel Sheets 80,689
Total Salable steel 24,43,248

MODERNISATION AREA OF RSP

The survival of any industry depends on continuous upgradation of technology.
The modernization of Rourkela Steel Plant has been a conscious effort at upgrading
technology. Making trained personnel available at the right time and establishing a
productive work-culture has been very important role yielding expected results from
modernization.
The modernization area of RSP covers the following areas.
 STEEL MELTING SHOP-II
 TONNAGE OXYGEN PLANT-II
 SINTER PLANT-II
 CALCINING PLANT-II
 ORE BEDING & BLENDING PLANT.

MARKET SCENARIO

• After liberalization, with huge scale addition to steel making capacity, there is no
shortage of iron and steel materials in the country.
• Apparent consumption of steel increased from 14.84 million tones in 1991-92 to
30.265 million tones in 2003-04.
• The production of steel in 2003-04 is 36.193 million tones as against 33.67 million
tones in 2002-03 thereby registering an increase of 7.5%.
• The demand of steel has been firmed up both at home as well as internationally.

13
 • Efforts are being made to boost demand particularly in rural areas and also to
increase exports.

World Steel Scenario

year 1991 2001 2002 2003 2004

GLOBAL 727 mt 780mt 829mt 868mt 906mt

STEEL

CHINA 70 174 211 232 255

STEEL

INDIAN 20 27 29.5 32.5 34

STEEL

PRESENT STATUS AND FUTURE PLANS OF SAIL

SAIL today is one the largest industry entities in India. Its strength has been the diversified
range of quality steel products catering to the domestic as well as the export market and a
large pool of technical and professional expertise. The total turnover of the company is
around Rs.72, 178 crore during 2007-08. The strategy includes a divestment of non-core
activities restructuring of marketing functions and a focus on pruning cost of operation. The
goal for the company is to emerge as one of the lowest cost producer in the global steel
market. Quality steel products from SAIL have fixed a position for themselves in the global
steel market.
The company aims at making its global presence felt through export, joint ventures and
strategic alliances with internationally reputed steel makers in a fast turnaround, which
include financial restructuring and business restricting to focus on core business of making
carbon steel and withdrawing from non-core and non viable activities, making focus on
market requirement, ensuring greater involvement of plants on marketing initiative, achieving
cost leadership through accurate cost cutting drive and rationalizing manpower to bring down
the total no. of employee to competitive levels are some other facets of the strategy. SAIL’s
ability to continuously grow in different market conditions reflected the inherent strength of
the company to manage its operations under varying and fast changing business environment
over a long span of time

14
 SAIL - INTO THE FUTURE

SAIL’s Growth Plan 2010

Much has happened ever since SAIL’s Corporate Plan was announced in 2004. Investment
plans for the three specialty steel plants have been firmed up. Company has grown in size
with the amalgamation of IISCO (now renamed as IISCO Steel Plant). Production targets
have been revised from 19 million tonnes (MT) of steel to about 24 MT. Estimated investment
has increased from Rs 25,000 crore to around Rs 40,000 crore. And the time period has been
squeezed by two years, bringing the targeted year of completion of major projects from 2010
to 2012.

Saleable Steel Capacities (MT)

PLANT 2010
Bhilai Steel Plant 6.21
Durgapur Steel Plant 2.85
Rourkela Steel Plant 2.90
Bokaro Steel Plant 6.50
IISCO Steel Plant 2.37
Alloy Steels plant 0.43
Salem Steel Plant 0.36
Visvesvaraya Iron & Steel Plant 0.22

15
 CENTRAL MARKETING ORGANIZATION

All SAIL ‘s products except alloy, special steels and stainless steels are marketed directly by
CMO through units in co-ordination with rail, roads and shipping sector to ensure quality
and promote dispatch of products. The main functions of CMO are as follows;

Marketing of Steel products and fertilizers

 Production planning and dispatch co-ordination with plants.

 Export of steel.
 Import of coal and other consumables.
 Market research.
 Information System.

3.5 OWNERSHIP AND MANAGEMENT

The Government of India owns about 86% of SAIL's equity and retains
voting control of the Company. However, SAIL, by virtue of its "Navratna”
status, enjoys significant operational and financial autonomy. Otherwise
government of India runs the SAIL under the management of Chairmen
and Board of director.

16
 SAIL: Shareholding Patternn (% of Equity)

Mutual Funds, Companies,

FII's, 1.58%
1.35% 1.59%
Banks, 0.15% Individuals,
4.46%
GDR, 0.07%
Financial
Institutions,
4.98%

Govt. Of Inida,
85.82%

GDR Banks FII's

Mutual Funds Companies Individuals
Financial Institutions Govt. Of Inida

RSP PRODUCTS

 HR COILS
Available in Indian standard or equivalent international specification for wide range of
engineering and also to suit specific requirements such as tube making and cold rolling of
low carbon DD and EDD quality, medium carbon, high carbon hot rolled coils for strap
making after cold reduction etc.

17
Hot rolled coils are also used for general purpose sheet applications like telephone poles.
Light plates in 5 & 6 mm thickness are available in Indian Standard specifications for
diverse engineering applications including railway coaches and auto body components.

 PLATES

Available in Indian standard and equivalent international specifications for welded and
riveted structural applications, fired and unfired pressure vessels or low temperature
application, high strength needs, abrasion resistant usages, automobile chassis and almost
every other general purpose requirement.

 GALVANISED SHEETS
Available in a variety of coating light range according to IS – 227 specifications and also
our own Rougal specification. The galvanised sheets find extensive usage in roofing,
panelling, industrial sheeting, air conditioning ducts and structural applications. GP sheets
are also available in lock forming quality.

18
 ELECTROLYTIC TIN PLATES

TIN PLATE LINE

Available in equal and differential coating range from 5.6 gm/m2 to 22.4 gm/m2 coating
weight and a variety of tempers suitable for the manufacture of beautifully printed and plain
containers for packaging of all kinds of products.

 ERW PIPES

19
Available in API and other international specifications and also works tested commercial
qualities fro applications ranging from high pressure crude oil and petroleum products
transportation to water supply systems and also for the tube wells and irrigation purposes.
The ERW pipe plant has high frequency welding system and seam normalizing facility.

 ELECTRICAL STEEL

20
The Silicon Steel mill designed for the manufacture of Cold Rolled Non-Oriented and Cold
Rolled Grain Oriented. High Silicon steel sheets are now complete and the products are
being manufactured with the know-how of ARMCO Steel Corporation, U.S.A Electrical
Steels from this new mill are available in the form of full width coils, slit coils, and cut sheets
in coated condition (C4/C3) in case of CRNO and C5 over C2 in case of CRGO.
Available in hot rolled condition as per customer’s requirement and in a range of watt loss
from 4.00 watt/kg to 9.00 watt/kg at 1.5 tesla and 50 HZ. For works specification the
material is tested at 1.0 tesla and watt loss from 1.70 to 5.00 w/kg.
 COLD ROLLED COILS/SHEETS

Available in Indian standards or equivalent international specifications for steel furniture,

refrigerator bodies, automobile bodies, drums, barrels and many other applications.

 SPECIAL STEELS

21
The broad spectrum of flat and tubular products from RSP has widened perceptively with the
addition of various special quality steels giving it the distinction of a bulk producer of
special purpose steel.

 SAIL –MA STEEL

These are specially developed high strength micro-alloyed steel, with a higher strength to
weight ratio as compared to ordinary structural steel. Due to its higher strength combined
with good formability and improved toughness it can be put to use for special design
requirements.
 ROUCLAD
Production of rouclad steel is a step forward for import substitution. The clad steel is a
composite of stainless steel and mild steel. These steels are available as single clad plates,
double clad coils.
Hot metal produced at Rourkela.

PROCESS FLOW CHART: ROURKELA STEEL PLANT

22
23
CORPORATE OBJECTIVES

Business Vision

“To be a respected world-class corporation and the leader in Indian steel business in
quality, productivity, profitability and customer satisfaction”. At RSP, the efforts have
always been to put the employees first and by involving they create road maps for growth
and development. The Mission of the organization was evolved by feeling their collective
pulse.

Business Mission

“The future of our steel plant lies in our own hands. It is our individual and collective
responsibility to rebuild our plant into a profitable, harmonious and vibrant organization.
We will do whatever things are necessary which are good for our plant. We shall never do
anything that hurts our plant.”
The mission was synergized by distinctive value termed as Samskar, which seeks to motivate
and inspire the workforce with the objective of building a harmonious and vibrant
organization.

Business Samskar

“We have to create and sustain a peaceful work environment where every employee
can contribute to the plant in assigned area of work, with full freedom and dignity and
without fear.”

Business Sankalpa

“We the employees of Rourkela Steel Plant have full faith in our unlimited potential
and we resolve to sustain our Samskar and commit ourselves to achieving Total Safety,
Perfect Quality, Optimum cost and Maximum Productivity. It is our Sankalpa to spread
Samridhi in our Steel Plant, Steel Township and in the region.”

Quality Policy

“We the employees of RSP will provide defect-free products and services to our
internal and external customers on time, every time through continual improvement of our
processes and system.”

24
 INTRODUCTION TO THE STUDY

Working Capital:-
The life blood of business, as is evident, signified funds required for day-to-day operations of
the firm. The management of working capital assumes great importance because shortage of
working capital funds is perhaps the biggest possible cause of failure of many business units
in recent times. There it is of great importance on the part of management to pay particular
attention to the planning and control for working capital.
Capital required for a business can be classified under two main categories i.e.
i) Fixed Capital

ii) Working Capital

Fixed Capital – It is to invest in fixed assets like building, plant and machinery which tends
not to vary in the short term, tends only to be volatile when major investment decisions are
made for eg. when assets are purchased or sold.

Working Capital – it refers to that part of the firm’s capital which is required for financing
short term or current assets such as cash, debtors etc. or In the words of Shubin “ Working
capital is the amount of funds necessary to cover the cost of operating the enterprise.”

Every business needs fund for two purposes – for its establishment and to carry out
its day-to-day operations. Working Capital is also known as revolving or circulating capital.
Working Capital is based on two concepts i.e.
A) Balance Sheet concept

B) Operating Cycle or Circular Flow concept

Balance Sheet Concept

There are two interpretations of Working Capital under balance sheet concept i.e.
i) Gross Working Capital – In broad sense, the term working capital refers to gross
working capital. It represents the amount of funds invested in current assets.

ii) Net Working Capital – In narrow sense, the term working capital refers to net
working capital. It is the excess of current assets over current liabilities.

25
Operating Cycle or Circular Flow Concept
The cycle starts with the purchase of raw materials and other resources and ends with the
realization of cash from the sale of finished goods. It involves purchase of raw materials and
stores, its conversion into stock of finished goods through work-in-progress with progressive
increment of labour 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. The speed/ time duration required to complete one cycle
determines the requirement of working capital. Longer the period of cycle, larger is the
requirement of working capital.
The net working capital of a firm may be positive or negative. When the total current
assets exceed the current liabilities the working capital is positive and the negative working
capital results when the current liabilities are more than the current assets.

Relevance of the Study

Working Capital is a financial metric which represents operating liquidity available
to a business. Working capital is the life blood and nerve centre of a business unit, just as
circulation of blood is essential in the human body for maintaining life. Working capital is
very essential to maintain the smooth running of a business. No business can run successfully
without an adequate amount of working capital.
Positive working capital is required to ensure that a firm is able to continue its
operations and that it has sufficient funds to satisfy both maturing short term debt and
upcoming operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable and cash.
The main importance or advantages of maintaining adequate amount of working
capital are as follows:
• It helps in maintaining solvency of the business.

• It helps in maintaining and creating goodwill.

• A concern having adequate working capital, high solvency can arrange loans from
banks on easy and favourable terms.

• Adequate working capital enables a concern to avail cash discount on the purchases
and hence it reduces cost.

• Sufficient working capital ensures regular supply of raw materials.

26
 • Company having sufficient working capital can make regular payment of salaries,
wages and other day-to-day commitments.

• Concerns with adequate working capital can exploit favourable market conditions
such as purchasing its requirements in bulk when the prices are low and by holding its
inventories for higher prices.

• Adequate working capital enables a concern to face business crisis in emergencies.

• Sufficiency of working capital enables a concern to pay quick and regular dividends
to its investors.

Importance of good working capital management

From a company’s point of view, excess working capital means operating

inefficiencies. Money i.e. tied up in inventory or money that customers still owe to the
company cannot be used to pay off any of the company’s obligations. So if a company is not
operating in the most efficient manner it will show up as an increase in the working capital.
This can be seen by comparing the working capital from one period to another; slow
collection may signal an underlying problem in the company’s operations.

Importance in optimizing working capital management

Poor working capital can lead to –
• Over capitalization

• Over trading

Over Capitalization - Over capitalization are excessive stocks, debtors and cash, low return
on investment with long term funds tied up in non-earning short term assets.
Over Trading - Over trading leads to escalating debtors and creditors and if unchecked
ultimately to cash starvation

LITERATURE REVIEW

27
 Every business needs investment to procure fixed assets, which remain in use for a
longer period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’.
Business also needs funds for short-term purposes to finance current operations. Investment
in short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or
‘Working Capital’. The ‘Working Capital’ can be categorized, as funds needed for carrying
out day-to-day operations of the business smoothly. The management of the working capital
is equally important as the management of long-term financial investment.
Every running business needs working capital. Even a business which is fully
equipped with all types of fixed assets required is bound to collapse without
o adequate supply of raw materials for processing;
o cash to pay for wages, power and other costs;
o creating a stock of finished goods to feed the market demand regularly; and,
o The ability to grant credit to its customers.

All these require working capital. Working capital is thus like the lifeblood of a business. The
business will not be able to carry on day-to-day activities without the availability of adequate
working capital. Working capital cycle involves conversions and rotation of various
constituents.
Components of the working capital. Initially ‘cash’ is converted into raw materials.
Subsequently, with the usage of fixed assets resulting in value additions, the raw materials get
converted into work in process and then into finished goods. When sold on credit, the
finished goods assume the form of debtors who give the business cash on due date. Thus
‘cash’ assumes its original form again at the end of one such working capital cycle but in the
course it passes through various other forms of current assets too. This is how various
components of current assets keep on changing their forms due to value addition. As a result,
they rotate and business operations continue. Thus, the working capital cycle involves
rotation of various constituents of the working capital. While managing the working capital,
two characteristics of current assets should be kept in mind viz. (i) short life span, and (ii)
swift transformation into other form of current asset. Each constituent of current asset has
comparatively very short life span. Investment remains in a particular form of current asset
for a short period. The life span of current assets depends upon the time required in the
activities of procurement; production, sales and collection and degree of synchronization

28
among them. A very short life span of current assets results into swift transformation into
other form of current assets for a running business.

These characteristics have certain implications:

• Decision regarding management of the working capital has to be taken frequently and
on a repeat basis.
• The various components of the working capital are closely related and
mismanagement of any one component adversely affects the other components too.
• The difference between the present value and the book value of profit is not
significant.

The working capital has the following components, which are in several forms of current
assets:
o Stock of Cash
o Stock of Raw Material
o Stock of Finished Goods
o Value of Debtors

WORKING CAPITAL= CURRENT ASSETS – CURRENT LIABILITIES:

Funds thus invested in current assets keep revolving fast and are being constantly converted
in to cash and this cash flows out again in exchange for other current assets. Thus it is known
as revolving or circulating capital or short term capital.

Constituents of Current Assets and Current Liabilities

Current Assets

• Inventories – Raw materials and components, Work in progress, Finished

goods, other.
• Trade Debtors.

29
 • Loans and Advances.
• Investments.
• Cash and Bank balance.

Current Liabilities

• Sundry Creditors.
• Trade Advances.
• Borrowings.
• Provisions.

Factors Determinants of Working Capital

• Nature of business
• Market and demand
• Technology and manufacturing policy
• Credit policy
• Supplies’ credit
• Operating efficiency
• Earning capacity and Dividend policy
• Rate of growth of business

OBJECTIVE, SCOPE & PROBLEM IDENTIFICATION

Objectives:

The objective of working capital is to maintain the optimum balance of each of the working
capital components. The need for working capital cannot be over emphasized. The need for
working capital arises due to the time gap between production and realization of cash from
sales. Thus the objectives of working capital are as follows:
i) For the purchase of raw materials, components and spares.

ii) To pay wages and salaries.

30
 iii) To incur day-to-day expenses and overhead costs such as fuel, power and office
expenses etc.

iv) To meet the selling costs as packing, advertising etc.

v) To provide credit facilities to the customers.

vi) To maintain the inventories of raw materials, work-in-progress, stores and spares and
finished stock.

vii) To determine the amount of working capital requirement and to calculate various
ratios relating to working capital.

viii) To make an item wise study of the components of the working capital.

ix) To suggest the steps to be taken to increase the efficiency in management of working
capital.

SCOPE OF THE STUDY

Every business concern should have adequate working capital to run its business
operations. It should have neither excess working capital nor shortage of working capital.
Both excess as well as short working capital positions are bad for any business.
A new concern requires a lot of liquid funds to meet initial expenses like
promotion, formation etc. These expenses are called preliminary expenses and are
capitalized. The amount needed as working capital in a new concern depends primarily upon
its size and the ambitions of its promoters. Greater the size of the business unit, generally,
larger will be the requirements of working capital. The amount of working capital needed
goes on increasing with the growth and expansion of business till it attains maturity. At the
time of maturity the amount of working capital needed is called normal working capital.
Management of working capital therefore, is concerned with the problems that
arise in attempting to manage the current assets, the current liabilities and the inter-
relationship that exists between them. In other words it refers to administration of both
current assets and current liabilities. The basic goal of working capital management is to
manage the current assets and current liabilities of a firm in such a way that a satisfactory
level of working capital is maintained, i.e., it is neither inadequate nor excessive. Working
capital management policies of a firm have a greater effect on its profitability, liquidity and

31
structural health of the organization. Working capital management is three dimensional in
nature:
i) Dimension I is concerned with the formulation of policies with regard to
profitability, risk and liquidity.

ii) Dimension II is concerned with the decisions about the composition and level
of current assets.

iii) Dimension III is concerned with the decisions about the composition and level
of current liabilities.

Working Capital Cycle of a Manufacturing Concern

DEBTORS
.
FINISHED
GOODS
CASH

RAW WORK-IN-
MATERIALS PROCESS

32
RESEARCH METHODOLOGY

This study is basically done with the collection of data from the secondary sources.
Studies previously made by others for their own purposes represent secondary data.
Secondary data are an integral part of a larger research study or of a research report to justify
having by passed the costs and benefits of doing primary research. Secondary data may be
used as the sole basis for a research study, since in many situations one cannot conduct
primary research because of physical, legal or cost influences. Secondary sources can usually
be found more quickly and cheaply than primary data. Most research on past events also has
to rely on secondary data sources. Similarly, data about distant places often can be collected
more cheaply through secondary sources.
Sources of secondary data which is used for the study are as follows:
• Internal sources - These include employees of the company, company’s database,
accounting and management information system (MIS), departmental reports,
production summaries, financial and accounting reports, and marketing and sales
studies.

• External sources – These sources are created outside the organization and more varied
than internal sources. These include worldwide network called Internet, Online public
access catalogs (OPAC) and other computerized files, reference books etc.

33
 STATEMENT OF WORKING CAPITAL AT RSP
(Rs. In Lakhs)

PARTICULAR 31-3-05 31-03-06 31-03-07 31-3-08 31-3-09 31-3-10

BGT
A.CURRENT ASSETS:-

Cash and bank balances 1575 1722 1879 2066 2244 2200

Raw materials 12232 12261 17456 17331 22547 30612

Stores and spares 16656 20208 27867 30064 37600 31000

Finished and semi-finished 21156 39342 42433 39618 62709 101552

products

Sundry debtors 1244 1460 1296 1166 1332 1918

Loans & advances 19593 21272 23094 24315 25724 26067

Other current assets 254 247 183 150 141 0

TOTAL C.A. 72710 96512 114208 114718 152297 193349

B.CURRENT LIABILITIES
AND PROVISIONS:-

Sundry creditors
23889 292 29223 30794 33684 36184
Security & other deposits
3450 2708 3272 3325 4377 8812
Others current liabilities
12735 16077 15958 19859 22006 20671
Provisions(Excl. Leave
encashment, Gratuity, Medical
benefits) 5052 4957 8006 32709 59373 53946

TOTAL C.L. 45126 47046 56459 86687 119440 119613

34
NET WORKING CAPITAL 27584 49466 57749 28031 32857 73736
(A-B)

NOTES:

• Items of capital account have been excluded.

• Current liabilities also exclude provision for gratuity, leave encashment, retirement benefits.

Fig-1 Current assets and current liabilities

2004-
Year 05 2005-06 2006-07 2007-08 2008-09 2009-10

Total C.A 72710 96512 114208 114718 152297 193349

Total C.L 45126 47046 56459 86687 119440 119613

Statement change in working capital

(2004-2005 to 2005-2006)
Rs. In Lakhs
Effect on
Particular 2004-2005 2005-2006 Working capital
Rs. R Increase Decrease
s. Rs. Rs.

35
Current Assets:

Cash and bank balance 1575 1722 147

Raw Material 12232 12261 29

Stores and Spares 16656 20208 3552

Finished products 21156 39342 18186

Sundry Debtors 1244 1460 216

Loan & Advance 19593 21272 1679

Other Current Assets 254 247 7

Total Current Assets 72710 96512

Current Liabilities:

Sundry Creditor 23889 23304 585

Security deposits 3450 2708 742

Other Liabilities 12735 16077 3342

Provision 5052 4957 95

Total Current Liabilities 45126 47046

Working Capital 27584 49466

36
 (C.A-C.L)

21882
Net Increase In Working Capital 21882

49466 49466 25231 25231

Interpretation:
1. The liquidity position has not brought a significant change as the there is only 147
lakhs increase in cash position.
2. The overall inventory level has improved but much improvement is been noticed in
the case of finished goods as it is nearly doubled.
3. Better credit policy lead to increase in debtors’ level.
4. Good credit standing position of the firm shows increase in loan amount.
5. Sundry creditors and security position has fallen.
6. Other liability have increased to 26.24%
* WORKING CAPITAL HAS SHOWN AN INCREASE WHICH SHOWS A GOOD
SOLVENCY POSITION.

37
Statement change in working capital

(2005-2006 to 2006-2007)
Rs. In Lakhs
Effect on
Particular 2005-2006 2006-2007 Working capital
Rs. R Increase Decrease
s. Rs. Rs.
Current Assets:

Cash and bank balance 1722 1879 157

Raw Material 12261 17456 5195

Stores and Spares 20208 27867 7659

Finished products 39342 42433 3091

Sundry Debtors 1460 1296 164

Loan & Advance 21272 23094 1822

Other Current Assets 247 183 64

Total Current Assets 96512 114208

Current Liabilities:

Sundry Creditor 23304 29223 5919

Security deposits 2708 3272 564

Other Liabilities 16077 15958 119

Provision 4957 8006 3049

Total Current Liabilities 47046 56459

Working Capital
(C.A-C.L)

38
Net Increase In Working Capital
49466 57749 8283

8283

57749 57749 18043 18043

Interpretation:
1. A little increase in the cash position is seen like the previous year.
2. Raw materials, stores and spares and finished goods level have increased.
3. Other liabilities have shown an increase of about 8.56%
4. Sundry creditors have increased due to increase in raw materials and stores and
spare even which shows that the purchase has been more or less on credit.
5. Provisions has also increased nearly 61.51%
* WORKING CAPITAL HAS BROUGHT A SMALL RISE.

39
Statement change in working capital

(2006-2007 to 2007-2008)
Rs. In Lakhs
Effect on
Particular 2006-2007 2007-2008 Working capital
Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets:

Cash and bank balance 1879 2066 187

Raw Material 17456 17331 125

Stores and Spares 27867 30064 2197

Finished products 42433 39618 2815

Sundry Debtors 1296 1166 130

Loan & Advance 23094 24315 1221

Other Current Assets 183 158 25

Total Current Assets 114208 114718

Current Liabilities:

Sundry Creditor 29223 30794 1571

Security deposits 3272 3325 53

Other Liabilities 15958 19859 3901

Provision 8006 32709 24703

Total Current Liabilities 56459 86687

Working Capital
(C.A-C.L)

40
Net Decrease In Working Capital
57749 28031 29718

29718

57749 57749 33323 33323

Interpretation:
1. There is a gradual rise been observed in the level of cash of about 187 lakh.
2. The closing stock of raw material and finished goods of this year is low compared to
last year reveals that this year there is decrease in purchase level of raw materials
and healthy sales lead decrease in the level of finished goods.
3. As the sales level has increased the company to promote sales employed better cash
discounts and trade discounts which lead to rise in the level of debtors.
4. Loans and advances and other current assets have increased to level of 5.28% and
13.67% respectively.
5. Creditors level rise shows that creditor are offering lucrative offers which is been
utilized by the company.
6. Provisions have shown a remarkable rise also the security deposits.

THE RISE IN THE CURRENT LIABILITY AMOUNT WAS HIGHER THAN THE RISE IN
CURRENT ASSETS LEVEL, WHICH LEADS TO FALL IN WORKING CAPITAL

41
Statement change in working capital

(2007-2008 to 2008-2009)
Rs. In Lakhs
Effect on
Particular 2007-2008 2008-2009 Working capital
Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets:

Cash and bank balance 2066 2244 178

Raw Material 17331 22547 5216

Stores and Spares 30064 37600 7536

Finished products 39618 62709 23091

Sundry Debtors 1166 1332 166

Loan & Advance 24315 25724 1409

Other Current Assets 158 141 17

Total Current Assets 114718 152297

Current Liabilities:

Sundry Creditor 30794 33684 2890

Security deposits 3325 4377 1052

Other Liabilities 19859 22006 2147

Provision 32709 59373 26664

Total Current Liabilities 86687 119440

Working Capital 28031 32857

(C.A-C.L)

42
Net increase In Working Capital 4826 4826

32857 32857 37596 37596

Interpretation:-
1. There is a little increase seen in the cash position like the previous year.
2. The closing stock of raw material and finished goods in this year has increased as
compared to last year.
3. Loans and advances and Sundry debtor have increased to level of 5.7% and 14.2%
respectively.
4. Sundry creditors have increased due to increase in raw materials which comparhows
that the purchase has been more or less on credit.
5. Provisions have shown a remarkable rise also the security deposits.

6. The major contribution towards increase in working capital is due to rise in stock of
finished goods.RSP should work on marketing of primary products to clear off the
stocks.
THE RISE IN THE CURRENT ASSETS WAS HIGHER THAN THE RISE IN CURRENT
LIABILITY LEVEL, WHICH LEADS TO RISE IN WORKING CAPITAL

43
Statement change in working capital

(2008-2009 to 2009-2010)
Rs. In Lakhs
Effect on
Particular 2008-2009 2009-2010 Working capital
Increase Decrease
Rs. Rs. Rs. Rs.
Current Assets:

Cash and bank balance 2244 2200 44

Raw Material 22547 30612 8065

Stores and Spares 37600 31000 6600

Finished products 62709 101552 38843

Sundry Debtors 1332 1918 586

Loan & Advance 25724 26067 343

Other Current Assets 141 0 141

Total Current Assets 152297 193349

Current Liabilities:

Sundry Creditor 33684 36184 2500

Security deposits 4377 8812 4435

Other Liabilities 22006 20671 1335

Provision 59373 53946 5427

Total Current Liabilities 119440 119613

Working Capital 32857 73736

(C.A-C.L)

44
 Net increase In Working Capital 40879 40879

73736 73736 54599 54599

Interpretation:-
1. Cash balance for the present year is expected to fall .

2. Loans and advances and Sundry debtor have increased to level of 1.3% and 43.9%
respectively.Rise in debtors shows that company is expecting a rise in sales.
3. Sundry creditors have increased due to increase in raw materials which shows that
the purchase has been more or less on credit.
4. Provisions have shown a remarkable rise also the security deposits.

5. Other liab and provision is expected to decrease which will amount to increase in
working cpital.

THE RISE IN THE CURRENT ASSETS WAS HIGHER THAN THE RISE IN CURRENT
LIABILITY LEVEL, WHICH LEADS TO INCREASE IN WORKING CAPITAL

COMPARATIVE FINANCIAL RATIOS:

( Rs. In crores)
PARTICULARS AS ON AS ON AS ON AS ON AS ON AS ON
31.3.05 31.3.06 31.3.07 31.3.08 31.3.09 31.3.10
(BGT)

45
Sales to Gross Block (%) 78.03 73.50 101.18 113.27 115.22 88.82

Net sales Realisation to Gross sales 86.97 82.68 84.54 84.73 87.37 90.88
(%)
4.47 8.49 6.64 5.36 8.10 14.55
Stock of Semi/finished Products to
Turnover (%) 0.54 1.03 0.08 0.65 0.99 1.75

Stock of Semi/Finished products in

number of months’ sales 17.23 7.88 21.14 21.49 15.05 5.11

Net profit to Gross Block (%) 22.08 10.72 20.90 18.98 13.06 5.75

Net profit to Turnover (%) 29.76 13.37 37.58 44.27 32.04 9.23

Net profit to Capital Employed (%) 1.54 1.93 2.05 1.71 1.76 1.15

Current Assets to Current Liabilities 0.45 0.47 0.45 0.39 0.32 .34
(excl.prov.)
0.09 0.15 0.14 0.06 0.06 .12
Quick Assets to Current Liabilities
0.09 0.15 0.19 0.10 0.12 .20
Working Capital to Cost of Sales
0.06 0.11 0.09 0.04 0.04 .11
Working Capital to Net Block
0.13 0.13 0.12 0.15 0.16 .16
Working Capital to Turnover
64.89 71.97 63.64 65.75 74.20 85.12
Labour cost to turnover
0.12 0.18 0.16 0.14 0.13 .26
Cost of Sales to Turnover (%)
73.52 86.86 75.18 76.78 84.13 93.66
Inventories (Opn.) to value of

46
Production 0.26 0.32 0.20 0.16 0.17 .27

Cost of Production to Value of 42.03 24.45 46.63 56.40 44.63 20.67

Production (%)
31.57 19.80 26.17 24.38 18.48 12.89
Sundry Debtors to Turnover (%)
1.15 0.88 0.98 0.90 0.87 1.13
Gross profit to Capital Employed (%)

Gross Profit to Turnover (%) 6.68 6.54 8.12 7.47 9.19 8.29

Stock of Raw Materials in terms of No.

of months, consumption 6.89 11.80 10.43 8.16 10.92 17.10

Stock of stores & spares in terms of no.

of months, consumption

Stock of Finished /Semi finished

products to cost of sales (%)

NOTES:

1.Quick assets represent total current assets excluding inventories and sundry debtor.
2.Provisions have been excluded from current liabilities for calculation of quick
ratio.
3.Cost of sales means net sales realization less net profit plus net loss
4.Cost of production is net expenses less CMO, HO share, freight, excise duty other
revenue and stock accretion/secretion.

47
 LIMITATIONS OF WORKING CAPITAL

Every business concern should have adequate working capital to run its business
operations. It should have neither redundant or excess working capital nor inadequate nor
shortage of working capital. However, out of the two, it is the inadequacy of working capital
which is more dangerous from the point of view of the firm.

Disadvantages of Redundant or Excessive Working Capital

• Excessive Working Capital means idle funds which earn no profits for the business
and hence the business cannot earn a proper rate of return on its investments.
• It may lead to unnecessary purchasing and accumulation of inventories causing more
chances of theft, waste and losses.
• It implies excessive debtors and defective credit policy which may cause higher
incidence of bad debts.
• It may result into overall inefficiency in the organization.
• When there is excessive working capital, relations with banks and other financial
institutions may not be maintained.
• Due to low rate of return on investments, the value of shares may also fall.
• It gives rise to speculative transactions.

Disadvantages of Inadequate Working Capital

• A concern having inadequate working capital cannot pay its short-term liabilities in
time. Thus it will lose its reputation and shall not be able to get good credit facilities.
• It cannot buy its requirements in bulk and cannot avail of discounts, etc.
• It becomes difficult for the firm to exploit favorable market conditions.
• The firm cannot pay day-to-day expenses of its operations, which increases costs and
reduces the profits of the business.
• It becomes impossible to utilize efficiently the fixed assets due to non-availability of
liquid funds.
• The rate of return on investments also falls with the shortage of working capital.

48
 RECOMMENDATION & SUGGESTIONS

The recommendation and suggestions for effective management of working capital at RSP
are given below:

• RSP should set planning standards for stock days, debtor & creditor days.

• Install an understanding amongst the staff that working capital management produces
profit.

• Inventory management is a great concern for RSP especially stores and spares. The
purchases manager must take certain steps for proper procurement of inventories.

• Keep stock levels as low as possible, consistent without not running out of stocks and
not ordering stock in uneconomically small quantities. Just-in-stock management is
fine, as long as it is JIT and never fails to deliver on time.

• Short-term credit period availed must be reduced and sundry creditors should be paid
faster.

• Proper planning of production should be made and communicated to all the concerned
departments so as to determine the exact need of materials and prevent unnecessary
blockage of useless materials.

• Reassess all significant customers periodically. Stop supplying existing customers

who are poor payers. After all RSP is for quality of business rather than quantity of
business.

• Plant should be given freedom in deciding the credit policies, cash discount or credit
rating.

49
 CONCLUSION
RSP has not only addressed itself to the country’s need for self sufficiency in Steel,
but has also given the country, the technology edge in producing strategic material. Besides
being the leader in the domestic primary steel market excluding the semi-finished products,
RSPhas also earned a good name in the domestic market in manufacture of crude steel . With
its consistent track record in capacity utilization, technology absorption, quality assurance
export performance, servicing of loans, internal source generation and posting of profits, RSP
has chartered a course of confidence among its stake holders.
RSP is a well known public sector unit in the Steel sector in India. It shows how a
well managed company achieves the mission of the company and gives much more profit.
Just as circulation of blood is essential in human body for maintaining life like that working
capital is also an important aspect and can be a main contributor to a company’s profit if
managed efficiently.

50
BIBLIOGRAPHY

1. Audited Annual Reports of RSP for the year , 2004,

2005, 2006 and 2007, 2008,2009.

2. BOOKS:

a) Financial Management – I.M.Pandey

b) Management Accounting – R.K.Sharma & S.K.Gupta
c) Financial Management – P.C.Chandra
d) Working Capital Management – V.K.Bhalla

3. WEBSITES:

a) www.google.com
b) www.sail.co.in

51
 120000

100000

80000

Rs in Lakhs 60000
Total C.A
40000 Total C.L

20000

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Ye a r
A

Statement change in working capital

Net W.C

60000

50000

40000

Rs. in Lakhs 30000

Net W.C
20000

10000

0
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Year

52
 WorkingCapital Turnover Ratio
25

20

15

10 Ratio

0
2004-05 2005-06 2006-07 2007-08

53