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MSRMI
MS RAMAIAH MANAGEMENT
INSTITUTE
AProject reportOn
WORKING CAPITAL MANAGEMENTat
Bharat Coking Coal Limited
(A subsidiary of coal India limited)
Dhanbad, Jharkhand
Under the guidance of: Mr. B.K.Parui
Mgr. (Fin.) Cost &Budget
N.N. MUKHOPADHYA
Chief Manager. (F)/TS to
D (F)
Submitted by: Koushik Gupta
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PGDM (AIMA) 2010-12
AIMA Registration no.42120451
COLLEGERegistration no.102133
DECLARATION
I, undersigned Mr.Koushik Gupta hereby declare that the project report
entitled WORKING CAPITAL MANAGEMENT under the guidance of
Mr. J.P.Bhagat submitted in partial fulfillment of the requirements for
the award of the degree ofPost Graduate Diploma in Management,
from MS RAMAIAH MANAGEMENT INSTITUTE is my original work
research study Carried out during 4TH JULY,2011 to 13th AUGUST,
2011 and not submitted for the award of any other
degree/diploma/fellowship or other similar titles or prizes to any other
institution/organization or university by any other person.
Place: -Dhanbad Name of Candidate:-
Date: -13.08.2011 KOUSHIK GUPTA
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AIMA Registration no.42120451
COLLEGERegistrationno.102133
ACKNOWLEDGEMENT
Words are indeed inadequate to convey my deep sense of gratitude to all those who
have helped me in completing this summer project to the best of my ability. Being a
part of this project has certainly been a unique and a very productive experience on
my part.
I am really thankful to, Mr.J.P.Bhagat (General Manager Finance CA & T)
for making all kinds of arrangements to carry the project successfully and for guiding
and helping me to solve all kinds of quarries regarding the project work. His
systematic way of working and incomparable guidance has inspired the pace of the
project to a great extent.
I would also like to thank my mentor and project coordinator, Mr. Shyam
Agarwal for assigning me a project of such a great learning experience and
acquainting me with real life project financing and appraisal.
I am very grateful to Mr. Anupam Narula, Dean of MS RAMAIAH
MANAGEMENT INSTITUTE Who has given me the opportunity to do this project in
the Bharat Coking Coal Ltd. and very thankful to all lecturers of MIMS for their
useful guidance and advise.
This project would not have been successful without the help ofMr.P.Banarjee
(General Manager Finance, Fund) & Mr.P.K.Chakraborty (Chief General
Manager Finance) ofBharat coking Coal Ltd.
Last but not least I would like to thank all the employees ofBharat coking
Coal Ltd. who have directly or indirectly helped me with their moral support for the
completion of my project.
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KOUSHIK GUPTA
PREFACE
Practice makes it more perfect
In the field of management every time there is a requirement of
understanding or practical aspect of the organization with managerial
mind. There is requirement to go for practical training of any subject
supplement to the theoretical knowledge and clarified concept.
It is more applicable in the field of the managementespecially a professional course like Post Graduate Diploma in
Management from MS RAMAIAH MANAGEMENT INSTITUTE has
prescribed 6 week of practical training & a project report during the 3RD
Sem. as a part of PGDM programmers my training at the Bharat coking
Coal Limited is to comply with this requirements also.
The project report on Working Capital Of Company, which
provide perfect direction of invest the money. The data collections were
by annual report of the different companies, magazines related to the
cement association and discussion with concerned employees and
experts.
At the end findings and suggestions are reported.
I hope this serves the Purpose.
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Section 1
INTRODUCTION
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Introduction of Coal India Limited
India is the 3rd largest coal producing country. Coal India Limited is the coal
producing company in India.
Coal India Limited
Contributes around 85% of Coal Production in India.
It is the largest company in the World in terms of coal production.
Employs nearly 4 lakh persons and is the largest corporate employer in the
country.
It is one of the largest companies in the country, turnover being around Rs.
521.88 billion in 2010-11
It is one of the largest tax payer companies in the country; the provision on
account of Income Tax for the financial year 2009-10 was made for Rs. 43.42
billion.
Functions
Broad Functions
Laying down policies
Formulating long and short term strategies.
Monitoring the functions of the subsidiary companies.
Laying down system and procedures.
Assisting the subsidiary companies to achieve their objectives.
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Coordination with ministry of coal, ministry of railways, planning commission
and other ministries.
Specific Functions
Pricing and distribution of coal
Coal supply agreements
Consumer services through regional offices
Negotiations of wages
Executive cadre control recruitment, promotion/postings. Pay/perks etc.
Foreign collaboration.
Introduction of new technology
R&D activities
Mobilization of resources long term and short term
Accounting policies
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Background History
1774 Warren Hastings initiates Commercial coal mining at Raniganj (West Bengal)
1815-1820 First Shaft Mine opened at Raniganj.
1835 Carr, Tagore & Company takes over the Raniganj Coal Mines
1843Bengal Coal Company takes over Raniganj Coal Mines and others; is first Joint Stock
Coal Company in India.
Upto 1900 Minimal development; River transportation used to transport coal to Calcutta; railway
lines at Calcutta leads to expansion of Coal Production.
Early 1900sCapacity at 6 million tones per annum
1955-56Focus on Coal industry; capacity up to 38.4 Million ones.
1956 National Coal Development Corporation (NCDC) formed to explore and expend coal
mining in public Sector.
1972Coking Coal Industry Nationalized, Bharat Coking Coal Limited formed to manage
operations of all Coking Coal mines in Jharia Coalfield.
1973Non-coking coal nationalized; coal Mine Authority Limited set up to mange these
mines; NCDC operations bought under the ambit of CMAL.
1975
Coal India Limited formed as holding Company with 5 subsidiaries viz. Bharat Coking
Coal Limited (BCCL), Central Coalfield Limited (CCL), Western Coalfield Limited
(WCL), Eastern Coalfields Limited (ECL) and Central Mine Planning and Design
Institute Limited (CMPDIL).
1985Northern Coalfields Limited (NCL) and south Eastern Coalfields Limited (SECL) carved
out of CCL and WCL.
1992 Mahanadi Coalfield Limited (MCL) formed out of SECL to manage the Talcher and IB
valley Coalfields in Orissa.
2000De-regulation of Coal pricing and distribution of coal.
2007Coal India & four of its Subsidiaries, viz, NCL, SECL, MCL, WCL was accorded coveted
Mini Ratna Status.
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Board of Directors
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Permanent Invitee
Company Profile
Date of Incorporation:
Coal India Limited was formed as holdingCompany with 5 subsidiaries on 21.10.1975.
Corporate Status:
The Company is incorporated under the Companies 1956 and is wholly owned by the
Government of India (GOI)
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Business:
Engaged in the mining of coal, based products mining consultancy.
Wholly OwnedSubsidiaries: Eastern Coalfields Ltd.
Bharat Coking Coal Ltd.
Central Coalfields Ltd.
Northern Coalfields Ltd.
Western Coalfields Ltd.
South Eastern Coalfields Ltd.
Mahanadi Coalfields Ltd. and
Central Mine Planning & Design Institute Ltd.
North Eastern Coalfields in directly under
Coal India ltd
Overseas subsidiary: Coal India Africana Limitada
Registered Office: Coal Bhavan,
10 Netaji Subhas Road,
Kolkata 700 001(West Bengal, Kolkata)
COAL INDIA & ITS SUBSIDIARIES
BHARAT COKING COAL LIMITED
Southeastern
Coalfields
Ltd. Bilaspur North
Coalfields Ltd. Singrauli
Western
Coalfields Ltd.
Nagpur
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LIMITED
BHARAT COKING COAL LIMITED
(A subsidiary of coal India limited)
BHARAT COKING COAL LIMITED
COAL INDIA KOLKATA Bharat Coking
Coal Ltd.
Dhanbad
Eastern Coalfields Ltd. Assa
Central
Coalfield Limited Ranchi
Central Mine Planning & Design Institute Ltd.
Mahanadi
CoalfieldsLtd
Sambalpur
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MISSION
The mission of Bharat Coking Coal Limited (BCCL) is to produce and market the
planned quantity of coal and coal products efficiently and economically with due
regard to safety, conservation and quality.
VISION
The vision of Bharat Coking Coal Limited (BCCL) is to be the leading player in
metallurgical coal production having an organization and culture committed towards
sustainable growth through best practices from mine to market.
Introduction of BCCL
BCCL produces coking coal for steel plants and non coking coal for the power sector
and other industries, from its open-cast and underground mines. It is only source for
prime coking coal in the country for supply to steel plants; as such it does not haveBHARAT COKING COAL LIMITED
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any domestic competitor. However, since the supply of coking coal by BCCL is
significantly less than the demand, coking coal is imported by steel sector and other
industries from outside the country. The company has 214 small coking coal mines in
Jharia & Raniganj Coalfields taken over by GOI on 16th Oct; 1971. It was incorporated
in January, 1972 under Companies Act. The company became a subsidiary of CoalIndia Ltd on 1-1-1975.
As a result of hike in price of coking coal in the international market in the recent
past rendering the important coal costlier than domestic coal, there is no perceptible
threat to the company of losing market demand at present as well as in near future.
BCCL coal commands significant premium among non-core sector consumers. In
order to internalize the same, BCCL introduced a transparent and fair mechanism
marking coal to such consumers through e-auction in 2004-05. as a result of first six
auction carried out, there was a significant gain over the notified price of coal.
Product & Services
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BHARAT COKING COAL LIMITED
COKING COAL :
These coals, when heated in the absence of air, form coherent beads, free from
volatiles, with
Strong and porous mass, called coke.
These have coking properties
Mainly used in steel making and metallurgical industries
Also used for hard coke manufacturing
SEMI COKING COAL:
These coals, when heated in the absence of air, form coherent beads not strong
enough to be directly fed into the blast furnace. Such coals are blended with coking
coal in adequate proportion to make coke.
These have comparatively less coking properties than coking coal
Mainly used as blend-able coal in steel making, merchant coke manufacturingand other metallurgical industries
NLW COKING COAL:
This coal is not used in metallurgical industries. Because of higher ash content, this
coal is not acceptable for washing in washeries. This coal is used for power utilities
and non-core sector consumers.
NON-COKING COAL:
These are coals without coking properties.
Mainly used as thermal grade coal for power generation
Also used for cement, fertilizer, glass, ceramic, paper, chemical and brickmanufacturing, and for other heating purposes
HARD COAL:
Hard coke is formed from coking / semi-coking coal through the process of
carbonization.
Mainly used in metallurgical industries
Also used in industrial plants utilizing furnaces
WASHED AND BENEFICIATED COAL:These coals have undergone the process of coal washing or coal beneficiation,
resulting in value addition of coal due to reduction in ash percentage.
Used in manufacturing of hard coke for steel making
Beneficiated and washed non-coking coal is used mainly for power generation
Beneficiated non-coking coal is used by cement, sponge iron and otherindustrial plants
MIDDLINGS:
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Areas
Top of Form
Bottom of Form
Washery
BCCL WASHERIES
Introduction :
Coal Washing is a process of separation mainly based on difference
in Specific Gravity of Coal and associated impurities like Shale, Sand &
Stones etc so that we get relatively pure marketable coal without
changing its physical properties.
The Washed Coking Coal is meant for Steel Plants. The Washed
Power Coal/Washed Non-Coking Coal/Middlings is dispatched to various
Power Houses.
Washing Process:
Washery System of Washing
Dugda-II HM Cyclone (13-0.5mm), Flotation (-0.5mm)
Bhojudih Deshaling Jig (75-0mm), HM Bath (75-25mm),
Batac Jig (25-0.5mm), Flotation (-0.5mm)
Patherdih Deshaling Jig(75-0mm), HM Bath(75-13mm),
HM Cyclone (13-0.5mm)
Sudamdih
2 Stage HM Cyclone (37-0.5mm), Flotation (-
0.5mm)
Moonidih
2 Stage HM Cyclone (30-0.5mm),W/O Cyclone(-
0.5mm)
Mohuda HM Cyclone (25-0.5mm), Flotation (-0.5mm)
Madhuban Batac Jig (13-0.5mm), Flotation(-0.5mm)
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Details of Existing Washeries :
S.
No.Name of Washery Year of Commissioning
Operable Capacity
MTY
A. Coking Coal:
1 Dugda-II 1968 2.00
2 Bhojudih 1962 1.70
3 Patherdih 1964 1.60
5 Moonidih 1983 1.60
4 Sudamdih 1981 1.60
6 Mohuda 1990 0.63
7 Madhuban 1998 2.50
TOTAL (Coking Coal) 11.63
B. Non-Coking Coal:
1 Dugda I 1961/1998 1.00
TOTAL (Non-Coking Coal) 1.00
GRAND TOTAL 12.63
Remarks:
Dugda-I stopped since Oct.'96 for safety reasons and its Sink Up gradation Section is
being used for production of washed power coal w.e.f. '98.
Madhuban Washery was originally designed for washing Coking Coal. Due to non-
availability of Coking Coal because of stoppage of Block-II OCP, the Washery was
temporarily converted for Washing Non-Coking Coal which has been reverted back to
washing coking coal again from October 2008.
Modernization of Washeries:
Revival Plan of BCCL provides Rs. 125 Crores for Renovation of
Washeries.
Study was undertaken by CMPDI for performance improvement.
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In the 1st Phase, the Revival Schemes involving an expenditure
of Rs. 54.80 Crores has been approved by BCCL Board for
Dugda-I, Dugda-II, Bhojudih, Sudamdih, Moonidih & Mohuda
Washeries and they are under various stages of
implementation.
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Reasons for loss/sickness
1. Legacy from the takeover:
*Huge manpower:
When all take over completed, B.C.C.L. inherited a huge manpower which was very
much disproportionate to that of production because the manpower with the
company was much higher than required for production. This resulted in increment of
cost of Production but the revenues were the sales. Thus company started incurring
losses since inception.
Year 2006-07 2007-08 2008-
09
2009-10 2010-11
Manpower 87146 83578 80051 72465 67934
*Non-productive unit:-
Many non-productive units were added to the company during the take over, this
gradually started burdening the company economically especially on account of
surplus, under employed manpower and huge maintenance cost. This acted as a fuel
to the fire of losses.
2. Difficult mining condition:
A. Underground
* Low evacuation capacities shaft mining:-
Shaft mining is a extract the coal. Since the mine is very deep so evacuating the
coal is very difficult as the mine in very deep. The company does not have modern
mechanization so evacuating capacities and 100%.
Therefore, because of low capacities incurring machinery results in increase
machinery result in more cost and the production is comparatively less. This results
in increase in fixed cost and in turn the company faces losses.
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*Costly sand stowing operation@ Rs 300/Te:-
Whenever a mine is made it is very much necessary for to fill the vacant portion
with sand or any other thing. If this is not done so then land may subside. If in the
land there is a connecting road or rehabilitation or any public property it cannot be
left to subside. At this position sand stowing comes into action and this method is
very costly as costs Rs.300 per tone. This method is does not add to production but
rather increases cost of the production which the company cannot bear.
*High pumping cost (25T water/T of coal):-
When a mine is made there are a number of ways by which water can enter into the
mine, like boring rain, holes and sometimes there is underground water which comes
out during mining. It stops the production, therefore, pumping out is a costly affair
and adds to the cost of production, and therefore, again it adds to the losses.
Fires, unstable working &surface constraints:-
When the coal is excavated in the mine it is kept there for some time to transport.
Since coal is made of carbon it suffers from from spontaneous heating and catches
fire and gets destroyed. There are also other ways of fire. There were about 72-73
fire at the time of nationalization. The company could control only 5-6 fire as it is
difficult to control. Thus it reduces production but not the cost.
Inside the mine it is very difficult to work due to various reasons like hot
temperature, darkness, moving inside the mine etc. due to these reasons the
workers face a lot of problems in doing their work which results in dissatisfaction of
work, low O.M.S. and increase in cost.
Sometimes the company faces the problem of selective mining to avoid displacement
of rehabilitation, destruction of public property and so on .These problems are called
surface constraints .Because of all these problems the company has to leave the coal
there, like in the case of Jharia mines. These problems reduce the production and the
revenues are not enhanced resulting in more losses.
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B.OPENCAST
Dense population impedes acquisition of land:-
In case of opencast mining the mine is very deep i.e. the coal is found nearer to the
surface, so in this situation the earth over is taken out and then the coal is excavated
.This requires a huge area on the surface .But in the area of dense population the
acquisition of land becomes difficult as the company is unable to pay any
compensation for displacement. There some government laws also acting to protect
public areas .Due to these constraints the company cannot increase the production
easily, thus cant earn the revenue.
Restricts operations to smaller patches with low capacity HEMM: Dense
population makes the company work in small opencast mines .The company has to
use heavy electrical mining machinery and the cost of these is very high .But the
machinery required doing a particular task ,works lower than its actual capacity. The
working any lower capacity leads to low productivity of equipment and high cost of
mining.
*Requires large rehandling of OB due to non-availability of non- coal
bearing land:-
It is generally found that there non-coal bearing land near by the mine these areasgenerally have rehabilitation or any road etc. In this case there is huge rehandling of
over burden (OB).This is so because if there is a non coal rearing land near the mine
just after the evacuation then it is transferred to the coal yard or to other places.
In situation like this huge dumpers have to be used to keep the coal after crossing
the non coal bearing area. This, in return increases the cost due to heavy machinery
use and rehandling.
3. Non availability of land:
Physical possession of acquired land has remained a cause of concern for the
company. The production of the company faces constraints due to dense population
in the jharia coal fields. The matter has repeatedly been pursued with MOC (ministry
of coal) and state government. A few examples of such cases are:-
Diversion of Dumra- tundu road:
About 46 lakhs of prime coal beneath this road is blocked and under threat of getting
destroyed due to fire. The road is unsafe due to advancing fire; immediate action is
required for this road to B.C.C.L.
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Physical possession of acquired land in kenduadih:-
Physical possession of acquired land in subsidiaries prone areas of kenduadih held up
due to non- vacation 5000 families and encroaches residing in this area even after
order of Supreme Court due to law and order problem. Above are the examples
which depicts that the coal is either not excavated or may get destroyed due to fire.
Thus this problem reducing the production indirectly.
4. Hike in salary & wages incommensurate to paying capacity: In B.C.C.L.
there has been constantly pay revision done which led to increment of salaries and
wages. But all these revision were adding to the cost of production only as theproduction did not increase because of low O.M.S. Thus it was out of companys
capacity to pay more but half to pay because government laws and to preserve
industrial harmony. It was almost implementable on a stand alone basis.
5. Impact of loss:- Foregoing replacement of worn out equipment:-
Everybody needs to do capital expenditure. B.C.C.L. engaged in excavation of coal so
its need huge machinery thus requires capital investment. But the company was insuch bad position that it could not even pay for depreciation. So the fund could not
accumulate fund for further investment which led to use of old worn out machinery.
Due to the use of such kind of machinery the production capacity was reduced but
the cost was same.
6. Problem in working capital:-
The shortage of working capital was rendering the incapable of paying for the
procurement of critical items of stores and spares which was affecting adversely the
production and safety. Fund crunch leading to staggering payment of salary andwages & backlog of welfare amenities ultimately resulting in disenchantment &
despair among the workers. Delay in payment to various input providers i.e.,
suppliers and contractors, which degrade the brand value of the company & resulted
in shortage of supplier & contractors. There is backlog in the payment of statutory
dues.
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Current scenario of B.C.C.L.
Sri Tapas Kumar Lahiry elevated as Chairman cum Managing Director, Bharat Coking
Coal Limited (B.C.C.L.) with effect from 1st November 2008. In 2005-06 the company
reported profit of Rs. 203 crores for the first time in its history. The company adopted
a Revival plan. According to that plan, it is expected that negative net worth shall be
wiped out and turn positive in 2013-14
.
Therefore there are different strategies ofrevival plan which B.C.C.L. has adopted.
STRATEGIES OF REVIVAL PLAN
EQUIPMENT H/HEMM.
1. STRATEGIC INITIATIVE -1-REPLACEMENT OF WORN OUT EQUIPMENT
H/HEMM.
The company was continuously suffering from ageing of machinery beyond the rated
life due to shortage of cash. B.C.C.l. requires mainly HEMMs like shovels, dumphers
etc. It also resulted in the less production as the equipment work in the lower
capacity. By identifying this problem the company decided to replace the worn out
machinery and buy the new one. By taking these decisions there was a twin benefit
unit.
1. Firstly, since, the new machines would work in full capacity, so the number of
machine required wasless in number.
2. Secondly, since, the new machinery work in full capacity, the production would
increase.
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The major benefit was that the cost reduced and production also increased which
helped the company to earn more revenue. This is one helping hand in bringing the
company in profit in 2005-06.
STRATEGIC INITIATIVE-2-DEPLOYMENT OF H/HEMM IN PATCHES
The second initiative which the company took was the deployment of HEMMs. Nowthe company identified the HEMM which are not working in full capacity. These low
capacity machineries were transferred to the smaller open cast mines where they can
perform well. Company also started hiring of HEMMs to smaller patches to reduce
capital expenditure of purchasing the same. This hiring resulted in higher production
without increasing the cost. Thus it added profitability.
Strategic initiative -3- implementation of quick yielding OC project:-
The third initiative which was taken was to identify the quick yielding open cast
projects. It is sometimes seen that the coal is very near to the surface .BCCL tried to
find out such projects and work on it .This will not only reduce the cost of mining but
also increase the production . Here an interesting thing is that the cost of production
in this case reduces a lot which is great support of the company .It helps in earning
more revenues at lesser cost. It also helped in the proper utilization of manpower
which in turn reduces the burden of payment of wages and salaries on the company.
Strategic initiative-4-closure of 24 loss making UG mines & manpower
rationalization:
BHARAT COKING COAL LIMITED
Particulars 06-07
actual
07-08
actual
08-09
actual
09-10
actual
10-11
actual
Op. manpower 87146 80051 76565 72465 71195
Reduction (-)
retirement (+)
other means
VRS
total
3611
51
3622
3791
-
3791
4364
-
4364
4396
-
4396
4818
-
4818
Intake(+) 94 964 878 300 300
Closing
manpower
83568 80051 76565 72469 67934
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As against the proposed closure of 41 loss making mines earlier, the modified
proposal envisage closure of 24 loss making mines during the period spread over 06-
07 to 11-12. This decision was taken to reduce the cost and also the losses of the
company. The closure of 24 mines is being spread over the projected years.
Because it cant done at a single moment. If done so then there will huge
unemployment of manpower. Since it is a government organization, so it cannot
retrench employees. So it is being implemented slowly. As mentioned earlier that due
to closure of mines the burden of manpower is going to increase for the company. To
solve this, the company reduced its intake of more employees and tried to place the
employees of closed mines into the new project of small OC mines as mentioned in
earlier strategic steps. In this table one can see that in near future the manpower of
the company will reduced.
Thus by analyzing the above tables we can infer that the manpower will reduce and
also the losses making mines will be closed. This will reduce the cost of the
company a lot as therewill be less payment of salaries and wages. It will also help to
reduce the losses of the company by closing of the mines. The closure of the loss
making mines will reduce the fixed cost of the company as the cost of HEMMs will be
less.
Strategic initiative-5- Modernization of UG mines and washeries:
Since inception of the company was earning losses. The company was using old
machinery which is now out dated. The working condition of the UG mines was very
poor. This gave rise to dissatisfaction of the employees and they turned unproductive
which gave low OMS this added to the burden of cost for the company. Due to the
use of this machinery the production of was not up to the mark and cost was thesame rather more in some mines. Analyzing the problem company decided to
improve the working condition of workers by bringing modern machinery and more
safety and comfortable job & comfortable working for the employees.
This generated the satisfaction of job and high OMS which increased the production
at lower cost. It helped in increment of revenues which helped in bringing profits
example procurement of long wall machinery.
Strategic initiative -6: E-Auction:
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E-auction is the most recent and modern step taken by the company. E-auction is
basically selling coal through internet. This gave the company a global exposure and
a more standard market. In E-auction the company could sell the coal at higher
prices than expected because of auction. This gave more revenues to the company
for the same amount of production. If we opt for the viral marketing we can reduce
the cost easily. Thus there were more revenues at lesser marketing cost which
proved profitable. The following table shows the gain over the notified prices i.e.,
B.C.C.L. could sell coal at higher prices than it could sell in domestic market.
Chronology of performance after revival plan
Year Manpower Production
(lakhs tone)
Profit/loss
( in lakhs)
2006-07 87146 242.05 4958
2007-08 83578 252.16 8681
BHARAT COKING COAL LIMITED
Item 06-07 07-08 08-09 09-10 10-11
Qty sold/lifted(LT) 22.79 22.97 24.06 30.00 33.39
Add gain over
notified price (Rs cr)99.6 92.6 95.61 177.30 297.49
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MSRMI2008-09 80051 255.13 -138047
2009-10 76369 275.14 79419
2010-11 64186 290.07 109369
From the above table we can see that after revival plan B.C.C.L. continuously,
earning profit, reducing manpower and increasing production.
So its a good sign for the company
*Two reasons for making loss in the year 2008-09:
1. Huge payment of Rs 1600 crores arrears.
2. Loss in production due to bandhs on 88 days (called by both Maoist as well as
political outfits).
Section 2
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CONCEPTUAL
FRRMEWORK OFWORKING CAPITAL
MANAGEMENT
WORKING CAPITAL
Capital required for a business can be classified under two main categories via,
1) Fixed Capital
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Every business needs funds for two purposes for its establishment and to carry
out its day- to-day operations. Long terms funds are required to create
production facilities through purchase of fixed assets such as p&m, land,
building, furniture, etc. Investments in these assets represent that part of
firms capital which is blocked on permanent or fixed basis and is called fixed
capital. Funds are also needed for short-term purposes for the purchase of
raw material, payment of wages and other day to- day expenses etc.
Working Capital is that portion of a business concerns total capital, which is
employed in term of operations. Without working capital, fixed capital would be idle
and ineffectual.
A number of definitions have been formulated: perhaps the most widely acceptable
would be;
WORKING CAPITAL represents the excess of CURRENT ASSETS over
CURRENT LIABILITIES
The same may be designated in the following equation:
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.
CONCEPT OF WORKING CAPITAL
There are two concepts of working capital:
1. Gross working capital
2. Net working capital
The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those
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Assets which can convert in to cash within a short period normally one accounting
year.
CONSTITUENTS OF CURRENT ASSETS
1) Cash in hand and cash at bank
2) Bills receivables
3) Sundry debtors
4) Short term loans and advances.
5) Inventories of stock as:
a. Raw material
b. Work in process
c. Stores and spares
d. Finished goods
6. Temporary investment of surplus funds.
7. Prepaid expenses
8. Accrued incomes.
9. Marketable securities.
In a narrow sense, the term working capital refers to the net working. Net
working capital is the excess of current assets over current liability, or, say:
NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.
Net working capital can be positive or negative. When the current assets
exceeds the current liabilities are more than the current assets. Current
liabilities are those liabilities, which are intended to be paid in the ordinary
course of business within a short period of normally one accounting year out
of the current assts or the income business.
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CONSTITUENTS OF CURRENT LIABILITIES
1. Accrued or outstanding expenses.
2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation , if it does not amt. to app. Of profit.
6. Bills payable.
7. Sundry creditors.
The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital. Both the concepts have
their own merits.
The gross concept is sometimes preferred to the concept of working capital for the
following reasons:
1. It enables the enterprise to provide correct amount of working capital at
correct time.
2. Every management is more interested in total current assets with which it
has to operate then the source from where it is made available.
3. It take into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.
4. This concept is also useful in determining the rate of return on investments
in working capital. The net working capital concept, however, is also important
for following reasons:
It is qualitative concept, which indicates the firms ability to meet to
its operating expenses and short-term liabilities.
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IT indicates the margin of protection available to the short term
creditors.
It is an indicator of the financial soundness of enterprises.
It suggests the need of financing a part of working capital
requirement out of the permanent sources of funds.
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TYPES OF WORKING CAPITAL:-
Working Capital may be classified in to two ways:-
a) On the basis of concept.b) On the basis of time.
TYPES OF WORKING CAPITAL
Permanent or Fixed Working Capital:-
Permanent or Fixed Working capital is the minimum amount which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation of
current assets. There is always a minimum level of current assets that is
continuously required by the enterprise to carry out its normal business operation.
For example every firm has to maintain minimum level of raw materials, work in
process, furnished goods and cash balance. The minimum level of current assets iscalled permanent or fixed working capital as their part of working capital is
permanently blocked in current assets. With the growth of business there is an
increase in current assets.
Temporary or Variable Working Capital:-Temporary or Variable Working Capital is the amount of working capital that isrequired to meet the seasonal demands and some special exigencies. Variable
working capital can be further classified as:-
a) Seasonal Working Capital.
b) Special Working Capital.
Most of the enterprises have to provide additional working capital to meet the
special and seasonal needs. The capital required to meet the seasonal needs of
enterprise is called Seasonal working capital. Special working capital is the part
of working capital which is required to meet the special exigencies such as part of
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working capital which is required to meet special exigencies such as launching of
extensive marketing campaigns for conducting research etc. is called Special
working capital.
IMPORTANCE OR ADVANTAGE OF ADEQUATE
WORKING CAPITAL
SOLVENCY OF THE BUSINESS: Adequate working capital helps in
maintaining the solvency of the business by providing uninterrupted of
production.
Goodwill: Sufficient amount of working capital enables a firm to make
prompt payments and makes and maintain the goodwill.
Easy loans: Adequate working capital leads to high solvency and credit
standing can arrange loans from banks and other on easy and favorable
terms.
Cash Discounts: Adequate working capital also enables a concern to avail
cash discounts on the purchases and hence reduces cost.
Regular Supply of Raw Material: Sufficient working capital ensures regular
supply of raw material and continuous production.
Regular Payment of Salaries, Wages And Other Day TO Day
Commitments: It leads to the satisfaction of the employees and raises the
morale of its employees, increases their efficiency, reduces wastage and costs
and enhances production and profits.
Exploitation Of Favorable Market Conditions: If a firm is having
adequate working capital then it can exploit the favourable market conditions
such as purchasing its requirements in bulk when the prices are lower and
holdings its inventories for higher prices.
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Ability To Face Crises: A concern can face the situation during the
depression.
Quick And Regular Return On Investments: Sufficient working capital
enables a concern to pay quick and regular of dividends to its investors and
gains confidence of the investors and can raise more funds in future.
High Morale: Adequate working capital brings an environment of securities,
confidence, high morale which results in overall efficiency in a business.
EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate amount of working capital to run its
business operations. It should have neither redundant or excess working capital
nor inadequate nor shortages of working capital. Both excess as well as short
working capital positions are bad for any business. However, it is the inadequate
working capital which is more dangerous from the point of view of the firm.
DISADVANTAGES OF REDUNDANT OR EXCESSIVE
WORKING CAPITAL
1. Excessive working capital means ideal funds which earn no profit for the
firm and business cannot earn the required rate of return on its investments.
2. Redundant working capital leads to unnecessary purchasing and
accumulation of inventories.
3. Excessive working capital implies excessive debtors and defective credit
policy which causes higher incidence of bad debts.
4. It may reduce the overall efficiency of the business.
5. If a firm is having excessive working capital then the relations with banks
and other financial institution may not be maintained.
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6. Due to lower rate of return n investments, the values of shares may also
fall.
7. The redundant working capital gives rise to speculative transactions
DISADVANTAGES OF INADEQUATE WORKING
CAPITAL
Every business needs some amounts of working capital. The need for working capital
arises due to the time gap between production and realization of cash from sales.
There is an operating cycle involved in sales and realization of cash. There are time
gaps in purchase of raw material and production; production and sales; and
realization of cash.
Thus working capital is needed for the following purposes:
For the purpose of raw material, components and spares.
To pay wages and salaries
To incur day-to-day expenses and overload costs such as office expenses.
To meet the selling costs as packing, advertising, etc.
To provide credit facilities to the customer.
To maintain the inventories of the raw material, work-in-progress, stores
and spares and finished stock.
For studying the need of working capital in a business, one has to study the
business under varying circumstances such as a new concern requires a lot of
funds to meet its initial requirements such as promotion and formation etc. These
expenses are called preliminary expenses and are capitalized. The amount needed
for working capital depends upon the size of the company and ambitions of its
promoters. Greater the size of the business unit, generally larger will be the
requirements of the working capital.
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The requirement of the working capital goes on increasing with the growth and
expensing of the business till it gains maturity. At maturity the amount of working
capital required is called normal working capital.
There are others factors also influence the need of working capital in a business.
FACTORS DETERMINING THE WORKING CAPITAL
REQUIREMENTS
1. NATURE OF BUSINESS: The requirements of working is very limited
in public utility undertakings such as electricity, water supply and railways
because they offer cash sale only and supply services not products, and no
funds are tied up in inventories and receivables. On the other hand the
trading and financial firms requires less investment in fixed assets but have
to invest large amt. of working capital along with fixed investments.
2. SIZE OF THE BUSINESS: Greater the size of the business, greater is
the requirement of working capital.
3. PRODUCTION POLICY: If the policy is to keep production steady by
accumulating inventories it will require higher working capital.
4. LENGTH OF PRDUCTION CYCLE: The longer the manufacturing
time the raw material and other supplies have to be carried for a longer in
the process with progressive increment of labor and service costs before the
final product is obtained. So working capital is directly proportional to the
length of the manufacturing process.
5. SEASONALS VARIATIONS: Generally, during the busy season, a
firm requires larger working capital than in slack season.
6. WORKING CAPITAL CYCLE: The speed with which the working cycle
completes one cycle determines the requirements of working capital. Longer
the cycle larger is the requirement of working capital.
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7. RATE OF STOCK TURNOVER: There is an inverse co-relationship
between the question of working capital and the velocity or speed with
which the sales are affected. A firm having a high rate of stock turnover
wuill needs lower amt. of working capital as compared to a firm having a low
rate of turnover.
8. CREDIT POLICY: A concern that purchases its requirements on
credit and sales its product / services on cash requires lesser amt. of
working capital and vice-versa.
9. BUSINESS CYCLE: In period of boom, when the business is
prosperous, there is need for larger amt. of working capital due to rise in
sales, rise in prices, optimistic expansion of business, etc. On the contrary in
time of depression, the business contracts, sales decline, difficulties are
faced in collection from debtor and the firm may have a large amt. of
working capital.
10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we
shall require large amt. of working capital.
11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms
have more earning capacity than other due to quality of their products,
monopoly conditions, etc. Such firms may generate cash profits from
operations and contribute to their working capital. The dividend policy also
affects the requirement of working capital. A firm maintaining a steady high
rate of cash dividend irrespective of its profits needs working capital than
the firm that retains larger part of its profits and does not pay so high rate
of cash dividend.
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12. PRICE LEVEL CHANGES: Changes in the price level also affect the
working capital requirements. Generally rise in prices leads to increase in
working capital.
Others FACTORS: These are:
1. Operating efficiency.
2. Management ability.
3. Irregularities of supply.
4. Import policy.
5. Asset structure.
6. Importance of labour.
7. Banking facilities, etc.
MANAGEMENT OF WORKING CAPITAL
Management of working capital is concerned with the problem that arises in
attempting to manage the current assets, 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 adequate nor excessive as both the situations are
bad for any firm. There should be no shortage of funds and also no working
capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm
has a great on its probability, liquidity and structural health of the organization.
So working capital management is three dimensional in nature as
1. It concerned with the formulation of policies with regard to profitability,
liquidity and risk.
2. It is concerned with the decision about the composition and level of
current assets.
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3. It is concerned with the decision about the composition and level of
current liabilities.
WORKING CAPITAL ANALYSIS
As we know working capital is the life blood and the centre of a business.
Adequate amount of working capital is very much essential for the smooth
running of the business. And the most important part is the efficient
management of working capital in right time. The liquidity position of the firm is
totally effected by the management of working capital. So, a study of changes
in the uses and sources of working capital is necessary to evaluate the
efficiency with which the working capital is employed in a business. This
involves the need of working capital analysis.
The analysis of working capital can be conducted through a number of devices,
such as:
1. Ratio analysis.
2. Fund flow analysis.
3. Budgeting.
1. RATIO ANALYSIS
A ratio is a simple arithmetical expression one number to another. The
technique of ratio analysis can be employed for measuring short-term liquidity
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or working capital position of a firm. The following ratios can be calculated for
these purposes:
1. Current ratio.
2. Quick ratio
3. Absolute liquid ratio
4. Inventory turnover.
5. Receivables turnover.
6. Payable turnover ratio.
7. Working capital turnover ratio.
8. Working capital leverage
9. Ratio of current liabilities to tangible net worth.
2. FUND FLOW ANALYSIS
Fund flow analysis is a technical device designated to the study the source from
which additional funds were derived and the use to which these sources were
put. The fund flow analysis consists of:
a. Preparing schedule of changes of working capital
b. Statement of sources and application of funds.
It is an effective management tool to study the changes in financial position
(working capital) business enterprise between beginning and ending of the
financial dates.
3. WORKING CAPITAL BUDGET
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A budget is a financial and / or quantitative expression of business plans and
polices to be pursued in the future period time. Working capital budget as a
part of the total budge ting process of a business is prepared estimating future
long term and short term working capital needs and sources to finance them,
and then comparing the budgeted figures with actual performance for
calculating the variances, if any, so that corrective actions may be taken in
future. He objective working capital budget is to ensure availability of funds as
and needed, and to ensure effective utilization of these resources. The
successful implementation of working capital budget involves the preparing of
separate budget for each element of working capital, such as, cash, inventories
and receivables etc.
Section 3
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R ESEARCH
METHODOLOGY
Research Methodology
For Every Comprehensive research a properresearch methodology is indispenensable & it has
to be properly conceived. The methodology
adopted by me is as follows:-
Research Design
Problem Identification
@ Find out Ratios related to working capital
management of BCCL and compare with last 2years.
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@ Find deviation of calculated from standard or Norms
@ Calculating the working capital requirement ofBharat Coking Coal Ltd.
Information needed
@ Information about firms assets, liabilities, revenue, expenditure, bankers,
investment etc.@ Information about firms loan, security, stock level & other financial information.
Data Collection
My data collection source was secondary i.e.
@ Annual reports of companies
@ Balance sheet
@ Profit & Loss Accounts
Analysis & Interpretation
The data collected and analysed subjectively as well as graphically where it is
possible. The analysis is based upon available information & interpreted accordingly.
Conclusion
On the basis of analysis conclusion has been drawn.
Suggestion
Suggestion has been given in order to improve performance of the firm.
Limitation
My scope of study is limited to the annual reports, Balance sheet of units foranalysis
Section 4
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ANALYSIS OF WORKINGCAPITAL
MANAGEMENT OFBHARAT COKING COAL
LIMITED
BALANCE SHEET Rs (in lakhs)
PATICULARS 2006-07
2007-08
2008-09
2009-10
2010-11
SOURSES OFFUNDS:SHAREHOLDERSFUND:
SHARE CAPITAL 211800 211800 211800 211800 211800.00
RESERVES ANDSURPLUS
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MSRMISUB TOTAL 21180
021180
021180
0211800 211800.
00
LOAN FUNDS:SECURED 30784.
2320843.
1611826.
733946.1
63259.7
UNSECURED 157620
.1
108330 108330 108329.
98
108330
SUB TOTAL 188404.4
129173.1
120156.7
142276.14
111589.7
TOTAL 400204.4
340973.1
331956.7
354076.14
323389.56
APPLICATION OFFUNDS:FIXED ASSETS:GROSS BLOCK 372797
.5385584
.4391474
.6408879.
58436019.
96LESS: DEPRICIATION 260545
.9273094 278134 286242.
37300377.
81NET BLOCK 112251
.6112490
.4113340
.6122637.
21135642.
15CAPITAL WORK INPROGRESS
8399.24
5407.66
9138.47
8304.24 8345.70
SUB TOTAL 120650.9
117898.1
122479
130941.45
143987.85
INVESTMENT 12470.4
11084.8
9699.2 8313.6 6928.00
INVENTORIES 52189.14
57352.91
70725.53
93890.02
111236.22
SUNDRY DEBTORS 8617.47
5144.03
18682.5
39380.24
61813.50
CASH AND BANKBALANCES
96097.25
77289.22
91088.72
92302.76
130683.59
LOANS $ ADVANCES 16329.25
17978.53
22070.92
31950.62
29736.02
SUB TOTAL 173233.1
157764.7
202567.7
257523.64
333469.33
LESS: CURRENTLIABILITY&PR
585327.3
639235 834296.4
794790.34
803714.85
NET CURRENTASSETS
-41209
4
-48147
0.3
-63172
9
-537266
.7
-470245.
52MISC. EXPTPROFIT AND LOSSA/CS
679177.3
693460.5
831507.2
752087.79
642719.23
TOTAL 400204
.4
340973
.1
331956
.7
354076.
14
323389.
56
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Profit and loss account Rs (lakhs)
Particulars2006-07 2007-08 2008-09 2009-10 2010-11
INCOME:
Sales of coal, coke,
etc.
287919.8 295478 339913.2
461933.67 615711.23
Coal issued for
other purposes per
contra 67775.9 68588.2 75532.0
7 68355.31 93809.90
Other receipts 40026.91 27937.6 69167.3
1 50536.63 30755.98
Accretion in stock 554.77 4962.42 11857.1
4 26809.03 17389.26
Total 396277.4 396966 496469.
72
607634.6
4 757666.37
EXPENDITURE:
Decretion in stock --- --- ----- -----
-----
Purchase/transferof coal/coke etc. --- --- ---- ---- -----
Internalconsumption ofcoal per contra
65319.64 66071.3 73232.72 66193079 93317.74
Employeesremuneration &benefits
175151.5 188518 276118.98 264274.59 302312.58
Impact of arrear
wages underNCWA VII
--- --- --- ----
------
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2006-07 2007-08 2008-09 2009-10 2010-11
Impact of arrear
adhoc/IR exe. &non-exe.
32346.1
Consumption ofstores & spareparts
32064.86 23346.1 83895.16 39124.98 43796.58
Power & fuel23270.86 33015.8 37548.98 30600.21 21781.36
Differential tariff--- 23346.6 23414.38
Repairs(Purchased) 4945.45 --- 5623.64 7071.88 7926.54
Contractualexpenditure 16845.28 4944.75 29475.38 37818.66 64335.17
Social overheads
(Includes freeissue of coal to
employees)
24480.5 25688.7 30550.41 34071.91 34304.63
Interest7885.74 9347.2 7842.76 6659058 4201.68
Depreciation14267.22 17550 16005.93 17103.50 17245.59
Impairment ofassets
2053.98 330.53 296.24 -3535.72 823.40
Provision229.58 170.25 273.7 779.57 127.88
Other expenditure27576.91 28747.1 43322.43 38679.74 54884.36
Total expenditure393892 453759 627600.71 538842.69 646832.11
Add/less: OBR adj:1781.97 -3321.77 5214.94 -10963.49 2056.53
Net total
expenditure 395673.5 450437 632815.65 527879.20 648888.64
Profit/loss(-) for
the year 603.89 -53470.7 -
136345.93
79755.44 108777.73
Fringe benefit tax-272.82 -1043.64 -347.83 ---- 26.30
Prior period adj.4626.93 13885.6 -1352.95 -362.32 590.83
Waiver of apex
interest --- 49290.2 -----
Total profit
4958.4 8681.35 -138046.71
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PR
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MSRMIParticulars
2006-07 2007-08 2008-09 2009-10 2010-11
Balance loss(-)
brought forward
from last years
accounts
-684136 -679177 -693460.5 -831507.21 -752087.79
Transitional prov.
As per rev. AS 15 --- -22944.6 ----
Loss(-)carried
forward to balance
sheet
-679177 -693461 -
831507.21
-752087.79
-642719.23
Line graph showing Profit and Loss of BCCL
From 2006-2011
The Company has earned a profit of Rs.1087.78 crore in 2010-2011 against a profit
of Rs.794.19 crore for the previous year.
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*Two reasons for making huge loss in the year 2008-09:
1. Huge payment of Rs 1600 crore arrears.
2. Loss in production due to bandhs on 88 days (called by both Maoist as well as
political outfits).
ANALYSIS OF SHORT TERM FINANCIALPOSITION OR TEST OF LIQUIDITY
The short term creditors of a company such as suppliers of goods of credit and commercial banks
short-term loans are primarily interested to know the ability of a firm to meet its obligations in
time. The short term obligations of a firm can be met in time only when it is having sufficient
liquid assets. So to with the confidence of investors, creditors, the smooth functioning of the firm
and the efficient use of fixed assets the liquid position of the firm must be strong. But a very high
degree of liquidity of the firm being tied up in current assets. Therefore, it is important proper
balance in regard to the liquidity of the firm. Two types of ratios can be calculated for measuring
short-term financial position or short-term solvency position of the firm.
1. Liquidity ratios.
2. Current assets movements ratios.
A) LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as and when these become
due. The short-term obligations are met by realizing amounts from current, floating or circulating
assts. The current assets should either be liquid or near about liquidity. These should be
convertible in cash for paying obligations of short-term nature. The sufficiency or insufficiency of
current assets should be assessed by comparing them with short-term liabilities. If current assets
can pay off the current liabilities then the liquidity position is satisfactory. On the other hand, if the
current liabilities cannot be met out of the current assets then the liquidity position is bad. To
measure the liquidity of a firm, the following ratios can be calculated:
1. CURRENT RATIO
2. QUICK RATIO
3. ABSOLUTE LIQUID RATIO
1. CURRENT RATIO
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Current Ratio, also known as working capital ratio is a measure of general liquidity and its most
widely used to make the analysis of short-term financial position or liquidity of a firm. It is
defined as the relation between current assets and current liabilities. Thus,
CURRENT RATIO = CURRENT ASSETS
CURRENT LIABILITESThe two components of this ratio are:
1) CURRENT ASSETS
2) CURRENT LIABILITES
Current assets include cash, marketable securities, bill receivables, sundry debtors, inventories and
work-in-progresses. Current liabilities include outstanding expenses, bill payable, dividend
payable etc.
A relatively high current ratio is an indication that the firm is liquid and has the ability to pay itscurrent obligations in time. On the hand a low current ratio represents that the liquidity position of
the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal
or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to
be satisfactory.
WITH INTERNAL
CURRENT LIABILITY
WITHOUT INTERNAL
CURRENT LIABILITY
YEAR CURRENT RATIO CURRENT RATIO
2010-2011
2009 - 2010 32.40%
2008 - 2009 24.28%
2007-2008 24.48%
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2006 -2007