Credit of Sail Report

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CHAPTER I

INTRODUCTION
BACKGROUND: Trade Credit Arises When a Firm Sells its products or services on credit and does not receive the cash immediately. It is an essential marketing tool, acting as a bridge for the movement of goods through production and distribution stages to customers. A firm grants trade to protect its sales from the competitors and to attack the potential customers to buy its products at favorable terms. Trade credit creates accounts receivable or trade debtors. The customers from whom receivable or trade debtors. The customers from whom receivable or book debits have to be collected in future are called trade debtors or simply as debtors, who constitute a substantial portion of current assets of several firms. A credit sale has three characteristics, it involves element of Risk Economic value Futurity. A firm's investment in accounts receivables depends on (a) Volume of credit sales, and (b) The collection period In order to have the receivables in effective manner the firm should have an effective credit policy. The term credit policy refers to combination of three decision variables, credit standards, credit terms and collection efforts. In practice the Indian companies grant credit for several other reasons such as the company position, buyer's status and requirement dealer relationship, transit delays, industrial practices, transit delays etc. The firm will have a evaluate its credit policy in terms of both return and costs of

additional sales. Additional sales should add to the firms operating profit. There are three costs involved: 1. Production and selling cost, 2. Administration cost and 3. Bad-debt losses. The firm's operating profit is maximizes when total cost is minimized for a given level of revenue. Optimum credit policy is one which maximizes the firm's value. The value of the firm is maximized when the incremental or marginal rate of return of an investment is equal to incremental or marginal cost of funds.

CHAPTER - II

COMPANY PROFILE

PROFILE OF STEEL AUTHORITY OF INDIA LIMITED (SAIL)

Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets.

Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel

and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines.

The company has the distinction of being India's largest producer of iron ore and of having the country's second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making.

SAIL's wide ranges of long and flat steel products are much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organization (CMO) and the International Trade Division. CMO encompasses a wide network of 34 branch offices and 54 stockyards located in major cities and towns throughout India.

With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry.

Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organisation at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified. MAJOR UNITS

         

Integrated Steel Plants Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal Special Steel Plants Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiary

 Joint Ventures

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

SAIL has promoted joint ventures in different areas ranging from power plants to ecommerce.

NTPC SAIL Power Company Pvt. Ltd:

A 50:50 joint venture between Steel Authority of India Ltd. (SAIL) and National Thermal Power Corporation Ltd. (NTPC Ltd.), it manages the captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 314 megawatts (MW)

Bokaro Power Supply Company Pvt. Limited This 50:50 joint venture between SAIL and the Damodar Valley Corporation formed in January 2002 is managing the 302-MW power generation and 1880 tonnes per hour steam generation facilities at Bokaro Steel Plant.

Mjunction Services Limited

A joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes ecommerce activities in steel and related areas.

SAIL-Bansal Service Center Ltd

SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote a service centre at Bokaro with the objective of adding value to steel.

Bhilai JP Cement Ltd

SAIL has also incorporated a joint venture company with M/s Jaiprakash Associates Ltd to set up a 2.2 MT cement plant at Bhilai.

SAIL has signed an MOU with Manganese Ore India Ltd (MOIL) to set up a joint venture company to produce ferro-manganese and silico-manganese at Bhilai.

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

SPECIAL STEELS PLANTS
SALEM STEEL PLANT

Salem Steel Plant (SSP) is a premier producer of international quality stainless steel in India. Commissioned in 1981, the Plant has a capacity to roll 1,86,000 tones of hot rolled carbon and stainless steel flat products and 70,000 tones of cold rolled stainless steel sheets and coils per annum. The Plant has gone beyond its designed capacity and successfully cold rolled value added 0.13 mm thick stainless steel.

SSP can also supply hot rolled carbon steel in thick nesses of 1.5, 1.4 and 1.25 mm. Its products have become a household name 'Salem Stainless' in the domestic market and are widely exported; besides meeting the requirements of 100 per cent export oriented units and free-trade zones in India. In hot rolled special grade carbon steels, SSP has been recognized as a well-known manufacturer

of boiler quality steel. The Plant is also supplying LPG grade IS 6240 steel in sheet form. The entire Plant is certified for the ISO: 9001:2000 Quality Assurances and the ISO: 14001 Environmental Management Systems.

A Blanking Line, the first of its kind in India, was established in 1993, with an annual capacity to produce 3000 tones of ferritic grade coin blanks or 3600 tonnes of utility blanks. Coinage of Re 1, 50 paise and 25 paise denominations are minted from the blanks supplied by SSP to the Government Mint in Noida, Mumbai, Kolkata and Hyderabad.

SSP has revolutionized application of stainless steel in India both in conventional and unconventional areas. High-tech industries like atomic power stations prefer 'Salem Stainless'.

It is also chosen in industrial sectors like dairy and food processing, chemical and fertilizer, heavy engineering, railways, automobile, bulk solid handling, power etc. The building and architecture segment, which is growing at a rapid pace, sees 'Salem Stainless' as the most dependable companion.

SSP undertakes turnkey projects like fabrication and supply of stainless steel tubes, pipes for sugar and chemical industry and for water pipelines. Under conversion scheme, value-added products like kitchen & tableware and doorframes are manufactured and supplied in bulk to corporate. SSP has also developed new application of its products, viz. LPG tanks for automobile, stainless steel ceiling fans, exhaust fans, corrugated sheets, water tanks, etc.

In architecture, building and construction, the prestigious structure where 'Salem Stainless' was chosen include the Parliament House Library Complex, New Delhi, the world's tallest twin buildings -- the Petronas Twin-Towers, in Malaysia and the retractable roofing at the Melbourne Tennis

Stadium, Australia. The coaches of the high speed Jan Shatabdi Express trains are furnished with modular rail marts and sub pantries made entirely of Salem Stainless. Korean blue resin coated corrugated curved roofing of the Koparkhairane Railway Station and the copper tan shade-coloured roofing of the Airoli railway station in Navi Mumbai is a trendsetter for railways in India. HUMAN RESOURCE DEVELOPMENT Human resources are our greatest assets. Training and continuous development of this asset is an important management responsibility. SAIL has always held the training of its employees as a priority since inception. Starting from late fifties, when the steel plants were being built and commissioned, SAIL has striven to reach new peaks in the area of technical management and training activities including the skills needed for technology up gradation, modernisation, automation and computerisation, etc.

SAIL's training policy is based on the realisation that the development of human resources is crucial to the success of our organisation. The company is also aware of the changing environment with respect to continuously updating technologies, skills, attitudinal changes, growth strategies and future plans. The various training schemes in vogue at the plant/unit Training Centres of SAIL are        Training of New Entrants - Management Trainees (Tech), Management Trainees (Admn), Junior Manager (Finance), Senior Operative Trainees, Junior Operative Trainees, Artisan Trainees, Trade Apprentices.

The training periods of these categories vary between 3 months to 3 years.

Training of Executives

Need based general management, functional training programmes; Microplanning, Action Leadership Training for upgradation etc. are conducted at Plant Management Training Centres and Management Training Institute at Ranchi. These programmes are of short duration of 1 to 4 weeks where eminent outside guest faculty and specialists are also invited to share their experiences.

Training of Non-executives

Supervisory development functional programmes, shop floor skill development programmes e.g. Unit Training, Refresher Training Schemes, Redeployment Training, Training in Basic Maintenance Skills are organised at Plant / Unit levels as per the organisational needs and developmental needs of employees.

Training within India

In order to keep abreast with the development in various specialitiesi / functions a number of employees both executives and non-executives are deputed to reputed training establishments / professional agencies / institutes / supplier organisations for training within India. Under this, around 810% executives are deputed each year.

Training Abroad

For the transfer and absorption of advanced and new technologies, a good number of qualified technologists and specialists of SAIL plants are deputed every year for training abroad in countries like USA, USSR, West Germany, UK, Japan, Austria, Australia etc.

Manpower Development

Looking at the short term and long term developmental needs of man power; a number of in-house programmes are conducted in each Unit/Plant Training Institutes and at the Management Training Institute, Ranchi. It may also be mentioned here that the training plans drawn and implemented in different units of SAIL are tailor made to meet the needs of each Plant/Unit. Continuous efforts are being made to train the manpower through systematic approach to training.

PHYSICAL FACILITIES

The Training Institutes in Plants and MTI, Ranchi are well equipped with infrastructural facilities such as well equipped class rooms, workshop/ laboratories, audio-visual aids and libraries, hostels for trainees, sports and recreation facilities, playgrounds etc.

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 speciality 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 2012 to 2010.
Saleable Steel Capacities (MT) PLANT Bhilai Steel Plant Durgapur Steel Plant Rourkela Steel Plant Bokaro Steel Plant IISCO Steel Plant Alloy Steels plant Salem Steel Plant Visvesvaraya Iron & Steel Plant 2010 6.21 2.85 2.90 6.50 2.37 0.43 0.36 0.22

Dynamic Adjustments SAIL's Growth Plan is essentially a directional document. With the changing market scenario and technological advancements the company shall continue to fine-tune our growth plans keeping in mind the steel plants' operational requirements. As such, the company's growth plan is in tune with the boom being experienced by the global steel industry and the high rates of growth being established by the Indian economy and the major steel-consuming sectors. The endeavor is not only in tandem with India's National Steel Policy of achieving a production level of 110 MT of crude steel by the year 2020, but also amply reflects the company's Vision of achieving market leadership. The target of 110 mt of steel has been worked out on

the basis of a compounded annual growth rate of 7.3% per annum.

Enhancing Competitiveness

The objective, however, remains the same. Beside capacity enhancement, the growth plan addresses the need of the SAIL plants and other units towards eliminating technological gaps in the production process, improving productivity levels for all stages right from raw materials to rolling mills, bringing in technologies for energy savings, yield improvement, pollution control and automation. The long term plan is to build sustainable competencies.

SAIL's growth plan 2011-12 also entails modernisation of three of its special steel plants – Alloy Steels Plant (ASP) at Durgapur, Visvesvaraya Iron & Steel Plant (VISL) at Bhadravati and Salem Steel Plant (SSP) at Salem.

This will ensure increase in the production of saleable steel from SAIL's special steel plants from a level of 0.379 MT in 2004-05 to 0.993 MT by 2010.

Prevailing Scenario

True, SAIL is looking into future and the journey has begun. As of now, projects worth around Rs 28,000 crore are in various stages of implementation. This includes ongoing 28 numbers of projects worth more than Rs 2,800 crore spread over six production units across the country. The tendering for rest of the approved projects worth around Rs 25,000 crore is presently under progress.

In a significant development, the company now obtains consolidated approval for the

major projects instead of piece meal approvals. For instance, the SAIL board has in the last one year granted 'in-principle' approval for the entire package of Rs 1,553 crore of projects for Sales Steel Plant (SSP), Rs 9,592 crore for IISCO Steel Plant (ISP) and Rs 9,265 crore for Bokaro Steel Plant (BSL).

Unique Features

Salem Steel Plant for the first time will have steel making facilities along with continuous slab caster. Presently, SSP is entirely dependent on external sources for supply of stainless steel slabs.

Effective Implementation

The mere statistics may not tell the real story. The logistics, the tonnages, the number of executing agencies, the procedures, the contract labourers, the finance, so on and so forth – the sheer scale of operations and the range of activities are staggering. Needless to mention, the key to success lies in meticulous planning, continuous monitoring and effective finishing. The task becomes all the more daunting due to the additional challenge of simultaneous management of ongoing operations in steel plants.

On its part, the company firms up concrete plans to pull out all the stops. Integrated Project Management, Delegation of Power to Project Managers, Prequalification of Conference with Prospective Bidders, MoUs with Vendors for Regular Jobs and Performance Evaluation of Contracting Agencies are some of the new initiatives in this regard. SAIL has also simplified its purchase and contract procedures that will surely go a long way in facilitating timely completion of the projects on such a large scale.

Human Resource

Thrust on human resource development continues with a renewed focus on inculcating a greater value orientation across the company. A series of initiatives are being taken to improve the competence level of the employees in tune with changing technologies, customer demands and market dynamics. Accordingly, training modules have been redesigned with a clear focus on competence mapping, skill gap analysis, multi-skilling and multi-tasking apart from imparting training on new technologies of steel making. Efforts are also on to put a system in place to institutionalize the sharing of knowledge among the employees.

Ensuring competitiveness

Achieving cost competitiveness remains a prime target of SAIL's future plans. Today in SAIL, the focus of the sustained cost control exercise is on shortening cycle time, reducing specific usage of inputs, eliminating wastages and improving yields. The work has begun in right earnest. The challenge before SAIL is to ensure that the projects are implemented without time and cost overruns.

Salem Steel Plant (SSP)

mt 2005-06 Crude Steel Saleable Steel 0.17 After Expansion 0.18 0.35

Important Projects 1. Installation of Steel Melting and Continuous Casting facilities to produce 180,000 tonnes of slabs along with single strand slab caster. 2. Expansion of Cold Rolling Mill Complex (to enhance Cold Rolled Stainless Steel capacity from 65,000 TPA to 146,000 TPA). 3. Additional Roll grinding machine for Hot Rolling Mill for enhanced production of 370,000 TPA. 4. Upgradation of existing Sendzimir Mills for quality & productivity improvements

OBJECTIVES OF THE STUDY:

To study and analyze how effectively the debtor's and debt are being managed in Salem Steel Plant from year 202 to 2006



To study the credit policy in Salem Steel Plant and to give them suggestion regarding pertinent development and actions to strengthen the receivables management process of the company.



To do a comparative analysis between the year 2003 to 2007 regarding and increase in sales of the company.



To do a trend analysis between the 2002 to 2007 regarding the payable to the increase or decrease in the company.

SCOPE OF THE STUDY:

The study highlights on the various aspects like company's ability to get back their loans at agreed duration and installment, the company's ability to retrieve their money from the defaulter or any compensation for the same and legal actions taken against default customers. The study says about the various credit proposals applied to the company are bound to repay it tin pre specified duration in agreed installment and interest rates.

CHAPTER III

RESEARCH METHODOLOGY:
Research methodology is a way to systematically solve the research problem. It shows all the details of data which have been used for the research and procedures which have been followed in the study. TYPE OF THE STUDY:

The method adopted for the study is historical research. It is based on the study of past and current records of existing delinquent customers to analyze the default status of their account and its significance in order to draw a conclusion. The research is descriptive in nature as the study was done on the existing data. The research design used in this study is descriptive research design. A descriptive study is undertaken in order to study and analyze the receivables of the company with the available data. METHOD OF DATA COLLECTION: SECONDARY DATA: It was got from the published annual reports and database of the company for the corresponding years for which the study has been made.

TOOLS FOR ANALYSIS: In order to study and analyzes the debtors management of the company the following tools are used. » Ratio Analysis Comparative financial statement Trend Analysis

»

»

Ratio Analysis: Ratio analysis is one of the popular tools of financial statement analysis. A ratio can be defined as "indicate quotient of two mathematical expressions" and as "the relationship between two or more things". A financial ratio is defined as a relationship between two variables taken from financial statement of the concern. It's a mathematical yardstick that measures the relationship between the two financial figures. Experts have identified ratios as significant and improvement too, since they through considerable light on financial position of the concern.

Comparative Financial Statement:

Any financial statement that reports the comparison of data of two or more consecutive according periods is known as comparative financial statement. According to A.F.Foulke "comparative financial statement are statement of the financial position of a business so designed as to provide time prospective to the consideration of various element of financial position embodied in such statement". Such a statement spotlights trends and establishes relationship between items that appear on the same row of a comparative financial statement. Mush valuable information is obtained from statement in this manner.

LIMITATION OF THE STUDY:
1. Ratio analysis lacks standard values for the ratio; therefore, scientific analysis is not possible. 2. As there are no standards with which to compare, ratio analysis fails to throw light on the efficiency of any activity of the business. 3. Ratio analysis gives only the relationship between different variable and the actual magnitudes are not known through the ratio.

CHAPTER IV THEORITICAL PROSPECTIVE DEBT AND DEBTORS MANAGEMENT 1. INTRODUCTION:

Section 45 (budget) and (C) of the Public Finance Management Act places the onus on each official within the department to take responsibility for the effective, efficient, economical and transparent use of financial and other resources within that official' stainless steel area of responsibility. In particular the official must take effective and appropriate steps to prevent, within that official' area of responsibility, any unauthorized, irregular, fruitless and wasteful expenditure and any under-collection of revenue due.

2. DEFINITION:
"An individual or company that owes debt to another individual of company (the creditor) as a result of borrowing or issuing bonds also calls obligor.

3. OBJECTIVE:
The objective of this document is to provide departmental officials with a uniform policy on the management and control of debts owed to the Department… 4. SCOPE

OF APPLICATION:

From a responsibility perspective, this policy is relevant to all departmental officials. It is, however, specifically applicable to all officials who have a formal, administrative duty to manage duty to manage and control departmental debts, including the recovery and write-off debts, owed to the Department.

5. POLICY:
1.1 DEBT TYPES: Generally the following types of debt may occur: i) Where the State has suffered a loss or damage through the act of an official (whether that person is still in the employ of the State or not), or any other person;

ii) Where a salary, wage or allowance was erroneously or inadvertently paid on employee; iii) Where and individual or a company braced a contract; and iv) Where an erroneous overpayment was made to a creditor, institution or private body.

1.2 CLASSIFICATION In order to comply with Treasury Regulation 11.2.1(a), a debt must be record in the general ledger of the departmental as soon as it is discovered. 1.2.1 SIMPLE DEBT (NON-INTEREST BEARING): A simple debt is raised whenever a debt is non-interest bearing (Refer to Government Notice 4653 to 2000). Simple debts are normally settled within a relatively short period (usually within one year or as determined by the Accounting Officer). Simple debts are usually restricted to the recovery of money from departmental officials, and occur in cases such as; i) ii) Salary and related overpayment; and Debts which originate due to the actions of officials including, but not limited to, private telephone

calls, leave without pay, arrear contributions, damage to official vehicles. Debtors statement do not have to be produced and debts are simply raised in the relevant disallowance account of the Department and recovered from the debtors concerned, provided that the debtors have been notified in writing of the department recovery action.

1.2.1 COMPLEX DEBT (INTEREST BEARING): A complex debt is raised whenever a debt is interest bearing (refer to Government Notice 4653 of 2000). A complex debt account is structure on FMS with restricted parameters to control access thereto. Complex debts usually occur in cases such as; i) ii) breach of contract or loan agreements; and] Debts which originate due to mala fides ("with evil intentions") actions of officials, private bodies etc.

In the case of complex debts, debtor's statement must be produced and forwarded to the relevant debtors. The debtor must me be given 30 days to settle the amount owing and interest, at the rate determined by Minister of Finance must be levied on the outstanding amount, should the debtor fail to comply. In the case of a contractual agreement, the interest rate stipulated in the contract must be levied. PROCEDURE FOR DEBTORS MANAGEMENT: RESPONSIBILITY FOR THE DEBTORS MANAGEMENT According to Section 38(1) @ (i) and (d) of the PFMA, 1) The Accounting Officer of an Institution must take effective and appropriate steps to timorously

collect all money due to the institution including, as necessary.

a) Maintenance of proper accounts and records for all debtors, including amounts received in part payment; and

b) Referral of a matter to the State Attorney, where economical, to consider a legal demand and possible legal proceedings in a court of a law. SUCCESSFUL DEBTORS MANAGEMENT: Credit has become a way of life, many of your business purchases will be make on credit and the extension of a credit line will be something most of your customers take for granted. Therefore efficient credit control and debt recovery are of the utmost importance. Extending Credit: Most businesses will be required to extend credit and this credit will need to be on competitive terms, or customers may well go elsewhere. However, a balance must be achieved in order to reduce the chances of overdue or uncollectible accounts. The developments and execution of an effective credit policy is the best method of reducing this risk. The policy should cover all areas of your credit procedure from application to recovery. The terms of credit you extend will carbon steel owe much to your relationship with your customer, what your competition is offerings and what your needs for cash are.

Knowing Your Customer: Procedures for the approval of lines of credit for new customers should be put in place. A credit application form is a good way of finding out the necessary information on prospective debtors. Customers looking for credit will provide you with their business name, address, phone and fax number along with at least two trade references and one bank reference for this purpose. If the customer has a person in change of payments, make them fully aware of your payments process. Many potential credit problems can be eliminated before they happen through investigation and prudent judgment. This may be fin the form of checking trade and bank references, looking through trade journals and using credit bureau checks (although you will need to ensure that you have obtained adequate consents before carrying out credit reference searches).

Conditions of Payment: Sound Judgment is of vital importance since your credit extension policy should on be overly restrictive or covertly generous. A restrictive policy may lot be competitive and result in a loss of sales, white an overly generous policy will increase the chance of uncollectible accounts. Conditions to be put in place involve, how much credit will new extended, the period until the repayment is due and penalties for late payment. Take a look at what condition your competitors offer and take into consideration what you can afford before finalizing your credit line conditions. New customers, or those you view as risky will often be set a lower credit limit with more stringent conditions than your more established customers, however, you should put in place a policy of reviewing the credit limits of all customers regularly.

CHAPTER V

DATA ANALYSIS AND INTERPRETATION

4.1 CREDIT POLICY OF COMPANY: The approved credit policy circulated vide No Mkg/HQ/AN/06-07 dated 27-05-06 for the sale of stainless steel products shall products shall remain as the guideline for making any commitment in the OFFICERS to customers. The detailed credit policy is placed at (ANNEXURE-1 with relevant attachments therein as ANNEXURES 1(1) TO 1(9) for reference and guidance ok all concerned. As a rule, stainless products from SSP shall identity a list customer's on this basis of past performance and payment record, who can be allowed to make payment record, who can be allowed to

make payment by cheque. This list, to be approved by ED, shall also stipulate a limit up to which cheques can be accepted. It would be necessary to update this list every for any addition/deletion. In the list as may be called for. Other customers or such customers having an indifferent payment history shall be asked to make payment by Demand Draft.

Unsecured Credit shall normally be extended to any customer. However if it is required to be extended under specific circumstances, approval of the Competent Authority shall be obtained before commencement of dispatch in the prescribed format (ANNEXURE-10(5), clearly indicating the period,. Value etc. Based on the customer requirement, off take, criticality of the order etc., if the need so arises, Secured Credit may be extended to customers on a selective basis. Secured Credit may be extended against an Irrevocable Letter of credit opened through a Scheduled/Nationalized Bank. The Branch Manager shall additional precautions to verify the LC condition, documentation stipulated, LC charges etc., before hand. In special cases Secured Credit may also be extended against Bank Guarantee from Scheduled/Nationalized Banks. Approval for secured Credit is to be obtained in the prescribed format (ANNEXURE-10(3) AND 10(4). As a measure of abundant precaution, Branch Manager shall independently verify the authenticity of the BG/LG from the issuing bank, at the time of its receipt/before dispatch of the material, after obtaining confirmation of LC form Regional /Zonal Office of the issuing Branch.

The Secured credit shall also be extended only after obtaining specific approval from the Competent Authority. In such proposal, the branch marketing executive shall specifically bring forth the

requirement as to whether the secured credit shall be interesting bearing or interest free and for the period so proposed.

RATIO ANALYSIS:
1. DEBTORS TURNOVER RATIO: The debtors also constitute major portion of the current assets as that of the inventory. The liquidity of the firm depends upon the realization of debtors. The high realization of debtors implies that the firm is highly liquid and vice versa. As a company sells goods for both cash and credit, credit is used as a marketing tool by a number of companies. When the company extends credit it its customers, book debts are created in the company's account. Book debts are expected to be converted into cash over a short period and therefore as included in current assets. The liquidity position of the company depends on the qualify of debtors to a great extend. Financial analysis apply debtors turnover to judge the liquidity of debtors. Credit Sales Debtors Turnover Ratio= Debtors Debtors turnover ratio indicates the number of times debtors turnover each year. Generally, higher the value of debtor's turnover, the more efficient is the arrangement of credit. TABLE NO: 1. DEBTORS TURNOVER RATIO:

YEARS 2002 2003 2004 2005

DEBTORS TURNOVER RATIO 11.16 10.14 13.74 15

2006

14.8

INFERENCE: The above table shows that the debtors Turnover Ratio lies within its upper limit and also maintains a reasonable level which if is useful for the liquidity of the firm.

2. DEBT COLLECTION PERIOD: The average collection period measures the quality of debtors because; it measures the speed of their collection. Shorter the average collection period, their quality if debtors as a short collection period implies the prompt payment by debtors. An excessively long collection period implies a very liberal and inefficient credit and collection performance. This certainly delays the collection of each and imparts of the company's liquidity. Thus the collection period ratio indicates in two aspects: Thus the collection period ratio indication in two aspects: 1. In determining the collectables of debtors. 2. In ascertaining the company's comparative strength and advantages relatives to its credit policy a

Performance vis-à-vis the competitors credit policies and performance. Debtors Debt collection period= Credit Sales *365days

TABLE -2: DEBTOR'S COLLECTION PERIOD

YEAR

DEBTORS

CREDIT SALES

DEBT COLLECTION PERIOD (DAYS)

2002 2003 2004 2005 2006

1380 1660 1550 1908 1882

15502 16837 21297 28345 27838

33 36 27 25 25

INFEPRENCE: The above table shows that the debt collection period reduced in the consecutive years, as the credit collection is done faster. Also it is noted that the debt collection period is get minimized after years

2003 continuously, thus the company is reviewing its credit policy every year to collect the debts within stipulated time period.

CHART 2: DEBTOR'S COLLECTION PERIOD

3. DEPT EQUITY RATIO Dept equity ratio also known as external – internal equity ratio, is being calculated in order to know the relationship between the shareholders find and outsiders fund. The outsider's debt includes all long term and short term debts. While share holder fund consist of paid up capital, reserve and surplus. Debt equity ratio is calculated by dividing the long term debt by internal equity. Dept equity ratio = External equity/Internal equity.

TABLE – 3 DEBTOR'S EQUITIES RATIO
Year 2002 2003 2004 2005 2006 External Equities 14019 12928 8650 5770 4298 Internal Equities 2252 1989 4859 10011 12385 Debt Equities Ratio 6.22 6.5 1.87 0.58 0.35

INFERENCE: It is found out from the above table that the debt-equity ratio is decreasing gradually from 2002 to 2006, due to increase in the internal equity by the company.

CHART NO: 3. DEBTOR'S EQUITIES RATIO

4. DEBT TO TOTAL ASSETS RATIO: Debt to total assets ratio is relate to the debt to capital ratio. The total debt of the firm comprises long term debt plus current liabilities. Total assets consist of permanent capital plus current liabilities. Debt to total asset=Total debt/Total assets

TABLE – 4 DEBT TO TOTAL ASSETS RATIO:
Year 2002 2003 2004 2005 2006 Total Debt 14019 12928 8690 5770 4298 Total Assets 21905 21318 21243 26672 29546 Debt to total Assets 64 60.48 40.91 21.63 14.55

INFERENCE: From the above table shows that debt to total assets ratio in the year was 0.6 times. It has decreased gradually year by year if ranges between 0.6 times to 0.15 times.

CHART NO: 4 DEBT TO TOTAL ASSETS RATIO:

5. INTEREST COVERAGE RATIO: Interest coverage ratio is also known as time interest ratio. This ratio measures the debt servicing capacity of a firm insofar as fixed interest on long term loan is concerned. It is determined by dividing the operating profits or earning before interest and taxes (EBIT) by the fixed interest charges on loans. EBIT Interest Coverage ratio= Interest

TABLE -5 INTEREST COVERAGE RATIO:
Interest Coverage Year 2002 2003 2004 2005 2006 EBIT -145 1018 3529 9970 6174 Interest Ratio 1562 1334 901 605 468 -0.09 0.76 3.92 16.48 13.02

INFERENCE: From the above table shows that interest coverage ratio in the year 2002 was 0.09 times. It has increase year by year up to 2005. Again it has a shows slight decrease by 13.20.

CHART -5 INTEREST COVERAGE RATIO:

TABLE-6 COMPARATIVE FINANCIAL STATEMENT

PARTICULARS TOTAL SALES CREDIT SALES TOTAL DEBTORS A)PUBLIC SECTOR GOVET. PARTIES PRIVATE B)CATEGORYWISE: > 6 MONTHS 6 MONTHS-1 YEAR 1-3 YEARS 2-3 YEARS > YEARS

2003-04 557.35 41.52 42.81 2.02 15.71 25.08

2004-05 1008.83 68.68 19.01 2.33 0.93 15.75

2005-06 770.12 92.57 18.93 2.57 3.09 13.27

2006-07 1299.27 150.01 28.64 3.28 3.39 21.97

27.24 0.32 0.21 0.01 14.97

4.84 0.14 0.07 0.09 13.87

5.32 0.06 0.10 0.04 13.41

15.45 0.01 0.02 0.01 13.15

INFERENCE: The Total Sales from the year 2006-07 has been continuously increasing. It shows that the company is performing well. The credit sales has also been increasing in correspondence to total sales, thus the increase in credit sales has increased the total sales value for value the company. The shows that the company is continuously improving its credit policy over every year. The Total Debtors value in the year 2003-04 is 42.81 and the in the consecutive years the debtors value is decreased, thus the receivables was attained within the stipulated time period as per the credit policies they followed.

The company has given credit in large to the private organization (single) and the debts are received by the company in time, whereas the company gives credit comparatively less to the public and Government sectors. The bed debt value is nil which is noted from their balances sheets from year 2003-04 to 2006-07. In proves that the company is doing well in managing their debtors. The credit is given to its customers mainly in the fashion, either < months or > years and also from months – year, - years. It shows that the company is practicing short term, mid term and long term credit terms according to their customer needs. Since the company is collecting large value of debts in short term (< months) duration, the company can have a good working capital to meet its current liabilities, reserve and surplus, and can also plan its future investments.

TABLE -7 FIVE FASHION OF CREDIT TERMS
PARTICULARS SECU.FREE CREDIT) (PVT) SECU.BEAR.CREDIT (PVT) UNSEC.FREE/BEAR CREDIT (PVT UNSEC.FREE CREDIT(GOV. AND PSU) UNSEC.FREE CREDIT (PRIVATE) UNSEC.BEAR.CREDIT (PSU) 0.03 NIL NIL NIL NIL 4.05 3.94 3.94 4.99 10.91 7.59 22.12 22.12 23.80 62.82 1.95 1.27 1.27 0.66 1.37 13.49 27.93 29.93 8.96 45.73 2003-04 14.41 2004-05 13.42 2004-05 13.42 2005-06 24.16 2006-07 29.18

The following figures shows the five fashion of credit terms which the company has followed from 2003-04 to 2006-07.

CHART NO: 6 FIVE FASHION OF CREDIT TERMS (2003-04)

In year 2003-04, the company has given secured bearing credit to private sectored in large, hence the company is safe enough in receiving its debts. Also, the company has provided secured free credit to private sector, unsecured free credit to Government and PSU and to Private Sectors. Since the unsecured credits are Comparatively less in proportion, the risk over receivables is less. Thus the total debtors value during this year is42.81 with the credit sales 41.52 among the total sales of 557.35.

CHART NO: 7 FIVE FASHION OF CREDIT TERMS (2004-05)

From the figure it is figured the, the secured bearing credit to the private customers is given in large than the other types of credit lending thus the company risk is minimized. The debtor's collection period has also been decreased to 27 days than the previous years. It shows that the company is continuously revising its credit policy every year in order to promise the total sales and to have a good working capital by receiving the debts in time.

CHART NO: 8 FIVE FASHION OF CREDIT TERMS (2005-06)

From this figure it is inferred that the unsecured free credit to both government and public sector has been given in large than the other credit lending's. In this year the debt collection period is reduced to 25 days, thus the credits are received in short span. Since the company is has given credit to Government and public sector (regular customer), they have given is policy of Unsecured free credit.

CHART NO: 9 FIVE FASHION OF CREDIT TERMS (2006-07)

From the figure it is interpreted that the secured free credit to private and unsecured free credit to private are given in less the secured and unsecured bearing credit lending. Since the bearing credits are in large the Risk at the Returns are less. The collection period is maintained as 25 days as in previous year. The credit sales of this year have increased to 150.01 when compared to the previous years. Hence, the company has maintained its credit standards and managed its receivables well.

TABLE-8: THE INVENTORY OF FINISHED GOODS IS HIGHER THAN THE RAW MATERIAL INVENTORY

PARTICULARS INVENTORYTOTAL INVENTORY-

2003-04 109.37

2004-05 268.95

2005-06 317.78

2006-07 228.77

93.89

252.56

298.93

193.02

FINISHED GOODS INVENTORY RAW MATERAIL 15.48 16.39 18.85 35.75

From the above figures it is noted that the inventory of finished goods is higher than the raw material inventory. It shows that the raw materials are being converted into finished goods fatly in order to meet the demand. INFERENCE: From the above comparative financial statement analysis, it is inferred that they company is continuously reviewing its credit policy over every year and has received all their credits within the collection period.

CHART-10: THE INVENTORY OF FINISHED GOODS IS HIGHER THAN THE RAW MATERIAL INVENTORY (2003-04)

The inventory of finished is lowest in the year 2003-04 but correspondingly the value of total sales was also less in that year.

CHART-11: THE INVENTORY OF FINISHED GOODS IS HIGHER THAN THE RAW MATERIAL INVENTORY (2004-05)

CHART-12: THE INVENTORY OF FINISHED GOODS IS HIGHER THAN THE RAW MATERIAL INVENTORY (2005-06)

But in the next 2 consecutive years the inventory of finished goods were high and long with them the total sales has also been increased. Particularly in year 2005-06 the purchase of finished good of the company is done in large by the Government parties only. CHART-13: THE INVENTORY OF FINISHED GOODS IS HIGHER THAN THE RAW MATERIAL INVENTORY (2006-07)

In the next year 2006-07 the total inventory of finished goods lessened than the previous years and the corresponding sales in the year is also increased. Thus the company had a effective maintenance over its inventory, receivables during the year.

Trend Analysis

TABLE-9 TABLE SHOWING TREND ANALYSIS IN 2002-2006

Particular Total Debt Total Asset EBIT Interest External Equities Internal Equities Credit Sales Debtors

2002 100 100 100 100 100

2003 92 97 702 85 92

2004 67 97 2434 57 62

2005 44 122 6876 38 41

2006 33 135 4257 29 31

100

88

206

443

548

100 100

109 120

138 112

184 138

181 99

CHART-14 TABLE SHOWING TREND ANALYSIS IN 2002

CHART-15 TABLE SHOWING TREND ANALYSIS IN 2003

CHART-16 TABLE SHOWING TREND ANALYSIS IN 2004

CHART-17 TABLE SHOWING TREND ANALYSIS IN 2005

CHART-18 TABLE SHOWING TREND ANALYSIS IN 2006

FINDINGS

 The debtor's turnover ratio is debt period under the control of the organization.

 The debt collection period has reduced in the consecutive years as the credit collection is done fasters.

 The interest coverage ratio is falling after a good sign of increases.

 The debt to total assets ratio is gradually decreased by year by year.

SUGGESTIONS

 The credit policy of the company is conclude that the secured bearing credit given to private sector can still be increased to minimize the risk on returns.

 The debt equity ratio is good sign for the company with decrease constantly.

 The interest coverage ratio is good sign for the company with decrease constantly.

 The interest coverage ratio should be increased to achieve further investment for expansion.

 The debt to total assets ratio is desirable from the point of the creditors as there is sufficient margin of safety.

 From the study it is inferred that collection period, customers ability to repay the credit given by the company, are also some of the parameters which has been involved in debtors management.

CONCLUSION

Trade credit creates accounts receivable or trade debtors. The customers from whom receivable or book debts to be collected in future are called trade debtors or simply as debtors, who constitute a substantial portion of current assets of several firms. A credit sale has three characteristics, it involves element of Risk Economic value Futurity. The secured bearing credit given to private sector can still be increased to minimize the risk on returns. Inventory, working capital, interest fixation, collection period, customer's ability or repay the credit given by the company should be carefully governed by the company in order to enhance the performance of debtor's management.

BIBILOGRAPLHY

PANDEY I.M, FINANCIAL MANAGEMEN, VIKAS PUBLISHING HOUSE PRIVATE LIMITED, NEW DELHI, 2007.

KHAN M.Y. AND JAIN P.K. FINANICIAL MANAGEMENT, TATA

MCGRAW HILL PUBLISHING PRIVATE LIMITED, NEW DELHI, 1996.

R.K. SHARMA, SHASHI.K. GUPTA, MANAGEMENT

ACCOUNTING, KALYANI PLUBLISHERS, NEW DELHI, 1998.

WWW. SAIL. CO. in

Www. Debtors' management. Com

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