MBA Project finance
Content
RESEARCH PROJECT REPORT
ON
“WORKING CAPITAL MANAGEMENT AT GRAVITA INDIA PVT. LTD.
TILAK NAGAR, JAIPUR (RAJASTHAN)”
SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
of
Punjab Technical University
By
Vishal Garg
1407131
MBA III SEMESTER
UNDER THE SUPERVISION OF
Ms. Aishywarya
Assistant Professor
Chandigarh Business School, Landra, Mohali
2014-2016
Certificate of Supervisor
This is to certify that Mr. Vishal Garg Roll No.1407131 has completed the research project titled
“WORKING CAPITAL MANAGEMENT AT GRAVITA INDIA PVT. LTD. TILAK
NAGAR, JAIPUR (RAJASTHAN)” under my supervision in partial fulfillment of the
MASTER OF BUSINESS ADMINISTRATION degree of Punjab Technical University.
Ms. Aishywarya
Assistant Professor
Date:
Place:
Declaration
I, hereby declare that the research project report titled “WORKING CAPITAL
MANAGEMENT AT GRAVITA INDIA PVT. LTD. TILAK NAGAR, JAIPUR
(RAJASTHAN)” is my own original research work and this report has not been submitted to
any University/Institute for the award of any professional degree or diploma.
Vishal Garg
MBA III sem
Chandigarh Business School
Date:
Place:
Acknowledgements
I express my sincere gratitude to Ms. Aishywarya, Assistant Professor CBSA, Chandigarh
Groups of Colleges for providing me an opportunity to work on this project. I am very grateful
for their constant support and guidance throughout the duration of the entire project. I express
my sincere thanks to Dr. Tajammul Hoda Head of the Institution and our present summer
internship coordinator Ms. Manisha Aujla for their guidance and support. Lastly, I thank my
parents, family members and friends for their constant support in my endeavor.
Vishal Garg
TABLE OF CONTENT
Title
Certificate
Declaration
Acknowledgement
CHAPTER- 1 Introduction to Industry
CHAPTER -2 Company Profile
CHAPTER-3 Research Methodology
3.1 Need of the Study
3.2 Objectives of the Study
3.3 Limitations of the Study
CHAPTER-4 Analysis & Interpretation
CHAPTER-5 Conclusion
CHAPTER-6 Recommendations
Bibliography
CHAPTER – 1
Introduction
(Industry Profile)
MINING INDUSTRY IN INDIA
HISTORY
The Mining industry in India is a major economic activity which contributes significantly to
the economy of India. The GDP contribution of the mining industry varies from 2.2% to 2.5%
only but going by the GDP of the total industrial sector it contributes around 10% to 11%. Even
mining done on small scale contributes 6% to the entire cost of mineral production. Indian
mining industry provides job opportunities to around 700,000 individuals.
India is the largest producer of sheet mica, the third largest producer of iron ore and the fifth
largest producer of bauxite in the world. India's metal and mining industry was estimated to be
$106.4bn (£68.5bn) in 2010.
However, the mining in India is also infamous for human right violations and environmental
pollution. The industry has been hit by several high profile mining scandals in recent times.
Flint was known and exploited by the inhabitants of the Indus Valley Civilization by the 3rd
millennium BCE.[8] P. Biagi and M. Cremaschi ofMilan University discovered a number
of Harappan quarries in archaeological excavations dating between 1985-1986.[9] Biagi (2008)
describes the quarries: 'From the surface the quarries consisted of almost circular empty areas,
representing the quarry–pits, filled with aeolian sand, blown from the Thar Desert dunes, and
heaps of limestone block, deriving from the prehistoric mining activity. All around these
structures flint workshops were noticed, represented by scatters of flint flakes and blades among
which typical Harappan-elongatedblade cores and characteristic bullet cores with very narrow
bladelet detachments.'[10] Between 1995 and 1998, Accelerator mass spectrometry radiocarbon
dating of Zyzyphus cf. nummularia charcoal found in the quarries has yielded evidence that the
activity continued into 1870-1800 BCE
TOP PLAYERS IN INDUSTRY
Vedanta Resource
1 Corporate office – London, UK | Establishment – 1976 |
Business – Mining | Website – vedantaresources.com |
Among the top mining companies in India, Vedanta resource is a metal and mining organization
headquartered in London, Uk. The company is operating in many countries including India and
major products are copper, aluminum, zinc, lead and gold.
2 National Mineral Development Corporation
Corporate office – Hyderabad, Andhra Pradesh | Establishment – 1958 |
Business – Mining | Website – www.nmdc.co.in |
A government of India organization and comes under the Ministry of steel, it is the largest iron
ore producer in the country. The company has total 5 mines located in Karnataka, Chhattisgarh,
Madhya Pradesh and Karnataka which produces iron, dolomite, limestone, gypsum, bentonite,
copper, diamond etc.
3 | Hindustan Zinc Limited
Corporate office – Udaipur, Rajasthan | Establishment – 1966 |
Business – Mining | Website – www.hzlindia.com |
Hindustan Zinc is a leading producer of zinc and among the best mining companies in India. It is
part of giant Vedanta group and headquartered in Udaipur, Rajasthan. The company has 3
refiners in Rajasthan and one in Andhra Pradesh. It’s major mine products are Lead, zinc, Silver
and cadmium.
4 | National Aluminium Company limited
Corporate office – Bhubaneswar , Odisha| Establishment – 1981 |
Business – Mining | Website – www.nalcoindia.com |
National Aluminium company limited or NALCO is a government owned organization working
under Ministry of Mines. The company is rated best in mining industry in India and largest
producer of Aluminium and bauxite. It’s refinery units are located in Damanjodi and Nalcongar,
Angul and corporate office is located at Bhubaneswar.
5| Hindalco Industries
Corporate office – Mumbai, Maharashtra | Establishment – 1958 |
Business – Mining and Metal | Website – www.hindalco.com |
Hindalco Industries is a flagship company of Aditya Birla and one among the top 10 mining
companies in India. The public organization is BSE and NSE listed, which started Aluminium
production in year 1962. It is headquartered in Mumbai, Maharashtra and headed by Mr. Kumar
Mangalam Birla.
6 | Hindustan Copper Limited
Corporate office – Kolkata, West Bengal | Establishment – 1967 |
Business – Mining – Copper | Website – www.hindustancopper.com |
Hindustan Copper limited is a Government company working under the Ministry of Mines. It
was established in year 1967 and has established mines and metal refinery work at Khetri,
Rajasthan and Rakha, Jharkhand. The company is a well known name in mining industry in India
and also produces gold, silver, tellurium and nickel sulphate.
7 | Rajasthan State Mines and Minerals Limited
Corporate office – Udaipur, Rajasthan | Establishment – 1974 |
Business – Mining – Gypsum | Website – www.rsmm.com |
Rajasthan State Mines and Minerals limited is state owned organization and leading mining
company in India. The company is engaged in non-metallic mining of Lignite, Rock phosphate,
limestone and gypsum. It was established in year 1974 and headquartered in Udaipur, Rajasthan.
8 | Gujarat Mineral Development Corporation
Corporate office – Ahmadabad, Gujarat | Establishment – 1963 |
Business – Mining | Website – www.gmdcltd.com |
Gujarat mineral development corporation limited is a leading mining company in India which is
a Gujarat government undertaking company established in year 1963. The organization is
engaged in production of lignite, bauxite and fluorspar.
9 | Kudremukh Iron Ore Company Limited
Corporate office – Mangalore, Karnataka | Establishment – 1976 |
Business – Mining | Website – www.mynetbrains.com |
Kudremukh Iron Ore Company limited is a government owned company which is rated among
the top 10 mining companies in India. The company is engaged in mineral exploration, mine and
iron ore concentrate business. It is based at Mangalore and plant facility has capacity to produce
7.5 million tonnes per annum.
10| Bharat Aluminium Company
Corporate office – London, Uk | Establishment – 1965 |
Business – Mining | Website – www.balcoindia.com |
Established in 1965 it was formed as a government organization and later it was taken over by
Vedanta resource in year 2001. BALCO is also engaged in the production of aluminium alloys
and special aluminium for transmission lines and missiles.
KEY CHALLENGES FACING THE MINING INDUSTRY IN 2014
Productivity
Many experts agree the largest issue facing mining is productivity. With most of the easilyaccessible high grade ores almost tapped out, companies are faced with the challenge of either
mining low grade ore bodies or mining in difficult or remote regions.
In the case of low grade ore bodies, it is very important to remove as much of the desired ore
from the mined material as possible in order for the mining operation to remain economically
feasible. Miners must not only monitor the incoming material to maximize the extraction
process, but the waste material must be monitored just as closely to ensure that none of the
valuable minerals are lost.
The higher grade ores that are still minable are often located in regions of the world that are
difficult to access because of climate, altitude, or unstable political situations. Emerging
solutions to the cost and risk of transporting and housing employees at these sites include fullyautomated sampling, preparation, and analysis instrumentation that require fewer personnel to
operate. On a larger scale, mine site automation is quickly gaining the attention of the industry.
Remote monitoring and control of equipment allows miners to conduct blasting, drilling, and
transportation operations from miles away while achieving more efficient, continuous operations,
improved communications, and reduced infrastructure.
Other operational efficiencies can be gained in the areas of lab automation, information
management, and data analysis. The need for rapid data capture and timely, accurate analysis of
sample data to determine ore boundaries and drilling targets is a huge challenge in mining.
Modern mining companies rely on sophisticated laboratory information management systems
(LIMS) for quality control, increased productivity, data management, and compliance with
product and environmental safety standards.
Process Control
Variation in the ore body at a mine site can create extraction issues. A constant raw material
analysis is needed to maintain accurate process control because if the composition of the ore
body changes, the extraction process will need to change just as quickly. Traditional mining
sample analysis often involves a costly and time consuming process of sending samples to offsite laboratories and waiting for the results. Field-portable x-ray fluorescence (XRF)
analyzers can provide fast, laboratory-grade sample analysis for immediate feedback during
drilling operations. When combined with confirmatory data fromlaboratory-based XRF
instrumentation, miners are able to make defensible decisions about grade control, quality
assurance, and other operational decisions.
However, elemental analysis may not provide enough information to maintain accurate and
consistent process control. Mining processes often require a combination of elemental and phase
analysis requiring both XRF for elemental composition and x-ray diffraction (XRD) for phase
identification. Like XRF, XRD is a versatile, non-destructive analytical technique. Phase analysis
with XRD can identify impurities and improve ore beneficiation. Instrumentation combining the
two technologies is being used by mining companies to optimize process control to recover the
most valuable minerals.
Environmental Regulations
Mining processes produce large volumes of waste, some of it highly toxic. This waste can result
in acid mine drainage and groundwater contamination, and needs close monitoring to ensure that
it has been neutralized before being returned to the earth.
As the regulations governing the disposal of mining waste materials become stricter, elemental
analysis is becoming more important in the effort to reduce the release of harmful chemicals.
XRF analyzers can be used to monitor elemental contaminants at mine sites and in waste
streams, in addition to being used for exploration and mining applications. XRF analyzers
quantify a wide range of elements, including sulfur, lead, and arsenic–all indicators of hazardous
waste material.
Mine sites normally operate around the clock to stay profitable, so they rely on a variety of
robust tools and technologies than can keep pace with the complex demands of modern mining
operations. Explore more solutions for every facet of the mining industry.
CHAPTER-2
Company profile
GRAVITA INDIA PVT. LTD
Gravita India Ltd is one of the largest lead producer in India established in the year 1992 at
Jaipur. Company is anchored by more than 500 forward looking professionals. The company is
dedicated to Lead & Lead Products with environment friendly process
GRAVITA VALUES
Our Vision
At Gravita, all our operations are Eco-friendly and cost-competitive. We are dedicated in
preserving and protecting our natural resources and are aware that we can do so only in
a pollution-free environment.
Our greatest and most precious asset has been our people and we are not loath to invest in
their training and improvement to enable them to successfully meet new challenges in
an ever changing scenario.
Customer satisfaction is of paramount importance to us and we go all out to satisfy them
with excellent service and value for money.
Our Mission
Our mission is to be a leading brand in the field of Lead, both nationally and internationally
through constant endeavour and innovation.
Core Values
Uncompromising commitment to quality and performance-related excellence.
Constant Innovation.
Committed delivery schedule.
Enhancing customer delight.
We are extremely quality-conscious because we are fully aware that if Gravita is to become a
world-leader, we should be able to vie with the best. Our highly committed and motivated team
is constantly engaged in trying to see that no compromises are made on this front.
TORCH BEARER
Gravita is the mutual thought and an excellent discovery of Rajat Agrawal & Rajeev
Surana,who happened to be batch mates at their college life
Mr. Rajat Agarwal
Mr. Rajat Agarwal, B.E. (Mech) from MREC has led Gravita since 1992 . He started Gravita
with one basis idea that to create an MNC which will be profoundly committed to its values , in
the firm belief that achievement and Victory would be its Final Result. Un compromising
Commitments to Values continues at the core of Gravita. He strongly believes that anybody using
capacity and brain, can do Extraordinary things and that the key to this is creating highly
motivated teams . He takes a personal interest in developing, creating teams and leaders and
invests his significant time. He is strongly committed to the belief that business organizations
have deep social liability and that this must be discharged by conducting decent and moral
business, by involvement with community concerns and by building an ecologically sustainable
business. Over the years Mr Rajat has received many honors and Rewards, which he says, are
recognitions for each person who has contributed to Gravita..
Mr. Rajeev Surana
Mr. Rajeev Surana, B.E. (Mech.) from MREC brings a wealth of expertise and proficiency, the
ability to drive and support creation & innovation, and a strong track record of leadership with
many of the world’s leading global Group of merchants and organizations. He hearty believes
that success is an adventurous journey, if you know the goals and the objects.
The Gravita Group of companies are owned and managed by a forward-looking and dedicated
team of professionals. Our commitment is to provide low cost Lead and its products at highest
quality with a special emphasis on timely deliveries.All our business processes are targeted
towards the maintenance of high levels of quality for our products and at the same time being
cost-competitive. We are very versatile in our operations and are extremely ethical in our
business practices as we firmly believe in the preservation and protection of our natural
resources. Our operations are in strict conformity with ISO 9001 and ISO 14000 guidelines.We
are based in Jaipur, the capital of the state of Rajasthan and are only 265 kms away from New
Delhi, the capital of India. Jaipur is well connected by rail, road and air.
PRODUCTS GRAVITA INDIA PVT. LTD
Pure Lead
Remelted Lead
Litharge
Litharge Granual
Lead Powder
Lead Sheet
Lead Wire
Red Lead
Lead Bricks
Lead Balls
Lead Plates
Lead Sub Oxide (Grey Oxide)
Lead-Acid Batteries
The biggest use of Lead worldwide is for the Lead-acid battery. The commonest type of Leadacid battery consists of a heavy duty plastic box containing Lead alloy pasted grids. The grids are
made from a Lead-antimony together with minor additions of elements such as copper, arsenic,
tin and selenium. These are added to confer properties such as grain refinement, fluidity and agehardening characteristics to the grids. For the new generation of sealed, maintenance free
batteries a range of Lead calcium-(tin) alloys is used. These contain up to 0.1% calcium and from
zero to 0.5% tin. The tin-containing alloys are used in the positive grids to protect against
corrosion. A rechargeable cell is known as a secondary cell and provides a means of storing
electricity. Lead is particularly well suited for this application because of its conductivity and its
resistance to corrosion. The addition of antimony or calcium gives the Lead an increased
hardness to resist the mechanical stresses within the battery caused, for example, by the natural
vibration of road vehicles and by the chemical reactions taking place.
Lead Sheet
The benefits of Lead sheet are considerable: it is rugged, flexible and long lasting and has
considerable aesthetic appeal. Around 75% of the Lead sheet consumed by the building industry
is used as flashings or weathering to prevent water penetrating at points such as the bases of
chimney stacks and abutments. The remaining 25% or so of the Lead sheet is used for roofing
and cladding. The use of Lead for roofing is by no means confined to traditional applications
such as churches and historic buildings; architects have been won over to the attractive and long
lasting properties of Lead sheet for modern buildings, both for roofing and for the vertical
cladding of external walls.
By virtue of its resistance to chemical corrosion, Lead sheet also finds use for the lining of
chemical treatment baths, acid Plant and storage vessels. The high density of Lead sheet and its
“limpness” makes it a very effective material for reducing the transmission of noise through
partitions and doors of comparatively lightweight construction. Often the Lead sheet is
adhesively bonded to plywood or to other building boards for convenience of handling. A
particular advantage of Lead’s high density is that only relatively thin layers are needed to
suppress the transmission of sound. This makes for important space savings in the design of large
modern buildings such as hotels and office blocks.
Lead Pipe
Pipe made from Lead and Lead alloys is used for its corrosion
resistance and flexibility in the chemical industry and in plumbing and water distribution
systems.
Cable Sheathing
An electric cable consists essentially of three major components:
Conductors to transmit power or electrical signals.
Insulation surrounding the conductors to protect users.
a sheath and other layers surrounding the insulation to exclude moisture and protect it from
corrosion
and
mechanical
damage
during
the
lifetime
of
the
cable.
Due to its excellent proven corrosion resistance when in contact with a wide range of industrial
and marine environments, soils and chemicals, Lead was one of the first materials to be used to
provide
an
impervious
sheath
on
electric
cables
.
Lead has the major advantage that it can be applied to the cable core in unlimited lengths by
extrusion at temperatures which do not damage even the most sensitive conductors (optical
fibers) or insulating materials (paper or plastics). Lead is pliable and so can withstand the several
coiling, uncoiling, handling and bending operations involved during the later manufacturing
stages and installation of the cable. A Lead sheath can be readily soldered (again at low
temperatures) when cable lengths need to be jointed or new cables installed. With modern screwtype continuous extruders, un-jointed lengths of submarine power cables as long as 100
kilometers have been produced.
Lead Cames
Lead cames have long been a feature of stained glass windows in churches and cathedrals. They
consist of H-shaped sections of Lead which hold together the individual pieces of glass. They are
now being used more widely in modern homes both in the traditional way and in the form of
self-adhesive strips stuck on to a larger piece of glass to simulate an integral came. The use of
Lead in this manner is attractive and lends a traditional air to a home.
Lead-Clad Steel
This composite material is manufactured by cold rolling Lead sheet on to sheet steel which has
been pretreated with a thin tin-Lead alloy coating (terne plate). This forms a strong metallurgical
bond between the Lead and the steel and provides a material that combines the physical and
chemical properties of Lead with the mechanical properties of steel. Although primarily aimed at
the sound insulation market, Lead clad steel has also found use in radiation shielding and in the
cladding of buildings.
Lead Powder
Lead powder incorporated into a plasticizer is added to plastics to form sheets of Lead loaded
plastic. This material is used to make radiation protective clothing and aprons for the medical,
scientific and nuclear industries. It also has sound insulating properties. Lead powder is also used
as the basis for some corrosion resistant paints.
Lead Alloys
By far the biggest use of Lead-antimony alloys is in batteries. Lead-antimony alloys with
antimony contents of between 1 and 12% are used widely in the chemical industry for pumps and
valves on chemical Plant and in radiation shielding both for lining the walls of X-ray rooms and
for bricks to house radioactive sources in the nuclear industry.
Lead for Radiation Shielding
Lead and its alloys in metallic form and Lead compounds are used in various forms of radiation
shielding. Their high densities meet the primary requirement of a shielding material and in
certain shielding applications Lead’s high atomic number is also important. The ease with which
Lead can be worked is of added value. The shielding of containers for radioactive materials is
usually metallic Lead. Radioactive materials in laboratories and hospitals are usually handled by
remote control from a position of safety behind a wall of Lead bricks and X ray machines are
normally installed in rooms lined with sheet Lead. Lead compounds are a constituent of the glass
used in shielding partitions to permit safe viewing and Lead powder is incorporated into plastic
and rubber sheeting as a material for protective clothing.
Lead in Glass
Decorative Lead crystal glass is one of the most attractive forms in which Lead is used.
Normally added in the form of Lead oxide at 24-36%, it adds luster, density and brilliance to the
glass. The glass is further enhanced by its ability to have decorative patterns cut on it and has the
characteristic ring associated with Lead crystal. There is now a substantial market for a cheaper
form of Lead ‘semi-crystal’ containing in the region of 14-24% Lead oxide and glasses are
usually molded with the decorative pattern rather than hand-cut later.
Lead is also used in optical glasses (e.g.: telescopes, binoculars), ophthalmic glass (e.g.
spectacles), electrical glass (e.g.: lamp tubing) and radiation protection glasses (e.g.: for windows
for radiation remote handling boxes, TV tubes)
Lead for Ceramics
Lead is used in a wide range of glaze formulations for items such as tableware (earthenware and
china), wall and floor tiles, porcelain and some sanitary ware. The Lead compounds used are
largely litharge, red Lead and Lead silicates. The advantageous properties offered by Lead
compounds are lower melting points and wider softening ranges, low surface tension, good
electrical properties and a hard wearing and impervious finish. Considerable research effort has
been put into developing glazes with very low Lead release. Lead compounds are also used in
the formulation of enamels used on metals and glasses.
Lead Pigments
The use of white Lead (basic Lead carbonate) in decorative paints has been phased out but still
has the reputation of making paint with good external weathering characteristics,
Red Lead is the traditional pigment for rust-inhibiting priming paints applied direct to iron and
steel. Calcium plumbate based paints are particularly effective on galvanized steel avoiding the
need for etch primers.
Lead chromate (yellow) and Lead molybdate (red orange) are still used in plastics and to a lesser
extent paints. Lead chromate is used extensively as the yellow pigment in road markings.
Lead Wool
Lead wool is made by scratching fine strands from the surface of a Lead disc. It is used for the
caulking of joints in large pipes e.g. gas mains and in some specialist batterie
ORGANIZATION STRUCTURE
WORKING CAPITAL MANAGEMENT
Working capital is the firm’s holdings of current assets such as cash, receivables,
inventory & marketable securities. Every firm requires working capital for its day to day
transactions such as purchasing raw material, for meeting salaries, wages, rents, rates,
advertising etc.
Significance of working capital:
The world in which real firms function is not perfect. It is characterized by the firms
considerable uncertainty regarding the demand, market price, quality & availability of its own
products and those suppliers. While the firm has many strategies available to address these
circumstances, strategies that utilize investment or financing with working capital accounts often
offer a substantial advantage over the other techniques. The importance of working capital
management is reflected in the fact that financial managers spend a great deal of time in
managing current assets and current liabilities like
Arranging short term financing.
Negotiating favorable credit terms.
Controlling the movement of cash.
Administering accounts receivables.
Monitoring investment in receivables.
Decision concerning the above areas play a vital role in maximizing the overall value of the firm.
Once decisions concerning these areas are reached, the level of working capital is also
determined in active decision sense, but falls out as residual from the decision just made.
The management of working capital plays an important role in maintaining the financial
health during the normal course of business. This critical role can be enunciated by examining
the flow of resources through the firm. By far the major flow is the working capital cycle.
This is the loop (previous page) which starts at the cash and the marketable securities
account, goes through the current account as direct labour and materials which are purchased and
use to produce inventory, which in turn is sold and generates accounts receivables, which are
finally collected to replenish cash. The major point to notice about this cycle is that the turnover
or velocity of resources through this is very high related to the other inflows and outflows of the
cash account.
There are two concepts of working capital namely; Gross working capital and Net
working capital.
Gross working capital, simply called as working capital refers to the firm’s investment in
current assets. Current assets are the assets, which in ordinary course of business can be
converted into cash within an accounting year. Current assets include cash and bank balances,
short term loans and advances bills receivables, sundry debtors, inventory, prepaid expenses,
accured incomes, money receivable (within 12 months).
The gross working capital focuses attention of two aspects of current assets management.
a) Optimum investment in current assets and
b) Financing of current assets.
The consideration of the level of investment in current assets should avoid two danger
points-excessive and inadequate investment in current arranging funds to finance current assets.
Whenever a need for working capital funds arises due to the increasing level of business activity
or for any other reason arrangement should be made quickly.
Net working capital :
Net working capital refers to the difference between the current assets and current
liabilities. Current liabilities are those claims of outsiders, which are accepted, to measure for
payment with an accounting year and include creditors, bills payable and outstanding expenses.
Net Working Capital = Current Assets – Current Liabilities
Net working capital can be positive or negative. A positive net working capital will arise when
current assets exceeds current liabilities. It is a quantitative concept, which indicates the liquidity
position of the firm and suggests the extent to which working capital needs may be financed by
permanent sources of funds.
Working capital can be classified into two categories i.e,
1. Permanent working capital.
2. Temporary or variable working capital.
Permanent working capital:
It is the minimum amount of investment in all current assets which is required at all
times to carry out minimum level of business activities. Tandon committee has reserved to this
type of working capital as “ Core Current Assets”.
Amount of permanent working capital remains in the business in one form or another. It
also grows with the size of the business. It is permanently needed for the business, and therefore
be financed out of long-term funds.
Variable working capital :
The amount of working capital over permanent working capital is known as variable
working capital. The amount of such working capital keeps on fluctuating from time on the
business activities. It may further be divided into seasonal working capital and special working
capital. Seasonal working capital is required to meet the seasonal demands of busy periods
occurring at stated intervals. On the other hand, special working capital is required to meet
extraordinary needs for contingencies. Events like strikes, fire, unexpected competition, rising
price tendencies or initiating a big advertisement campaign require such capital.
Approaches for financing working capital :
There are three approaches to financing the working capital :
1. Hedging approach
2. Conservation approach
3. aggressive approach
Hedging approach :
A firm is said to be following Hedging approach if it matches the maturity of the debt
with the maturity of assets. For the firm following hedging approach, long term financing will be
used to finance fixed assets and permanent current assets and short term financing for temporary
or variable current assets. As the level of these assets increases, the long financing level also
increases.
However, it should be realized that exact matching is not possible because of the uncertainty
about the expected lives of assets.
Conservative approach:
A firm in practice may adopt a conservative approach in financing its current and fixed
assets. The financing policy of the firm is said to be conservative when it depends more on long
term funds for financing needs. Under a conservative plan, the firm finances its permanent assets
and also a part of temporary current assets, the idle long-term funds can be invested in the
tradable securities to conserve liquidity. The conservative plan relies heavily on long term
financing.
Aggressive approach :
A firm may be aggressive in financing its assets. A firm follows aggressive policy when it
uses more short-term financing than warranted by the matching plan. Under an aggressive policy,
the firm financing a part of its permanent current assets with short term financing. Some
extremely aggressive firms may even finance a part of their fixed assets with short-term
financing.
Importance of working capital :
A business firm must maintain an adequate level of working capital in order to run its
business smoothly. It is worthy to note that both excessive and inadequate working capital
positions are harmful. Out of two, inadequacy of working capital is more dangerous for a firm.
Excessive working capital results in idle funds on which no profits are earned. Similarly
insufficiency of working capital results in interruption of production. This will lead to
inefficiencies, increase in costs and reduction in profits. Working capital is like the lifeblood of
business. If it becomes weak, the business can hardly prosper and survive. No business can run
successfully with out and adequate amount of working capital.
The following are the few advantages of adequate working capital in the business :
Cash Discount : Adequate working capital enables a firm to avail cash discount facilitates
offered to it by the suppliers. The amount of cash discount reduces the cost of purchase.
Goodwill : Adequate working capital enables a firm to make prompt payment. Making
prompt payment is a base to create and maintain goodwill.
Ability to face crisis : The provision of adequate working capital facilities to meet
situations of crisis and emergencies. It enables a business to with stand periods of
depression smoothly.
Credit-worthiness : It enables a firm to operate its business more efficiently because there
is not delay in getting loans from banks and others on easy and favorable terms.
Regular supply of raw materials : It permits the carrying of inventories at a level that
would enable a business to serve satisfactory the needs of its customers. That is it ensures
regular supply of raw materials and continuous production.
Expansion of markets : A firm which has adequate working capital, can create favorable
market condition i.e, purchasing its requirements in bulk when prices are lower and
holding its inventories for higher. Thus profits are increased.
Increased productivity.
Research programs.
High Morale.
Problems of inadequate working capital :
Firm may not be able to take advantage of profitable business opportunities.
Production facilities cannot be utilized fully.
Short-term liabilities cannot be paid because of non-availability of funds.
Its low liquidity may lead to low profitability. In the same way, low profitability results in
low liquidity.
It may not be able to take advantages of cash discounts.
Credit worthiness of the firm may be damaged because of lack of liquidity. Thus it may
be lose its reputation; thereafter a firm may not be able get credit facilities.
Danger of excessive working capital :
A firm may be tempted to over trade and lose heavily.
Unable to extract benefits of customers credit.
The situation may lead to unnecessary purchases and accumulation of inventories. This
cause more chances of theft, waste, losses etc.
There arise an imbalance between liquidity and profitability.
Excessive working capital means funds are idle.
The situation leads to greater production, which may not be having matching demand.
The excess of working capital leads to carelessness about cost of production.
Determinants of Working Capital :
The need of working capital is not always the same it varies from year to year or even
month-to-month depending upon a number of factors. There is no set of rules or formulate to
determine the working capital needs of the firm. Each factor has its own importance and its
importance of the factors changes for a firms over time.
In order to determine the proper amount of working capital of concern, the following factors
should be considered.
Nature of business.
Size of the business unit.
Seasonal variation.
Time consumed in manufacturing.
Turnover of circulating capital.
Need to stockpile raw material and finished goods.
Growth and expansion.
Business cycle fluctuations.
Terms of purchase and sale.
Pricing level changes.
Inventory turnover.
Dividend policy.
Ratio to measure the efficiency of working capital :
Current Ratio : Current assets/Current liabilities
Quick Ratio :
Sales to cash : Sales during a period / Averge cash balance.
Average collection period : Debtors dividend by annual credit sales and the resulting
(current assets – Inventories) /Current liabilities
figure multiplied by 365. This retio indicates how many days of credit is being obtained
from the suppliers.
Average payment Period : Creditors divided by annual credit purchase and the resultant
figure is multiplied by 365. This retio indicates how many days of credit are being
obtained from the suppliers.
Inventory turnover ratio : Sales /Average inventory.
Working capital policy :
Working capital management policies have a great effect on firm`s profitability, liquidity and its
structural health. A finance manager should therefore, chalk out appropriate working capital
policies in respect of each competent of working capital so as to ensure high profitability, proper
liquidity and sound structural health of the organization.
In order to achieve this objective the financial manager has to perform basically following two
function.
1.Estimating the amount of working capital .
2.Sources from which these funds have to be raised.
Objectives of Working Capital Management :
The objectives of working capital management are two fold :
1. Maintenance of working capital and
2. Ability of ample funds at the time of need.
The basic goal of working capital management is to manage each of the funds current assets and
current liabilities in such a way that an acceptable level of net working capital is always
maintained in the business.
Operating Cycle :
Working capital is required because of the time gap between the sales and their actual
realization in cash. This time gap is technically terms as operating cycle of the business.
In case manufacturing company, the operating cycle of time necessary to complete the
following cycle of event.
Conversion of cash into raw materials.
Conversion of raw materials into work in progress.
Conversion of work in progress into finished goods.
Conversion of finished goods into accounts receivables.
Conversion of accounts receivable into cash.
This cycle is continuous phenomena. In case of “Trading Firm” the operating cycle will include
the length of time required to :
a) Cash into inventories.
b) Inventories into accounts receivables.
c) Accounts receivables into cash.
In case of “Financing Firm” the operating cycle includes the length of time taken for 1 year.
a) Conversion of cash debtors, and
b) Conversion of debtors into cash.
Working capital turnover ratio :
It measures the efficiency of the employment of working capital. Generally higher the
turnover, greater is the efficiency and larger the sale of profits. Working capital turnover ratio can
be calculating with help of the following formula.
Working capital turnover ratio =
sales
.
Net working capital
INVENTORY MANAGEMENT
Inventories constitute the most significant part of current assets for a majority of
companies in India. The term inventory refers to the stockpile of the product.
Inventories can be classified as three categories :
1. Raw
material : Inputs that are converted into finished products through
manufacturing process.
2. Work in progress : semi finished products that require further work to be done
before they are ready for sale.
3. Finished goods : Goods which are completely manufactured products and/or
ready for sale.
Need to hold Inventories :
There are three general motives for holding inventories.
1. The Transaction Motive : Which emphasis the need to maintain inventories to facilitate
smooth production and sales operation.
2. The Precaution Motive : Which necessitates holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.
3. The Speculative Motive : Which influences the decision to increase or reduce inventory
level to take advantage of price fluctuation.
OBJECTIVES :
The objective of inventory management is to determine and maintain the optimum level
of inventory management as both excessive and inadequate inventories are not desirable. The
optimum level inventory lies between the two danger points, excessive and inadequate
inventories. The optimum level of inventory should be determined on the basis of trade off
between costs and benefits associated with the levels of inventory.
TECHNIQUES :
Attention is given to the basic concepts relevant to the management and control of inventory.
The aspects include
Determination of the type of control required.
The basic economic order quantity.
The re-order point.
Safety stock.
As a matter of fact the inventory management techniques are a part of production management.
However a familiarity with them is essential for a financial manager in planning and budgeting
inventory.
DETERMINATION OF THE TYPE OF THE CONTROL REQUIRED:
ABC System :
The ABC system is a widely used classification technique to identify various items of
inventory for purposes of inventory control. This technique is based on the assumption that a
firm should not exercise the same degree of control on all items of inventory. It should rather
keep a more rigorous control on items that are (1) most costly, and/or (2) slowest turning while
items that are less expensive should be given less control effort.
On the basis of cost involved the various inventory items according to the system are
categorized into three classes.
A = Largest inventory leading to most sophisticated inventory control techniques.
B = Midway and deserving less attention than ‘A’ but more than ‘C’ leading to employing
less sophisticated techniques.
C = Small investment with fairly large number deserving minimum attention.
Order Quantity Problem :
Economic Order Quantity (EOQ) model :
After various items are classified on the basis of the ABC analysis, the management
becomes aware of the type of control that would be appropriate for each of the three categories
of the inventory items. The group ‘A’ items warrants the maximum attention and the most
rigorous control. A key inventory problem particularly in respect of the group ‘A’ items relates to
the determination of the size or quantity of inventory.
Buying in large quantities implies a high inventory level, which will assure
(i)
Smooth production /sale operation and
(ii)
Lower ordering or set-up costs. However it increases the ordering costs and
likelihood of interruption in the operation due to stock outs.
Thus a trade-off between benefits derived from the availability of inventory and the cost of
carrying that level of inventory has to be derived by placing an optimum level of inventory order
that minimizes the cost associated with inventory order that minimizes the cost associated with
inventory management.
The optimum level thus derived is known as Economic Order Quantity. EOQ equates the
cost of ordering with the cost of storage of raw materials.
Ordering cost :
It is difficult to quantify this cost, as there are many factors involved. It include cost of
stationary, salaries of those engaged in preparing the purchase orders etc.
Cost of storage (or) cost of carrying inventory :
This includes the cost of store keeping, interest on capital locked up in stores, the incidence of
insurance cost, evaporation etc.
For effective material control and to avoid overstocking and under stocking of raw materials, an
important requirement is to decide upon various levels of materials.
These levels are maximum level, minimum level and re-order level. By taking action on the basis
of these levels, each item of material will automatically be held within appropriate limits of
control.
These level are not permanent, but need revision according to the changes in the factors, which
determine these levels.
Factors include :
Rate of consumption of materials.
Lead time i.e, time lag.
Storage capacity.
Availability of funds for investment in inventories.
Cost of storage.
Risks of loss due to deterioration, theft, fine etc.
Seasonal factors – certain materials are cheaply available during certain seasons.
Fluctuation in market prices.
Insurance costs.
CASH MANAGEMENT
Cash is the most important factor in financial management. It is also the most important
current asset for the operation of the business. Every activity in an enterprise revolves round the
cash. Cash is limited in every enterprise and it cannot be raised as and when required which calls
for an efficient management of funds available.
Cash is the most liquid asset and is of vital importance to the daily operations of the
business. While the proportion of corporate assets held in the form of cash is very small (often in
between 1% to 3%) its efficient management is crucial to the business because cash is the focal
point in business.
Meaning of cash :
The term ‘cash’ is used in two senses. In a narrower sense it includes currency notes, cheques,
bank drafts held by a firm with it and the demand deposits held by it in banks. In a broader sense
it also includes near cash assets such as marketable securities and time deposits with bank.
The main reason for a firm to hold cash is to meet the needs of day-to-day transactions and to
protect the firm against uncertainties characterizing its cash flows.
While cash serves these functions, it is an idle resource which has an opportunity cost. The
liquidity provided by cash holding is at the expense of profits sacrificed foregoing alternative
opportunities. Hence, the finance manager should carefully plan and control cash.
OBJECTIVES OF CASH MANAGEMENT :
To meet the cash disbursement need as per the payment schedule.
To minimize the amount locked up as cash balances.
Advantages of sample cash funds:
a) A shield for technical inefficiency.
b) Maintenance of goodwill.
c) Availing of cash discount.
d) Good bank-relations.
e) Exploitation of business opportunities.
f) Encouragement to new investment.
g) Increase in efficiency.
h) Over coming abnormal financial situations.
RECEIVABLE MANAGEMENT
Accounts receivables constitute a significance portion of the total current assets. They are direct
consequences of “trade credit” which has become an essential marketing tool in modern
business.
Meaning of receivable :
Receivables are asset accounts representing amounts owned to the firm as a result of sale
of goods or services in the ordinary course of business.
The management of receivables is basically a problem of balancing profitability and liquidity.
Soft credit terms are attractive for higher sales and hence longer the time a company allows its
customers to pay the higher are the sales and hence profits. However, on the other hand the
longer the period of credit, the greater the risk, greater the level of debt and greater the strain on
the liquidity of the company.
Cost of receivables :
Capital cost : It is the cost associated with the blocking of firm’s resources in the receivables
because of the time lag between the sale of goods to customers and realization of sales. The firm
therefore has to customers and realization of sales. The firm therefore has to arrange for
additional funds to meet its current obligations.
Administrative cost : The firm has to incur additional administration costs for maintaining
account receivable in the form of salaries etc.
Collection cost : The firm has to incur costs for collecting the payments.
Defaulting cost : Sometimes after making all serious efforts to collect money from defaulting
customers the firm may not able to recover the over debts because of the inability of the
customers. Such debts are treated as bad and have to be written off since they cannot be realized.
Optimum size of receivables :
When the firm resorts to liberal credit policy, the profitability of the firm increases on
account of higher sales. However such a policy results in increased investment in receivables and
the problem of liquidity is created. On the other hand a stringent credit policy reduces the
profitability but increase the liquidity of the firm. Thus optimum credit policy occurs are a point
where “Trade off between liquidity and profitability”.
Credit policy variables :
The important dimensions of a firm credit policy are,
Credit standards.
Credit period.
Cash discount.
Collection effort.
System for receivable control :
The management should consider the following four factors in keeping the level of
investment in receivables within the controllable limits.
1. Deciding acceptable level of risk : The first point is to decide to whom goods should be
supplied bearing in mind the risk involved. It is therefore essential to assess the credit
worthiness of the customers before advancing any credit to them.
2. Terms of credit sales : The second step in this regard in to decide terms of credit sales and
the level of cash discounts. Cash discount has important bearing on the cost of capital and
on credit sales.
3. Credit collection policy : The management should provide for bad debts to keep the
losses minimum. (Usually 5% to 7% of sundry debtors are provided for bad debts). A
collection procedure should be established and action should be taken accordingly. The
other steps should be record the age of debt to facilitate the collection of debts.
The age of debt is called as average collection period.
Average collection period = (credit sales in the period)/average accounts receivables.
Accounts receivables turnover = average accounts receivables/average monthly/daily
credit sales.
An increase in the age of receivables or debt collection period is an indication of lenient
credit of inefficiency collection.
The effective of the receivable management should be analyzed from time to time with the help
of certain ratios such as average collection period, debtor’s turnover ratio, receivable current
assets ratio etc.
PAYABLE MANAGEMENT
Management of accounts payable is as much important as the management of accounts
receivable. However there is a basic difference between the approaches adopted by the Finance
Manager in both the cases. The underlying objective in case of accounts receivables is to
maximize the acceleration of collection process while incase of accounts payable it is to slow
down the payments process as much as possible. The delay in payments of accounts payable may
result in saving of some interests costs but proves very costly to the firm in the form of loss of
credit in the market. The Finance Manager therefore has to ensure that the payments to the
credits are made at the stipulated time period after obtaining the best credit term possible.
Control of accounts payable :
Computing the average age of payable can be calculated by any of the following
methods.
Months or days in the period / Accounts payable turnover accounts payable turnover = Credit
purchase in the period / Average accounts payable.
Average accounts payable / average month / daily credit purchase.
Average accounts payable / average month / daily credit purchases during the period.
CHAPTER-3
Research methodology
3.1 Need of the Study
3.2 Objectives of the study
3.3 Limitation of the study
3.1NEED OF THE STUDY
The main aim of any firm is to maximize the wealth of shareholders. This can be
achieved only by a steady flow of profits. Which in turn depend on successful sales activity. To
generate sales, investment of sufficient funds in current assets is required. The need of current
assets should be emphasized, as the sales don’t convert into cash immediately but involved a
cycle of operations, namely operating cycle.
GAVITA INDIA LTD. is multi product manufacturing unit with varying cycle for each
product. The capital requirement for each department in an organization of GAVITA INDIA
LTD. is large which (depends on the product target for that particular year) calls for an effective
working capital management. Monitoring the operation on cycle duration is an important aspect
of working capital.
Some prominent issues that are to be addressed are,
Duration of raw material stage (depends on regularity of supply, transactions time).
Duration of work in progress (depends on length of manufacturing cycle, consistency in
capacity utilization).
Duration at the finished goods state (depends on pattern of production & sale).
Thus a detailed study regarding the working capital management in GAVITA INDIA
LTD. is to be done to consider the effectiveness of working capital management, identify the
shortcoming in management and to suggest for improvement in working capital management.
3.2 OBJECTIVES
To study in general the working capital management procedure in Gravita India Ltd.
To analyze and apply operating cycle concept of working capital in Gravita India Ltd
To know how the working capital is being financed.
To know the various methods to be followed by Gravita India Ltd for inventories and
accounts receivables.
To give suggestions, if any, for better working capital management in Gravita India Ltd.
3.3 LIMITATIONS OF THE STUDY
Although every effort has been made to study the “Working Capital Management” in
detail, in an organization of GAVITA INDIA LTD. size, it is not possible to make an exhaustive
study in a limited duration of 2 months.
It is not possible to include data of 2014-15, as the audited financial report has not come yet (at
the time of preparation of this report). However data of 2013=3-15 is included partially from the
un audited financial reports of GAVITA INDIA LTD..
Apart from the above constraint, one serious limitation of the study is, that it is not possible to
reveal some of the financial data owing to the policies and procedures laid down by GAVITA
INDIA LTD.. However the available data is analyzed with great effort to get an insight into
Working Capital Management in GAVITA INDIA LTD..
CHAPTER-4
Analysis & interpretation
WORKING CAPITAL MANAGEMENT IN GRAVITA INDIA LTD
Management efforts over the few years have been to inculcate cash consciousness through
constant emphasis on working capital, mainly inventory and book debtors. In all these, it is to be
kept in mind that GRAVITA INDIA LTD is a multi product undertaking, were management
decisions affecting working capital are taken at managerial level.
Sources of funds:
Gravita India Ltd raises its working capital by multiple banking arrangements with 10 Banks.
The following are the ten banks, where funds for working capital are raised:
1. State bank of India
2. Canara bank
3. UCO bank
4. Bank of Baroda
5. Andhra bank
6. Indian Overseas Bank
7. State Bank of Hyderabad
8. Allahabad Bank
9. IDBI Bank Ltd.
10. HSBC Ltd.
In GRAVITA INDIA LTD working capital requirement is assessed by
Fixing the target production
Preparation of Budget (in rupees)
Working capital requirement are prepared taking into account :
Actual value of the previous two years working capital.
Projected value for the next two years
Limits:
Visakhapantam steel plant is having fund-based limits of Rs.570.65 crores and Non-fund based
limits
up
to
Rs.1231
crores.
Procedure for procurement of funds:
Gravita India Ltd applies a credit monitoring and appraisal (CMA) report (a 40-page
document). The document consists of historical data about the company and profit and loss
account, balance sheet, current assets current liabilities, working capital assessment, fund flows
etc.. SBI subscribes the maximum working capital limit (up to extent of 38%) of the entire
working capital assessed. The other banks of the under the multiple banking arrangement above
provide the rest of Working capital limits.
WORKING CAPITAL LIMITS (UNDER MULTIPLE BANKING ARRANGEMENT)
(Rs in Crs)
Name of Bank
Fund Based
Non-Fund based
Total
CC
WCD
L
Total
EPC
Total
LC
BG
Total
(a)3
(b)
(c=a+
b)
(d)
(e=c+
d)
(f)
(g)
(h=f+g
)
(i=e+h
)
State Bank of India
36.00
44.00
80.00
60.00
140.00
450.00
25.0
0
475.00
615.00
Canara Bank
30.00
45.00
75.00
45.00
120.00
270.00
15.0
0
285.00
405.00
3.
Bank of Baroda
13.54
20.31
33.85
20.00
53.85
50.00
1.00
51.00
104.85
4.
UCO Bank
5.00
20.00
25.00
15.00
40.00
35.00
5.00
40.00
80.00
5.
State
Bank
Hyderabad
8.30
12.83
21.13
9.17
30.30
36.00
1.00
37.00
67.30
6.
Allahabad Bank
25.00
0.00
25.00
15.00
40.00
90.00
5.00
95.00
135.00
7.
HSBC Ltd.
0.00
0.00
0.00
0.00
0.00
50.00
0.00
50.00
50.00
8.
IDBI Ltd.
0.00
0.00
0.00
0.00
0.00
50.00
0.00
50.00
50.00
9.
Andhra Bank
14.00
21.00
35.00
11.50
46.50
45.00
3.00
48.00
94.50
10.
Indian
Bank
0.00
100.0
0
100.00
0.00
100.00
100.00
0.00
100.00
200.00
131.8
4
263.1
4
394.98
175.6
7
570.65
1,176.0
0
55.0
0
1,231.0
0
1,801.6
5
Sl.N
o.
1.
2.
of
Overseas
Total
WCDL : Working Capital Demand
Loan
CC
: Cash Credit
EPC
Credit
: Export Packing
LC
Credit
: Letter of
BG
Guarantee
: Bank
Types of working capital source :
1. Fund based limits : under this source, Gravita India Ltd can obtain working capital
finance by bank borrowing in the form of cash credit of export packing credit.
2. Non-fund based limits : Gravita India Ltd receives non-fund based working capital in the
form of letter of credit or bank guarantee
YEAR WISE CHANGES IN WORKING CAPITAL
YEARS
NET
WORKING
GROSS
WORKING
CAPITAL
CAPITAL
Amount
(Rupees)
Change
percentage
Amount
(Rupees)
Change
percentage
2007
192320.36
-
77676.3
-
2008
155681.4
-19.05
49323.2
-369.5
2009
166460.5
6.92
47209.5
-4028
2010
179436.02
7.79
174594.3
269.82
2011
171388.57
-4.48
49289.44
-71.76
2012
186360.11
8.73
68548.79
39.07
2013
272668.92
46.3
149133.81
117.55
2014
604752.1
121.78
462336.44
210.01
Interpretation: The above table indicates that working capital is highest for the year 2014. The
net working capital has shown a gradual increase from 2012 till 2014. Statement of changes in
working capital is done in the pages that follow to give the complete picture of variations in
working capita
Statement of changes in working capital for the year 2008-2009
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans and advances
Total current assets
Current Liabilities
Liabilities
Provision
Total
current
liabilities
2008
2009
Increase
100940.24
11780.52
15067.08
647.30
27246.26
155681.40
111103.82
16342.80
15993.13
647.30
22352.96
166460.50
10163.6
4562.28
926.05
20.49
Decrease
4893.30
103228.63 115695.66
3129.57
3555.19
106358.20 119250.85
12467.00
425.62
Net decrease in Working Capital
2113.5
Total
17785.92
17785.92
Source: Annual reports of GRAVITA INDIA LTD
Interpretation:
Net working capital has decreased by Rs. 2113.5 lacks due to the increased current
liabilities. At the same time loans and advances too decreased by Rs.4893.30 lakh
Statement of changes in working capital for the year 2009-2010
(figures in Lakhs)
Particulars
2009
2010
Increase
Decrease
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans and advances
Total current assets
Current
Liabilities
Liabilities
Provision
Total
current
liabilities
111103.82
16342.80
15993.13
647.30
22352.96
166460.50
115695.66
3555.19
119250.85
120747.5
17383.52
16366.93 9643.66
1040.7
634.66
24303.43 373.80
179436.02
1950.47
125509.9
4841.72
4841.72
Net increase in Working Capital
Total
33.13
9814.22
1286.53
1874.77
13008.65
13008.65
Source: Annual reports of GRAVITA INDIA LTD
Interpretation
An increase in networking capital is observed (1874.77 lacks) due to significant increase
in inventories. Sundry debtors, cash & bank balances and loans &advances have also shown a
positive growth. The net increase in working capital would have been a very positive figure due
for the drastic increase in liabilities.
Statement of changes in working capital for the year 2010-2011
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans
and
advances
Total current assets
Current Liabilities
Liabilities
Provision
Total
current
liabilities
2010
120747.5
17383.52
16366.93
634.66
24303.43
1794360.02
125509.9
4841.72
4841.72
2011
Increase
111137.95
21249.40
16122.22
540.50
22338.50
171388.5
3865.88
7
114315.8
2
7783.31
122099.1
3
11194.06
Net Increase in Working Capital
Total
Decrease
9609.53
244.71
94.16
1964.93
2941.59
205.02
15059.94
15059.94
Source: Annual reports of GRAVITA INDIA LTD
Interpretation :
The increase in net working capital in 2011 over 2010 is very small (195.02 lacs).
Although a decrease is observed in liabilities , a negative is observed in all the current assets
excluding sundry debtors. The net result is the decreased amount of working capital.
Statement of changes in working capital for the year 2011-2012
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans
and
advances
Total current assets
Current Liabilities
Liabilities
Provision
Total
current
liabilities
2011
111137.95
21249.40
16112.22
540.50
22338.50
171378.57
114315.82
7783.31
122099.13
2012
85755.23
21757.92
54157.34
526.06
24163.47
186360.0
2
113904.3
2
9069.97
122974.2
9
Increase
25382.63
508.52
38045.14
14.44
1824.97
411.5
Net Increase in Working Capital
Total
Decrease
1286.66
14106.31
40790.13
40790.13
Source: Annual reports of GRAVITA INDIA LTD
Interpretation :
Net working capital increase stood at 14106.3 lakhs. Cash & bank balances have shown
positive with an increase of Rs.38035.14 Added to this is the decrease in liabilities. This resulted
in increase in net working capital.
Statement of changes in working capital for the year 2012-2013
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash
and
bank
balance
Other current assets
Loans and advances
Total current assets
Current
Liabilities
Liabilities
Provision
Total
current
liabilities
2012
85755.23
21757.92
54157.34
526.06
24163.47
186360.02
114037.78
9069.97
123107.75
2013
Increase
70634.36
8561.55
135971.2
7
2431.49
55070.25
272668.9
2
107883.8
4
15651.27
123535.1
1
15120.87
13196.37
818113.93
1905.43
30906.78
6153.94
Net Increase in Working Capital
Total
Decrease
6581.3
85881.54
120780.08
120780.08
Source: Annual reports of GRAVITA INDIA LTD
Interpretation: The increase in net working capital in 2013 over 2012 is Rs.85881.54 lakhs . For
the second consecutive year the cash and bank balances have a shown an increasing trend. Other
current assets and loan advances have also increased. All these changes have brought about an
increase in net working capital
Statement of changes in working capital for the year 2013-2014
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans and advances
Total current assets
Current Liabilities
Liabilities
Provision
Total
current
liabilities
2013
2014
70634.36
8561.55
135971.27
2431.49
55070.25
272668.92
125530.98
4930.06
393260.86
10017.95
71012.25
604752.10
107883.84
15651.27
123535.11
115488.43
26927.23
142415.66
Increase
Decrease
54896.62
3631.49
257289.59
7586.46
1594.2
7604.59
11275.96
Net Increase in Working Capital
Total
313202.63
335714.67
335714.67
Source: Annual reports of GRAVITA INDIA LTD
Interpretation:
There is a significant increase in net working capital which amounts to 3132 crores. There
noticeable increase in net working capital is due to increase in cash &bank balances. The
increase in cash is 2572.89 crores (189%). A positive growth is observed in loans & advances
and other current assets. The increase in liabilities is offset by the increase in total current assets.
The net effect of the above changes has brought about the increased working capital
OPERATING CYCLE ANALYSIS:
The level of current assets needed for a business significantly depends upon the length of the
operating cycle. The longer the operating cycle, larger will be the working capital requirement of
the firm for funds needed at different stages of operating cycle and vice-versa.
Time series analysis of operating cycle in GRAVITA INDIA LTD
Year
97-98*
Raw Material stage
992009
98-99
Days
Days
200901
Days
Days
i.Consumption
of
R.M
stores
spares
717.68
1219.6
5
1394.3
1
1443.6
8
ii.per
day
consumption
1.96
3.34
3.82
3.95
iii.Avg.stock of
R.M.
Stores,
spares
630.44
Duration
R.M
320.6
4
628.51
188.0
6
614.25
16.8
614.05
of
Iii/ii
Work in process stage
Iii/ii
Iii/ii
Iii/ii
155.
3
i.sales
1007.91
ii.per day
consumption
2.76
2839.5
8
2527.39
41
iii.duration of
F/G stage
Iii/ii
6.92
15.4
Iii/ii
7.77
2789.5
3
12.8
7.64
Iii/ii
Iii/ii
2761.13 6.12
2972.6
3435.9
6
ii.Avg stock of
F/G
630.65
450.83
346.26
429.45
iii.duration of
F/G stage
I/ii
I/ii
I/ii
I/ii
2972.6
3435.9
6
15.1
4
Finished goods stage period
i.sales
1663.66
2.63
8.58
Debtors collection period
i.sales
ii.sales
day
1663.66
2761.16
per
4.55
33.21
7.56
1595
8.14
17.2
7
9.41
17.9
1
Gross working capital
Year
Gross Working
(Rs.In lakhs)
2007
155681.4
2008
166460.5
2009
199436.4
2010
171378.57
2011
186360.02
2012
272668.92
2013
604752.1
Capital
Net working capital:
The net working capital of shows an increasing trend from 1993-98 and decreasing tread from
1997-98 to 2009-01. It is showing a positive figure after that till 2013-05.
The main reason for the decreasing trend in the years is due to the increasing creditors year after
year. If also indicates a weak cash balance to meet the liabilities. The current liabilities of the
company is increasing by 200 crores almost every year. The inability of the company to pay the
creditors is also evident from the reducing net operating cycle period.
The operating cycle period has reduced continuously from 138 days during to 42 days during
year 2009 against decreasing trends in the previous years.
The increase in working capital is due to better sales and full capacity utilization.
Which has resulted in reduction of cost of production. The net working capital of GRAVITA
INDIA LTD
for the past 10 years is depicted in the table
Year
Net Working
(Rs.In lakhs)
2007
49323.2
2008
47209.65
2009
49084.42
2010
49289.44
2011
63252.27
2012
149133.81
2013
462336.44
Capital
Net working capital
Net Working Capital
(Rs.In lakhs)
49323.2
47209.65
49084.42
49289.44
462336.44
63252.27
149133.81
2007-99
2008-00
2009-01
2010-02
2011-03
2012-04
2013-05
Current ratio:
A current ratio of 2:1 is considered to do ideal. The ration is an indicator of the firm’s
commitment to meet its short-term liabilities. It indicates the rupees of current assets available
for each rupee of current liability. The higher the current ratio the higher the funds available for a
rupee of current liabilities. As a convention rule a current ratio of 2:1 or more is considered
satisfactory.
The higher the current ratio the higher the funds available for a firm.
Current ratio=current assets/current liabilities.
YEAR
CURRENT RATIO
2007
1.5
2008
1.4
2009
1.4
2010
1.4
2011
1.5
2012
2.2
2013
4.2
Interpretation: the current ratio was around 1.5 in 2007=99. the current ratio is poised around 1.4
from 2008-2009 to 1200-2993. the ratio has started increasing from there on and is at4.2 in 201305. this shows that there is drastic increase is firms current assets which shows the high liquidity
position of the firm.
Working capital turn over ratio:
Working capital turnover ratio is ratio of sales to net working capital. It is indicator of efficiency
of working capital management. Higher the ratio greater is the efficiency.
The working capital turnover ratio has constantly increased from 2007 to till date. This is mainly
due to increased sales and delay in payment to creditors.
Working capital turn over ratio= net sales / average working capital
The turn over ratio for the last 10 accounting periods is as shown:
YEAR
WORKING
CAPITAL
TURNOVER RATIO
2007
5.6
2008
6.3
2009
7
2010
8.3
2011
8
2012
4.2
2013
1.8
Note: here current assets are taken as working capital;
INVENTORY MANAGEMENT IS GRAVITA INDIA LTD
GRAVITA INDIA LTD is multi-product, integrated steel plant with 3.0 M.T capacity. this
makes GRAVITA INDIA LTD to store, handle and process of huge quantity of material. Also
GRAVITA INDIA LTD being a process industry running 365 days throughout the year 24 hrs a
day it material. This calls form efficient inventory management o the part of GRAVITA INDIA
LTD .GRAVITA INDIA LTD holds three types of inventory, they are:
1. raw materials
2. stores, spares and scrap
3. semi/finished goods.
Different sections carry out the procurement, storage and control of these inventories.
Raw materials:
The raw materials are produced and stored by raw materials department. The basic principle
followed by GRAVITA INDIA LTD in holding raw material inventory is to hold indigenous raw
material for 10 days.
Stores and spears: the stores and spares are procured and stored by central stores department(a
part of purchase department).
The store and spares recategorized as
1. automatic recoupment items:
2. department specific items
Automatic recoupemnt items: A.R items are those, which are general consumables with
standard specification and required by more than one department. The main objective of
stock control is to make available vital items all time.
The AR items are classified as a class, b class and c class as per value given below.
a. annual consumption value more than rs.100,000
b. annual consumption value between rs.100,000-50,000
c. annual consumption value less than rs50,000
The stocks of these items are maintained as per their vitality, consumption frequency,
automatic indenting of the items done once the level of stock comes to recumbent level foxed
for each item.
Department specific items: user departments based on approval given by top management for
level of inventory to hold indents department specific items. The amount is fixed based on
consumption of a particular item in the previous years. These items are also stored by stored
department and are released against stores indent note issued by department
Inventory
control:
Inventory control is major responsibility of stores department in GRAVITA INDIA LTD . It
adopts following procedure for inventory control:
1. The stores department generates data periodically on the inventory status and conducts
analysis of it. The same is circulated to all departments once in a quarter.
2. XYZ analysis of all items is carried out and circulated to all departments. Categorization
is based on values of item contributing to total value of stock.
3. Identification of non-moving and slow moving items on regular basis and intimating it to
user departments and there by reducing the indent quantity.
4. Identification of absolute and surplus items which are of no use and disposal of the same
after receiving clearance from top management.
5. Standardization of general store material and spares and reduce the number of items.
6. Conduct ABC analysis on consumption pattern o items and submit the same to purchase
department for regulation of supplies.
Semi/finished goods: the semi-finished goods comprise blooms and billets and finished goods
are the various products mentioned in product mix of GRAVITA INDIA LTD . The semi finished
goods are stocked and controlled by production planning and monitoring department. They chart
plans based on inputs from marketing department for holding inventory of various grades. They
generally hold stock for 10 days production, the finished goods stocks are held at central
stockyard within plant and at various stockyards spread all over India
The split of raw material, spares and stores and semi/finished goods inventory, their
percentage and total inventory are given in the table.
(figures in lakhs)
Semi finished
YEAR
2007
2008
2009
2010
2011
2012
Value
39841.7
49351.17
59689.19
53445.56
25336.44
22776
Raw material
% of
total
39.5
44.4
49.4
18.1
29.54
32.24
Spares
stores
and
% of
total
Total
Inv.
Value
18.7
42237.
3
41.8
10940.2
4
15.8
44195.
5
39.8
111103.8
15.9
41849.
3
34.7
120747.
5
23442.6
21.9
34249.
8
30.8
111138
28317.1
32101.
33.02 6
37.4
85755.2
3
26.3
41.4
6
70634
Value
18861.8
17557.2
19209
18569
% of
total
Value
29289
The above table clearly shows that the contribution of spares and consumables to total
inventory is varying from 30-50%, which is very high. One of gray areas in GRAVITA
INDIA LTD ’s management is inability to control inventory of non-moving, obsolete and
surplus items.
The main reason for such a high quantity of inventory is due to spares and consumables
indented irrationally during construction phase. One of the top priority of GRAVITA INDIA
LTD now is to either consume the non-moving items or dispose it at the earliest.
Inventory turnover ratio:
Inventory turnover ratio is ratio of sales to average inventory, the turnover ratio of GRAVITA
INDIA LTD is between 2 and 8.
This is however a low value, indicating huge quantity of funds locked up in stock.As
mentioned earlier the reason for low turnover is due to large quantity of nonmoving spares
and stores.
The inventory turnover ration of GRAVITA INDIA LTD for the past 10accounting periods is
shown in the table.
YEAR
Total
Sales
Avg.Inventor
y
Inv.Turnover
ratio
2007
276113
120139
2.3
2008
297259
106164
2.8
2009
343596
114532
3
2010
408095.4
1100295
3.7
2011
505925.0
4
98447
5.1
2012
617400
78194.6
7.9
Inventory turnover ratio
CASH MANAGEMENT IN GRAVITA INDIA LTD
Method of cash management:
In GRAVITA INDIA LTD cash requirement is planned and arrived at in the following
manner:
1. the chairman cum managing director of GRAVITA INDIA LTD in consultation with
board of directors decides the production schedule for the following year.
2. the production schedule as approved by the directors is then circulated to all departments,
after which production target for each month is set.
3. the heads of each of 35 budgets, the directors formulate a master budget allocation for
each section.
4. after receiving all the budgets, the directors formulate master budget for the particular
year and the monthly budget allocation for each section.
5. at the end of each of month, the actual versus the projected budget is put up to the
management and directors discuss the reason for the variances. Any deficit in the cash
inflow is adjusted buy pushing the sales in the following month.
Initially cash section of the finance department prepares the cash budget. They forecast monthly
and weekly requirements of cash. The forecast of information regarding cash inflows which
include the cash from customers, export incentive export credit, etc), cash outflows which
include purchase of row materials, spares, excise duty, sales tax, personnel payments customs
duty, railway freight etc.
Source of funds:
The main source of funds is sales realization. Sales are carried out at heat quarters and at
various branches located through out India. The funds collected are received at the head
quarter in such a way to minimize the delays in remittance of funds from the place of
collection to head quarter.
The sales realization in head quarters includes both domestic and export sales receipts. Domestic
receipts are directly credited to cash credit accounts of GRAVITA INDIA LTD ’s and the export
sales realizations are credited to GRAVITA INDIA LTD ’s packing credit account with the
negotiating banks.
Polling of funds:
As mentioned earlier the major source of fund to GRAVITA INDIA LTD is the sales realization
at the various branch sales offices located through out India. As all payments are effected
through the head quarters, a need to pool all the funds to head quarters account is imminent. In
order to achieve this, collection accounts are opened with banks at all sales centers, where all
collections are deposited on daily basis. The banks are in turn instructed to remit the proceeds
immediately on realization to GRAVITA INDIA LTD ‘s account at head quarters. The collection
accounts of V are with SBI,SBH,BOB and Canara bank who are the major providers of working
capital. Cash section has a system of closely monitoring the receipts of the accounts of the
above-mentioned banks at their head quarters, which enables the release of payment. The major
objective of cash section is to avoid delays between the time of deposition of funds in the banks
at collection centers and the time at which the same are received at head quarters. To achieve this
is need continuous liaison between the banks, collection centers and head quarters is a must.
Management of cash credit limit
As the company is maintaining cash credit account with multiple banking arrangements with 10
banks. It does not maintain cash balance except for some petty cash expenses. The company
maintains two types of accounts at the branches and head quarters viz, collection account and
imprested account for petty expenses. Therefore, the question of managing surplus cash does not
a rise. However the management6 has to keep an eagle’s eye on fund flow and working capital
limit. The have to see that the balance will not go out of the limits given by the banks. At the
same time they should be position of utilize funds to the extant of the limits available.
As regards to information reports the cash section generates dailya. Daily collection at various banks with branch-wise break up
b.
Daily
position
as
regards
to
utilization
of
cash
credit/packing
credit
limits with various consortium member banks financing their working capital
requirements.
c. Statement showing the details of payments released in the day,
d. Statement showing the details of payments outstanding at the end of the day after taking
into account the payments released on the.
e. Monthly cash flow statement showing the actual cash flow in the month with the
projected expenditure of the ensuing month.
From the above it can be seen that the section interacts with numerous agencies such as the
various other departments of the organization, consortium of banks, branch collection centers,
suppliers and customers.
As many critical decisions are made based on the repots generated at the cash section, accuracy
of the same assumes significance.
Cash ratio:
Cash ratio is ratio of cash held by a firm to current liabilities. GRAVITA INDIA LTD is
maintaining almost an average cash of around 0.13 except for the past three accounting periods.
This is because as mentioned earlier cash holding is kept at minimum except for some petty cash
needs. The increase in cash ratio indicates the significant increase in cash and bank balances in
the total current assets.
Cash ration = cash in hand (or bank)/current liabilities.
Cash ratio for the past few years is as shown.
YEAR
Cash in
Hand/Bank
Current
Liabilities
Cash ratio
2007
150.67
1063.58
0.14
2008
159.93
1193.82
0.13
2009
163.67
1303.52
0.12
2010
161.12
1220.99
0.13
2011
541.57
1231.07
0.44
2012
1359.71
1235.35
1.1
2013
3932.6
1424.15
2.76
RECEIVEBLES MANAGEMENT IN GRAVITA INDIA LTD
Procedure of receivables management:
GRAVITA INDIA LTD sells its product directly to its customers. It has 27 marketing officers
spread through the country. The marketing and the finance department and top management at
the lead quarter formalize the price of different products and different branches jointly. the price
list for cash product in their region is circulated to all branch offices.
The sales and billing are done at the individual branches and the record of the
daily transactions is maintained. The cash deposits are done at one of the respective banks and
are the entire sum is in turn transferred to the banks at visakhapatnam through telegraphic
transfer.
Credit policy of GRAVITA INDIA LTD :
The credit policy of GRAVITA INDIA LTD is strict in one sense and flexible in other. As
GRAVITA INDIA LTD has got a wide network of marketing offices numbering 27 there is
always a possibility of increased credit sales by the branch sales offices, resulting in liquidity
crunch if proper control is not maintained. Therefore, all regions and branches are given a limit
for credit sales beyond which they cannot sell on credit without prior approval of competent
authority. At any given point of time credit sales should not exceed the limit given.
At the same time branch sales offices are given the freedom to give interest bearing credit which
they can decide depending upon the level of finished goods inventory in their stockyard and
other aspects of customer.
Collection policy of GRAVITA INDIA LTD :
GRAVITA INDIA LTD
follows two types of credit sales of its products. They are:
1) secured credit sales
2) Unsecured credit sales
Secured sales are backed by securities, which can be
a) letter of credit: letter of credit is an agreement where by the banks opens letter of
credit of its customers in favor of suppliers and undertakes the responsibility of
payment obligation of its client.
b) Bank guarantee: bank guarantee is like issuance letter of credit where by the
customer’s bank gives the guarantee to GRAVITA INDIA LTD to undertake
responsibility of payment obligation of its credit.
Secured credit sales are primarily done with private customers. Cheque facility is
extended to the customer based on the credit worthiness of the party. The average collection
period of GRAVITA INDIA LTD is 30 days. GRAVITA INDIA LTD stock holding period is 30
days. If the cheque is dishonored, notice to the customer will be sent. In case of no satisfactory
reply from the customer GRAVITA INDIA LTD issues investigation notice to banker who
guaranteed the customer ad the banker has to pay the money to GRAVITA INDIA LTD . Cheque
facility for such customers for all further sales stands cancelled.
Unsecured sales are made mostly to government agencies. There will be no security in such
cases. Credit period varies from 15=60 days. Generally, GRAVITA INDIA LTD cannot compel
government agencies for prompt release of payments due unlike private parties since they are
also part of government undertakings
Interest charges for credit sales:
Penal
interest on
Type
of
customer
Secured
Unsecure
d
violation
of redit
period
Project
customer
15%
17%
2%
Other
customer
16%
18%
2%
Receivable turnover ratio:
Receivable turnover ration is defined as ratio of total sales to average receivables. This ratio
indicates the number of times the management is able o convert the receivables in to sales and it
indicates the efficiency with which receivable are managed. The receivables turn over ratio of
GRAVITA INDIA LTD for past 10 accounting years are given in the table.
Receivables turnover ration= sales/ Average receivables
Receivables turnover ratio:
YEAR
SALES
AVG.
RECEIVABLE
S
2007
276113
12068
23
2008
297259
14062
21
2009
343596
16863
20.3
2010
408095
19316
21.1
2011
505900
21502
23.5
2012
617400
15159
40.72
REC.TURNOVER
RATO
Interpretation:
The receivables turnover ratio has always been around 21=23 almost every year. The turnover
ratio for GRAVITA INDIA LTD is high and this shows that bulk of GRAVITA INDIA LTD ’s
sales is cash sales through out the last accounting periods. The increase trend earlier was due to
cash constraint in GRAVITA INDIA LTD , which necessitated the need for GRAVITA INDIA
LTD to go only for cash sales. The decreasing trend in last year is due to sluggish market
conditions. Which prompted all steel manufacturers to push sales through credit sales and also
due to good cash position of GRAVITA INDIA LTD , which allowed it go for credit sales.
PAYBLE MANAGEMENT IN GRAVITA INDIA LTD
In GRAVITA INDIA LTD all payments are done through the cash section of finance department
in the head quarters. Cash sections monitor the cash position on a daily basis and prioritize the
payments. Cash section prepares cash report every morning and checks with the banks for cash
balance. Based on the balance available in the banks and prioritized of payments, cheques are
issued to the parties. Payments are prioritized so as to optimize the cost. Prioritized is done based
on the financial implication of non-payment of the due.
The financial implications considered by GRAVITA INDIA LTD for non-payment of due are
1. interest cost penal and over due
2. penalties and fines in case of statuary obligation
3. impact of production and sales in case of payment is for critical item.
Close liaison is maintained between purchase department, bill-passing section of finance
department and cash section for efficient management off account payable.
The major payments of the plant are towards:
1. purchase of raw material
2. purchase of stores and spares
3. employee wages
4. freight payments
5. interest on loans including working capital
6. repairs and loans including working capital
7. statutory duties like excise and sales tax
The company pays
1. excise duty-2crores/day
2. sales tax-12 crores/month
3. custom duty 12 crores/month
4. employee salary-35 crores/month
5. iron ore-15 crores/month
6. coal blast-70 crores/month
7. railway fright 50 crores/month
8. ocean fright-15 crores/month
Payable turnover ratio:
Payables turnover ratio is ratio of total purchases to average payable. It indicates the number of
times management is able to convert accounts payables into purchase. Payable turn over ratio=
purchases/average payable.
YEAR
Purchases
Avg.
Payabl
e
2007
1449.55
569.34
2.5
2008
1809.12
577.8
3.1
2009
1900.68
606.54
3.1
2010
2118.78
706.58
3.1
2011
1967.3
614.61
3.2
2012
2061.3
618.26
3.3
Payable
ratio
turnover
Interpretation:
The turnover ratio is maintained between 2.0 and 3.0. this was mainly possible due to improved
sales cost reduction purchase value reduction and better cash position.
FINDINGS:
1. The total sales of GRAVITA INDIA LTD are showing a positive trend despite cut
down in
steel prices across the globe. The rise in sales is 32.5% in terms of sales turnover
during 2013-2014 compared to 2012-2013 and 22.03% during 2012-2013 compared to 20112012. the increase in sales by over 20% indicates the excellence achieved by GRAVITA INDIA
LTD in spite of over capacity problem in the market.
2. The gross margin of GRAVITA INDIA LTD has increased from Rs 2073 crores in
2012-20094 to Rs503.89 crores in 2013-05 (an increase of 57.79%).
3. The payable turnover ratio is maintained on an average at 3.0 from 2007 onwards.
4. The consumption at raw material stage has increased from Rs 1394.32 crores in 200800 to Rs 2050.44 crores in 2009-01.
5. All units in GRAVITA INDIA LTD have achieved their rated capacity during the year
2009-01 and poised to exceed the same current year. This has resulted in
a.
reduction in cost of production of saleable steel. The cost of production of
GRAVITA INDIA LTD 1 following a decreasing trend over the past few years. This is evident
from following table given overleaf.
b.
The reduction is cost of production has increased the leverage to extend cash
discount to push sales. This is one of the major reasons for cap to register impressive sales
figures in spite of huge dumping from international players.
6. GRAVITA INDIA LTD has started making net profits from 2011-03. the net profit during
2012-04 was Rs1547 crores while the net profits touched Rs2009 crores in 2013-05. the
net profit was due to higher cash income than cash expenditure. This is also reflected by
net position of GRAVITA INDIA LTD .
7. For the first time GRAVITA INDIA LTD was able to raise working capital funds at an
interest rate of less than 4%. It is in the range of 1.8-3.6% in 2012-04 compared to 8-9%
in the previous year. This has resulted in the increase in net working capital significantly.
8. He current ratio of GRAVITA INDIA LTD is being maintained at 4.2. it shows a very
high
degree of short term liquidity position of the firm.
9. The dues payment by GRAVITA INDIA LTD is able to pay its dues early. For the past three
years GRAVITA INDIA LTD is able to pay its dues early. In 2010-02 parts of old debts were
paid. In 2011-03,another part of old debts was also paid ahead before the scheduled time and in
2012-04 cleared all term loans ahead of schedule time.
CHAPTER – 5
Conclusion
CONCLUSION
1) The interest rate at which GRAVITA INDIA LTD is producing its working capital is about 1415% against a normal rate of 9-12% in 2009-10, in 2010-11 it was 12%-14%, in 2011-12 it was
8%-9% and in 2012-04, it was only 1.8%-3.6%because of forex and exchange credit. Also higher
profit realization by selling the produces in higher margins will eventually result in higher cash
accrual and hence higher credit rating. Higher credit rating results in reduction in interest rates.
Hence the company should either try to enhance the production facilities or better investment
opportunities other than fixed deposits what the company currently is using for investing surplus
funds.
2) The non moving inventory is one of the gray areas in GRAVITA INDIA LTD ’s working
capital management. They account for 1/3 rd of value total inventory. This is really a critical area
where GRAVITA INDIA LTD’s management should focus to bring down the level of non
moving inventory. GRAVITA INDIA LTD has to identity areas for using inventory to dispose it.
Also identification of such items will help in preventing procurement of such items on future.
3) The other main area where GRAVITA INDIA LTD has tremendous scope for improvement is
in manufacturing value an added product. This will result in better sales realization and higher
profit.
4) The export sales of GRAVITA INDIA LTD are only 30% of total sales during 2012-14.
present scenario of steel industry indicates the need for more steel even with the cause of lower
production facilities. The company should now give more importance to exports because it
provides good net sales realization but also export benefits.
CHAPTER – 6
Recommendations, Bibliography,
RECOMMENDATIONS
The concept of working capital is used in two ways i.e., gross and net. Gross working capital
refers to the firms investments in current assets. Net working capital means the difference
between current assets and current liabilities, and therefore represents the position of current
assets, which is financed either from long term funds or banks borrowings.
Cash is required to meet a firm’s transactions and precautionary needs. A firm needs cash to
make payments for acquisitions of resources and services for normal conduct of business. Cash
is also held to meet emergency situations. Some firms hold cash to take advantage of speculative
changes in prices of input and out put. Management of cash involves three things.
a) managing cash flows in and out of a firm
b) managing cash flows within a firm
c) financing deficit or investing surplus cash
And thus, controlling cash balance sat any point of time. Firms prepare cash budget to plan and
control and cash flows. Cash budget can serve its purpose only when firm can manage its
collection and payments with in the allowed limits. A firm should hold optimum amount of cash
at any time and invest the temporary excess amount in short term securities.
Trade credit creates book debts accounts receivable. It issued as a marketing tool to expand or
maintain the firm’s sales. A firm’s sales. A firm’s investment on account receivable depends on
volume of credit sales and collection period through credit policy. Credit policy. Credit policy
includes credit terms and collection efforts the firm’s credit policy will be considered optimum at
the three methods monitor book debts.
They are:
a) average collection period
b) ageing schedule
c) collection experience matrix
the first two methods are based on the showing payments patterns and hence do not provide
meaningful information for collecting book debts. The third approach uses the desegregated data
and it is better method than first two methods.
Inventories constitute about 60% of current assets to public limited companies of India. The
manufacturing companies hold inventories in the form of raw materials work in process and
finished goods. They are three motives for holding inventories. They are transaction motive,
precautionary motive and speculative motive.
GRAVITA INDIA LTD is a multi product manufacturer unit with varying cycle time for each
product. The capital required by each manufacturing unit of GRAVITA INDIA LTD depends on
the individuals products cycle of each item. The department wise capital whose capital
requirement coupled with their production target for a year invites and effective working capital
management.
In finance, working capital is synonymous with current assets; GRAVITA INDIA LTD is a multi
product large organization with huge capital turnover where the working capital requirement
depends on the level of operation and the length of operation cycle. monitoring the duration of
the operating cycle is an important aspect of current assets management and control.
* the company’s average cost of interest is 3-4%, which the company has acquired by forex
funds replacing domestic loans and working capital facilities. If the company utilizes the forex
replacing domestic loans and working capital facilities. F the company utilizes the forex funds
where ever it is possible i.e. when ever the payment are made in Indian rupees of foreign
currency such as ocean freight, other music payments like suppliers. The company will be in
position to take a better advantage to increase the profits.
* Currently the company’s payables towards raw material are replaced with buyer’s
credit/suppliers credit in the form of forex funds. The company has tried to nullify the
exchange risk by going for forward cover considering India’s dependency on other countries in
exchange .Better risk monitoring would be required at the expansion stage when the quantum
of import rises.
* The steel industries are having very good time but GRAVITA INDIA LTD could not able to
take full of its advantage due to the constraints, primarily raw materials. Unlike any other steel
company, GRAVITA INDIA LTD is not having its own sources of raw material i.e coal mine.
These are very basic needs as the company always depends on its supplier for its raw material.
Had the company always depends on its supplier for its raw material. Had the company utilized
its 2-3 half% of working capital limits for acquisition of mines, purchasing of mines, etc. It
could have been a favorable situation.
* The company is getting all its funds i.e. day zero(0) when the rates are compared, the
company is investing surplus funds at 8-8.5% and paying at 7-8% to get the funds on zero(0)
day. This spread should be maintained during the time of expansion also.
* The company has already accumulated funds in excess of Rs.5500 Crores and can look
forward to bigger investment in building up capacities as compared to the proposed 6.1 Million
tons.
* GRAVITA INDIA LTD should invest its short investments in short term, low risk and
medium return instruments rather than in the fixed deposits which it is presently employing for
surplus funds, this would help the company manage its funds better at the time of expansion
when the liquidity would be at premium.
BIBLIOGRAPHY
Books1. Financial management
I.M. pandey
2. Working capital Management
I.M. pandey
Websites1. Company website Gravita India Ltd.
2. Website of Indian
ON
“WORKING CAPITAL MANAGEMENT AT GRAVITA INDIA PVT. LTD.
TILAK NAGAR, JAIPUR (RAJASTHAN)”
SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
of
Punjab Technical University
By
Vishal Garg
1407131
MBA III SEMESTER
UNDER THE SUPERVISION OF
Ms. Aishywarya
Assistant Professor
Chandigarh Business School, Landra, Mohali
2014-2016
Certificate of Supervisor
This is to certify that Mr. Vishal Garg Roll No.1407131 has completed the research project titled
“WORKING CAPITAL MANAGEMENT AT GRAVITA INDIA PVT. LTD. TILAK
NAGAR, JAIPUR (RAJASTHAN)” under my supervision in partial fulfillment of the
MASTER OF BUSINESS ADMINISTRATION degree of Punjab Technical University.
Ms. Aishywarya
Assistant Professor
Date:
Place:
Declaration
I, hereby declare that the research project report titled “WORKING CAPITAL
MANAGEMENT AT GRAVITA INDIA PVT. LTD. TILAK NAGAR, JAIPUR
(RAJASTHAN)” is my own original research work and this report has not been submitted to
any University/Institute for the award of any professional degree or diploma.
Vishal Garg
MBA III sem
Chandigarh Business School
Date:
Place:
Acknowledgements
I express my sincere gratitude to Ms. Aishywarya, Assistant Professor CBSA, Chandigarh
Groups of Colleges for providing me an opportunity to work on this project. I am very grateful
for their constant support and guidance throughout the duration of the entire project. I express
my sincere thanks to Dr. Tajammul Hoda Head of the Institution and our present summer
internship coordinator Ms. Manisha Aujla for their guidance and support. Lastly, I thank my
parents, family members and friends for their constant support in my endeavor.
Vishal Garg
TABLE OF CONTENT
Title
Certificate
Declaration
Acknowledgement
CHAPTER- 1 Introduction to Industry
CHAPTER -2 Company Profile
CHAPTER-3 Research Methodology
3.1 Need of the Study
3.2 Objectives of the Study
3.3 Limitations of the Study
CHAPTER-4 Analysis & Interpretation
CHAPTER-5 Conclusion
CHAPTER-6 Recommendations
Bibliography
CHAPTER – 1
Introduction
(Industry Profile)
MINING INDUSTRY IN INDIA
HISTORY
The Mining industry in India is a major economic activity which contributes significantly to
the economy of India. The GDP contribution of the mining industry varies from 2.2% to 2.5%
only but going by the GDP of the total industrial sector it contributes around 10% to 11%. Even
mining done on small scale contributes 6% to the entire cost of mineral production. Indian
mining industry provides job opportunities to around 700,000 individuals.
India is the largest producer of sheet mica, the third largest producer of iron ore and the fifth
largest producer of bauxite in the world. India's metal and mining industry was estimated to be
$106.4bn (£68.5bn) in 2010.
However, the mining in India is also infamous for human right violations and environmental
pollution. The industry has been hit by several high profile mining scandals in recent times.
Flint was known and exploited by the inhabitants of the Indus Valley Civilization by the 3rd
millennium BCE.[8] P. Biagi and M. Cremaschi ofMilan University discovered a number
of Harappan quarries in archaeological excavations dating between 1985-1986.[9] Biagi (2008)
describes the quarries: 'From the surface the quarries consisted of almost circular empty areas,
representing the quarry–pits, filled with aeolian sand, blown from the Thar Desert dunes, and
heaps of limestone block, deriving from the prehistoric mining activity. All around these
structures flint workshops were noticed, represented by scatters of flint flakes and blades among
which typical Harappan-elongatedblade cores and characteristic bullet cores with very narrow
bladelet detachments.'[10] Between 1995 and 1998, Accelerator mass spectrometry radiocarbon
dating of Zyzyphus cf. nummularia charcoal found in the quarries has yielded evidence that the
activity continued into 1870-1800 BCE
TOP PLAYERS IN INDUSTRY
Vedanta Resource
1 Corporate office – London, UK | Establishment – 1976 |
Business – Mining | Website – vedantaresources.com |
Among the top mining companies in India, Vedanta resource is a metal and mining organization
headquartered in London, Uk. The company is operating in many countries including India and
major products are copper, aluminum, zinc, lead and gold.
2 National Mineral Development Corporation
Corporate office – Hyderabad, Andhra Pradesh | Establishment – 1958 |
Business – Mining | Website – www.nmdc.co.in |
A government of India organization and comes under the Ministry of steel, it is the largest iron
ore producer in the country. The company has total 5 mines located in Karnataka, Chhattisgarh,
Madhya Pradesh and Karnataka which produces iron, dolomite, limestone, gypsum, bentonite,
copper, diamond etc.
3 | Hindustan Zinc Limited
Corporate office – Udaipur, Rajasthan | Establishment – 1966 |
Business – Mining | Website – www.hzlindia.com |
Hindustan Zinc is a leading producer of zinc and among the best mining companies in India. It is
part of giant Vedanta group and headquartered in Udaipur, Rajasthan. The company has 3
refiners in Rajasthan and one in Andhra Pradesh. It’s major mine products are Lead, zinc, Silver
and cadmium.
4 | National Aluminium Company limited
Corporate office – Bhubaneswar , Odisha| Establishment – 1981 |
Business – Mining | Website – www.nalcoindia.com |
National Aluminium company limited or NALCO is a government owned organization working
under Ministry of Mines. The company is rated best in mining industry in India and largest
producer of Aluminium and bauxite. It’s refinery units are located in Damanjodi and Nalcongar,
Angul and corporate office is located at Bhubaneswar.
5| Hindalco Industries
Corporate office – Mumbai, Maharashtra | Establishment – 1958 |
Business – Mining and Metal | Website – www.hindalco.com |
Hindalco Industries is a flagship company of Aditya Birla and one among the top 10 mining
companies in India. The public organization is BSE and NSE listed, which started Aluminium
production in year 1962. It is headquartered in Mumbai, Maharashtra and headed by Mr. Kumar
Mangalam Birla.
6 | Hindustan Copper Limited
Corporate office – Kolkata, West Bengal | Establishment – 1967 |
Business – Mining – Copper | Website – www.hindustancopper.com |
Hindustan Copper limited is a Government company working under the Ministry of Mines. It
was established in year 1967 and has established mines and metal refinery work at Khetri,
Rajasthan and Rakha, Jharkhand. The company is a well known name in mining industry in India
and also produces gold, silver, tellurium and nickel sulphate.
7 | Rajasthan State Mines and Minerals Limited
Corporate office – Udaipur, Rajasthan | Establishment – 1974 |
Business – Mining – Gypsum | Website – www.rsmm.com |
Rajasthan State Mines and Minerals limited is state owned organization and leading mining
company in India. The company is engaged in non-metallic mining of Lignite, Rock phosphate,
limestone and gypsum. It was established in year 1974 and headquartered in Udaipur, Rajasthan.
8 | Gujarat Mineral Development Corporation
Corporate office – Ahmadabad, Gujarat | Establishment – 1963 |
Business – Mining | Website – www.gmdcltd.com |
Gujarat mineral development corporation limited is a leading mining company in India which is
a Gujarat government undertaking company established in year 1963. The organization is
engaged in production of lignite, bauxite and fluorspar.
9 | Kudremukh Iron Ore Company Limited
Corporate office – Mangalore, Karnataka | Establishment – 1976 |
Business – Mining | Website – www.mynetbrains.com |
Kudremukh Iron Ore Company limited is a government owned company which is rated among
the top 10 mining companies in India. The company is engaged in mineral exploration, mine and
iron ore concentrate business. It is based at Mangalore and plant facility has capacity to produce
7.5 million tonnes per annum.
10| Bharat Aluminium Company
Corporate office – London, Uk | Establishment – 1965 |
Business – Mining | Website – www.balcoindia.com |
Established in 1965 it was formed as a government organization and later it was taken over by
Vedanta resource in year 2001. BALCO is also engaged in the production of aluminium alloys
and special aluminium for transmission lines and missiles.
KEY CHALLENGES FACING THE MINING INDUSTRY IN 2014
Productivity
Many experts agree the largest issue facing mining is productivity. With most of the easilyaccessible high grade ores almost tapped out, companies are faced with the challenge of either
mining low grade ore bodies or mining in difficult or remote regions.
In the case of low grade ore bodies, it is very important to remove as much of the desired ore
from the mined material as possible in order for the mining operation to remain economically
feasible. Miners must not only monitor the incoming material to maximize the extraction
process, but the waste material must be monitored just as closely to ensure that none of the
valuable minerals are lost.
The higher grade ores that are still minable are often located in regions of the world that are
difficult to access because of climate, altitude, or unstable political situations. Emerging
solutions to the cost and risk of transporting and housing employees at these sites include fullyautomated sampling, preparation, and analysis instrumentation that require fewer personnel to
operate. On a larger scale, mine site automation is quickly gaining the attention of the industry.
Remote monitoring and control of equipment allows miners to conduct blasting, drilling, and
transportation operations from miles away while achieving more efficient, continuous operations,
improved communications, and reduced infrastructure.
Other operational efficiencies can be gained in the areas of lab automation, information
management, and data analysis. The need for rapid data capture and timely, accurate analysis of
sample data to determine ore boundaries and drilling targets is a huge challenge in mining.
Modern mining companies rely on sophisticated laboratory information management systems
(LIMS) for quality control, increased productivity, data management, and compliance with
product and environmental safety standards.
Process Control
Variation in the ore body at a mine site can create extraction issues. A constant raw material
analysis is needed to maintain accurate process control because if the composition of the ore
body changes, the extraction process will need to change just as quickly. Traditional mining
sample analysis often involves a costly and time consuming process of sending samples to offsite laboratories and waiting for the results. Field-portable x-ray fluorescence (XRF)
analyzers can provide fast, laboratory-grade sample analysis for immediate feedback during
drilling operations. When combined with confirmatory data fromlaboratory-based XRF
instrumentation, miners are able to make defensible decisions about grade control, quality
assurance, and other operational decisions.
However, elemental analysis may not provide enough information to maintain accurate and
consistent process control. Mining processes often require a combination of elemental and phase
analysis requiring both XRF for elemental composition and x-ray diffraction (XRD) for phase
identification. Like XRF, XRD is a versatile, non-destructive analytical technique. Phase analysis
with XRD can identify impurities and improve ore beneficiation. Instrumentation combining the
two technologies is being used by mining companies to optimize process control to recover the
most valuable minerals.
Environmental Regulations
Mining processes produce large volumes of waste, some of it highly toxic. This waste can result
in acid mine drainage and groundwater contamination, and needs close monitoring to ensure that
it has been neutralized before being returned to the earth.
As the regulations governing the disposal of mining waste materials become stricter, elemental
analysis is becoming more important in the effort to reduce the release of harmful chemicals.
XRF analyzers can be used to monitor elemental contaminants at mine sites and in waste
streams, in addition to being used for exploration and mining applications. XRF analyzers
quantify a wide range of elements, including sulfur, lead, and arsenic–all indicators of hazardous
waste material.
Mine sites normally operate around the clock to stay profitable, so they rely on a variety of
robust tools and technologies than can keep pace with the complex demands of modern mining
operations. Explore more solutions for every facet of the mining industry.
CHAPTER-2
Company profile
GRAVITA INDIA PVT. LTD
Gravita India Ltd is one of the largest lead producer in India established in the year 1992 at
Jaipur. Company is anchored by more than 500 forward looking professionals. The company is
dedicated to Lead & Lead Products with environment friendly process
GRAVITA VALUES
Our Vision
At Gravita, all our operations are Eco-friendly and cost-competitive. We are dedicated in
preserving and protecting our natural resources and are aware that we can do so only in
a pollution-free environment.
Our greatest and most precious asset has been our people and we are not loath to invest in
their training and improvement to enable them to successfully meet new challenges in
an ever changing scenario.
Customer satisfaction is of paramount importance to us and we go all out to satisfy them
with excellent service and value for money.
Our Mission
Our mission is to be a leading brand in the field of Lead, both nationally and internationally
through constant endeavour and innovation.
Core Values
Uncompromising commitment to quality and performance-related excellence.
Constant Innovation.
Committed delivery schedule.
Enhancing customer delight.
We are extremely quality-conscious because we are fully aware that if Gravita is to become a
world-leader, we should be able to vie with the best. Our highly committed and motivated team
is constantly engaged in trying to see that no compromises are made on this front.
TORCH BEARER
Gravita is the mutual thought and an excellent discovery of Rajat Agrawal & Rajeev
Surana,who happened to be batch mates at their college life
Mr. Rajat Agarwal
Mr. Rajat Agarwal, B.E. (Mech) from MREC has led Gravita since 1992 . He started Gravita
with one basis idea that to create an MNC which will be profoundly committed to its values , in
the firm belief that achievement and Victory would be its Final Result. Un compromising
Commitments to Values continues at the core of Gravita. He strongly believes that anybody using
capacity and brain, can do Extraordinary things and that the key to this is creating highly
motivated teams . He takes a personal interest in developing, creating teams and leaders and
invests his significant time. He is strongly committed to the belief that business organizations
have deep social liability and that this must be discharged by conducting decent and moral
business, by involvement with community concerns and by building an ecologically sustainable
business. Over the years Mr Rajat has received many honors and Rewards, which he says, are
recognitions for each person who has contributed to Gravita..
Mr. Rajeev Surana
Mr. Rajeev Surana, B.E. (Mech.) from MREC brings a wealth of expertise and proficiency, the
ability to drive and support creation & innovation, and a strong track record of leadership with
many of the world’s leading global Group of merchants and organizations. He hearty believes
that success is an adventurous journey, if you know the goals and the objects.
The Gravita Group of companies are owned and managed by a forward-looking and dedicated
team of professionals. Our commitment is to provide low cost Lead and its products at highest
quality with a special emphasis on timely deliveries.All our business processes are targeted
towards the maintenance of high levels of quality for our products and at the same time being
cost-competitive. We are very versatile in our operations and are extremely ethical in our
business practices as we firmly believe in the preservation and protection of our natural
resources. Our operations are in strict conformity with ISO 9001 and ISO 14000 guidelines.We
are based in Jaipur, the capital of the state of Rajasthan and are only 265 kms away from New
Delhi, the capital of India. Jaipur is well connected by rail, road and air.
PRODUCTS GRAVITA INDIA PVT. LTD
Pure Lead
Remelted Lead
Litharge
Litharge Granual
Lead Powder
Lead Sheet
Lead Wire
Red Lead
Lead Bricks
Lead Balls
Lead Plates
Lead Sub Oxide (Grey Oxide)
Lead-Acid Batteries
The biggest use of Lead worldwide is for the Lead-acid battery. The commonest type of Leadacid battery consists of a heavy duty plastic box containing Lead alloy pasted grids. The grids are
made from a Lead-antimony together with minor additions of elements such as copper, arsenic,
tin and selenium. These are added to confer properties such as grain refinement, fluidity and agehardening characteristics to the grids. For the new generation of sealed, maintenance free
batteries a range of Lead calcium-(tin) alloys is used. These contain up to 0.1% calcium and from
zero to 0.5% tin. The tin-containing alloys are used in the positive grids to protect against
corrosion. A rechargeable cell is known as a secondary cell and provides a means of storing
electricity. Lead is particularly well suited for this application because of its conductivity and its
resistance to corrosion. The addition of antimony or calcium gives the Lead an increased
hardness to resist the mechanical stresses within the battery caused, for example, by the natural
vibration of road vehicles and by the chemical reactions taking place.
Lead Sheet
The benefits of Lead sheet are considerable: it is rugged, flexible and long lasting and has
considerable aesthetic appeal. Around 75% of the Lead sheet consumed by the building industry
is used as flashings or weathering to prevent water penetrating at points such as the bases of
chimney stacks and abutments. The remaining 25% or so of the Lead sheet is used for roofing
and cladding. The use of Lead for roofing is by no means confined to traditional applications
such as churches and historic buildings; architects have been won over to the attractive and long
lasting properties of Lead sheet for modern buildings, both for roofing and for the vertical
cladding of external walls.
By virtue of its resistance to chemical corrosion, Lead sheet also finds use for the lining of
chemical treatment baths, acid Plant and storage vessels. The high density of Lead sheet and its
“limpness” makes it a very effective material for reducing the transmission of noise through
partitions and doors of comparatively lightweight construction. Often the Lead sheet is
adhesively bonded to plywood or to other building boards for convenience of handling. A
particular advantage of Lead’s high density is that only relatively thin layers are needed to
suppress the transmission of sound. This makes for important space savings in the design of large
modern buildings such as hotels and office blocks.
Lead Pipe
Pipe made from Lead and Lead alloys is used for its corrosion
resistance and flexibility in the chemical industry and in plumbing and water distribution
systems.
Cable Sheathing
An electric cable consists essentially of three major components:
Conductors to transmit power or electrical signals.
Insulation surrounding the conductors to protect users.
a sheath and other layers surrounding the insulation to exclude moisture and protect it from
corrosion
and
mechanical
damage
during
the
lifetime
of
the
cable.
Due to its excellent proven corrosion resistance when in contact with a wide range of industrial
and marine environments, soils and chemicals, Lead was one of the first materials to be used to
provide
an
impervious
sheath
on
electric
cables
.
Lead has the major advantage that it can be applied to the cable core in unlimited lengths by
extrusion at temperatures which do not damage even the most sensitive conductors (optical
fibers) or insulating materials (paper or plastics). Lead is pliable and so can withstand the several
coiling, uncoiling, handling and bending operations involved during the later manufacturing
stages and installation of the cable. A Lead sheath can be readily soldered (again at low
temperatures) when cable lengths need to be jointed or new cables installed. With modern screwtype continuous extruders, un-jointed lengths of submarine power cables as long as 100
kilometers have been produced.
Lead Cames
Lead cames have long been a feature of stained glass windows in churches and cathedrals. They
consist of H-shaped sections of Lead which hold together the individual pieces of glass. They are
now being used more widely in modern homes both in the traditional way and in the form of
self-adhesive strips stuck on to a larger piece of glass to simulate an integral came. The use of
Lead in this manner is attractive and lends a traditional air to a home.
Lead-Clad Steel
This composite material is manufactured by cold rolling Lead sheet on to sheet steel which has
been pretreated with a thin tin-Lead alloy coating (terne plate). This forms a strong metallurgical
bond between the Lead and the steel and provides a material that combines the physical and
chemical properties of Lead with the mechanical properties of steel. Although primarily aimed at
the sound insulation market, Lead clad steel has also found use in radiation shielding and in the
cladding of buildings.
Lead Powder
Lead powder incorporated into a plasticizer is added to plastics to form sheets of Lead loaded
plastic. This material is used to make radiation protective clothing and aprons for the medical,
scientific and nuclear industries. It also has sound insulating properties. Lead powder is also used
as the basis for some corrosion resistant paints.
Lead Alloys
By far the biggest use of Lead-antimony alloys is in batteries. Lead-antimony alloys with
antimony contents of between 1 and 12% are used widely in the chemical industry for pumps and
valves on chemical Plant and in radiation shielding both for lining the walls of X-ray rooms and
for bricks to house radioactive sources in the nuclear industry.
Lead for Radiation Shielding
Lead and its alloys in metallic form and Lead compounds are used in various forms of radiation
shielding. Their high densities meet the primary requirement of a shielding material and in
certain shielding applications Lead’s high atomic number is also important. The ease with which
Lead can be worked is of added value. The shielding of containers for radioactive materials is
usually metallic Lead. Radioactive materials in laboratories and hospitals are usually handled by
remote control from a position of safety behind a wall of Lead bricks and X ray machines are
normally installed in rooms lined with sheet Lead. Lead compounds are a constituent of the glass
used in shielding partitions to permit safe viewing and Lead powder is incorporated into plastic
and rubber sheeting as a material for protective clothing.
Lead in Glass
Decorative Lead crystal glass is one of the most attractive forms in which Lead is used.
Normally added in the form of Lead oxide at 24-36%, it adds luster, density and brilliance to the
glass. The glass is further enhanced by its ability to have decorative patterns cut on it and has the
characteristic ring associated with Lead crystal. There is now a substantial market for a cheaper
form of Lead ‘semi-crystal’ containing in the region of 14-24% Lead oxide and glasses are
usually molded with the decorative pattern rather than hand-cut later.
Lead is also used in optical glasses (e.g.: telescopes, binoculars), ophthalmic glass (e.g.
spectacles), electrical glass (e.g.: lamp tubing) and radiation protection glasses (e.g.: for windows
for radiation remote handling boxes, TV tubes)
Lead for Ceramics
Lead is used in a wide range of glaze formulations for items such as tableware (earthenware and
china), wall and floor tiles, porcelain and some sanitary ware. The Lead compounds used are
largely litharge, red Lead and Lead silicates. The advantageous properties offered by Lead
compounds are lower melting points and wider softening ranges, low surface tension, good
electrical properties and a hard wearing and impervious finish. Considerable research effort has
been put into developing glazes with very low Lead release. Lead compounds are also used in
the formulation of enamels used on metals and glasses.
Lead Pigments
The use of white Lead (basic Lead carbonate) in decorative paints has been phased out but still
has the reputation of making paint with good external weathering characteristics,
Red Lead is the traditional pigment for rust-inhibiting priming paints applied direct to iron and
steel. Calcium plumbate based paints are particularly effective on galvanized steel avoiding the
need for etch primers.
Lead chromate (yellow) and Lead molybdate (red orange) are still used in plastics and to a lesser
extent paints. Lead chromate is used extensively as the yellow pigment in road markings.
Lead Wool
Lead wool is made by scratching fine strands from the surface of a Lead disc. It is used for the
caulking of joints in large pipes e.g. gas mains and in some specialist batterie
ORGANIZATION STRUCTURE
WORKING CAPITAL MANAGEMENT
Working capital is the firm’s holdings of current assets such as cash, receivables,
inventory & marketable securities. Every firm requires working capital for its day to day
transactions such as purchasing raw material, for meeting salaries, wages, rents, rates,
advertising etc.
Significance of working capital:
The world in which real firms function is not perfect. It is characterized by the firms
considerable uncertainty regarding the demand, market price, quality & availability of its own
products and those suppliers. While the firm has many strategies available to address these
circumstances, strategies that utilize investment or financing with working capital accounts often
offer a substantial advantage over the other techniques. The importance of working capital
management is reflected in the fact that financial managers spend a great deal of time in
managing current assets and current liabilities like
Arranging short term financing.
Negotiating favorable credit terms.
Controlling the movement of cash.
Administering accounts receivables.
Monitoring investment in receivables.
Decision concerning the above areas play a vital role in maximizing the overall value of the firm.
Once decisions concerning these areas are reached, the level of working capital is also
determined in active decision sense, but falls out as residual from the decision just made.
The management of working capital plays an important role in maintaining the financial
health during the normal course of business. This critical role can be enunciated by examining
the flow of resources through the firm. By far the major flow is the working capital cycle.
This is the loop (previous page) which starts at the cash and the marketable securities
account, goes through the current account as direct labour and materials which are purchased and
use to produce inventory, which in turn is sold and generates accounts receivables, which are
finally collected to replenish cash. The major point to notice about this cycle is that the turnover
or velocity of resources through this is very high related to the other inflows and outflows of the
cash account.
There are two concepts of working capital namely; Gross working capital and Net
working capital.
Gross working capital, simply called as working capital refers to the firm’s investment in
current assets. Current assets are the assets, which in ordinary course of business can be
converted into cash within an accounting year. Current assets include cash and bank balances,
short term loans and advances bills receivables, sundry debtors, inventory, prepaid expenses,
accured incomes, money receivable (within 12 months).
The gross working capital focuses attention of two aspects of current assets management.
a) Optimum investment in current assets and
b) Financing of current assets.
The consideration of the level of investment in current assets should avoid two danger
points-excessive and inadequate investment in current arranging funds to finance current assets.
Whenever a need for working capital funds arises due to the increasing level of business activity
or for any other reason arrangement should be made quickly.
Net working capital :
Net working capital refers to the difference between the current assets and current
liabilities. Current liabilities are those claims of outsiders, which are accepted, to measure for
payment with an accounting year and include creditors, bills payable and outstanding expenses.
Net Working Capital = Current Assets – Current Liabilities
Net working capital can be positive or negative. A positive net working capital will arise when
current assets exceeds current liabilities. It is a quantitative concept, which indicates the liquidity
position of the firm and suggests the extent to which working capital needs may be financed by
permanent sources of funds.
Working capital can be classified into two categories i.e,
1. Permanent working capital.
2. Temporary or variable working capital.
Permanent working capital:
It is the minimum amount of investment in all current assets which is required at all
times to carry out minimum level of business activities. Tandon committee has reserved to this
type of working capital as “ Core Current Assets”.
Amount of permanent working capital remains in the business in one form or another. It
also grows with the size of the business. It is permanently needed for the business, and therefore
be financed out of long-term funds.
Variable working capital :
The amount of working capital over permanent working capital is known as variable
working capital. The amount of such working capital keeps on fluctuating from time on the
business activities. It may further be divided into seasonal working capital and special working
capital. Seasonal working capital is required to meet the seasonal demands of busy periods
occurring at stated intervals. On the other hand, special working capital is required to meet
extraordinary needs for contingencies. Events like strikes, fire, unexpected competition, rising
price tendencies or initiating a big advertisement campaign require such capital.
Approaches for financing working capital :
There are three approaches to financing the working capital :
1. Hedging approach
2. Conservation approach
3. aggressive approach
Hedging approach :
A firm is said to be following Hedging approach if it matches the maturity of the debt
with the maturity of assets. For the firm following hedging approach, long term financing will be
used to finance fixed assets and permanent current assets and short term financing for temporary
or variable current assets. As the level of these assets increases, the long financing level also
increases.
However, it should be realized that exact matching is not possible because of the uncertainty
about the expected lives of assets.
Conservative approach:
A firm in practice may adopt a conservative approach in financing its current and fixed
assets. The financing policy of the firm is said to be conservative when it depends more on long
term funds for financing needs. Under a conservative plan, the firm finances its permanent assets
and also a part of temporary current assets, the idle long-term funds can be invested in the
tradable securities to conserve liquidity. The conservative plan relies heavily on long term
financing.
Aggressive approach :
A firm may be aggressive in financing its assets. A firm follows aggressive policy when it
uses more short-term financing than warranted by the matching plan. Under an aggressive policy,
the firm financing a part of its permanent current assets with short term financing. Some
extremely aggressive firms may even finance a part of their fixed assets with short-term
financing.
Importance of working capital :
A business firm must maintain an adequate level of working capital in order to run its
business smoothly. It is worthy to note that both excessive and inadequate working capital
positions are harmful. Out of two, inadequacy of working capital is more dangerous for a firm.
Excessive working capital results in idle funds on which no profits are earned. Similarly
insufficiency of working capital results in interruption of production. This will lead to
inefficiencies, increase in costs and reduction in profits. Working capital is like the lifeblood of
business. If it becomes weak, the business can hardly prosper and survive. No business can run
successfully with out and adequate amount of working capital.
The following are the few advantages of adequate working capital in the business :
Cash Discount : Adequate working capital enables a firm to avail cash discount facilitates
offered to it by the suppliers. The amount of cash discount reduces the cost of purchase.
Goodwill : Adequate working capital enables a firm to make prompt payment. Making
prompt payment is a base to create and maintain goodwill.
Ability to face crisis : The provision of adequate working capital facilities to meet
situations of crisis and emergencies. It enables a business to with stand periods of
depression smoothly.
Credit-worthiness : It enables a firm to operate its business more efficiently because there
is not delay in getting loans from banks and others on easy and favorable terms.
Regular supply of raw materials : It permits the carrying of inventories at a level that
would enable a business to serve satisfactory the needs of its customers. That is it ensures
regular supply of raw materials and continuous production.
Expansion of markets : A firm which has adequate working capital, can create favorable
market condition i.e, purchasing its requirements in bulk when prices are lower and
holding its inventories for higher. Thus profits are increased.
Increased productivity.
Research programs.
High Morale.
Problems of inadequate working capital :
Firm may not be able to take advantage of profitable business opportunities.
Production facilities cannot be utilized fully.
Short-term liabilities cannot be paid because of non-availability of funds.
Its low liquidity may lead to low profitability. In the same way, low profitability results in
low liquidity.
It may not be able to take advantages of cash discounts.
Credit worthiness of the firm may be damaged because of lack of liquidity. Thus it may
be lose its reputation; thereafter a firm may not be able get credit facilities.
Danger of excessive working capital :
A firm may be tempted to over trade and lose heavily.
Unable to extract benefits of customers credit.
The situation may lead to unnecessary purchases and accumulation of inventories. This
cause more chances of theft, waste, losses etc.
There arise an imbalance between liquidity and profitability.
Excessive working capital means funds are idle.
The situation leads to greater production, which may not be having matching demand.
The excess of working capital leads to carelessness about cost of production.
Determinants of Working Capital :
The need of working capital is not always the same it varies from year to year or even
month-to-month depending upon a number of factors. There is no set of rules or formulate to
determine the working capital needs of the firm. Each factor has its own importance and its
importance of the factors changes for a firms over time.
In order to determine the proper amount of working capital of concern, the following factors
should be considered.
Nature of business.
Size of the business unit.
Seasonal variation.
Time consumed in manufacturing.
Turnover of circulating capital.
Need to stockpile raw material and finished goods.
Growth and expansion.
Business cycle fluctuations.
Terms of purchase and sale.
Pricing level changes.
Inventory turnover.
Dividend policy.
Ratio to measure the efficiency of working capital :
Current Ratio : Current assets/Current liabilities
Quick Ratio :
Sales to cash : Sales during a period / Averge cash balance.
Average collection period : Debtors dividend by annual credit sales and the resulting
(current assets – Inventories) /Current liabilities
figure multiplied by 365. This retio indicates how many days of credit is being obtained
from the suppliers.
Average payment Period : Creditors divided by annual credit purchase and the resultant
figure is multiplied by 365. This retio indicates how many days of credit are being
obtained from the suppliers.
Inventory turnover ratio : Sales /Average inventory.
Working capital policy :
Working capital management policies have a great effect on firm`s profitability, liquidity and its
structural health. A finance manager should therefore, chalk out appropriate working capital
policies in respect of each competent of working capital so as to ensure high profitability, proper
liquidity and sound structural health of the organization.
In order to achieve this objective the financial manager has to perform basically following two
function.
1.Estimating the amount of working capital .
2.Sources from which these funds have to be raised.
Objectives of Working Capital Management :
The objectives of working capital management are two fold :
1. Maintenance of working capital and
2. Ability of ample funds at the time of need.
The basic goal of working capital management is to manage each of the funds current assets and
current liabilities in such a way that an acceptable level of net working capital is always
maintained in the business.
Operating Cycle :
Working capital is required because of the time gap between the sales and their actual
realization in cash. This time gap is technically terms as operating cycle of the business.
In case manufacturing company, the operating cycle of time necessary to complete the
following cycle of event.
Conversion of cash into raw materials.
Conversion of raw materials into work in progress.
Conversion of work in progress into finished goods.
Conversion of finished goods into accounts receivables.
Conversion of accounts receivable into cash.
This cycle is continuous phenomena. In case of “Trading Firm” the operating cycle will include
the length of time required to :
a) Cash into inventories.
b) Inventories into accounts receivables.
c) Accounts receivables into cash.
In case of “Financing Firm” the operating cycle includes the length of time taken for 1 year.
a) Conversion of cash debtors, and
b) Conversion of debtors into cash.
Working capital turnover ratio :
It measures the efficiency of the employment of working capital. Generally higher the
turnover, greater is the efficiency and larger the sale of profits. Working capital turnover ratio can
be calculating with help of the following formula.
Working capital turnover ratio =
sales
.
Net working capital
INVENTORY MANAGEMENT
Inventories constitute the most significant part of current assets for a majority of
companies in India. The term inventory refers to the stockpile of the product.
Inventories can be classified as three categories :
1. Raw
material : Inputs that are converted into finished products through
manufacturing process.
2. Work in progress : semi finished products that require further work to be done
before they are ready for sale.
3. Finished goods : Goods which are completely manufactured products and/or
ready for sale.
Need to hold Inventories :
There are three general motives for holding inventories.
1. The Transaction Motive : Which emphasis the need to maintain inventories to facilitate
smooth production and sales operation.
2. The Precaution Motive : Which necessitates holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.
3. The Speculative Motive : Which influences the decision to increase or reduce inventory
level to take advantage of price fluctuation.
OBJECTIVES :
The objective of inventory management is to determine and maintain the optimum level
of inventory management as both excessive and inadequate inventories are not desirable. The
optimum level inventory lies between the two danger points, excessive and inadequate
inventories. The optimum level of inventory should be determined on the basis of trade off
between costs and benefits associated with the levels of inventory.
TECHNIQUES :
Attention is given to the basic concepts relevant to the management and control of inventory.
The aspects include
Determination of the type of control required.
The basic economic order quantity.
The re-order point.
Safety stock.
As a matter of fact the inventory management techniques are a part of production management.
However a familiarity with them is essential for a financial manager in planning and budgeting
inventory.
DETERMINATION OF THE TYPE OF THE CONTROL REQUIRED:
ABC System :
The ABC system is a widely used classification technique to identify various items of
inventory for purposes of inventory control. This technique is based on the assumption that a
firm should not exercise the same degree of control on all items of inventory. It should rather
keep a more rigorous control on items that are (1) most costly, and/or (2) slowest turning while
items that are less expensive should be given less control effort.
On the basis of cost involved the various inventory items according to the system are
categorized into three classes.
A = Largest inventory leading to most sophisticated inventory control techniques.
B = Midway and deserving less attention than ‘A’ but more than ‘C’ leading to employing
less sophisticated techniques.
C = Small investment with fairly large number deserving minimum attention.
Order Quantity Problem :
Economic Order Quantity (EOQ) model :
After various items are classified on the basis of the ABC analysis, the management
becomes aware of the type of control that would be appropriate for each of the three categories
of the inventory items. The group ‘A’ items warrants the maximum attention and the most
rigorous control. A key inventory problem particularly in respect of the group ‘A’ items relates to
the determination of the size or quantity of inventory.
Buying in large quantities implies a high inventory level, which will assure
(i)
Smooth production /sale operation and
(ii)
Lower ordering or set-up costs. However it increases the ordering costs and
likelihood of interruption in the operation due to stock outs.
Thus a trade-off between benefits derived from the availability of inventory and the cost of
carrying that level of inventory has to be derived by placing an optimum level of inventory order
that minimizes the cost associated with inventory order that minimizes the cost associated with
inventory management.
The optimum level thus derived is known as Economic Order Quantity. EOQ equates the
cost of ordering with the cost of storage of raw materials.
Ordering cost :
It is difficult to quantify this cost, as there are many factors involved. It include cost of
stationary, salaries of those engaged in preparing the purchase orders etc.
Cost of storage (or) cost of carrying inventory :
This includes the cost of store keeping, interest on capital locked up in stores, the incidence of
insurance cost, evaporation etc.
For effective material control and to avoid overstocking and under stocking of raw materials, an
important requirement is to decide upon various levels of materials.
These levels are maximum level, minimum level and re-order level. By taking action on the basis
of these levels, each item of material will automatically be held within appropriate limits of
control.
These level are not permanent, but need revision according to the changes in the factors, which
determine these levels.
Factors include :
Rate of consumption of materials.
Lead time i.e, time lag.
Storage capacity.
Availability of funds for investment in inventories.
Cost of storage.
Risks of loss due to deterioration, theft, fine etc.
Seasonal factors – certain materials are cheaply available during certain seasons.
Fluctuation in market prices.
Insurance costs.
CASH MANAGEMENT
Cash is the most important factor in financial management. It is also the most important
current asset for the operation of the business. Every activity in an enterprise revolves round the
cash. Cash is limited in every enterprise and it cannot be raised as and when required which calls
for an efficient management of funds available.
Cash is the most liquid asset and is of vital importance to the daily operations of the
business. While the proportion of corporate assets held in the form of cash is very small (often in
between 1% to 3%) its efficient management is crucial to the business because cash is the focal
point in business.
Meaning of cash :
The term ‘cash’ is used in two senses. In a narrower sense it includes currency notes, cheques,
bank drafts held by a firm with it and the demand deposits held by it in banks. In a broader sense
it also includes near cash assets such as marketable securities and time deposits with bank.
The main reason for a firm to hold cash is to meet the needs of day-to-day transactions and to
protect the firm against uncertainties characterizing its cash flows.
While cash serves these functions, it is an idle resource which has an opportunity cost. The
liquidity provided by cash holding is at the expense of profits sacrificed foregoing alternative
opportunities. Hence, the finance manager should carefully plan and control cash.
OBJECTIVES OF CASH MANAGEMENT :
To meet the cash disbursement need as per the payment schedule.
To minimize the amount locked up as cash balances.
Advantages of sample cash funds:
a) A shield for technical inefficiency.
b) Maintenance of goodwill.
c) Availing of cash discount.
d) Good bank-relations.
e) Exploitation of business opportunities.
f) Encouragement to new investment.
g) Increase in efficiency.
h) Over coming abnormal financial situations.
RECEIVABLE MANAGEMENT
Accounts receivables constitute a significance portion of the total current assets. They are direct
consequences of “trade credit” which has become an essential marketing tool in modern
business.
Meaning of receivable :
Receivables are asset accounts representing amounts owned to the firm as a result of sale
of goods or services in the ordinary course of business.
The management of receivables is basically a problem of balancing profitability and liquidity.
Soft credit terms are attractive for higher sales and hence longer the time a company allows its
customers to pay the higher are the sales and hence profits. However, on the other hand the
longer the period of credit, the greater the risk, greater the level of debt and greater the strain on
the liquidity of the company.
Cost of receivables :
Capital cost : It is the cost associated with the blocking of firm’s resources in the receivables
because of the time lag between the sale of goods to customers and realization of sales. The firm
therefore has to customers and realization of sales. The firm therefore has to arrange for
additional funds to meet its current obligations.
Administrative cost : The firm has to incur additional administration costs for maintaining
account receivable in the form of salaries etc.
Collection cost : The firm has to incur costs for collecting the payments.
Defaulting cost : Sometimes after making all serious efforts to collect money from defaulting
customers the firm may not able to recover the over debts because of the inability of the
customers. Such debts are treated as bad and have to be written off since they cannot be realized.
Optimum size of receivables :
When the firm resorts to liberal credit policy, the profitability of the firm increases on
account of higher sales. However such a policy results in increased investment in receivables and
the problem of liquidity is created. On the other hand a stringent credit policy reduces the
profitability but increase the liquidity of the firm. Thus optimum credit policy occurs are a point
where “Trade off between liquidity and profitability”.
Credit policy variables :
The important dimensions of a firm credit policy are,
Credit standards.
Credit period.
Cash discount.
Collection effort.
System for receivable control :
The management should consider the following four factors in keeping the level of
investment in receivables within the controllable limits.
1. Deciding acceptable level of risk : The first point is to decide to whom goods should be
supplied bearing in mind the risk involved. It is therefore essential to assess the credit
worthiness of the customers before advancing any credit to them.
2. Terms of credit sales : The second step in this regard in to decide terms of credit sales and
the level of cash discounts. Cash discount has important bearing on the cost of capital and
on credit sales.
3. Credit collection policy : The management should provide for bad debts to keep the
losses minimum. (Usually 5% to 7% of sundry debtors are provided for bad debts). A
collection procedure should be established and action should be taken accordingly. The
other steps should be record the age of debt to facilitate the collection of debts.
The age of debt is called as average collection period.
Average collection period = (credit sales in the period)/average accounts receivables.
Accounts receivables turnover = average accounts receivables/average monthly/daily
credit sales.
An increase in the age of receivables or debt collection period is an indication of lenient
credit of inefficiency collection.
The effective of the receivable management should be analyzed from time to time with the help
of certain ratios such as average collection period, debtor’s turnover ratio, receivable current
assets ratio etc.
PAYABLE MANAGEMENT
Management of accounts payable is as much important as the management of accounts
receivable. However there is a basic difference between the approaches adopted by the Finance
Manager in both the cases. The underlying objective in case of accounts receivables is to
maximize the acceleration of collection process while incase of accounts payable it is to slow
down the payments process as much as possible. The delay in payments of accounts payable may
result in saving of some interests costs but proves very costly to the firm in the form of loss of
credit in the market. The Finance Manager therefore has to ensure that the payments to the
credits are made at the stipulated time period after obtaining the best credit term possible.
Control of accounts payable :
Computing the average age of payable can be calculated by any of the following
methods.
Months or days in the period / Accounts payable turnover accounts payable turnover = Credit
purchase in the period / Average accounts payable.
Average accounts payable / average month / daily credit purchase.
Average accounts payable / average month / daily credit purchases during the period.
CHAPTER-3
Research methodology
3.1 Need of the Study
3.2 Objectives of the study
3.3 Limitation of the study
3.1NEED OF THE STUDY
The main aim of any firm is to maximize the wealth of shareholders. This can be
achieved only by a steady flow of profits. Which in turn depend on successful sales activity. To
generate sales, investment of sufficient funds in current assets is required. The need of current
assets should be emphasized, as the sales don’t convert into cash immediately but involved a
cycle of operations, namely operating cycle.
GAVITA INDIA LTD. is multi product manufacturing unit with varying cycle for each
product. The capital requirement for each department in an organization of GAVITA INDIA
LTD. is large which (depends on the product target for that particular year) calls for an effective
working capital management. Monitoring the operation on cycle duration is an important aspect
of working capital.
Some prominent issues that are to be addressed are,
Duration of raw material stage (depends on regularity of supply, transactions time).
Duration of work in progress (depends on length of manufacturing cycle, consistency in
capacity utilization).
Duration at the finished goods state (depends on pattern of production & sale).
Thus a detailed study regarding the working capital management in GAVITA INDIA
LTD. is to be done to consider the effectiveness of working capital management, identify the
shortcoming in management and to suggest for improvement in working capital management.
3.2 OBJECTIVES
To study in general the working capital management procedure in Gravita India Ltd.
To analyze and apply operating cycle concept of working capital in Gravita India Ltd
To know how the working capital is being financed.
To know the various methods to be followed by Gravita India Ltd for inventories and
accounts receivables.
To give suggestions, if any, for better working capital management in Gravita India Ltd.
3.3 LIMITATIONS OF THE STUDY
Although every effort has been made to study the “Working Capital Management” in
detail, in an organization of GAVITA INDIA LTD. size, it is not possible to make an exhaustive
study in a limited duration of 2 months.
It is not possible to include data of 2014-15, as the audited financial report has not come yet (at
the time of preparation of this report). However data of 2013=3-15 is included partially from the
un audited financial reports of GAVITA INDIA LTD..
Apart from the above constraint, one serious limitation of the study is, that it is not possible to
reveal some of the financial data owing to the policies and procedures laid down by GAVITA
INDIA LTD.. However the available data is analyzed with great effort to get an insight into
Working Capital Management in GAVITA INDIA LTD..
CHAPTER-4
Analysis & interpretation
WORKING CAPITAL MANAGEMENT IN GRAVITA INDIA LTD
Management efforts over the few years have been to inculcate cash consciousness through
constant emphasis on working capital, mainly inventory and book debtors. In all these, it is to be
kept in mind that GRAVITA INDIA LTD is a multi product undertaking, were management
decisions affecting working capital are taken at managerial level.
Sources of funds:
Gravita India Ltd raises its working capital by multiple banking arrangements with 10 Banks.
The following are the ten banks, where funds for working capital are raised:
1. State bank of India
2. Canara bank
3. UCO bank
4. Bank of Baroda
5. Andhra bank
6. Indian Overseas Bank
7. State Bank of Hyderabad
8. Allahabad Bank
9. IDBI Bank Ltd.
10. HSBC Ltd.
In GRAVITA INDIA LTD working capital requirement is assessed by
Fixing the target production
Preparation of Budget (in rupees)
Working capital requirement are prepared taking into account :
Actual value of the previous two years working capital.
Projected value for the next two years
Limits:
Visakhapantam steel plant is having fund-based limits of Rs.570.65 crores and Non-fund based
limits
up
to
Rs.1231
crores.
Procedure for procurement of funds:
Gravita India Ltd applies a credit monitoring and appraisal (CMA) report (a 40-page
document). The document consists of historical data about the company and profit and loss
account, balance sheet, current assets current liabilities, working capital assessment, fund flows
etc.. SBI subscribes the maximum working capital limit (up to extent of 38%) of the entire
working capital assessed. The other banks of the under the multiple banking arrangement above
provide the rest of Working capital limits.
WORKING CAPITAL LIMITS (UNDER MULTIPLE BANKING ARRANGEMENT)
(Rs in Crs)
Name of Bank
Fund Based
Non-Fund based
Total
CC
WCD
L
Total
EPC
Total
LC
BG
Total
(a)3
(b)
(c=a+
b)
(d)
(e=c+
d)
(f)
(g)
(h=f+g
)
(i=e+h
)
State Bank of India
36.00
44.00
80.00
60.00
140.00
450.00
25.0
0
475.00
615.00
Canara Bank
30.00
45.00
75.00
45.00
120.00
270.00
15.0
0
285.00
405.00
3.
Bank of Baroda
13.54
20.31
33.85
20.00
53.85
50.00
1.00
51.00
104.85
4.
UCO Bank
5.00
20.00
25.00
15.00
40.00
35.00
5.00
40.00
80.00
5.
State
Bank
Hyderabad
8.30
12.83
21.13
9.17
30.30
36.00
1.00
37.00
67.30
6.
Allahabad Bank
25.00
0.00
25.00
15.00
40.00
90.00
5.00
95.00
135.00
7.
HSBC Ltd.
0.00
0.00
0.00
0.00
0.00
50.00
0.00
50.00
50.00
8.
IDBI Ltd.
0.00
0.00
0.00
0.00
0.00
50.00
0.00
50.00
50.00
9.
Andhra Bank
14.00
21.00
35.00
11.50
46.50
45.00
3.00
48.00
94.50
10.
Indian
Bank
0.00
100.0
0
100.00
0.00
100.00
100.00
0.00
100.00
200.00
131.8
4
263.1
4
394.98
175.6
7
570.65
1,176.0
0
55.0
0
1,231.0
0
1,801.6
5
Sl.N
o.
1.
2.
of
Overseas
Total
WCDL : Working Capital Demand
Loan
CC
: Cash Credit
EPC
Credit
: Export Packing
LC
Credit
: Letter of
BG
Guarantee
: Bank
Types of working capital source :
1. Fund based limits : under this source, Gravita India Ltd can obtain working capital
finance by bank borrowing in the form of cash credit of export packing credit.
2. Non-fund based limits : Gravita India Ltd receives non-fund based working capital in the
form of letter of credit or bank guarantee
YEAR WISE CHANGES IN WORKING CAPITAL
YEARS
NET
WORKING
GROSS
WORKING
CAPITAL
CAPITAL
Amount
(Rupees)
Change
percentage
Amount
(Rupees)
Change
percentage
2007
192320.36
-
77676.3
-
2008
155681.4
-19.05
49323.2
-369.5
2009
166460.5
6.92
47209.5
-4028
2010
179436.02
7.79
174594.3
269.82
2011
171388.57
-4.48
49289.44
-71.76
2012
186360.11
8.73
68548.79
39.07
2013
272668.92
46.3
149133.81
117.55
2014
604752.1
121.78
462336.44
210.01
Interpretation: The above table indicates that working capital is highest for the year 2014. The
net working capital has shown a gradual increase from 2012 till 2014. Statement of changes in
working capital is done in the pages that follow to give the complete picture of variations in
working capita
Statement of changes in working capital for the year 2008-2009
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans and advances
Total current assets
Current Liabilities
Liabilities
Provision
Total
current
liabilities
2008
2009
Increase
100940.24
11780.52
15067.08
647.30
27246.26
155681.40
111103.82
16342.80
15993.13
647.30
22352.96
166460.50
10163.6
4562.28
926.05
20.49
Decrease
4893.30
103228.63 115695.66
3129.57
3555.19
106358.20 119250.85
12467.00
425.62
Net decrease in Working Capital
2113.5
Total
17785.92
17785.92
Source: Annual reports of GRAVITA INDIA LTD
Interpretation:
Net working capital has decreased by Rs. 2113.5 lacks due to the increased current
liabilities. At the same time loans and advances too decreased by Rs.4893.30 lakh
Statement of changes in working capital for the year 2009-2010
(figures in Lakhs)
Particulars
2009
2010
Increase
Decrease
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans and advances
Total current assets
Current
Liabilities
Liabilities
Provision
Total
current
liabilities
111103.82
16342.80
15993.13
647.30
22352.96
166460.50
115695.66
3555.19
119250.85
120747.5
17383.52
16366.93 9643.66
1040.7
634.66
24303.43 373.80
179436.02
1950.47
125509.9
4841.72
4841.72
Net increase in Working Capital
Total
33.13
9814.22
1286.53
1874.77
13008.65
13008.65
Source: Annual reports of GRAVITA INDIA LTD
Interpretation
An increase in networking capital is observed (1874.77 lacks) due to significant increase
in inventories. Sundry debtors, cash & bank balances and loans &advances have also shown a
positive growth. The net increase in working capital would have been a very positive figure due
for the drastic increase in liabilities.
Statement of changes in working capital for the year 2010-2011
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans
and
advances
Total current assets
Current Liabilities
Liabilities
Provision
Total
current
liabilities
2010
120747.5
17383.52
16366.93
634.66
24303.43
1794360.02
125509.9
4841.72
4841.72
2011
Increase
111137.95
21249.40
16122.22
540.50
22338.50
171388.5
3865.88
7
114315.8
2
7783.31
122099.1
3
11194.06
Net Increase in Working Capital
Total
Decrease
9609.53
244.71
94.16
1964.93
2941.59
205.02
15059.94
15059.94
Source: Annual reports of GRAVITA INDIA LTD
Interpretation :
The increase in net working capital in 2011 over 2010 is very small (195.02 lacs).
Although a decrease is observed in liabilities , a negative is observed in all the current assets
excluding sundry debtors. The net result is the decreased amount of working capital.
Statement of changes in working capital for the year 2011-2012
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans
and
advances
Total current assets
Current Liabilities
Liabilities
Provision
Total
current
liabilities
2011
111137.95
21249.40
16112.22
540.50
22338.50
171378.57
114315.82
7783.31
122099.13
2012
85755.23
21757.92
54157.34
526.06
24163.47
186360.0
2
113904.3
2
9069.97
122974.2
9
Increase
25382.63
508.52
38045.14
14.44
1824.97
411.5
Net Increase in Working Capital
Total
Decrease
1286.66
14106.31
40790.13
40790.13
Source: Annual reports of GRAVITA INDIA LTD
Interpretation :
Net working capital increase stood at 14106.3 lakhs. Cash & bank balances have shown
positive with an increase of Rs.38035.14 Added to this is the decrease in liabilities. This resulted
in increase in net working capital.
Statement of changes in working capital for the year 2012-2013
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash
and
bank
balance
Other current assets
Loans and advances
Total current assets
Current
Liabilities
Liabilities
Provision
Total
current
liabilities
2012
85755.23
21757.92
54157.34
526.06
24163.47
186360.02
114037.78
9069.97
123107.75
2013
Increase
70634.36
8561.55
135971.2
7
2431.49
55070.25
272668.9
2
107883.8
4
15651.27
123535.1
1
15120.87
13196.37
818113.93
1905.43
30906.78
6153.94
Net Increase in Working Capital
Total
Decrease
6581.3
85881.54
120780.08
120780.08
Source: Annual reports of GRAVITA INDIA LTD
Interpretation: The increase in net working capital in 2013 over 2012 is Rs.85881.54 lakhs . For
the second consecutive year the cash and bank balances have a shown an increasing trend. Other
current assets and loan advances have also increased. All these changes have brought about an
increase in net working capital
Statement of changes in working capital for the year 2013-2014
(figures in Lakhs)
Particulars
Current
Assets
Inventories
Sundry
debtors
Cash and bank bal
Other current assets
Loans and advances
Total current assets
Current Liabilities
Liabilities
Provision
Total
current
liabilities
2013
2014
70634.36
8561.55
135971.27
2431.49
55070.25
272668.92
125530.98
4930.06
393260.86
10017.95
71012.25
604752.10
107883.84
15651.27
123535.11
115488.43
26927.23
142415.66
Increase
Decrease
54896.62
3631.49
257289.59
7586.46
1594.2
7604.59
11275.96
Net Increase in Working Capital
Total
313202.63
335714.67
335714.67
Source: Annual reports of GRAVITA INDIA LTD
Interpretation:
There is a significant increase in net working capital which amounts to 3132 crores. There
noticeable increase in net working capital is due to increase in cash &bank balances. The
increase in cash is 2572.89 crores (189%). A positive growth is observed in loans & advances
and other current assets. The increase in liabilities is offset by the increase in total current assets.
The net effect of the above changes has brought about the increased working capital
OPERATING CYCLE ANALYSIS:
The level of current assets needed for a business significantly depends upon the length of the
operating cycle. The longer the operating cycle, larger will be the working capital requirement of
the firm for funds needed at different stages of operating cycle and vice-versa.
Time series analysis of operating cycle in GRAVITA INDIA LTD
Year
97-98*
Raw Material stage
992009
98-99
Days
Days
200901
Days
Days
i.Consumption
of
R.M
stores
spares
717.68
1219.6
5
1394.3
1
1443.6
8
ii.per
day
consumption
1.96
3.34
3.82
3.95
iii.Avg.stock of
R.M.
Stores,
spares
630.44
Duration
R.M
320.6
4
628.51
188.0
6
614.25
16.8
614.05
of
Iii/ii
Work in process stage
Iii/ii
Iii/ii
Iii/ii
155.
3
i.sales
1007.91
ii.per day
consumption
2.76
2839.5
8
2527.39
41
iii.duration of
F/G stage
Iii/ii
6.92
15.4
Iii/ii
7.77
2789.5
3
12.8
7.64
Iii/ii
Iii/ii
2761.13 6.12
2972.6
3435.9
6
ii.Avg stock of
F/G
630.65
450.83
346.26
429.45
iii.duration of
F/G stage
I/ii
I/ii
I/ii
I/ii
2972.6
3435.9
6
15.1
4
Finished goods stage period
i.sales
1663.66
2.63
8.58
Debtors collection period
i.sales
ii.sales
day
1663.66
2761.16
per
4.55
33.21
7.56
1595
8.14
17.2
7
9.41
17.9
1
Gross working capital
Year
Gross Working
(Rs.In lakhs)
2007
155681.4
2008
166460.5
2009
199436.4
2010
171378.57
2011
186360.02
2012
272668.92
2013
604752.1
Capital
Net working capital:
The net working capital of shows an increasing trend from 1993-98 and decreasing tread from
1997-98 to 2009-01. It is showing a positive figure after that till 2013-05.
The main reason for the decreasing trend in the years is due to the increasing creditors year after
year. If also indicates a weak cash balance to meet the liabilities. The current liabilities of the
company is increasing by 200 crores almost every year. The inability of the company to pay the
creditors is also evident from the reducing net operating cycle period.
The operating cycle period has reduced continuously from 138 days during to 42 days during
year 2009 against decreasing trends in the previous years.
The increase in working capital is due to better sales and full capacity utilization.
Which has resulted in reduction of cost of production. The net working capital of GRAVITA
INDIA LTD
for the past 10 years is depicted in the table
Year
Net Working
(Rs.In lakhs)
2007
49323.2
2008
47209.65
2009
49084.42
2010
49289.44
2011
63252.27
2012
149133.81
2013
462336.44
Capital
Net working capital
Net Working Capital
(Rs.In lakhs)
49323.2
47209.65
49084.42
49289.44
462336.44
63252.27
149133.81
2007-99
2008-00
2009-01
2010-02
2011-03
2012-04
2013-05
Current ratio:
A current ratio of 2:1 is considered to do ideal. The ration is an indicator of the firm’s
commitment to meet its short-term liabilities. It indicates the rupees of current assets available
for each rupee of current liability. The higher the current ratio the higher the funds available for a
rupee of current liabilities. As a convention rule a current ratio of 2:1 or more is considered
satisfactory.
The higher the current ratio the higher the funds available for a firm.
Current ratio=current assets/current liabilities.
YEAR
CURRENT RATIO
2007
1.5
2008
1.4
2009
1.4
2010
1.4
2011
1.5
2012
2.2
2013
4.2
Interpretation: the current ratio was around 1.5 in 2007=99. the current ratio is poised around 1.4
from 2008-2009 to 1200-2993. the ratio has started increasing from there on and is at4.2 in 201305. this shows that there is drastic increase is firms current assets which shows the high liquidity
position of the firm.
Working capital turn over ratio:
Working capital turnover ratio is ratio of sales to net working capital. It is indicator of efficiency
of working capital management. Higher the ratio greater is the efficiency.
The working capital turnover ratio has constantly increased from 2007 to till date. This is mainly
due to increased sales and delay in payment to creditors.
Working capital turn over ratio= net sales / average working capital
The turn over ratio for the last 10 accounting periods is as shown:
YEAR
WORKING
CAPITAL
TURNOVER RATIO
2007
5.6
2008
6.3
2009
7
2010
8.3
2011
8
2012
4.2
2013
1.8
Note: here current assets are taken as working capital;
INVENTORY MANAGEMENT IS GRAVITA INDIA LTD
GRAVITA INDIA LTD is multi-product, integrated steel plant with 3.0 M.T capacity. this
makes GRAVITA INDIA LTD to store, handle and process of huge quantity of material. Also
GRAVITA INDIA LTD being a process industry running 365 days throughout the year 24 hrs a
day it material. This calls form efficient inventory management o the part of GRAVITA INDIA
LTD .GRAVITA INDIA LTD holds three types of inventory, they are:
1. raw materials
2. stores, spares and scrap
3. semi/finished goods.
Different sections carry out the procurement, storage and control of these inventories.
Raw materials:
The raw materials are produced and stored by raw materials department. The basic principle
followed by GRAVITA INDIA LTD in holding raw material inventory is to hold indigenous raw
material for 10 days.
Stores and spears: the stores and spares are procured and stored by central stores department(a
part of purchase department).
The store and spares recategorized as
1. automatic recoupment items:
2. department specific items
Automatic recoupemnt items: A.R items are those, which are general consumables with
standard specification and required by more than one department. The main objective of
stock control is to make available vital items all time.
The AR items are classified as a class, b class and c class as per value given below.
a. annual consumption value more than rs.100,000
b. annual consumption value between rs.100,000-50,000
c. annual consumption value less than rs50,000
The stocks of these items are maintained as per their vitality, consumption frequency,
automatic indenting of the items done once the level of stock comes to recumbent level foxed
for each item.
Department specific items: user departments based on approval given by top management for
level of inventory to hold indents department specific items. The amount is fixed based on
consumption of a particular item in the previous years. These items are also stored by stored
department and are released against stores indent note issued by department
Inventory
control:
Inventory control is major responsibility of stores department in GRAVITA INDIA LTD . It
adopts following procedure for inventory control:
1. The stores department generates data periodically on the inventory status and conducts
analysis of it. The same is circulated to all departments once in a quarter.
2. XYZ analysis of all items is carried out and circulated to all departments. Categorization
is based on values of item contributing to total value of stock.
3. Identification of non-moving and slow moving items on regular basis and intimating it to
user departments and there by reducing the indent quantity.
4. Identification of absolute and surplus items which are of no use and disposal of the same
after receiving clearance from top management.
5. Standardization of general store material and spares and reduce the number of items.
6. Conduct ABC analysis on consumption pattern o items and submit the same to purchase
department for regulation of supplies.
Semi/finished goods: the semi-finished goods comprise blooms and billets and finished goods
are the various products mentioned in product mix of GRAVITA INDIA LTD . The semi finished
goods are stocked and controlled by production planning and monitoring department. They chart
plans based on inputs from marketing department for holding inventory of various grades. They
generally hold stock for 10 days production, the finished goods stocks are held at central
stockyard within plant and at various stockyards spread all over India
The split of raw material, spares and stores and semi/finished goods inventory, their
percentage and total inventory are given in the table.
(figures in lakhs)
Semi finished
YEAR
2007
2008
2009
2010
2011
2012
Value
39841.7
49351.17
59689.19
53445.56
25336.44
22776
Raw material
% of
total
39.5
44.4
49.4
18.1
29.54
32.24
Spares
stores
and
% of
total
Total
Inv.
Value
18.7
42237.
3
41.8
10940.2
4
15.8
44195.
5
39.8
111103.8
15.9
41849.
3
34.7
120747.
5
23442.6
21.9
34249.
8
30.8
111138
28317.1
32101.
33.02 6
37.4
85755.2
3
26.3
41.4
6
70634
Value
18861.8
17557.2
19209
18569
% of
total
Value
29289
The above table clearly shows that the contribution of spares and consumables to total
inventory is varying from 30-50%, which is very high. One of gray areas in GRAVITA
INDIA LTD ’s management is inability to control inventory of non-moving, obsolete and
surplus items.
The main reason for such a high quantity of inventory is due to spares and consumables
indented irrationally during construction phase. One of the top priority of GRAVITA INDIA
LTD now is to either consume the non-moving items or dispose it at the earliest.
Inventory turnover ratio:
Inventory turnover ratio is ratio of sales to average inventory, the turnover ratio of GRAVITA
INDIA LTD is between 2 and 8.
This is however a low value, indicating huge quantity of funds locked up in stock.As
mentioned earlier the reason for low turnover is due to large quantity of nonmoving spares
and stores.
The inventory turnover ration of GRAVITA INDIA LTD for the past 10accounting periods is
shown in the table.
YEAR
Total
Sales
Avg.Inventor
y
Inv.Turnover
ratio
2007
276113
120139
2.3
2008
297259
106164
2.8
2009
343596
114532
3
2010
408095.4
1100295
3.7
2011
505925.0
4
98447
5.1
2012
617400
78194.6
7.9
Inventory turnover ratio
CASH MANAGEMENT IN GRAVITA INDIA LTD
Method of cash management:
In GRAVITA INDIA LTD cash requirement is planned and arrived at in the following
manner:
1. the chairman cum managing director of GRAVITA INDIA LTD in consultation with
board of directors decides the production schedule for the following year.
2. the production schedule as approved by the directors is then circulated to all departments,
after which production target for each month is set.
3. the heads of each of 35 budgets, the directors formulate a master budget allocation for
each section.
4. after receiving all the budgets, the directors formulate master budget for the particular
year and the monthly budget allocation for each section.
5. at the end of each of month, the actual versus the projected budget is put up to the
management and directors discuss the reason for the variances. Any deficit in the cash
inflow is adjusted buy pushing the sales in the following month.
Initially cash section of the finance department prepares the cash budget. They forecast monthly
and weekly requirements of cash. The forecast of information regarding cash inflows which
include the cash from customers, export incentive export credit, etc), cash outflows which
include purchase of row materials, spares, excise duty, sales tax, personnel payments customs
duty, railway freight etc.
Source of funds:
The main source of funds is sales realization. Sales are carried out at heat quarters and at
various branches located through out India. The funds collected are received at the head
quarter in such a way to minimize the delays in remittance of funds from the place of
collection to head quarter.
The sales realization in head quarters includes both domestic and export sales receipts. Domestic
receipts are directly credited to cash credit accounts of GRAVITA INDIA LTD ’s and the export
sales realizations are credited to GRAVITA INDIA LTD ’s packing credit account with the
negotiating banks.
Polling of funds:
As mentioned earlier the major source of fund to GRAVITA INDIA LTD is the sales realization
at the various branch sales offices located through out India. As all payments are effected
through the head quarters, a need to pool all the funds to head quarters account is imminent. In
order to achieve this, collection accounts are opened with banks at all sales centers, where all
collections are deposited on daily basis. The banks are in turn instructed to remit the proceeds
immediately on realization to GRAVITA INDIA LTD ‘s account at head quarters. The collection
accounts of V are with SBI,SBH,BOB and Canara bank who are the major providers of working
capital. Cash section has a system of closely monitoring the receipts of the accounts of the
above-mentioned banks at their head quarters, which enables the release of payment. The major
objective of cash section is to avoid delays between the time of deposition of funds in the banks
at collection centers and the time at which the same are received at head quarters. To achieve this
is need continuous liaison between the banks, collection centers and head quarters is a must.
Management of cash credit limit
As the company is maintaining cash credit account with multiple banking arrangements with 10
banks. It does not maintain cash balance except for some petty cash expenses. The company
maintains two types of accounts at the branches and head quarters viz, collection account and
imprested account for petty expenses. Therefore, the question of managing surplus cash does not
a rise. However the management6 has to keep an eagle’s eye on fund flow and working capital
limit. The have to see that the balance will not go out of the limits given by the banks. At the
same time they should be position of utilize funds to the extant of the limits available.
As regards to information reports the cash section generates dailya. Daily collection at various banks with branch-wise break up
b.
Daily
position
as
regards
to
utilization
of
cash
credit/packing
credit
limits with various consortium member banks financing their working capital
requirements.
c. Statement showing the details of payments released in the day,
d. Statement showing the details of payments outstanding at the end of the day after taking
into account the payments released on the.
e. Monthly cash flow statement showing the actual cash flow in the month with the
projected expenditure of the ensuing month.
From the above it can be seen that the section interacts with numerous agencies such as the
various other departments of the organization, consortium of banks, branch collection centers,
suppliers and customers.
As many critical decisions are made based on the repots generated at the cash section, accuracy
of the same assumes significance.
Cash ratio:
Cash ratio is ratio of cash held by a firm to current liabilities. GRAVITA INDIA LTD is
maintaining almost an average cash of around 0.13 except for the past three accounting periods.
This is because as mentioned earlier cash holding is kept at minimum except for some petty cash
needs. The increase in cash ratio indicates the significant increase in cash and bank balances in
the total current assets.
Cash ration = cash in hand (or bank)/current liabilities.
Cash ratio for the past few years is as shown.
YEAR
Cash in
Hand/Bank
Current
Liabilities
Cash ratio
2007
150.67
1063.58
0.14
2008
159.93
1193.82
0.13
2009
163.67
1303.52
0.12
2010
161.12
1220.99
0.13
2011
541.57
1231.07
0.44
2012
1359.71
1235.35
1.1
2013
3932.6
1424.15
2.76
RECEIVEBLES MANAGEMENT IN GRAVITA INDIA LTD
Procedure of receivables management:
GRAVITA INDIA LTD sells its product directly to its customers. It has 27 marketing officers
spread through the country. The marketing and the finance department and top management at
the lead quarter formalize the price of different products and different branches jointly. the price
list for cash product in their region is circulated to all branch offices.
The sales and billing are done at the individual branches and the record of the
daily transactions is maintained. The cash deposits are done at one of the respective banks and
are the entire sum is in turn transferred to the banks at visakhapatnam through telegraphic
transfer.
Credit policy of GRAVITA INDIA LTD :
The credit policy of GRAVITA INDIA LTD is strict in one sense and flexible in other. As
GRAVITA INDIA LTD has got a wide network of marketing offices numbering 27 there is
always a possibility of increased credit sales by the branch sales offices, resulting in liquidity
crunch if proper control is not maintained. Therefore, all regions and branches are given a limit
for credit sales beyond which they cannot sell on credit without prior approval of competent
authority. At any given point of time credit sales should not exceed the limit given.
At the same time branch sales offices are given the freedom to give interest bearing credit which
they can decide depending upon the level of finished goods inventory in their stockyard and
other aspects of customer.
Collection policy of GRAVITA INDIA LTD :
GRAVITA INDIA LTD
follows two types of credit sales of its products. They are:
1) secured credit sales
2) Unsecured credit sales
Secured sales are backed by securities, which can be
a) letter of credit: letter of credit is an agreement where by the banks opens letter of
credit of its customers in favor of suppliers and undertakes the responsibility of
payment obligation of its client.
b) Bank guarantee: bank guarantee is like issuance letter of credit where by the
customer’s bank gives the guarantee to GRAVITA INDIA LTD to undertake
responsibility of payment obligation of its credit.
Secured credit sales are primarily done with private customers. Cheque facility is
extended to the customer based on the credit worthiness of the party. The average collection
period of GRAVITA INDIA LTD is 30 days. GRAVITA INDIA LTD stock holding period is 30
days. If the cheque is dishonored, notice to the customer will be sent. In case of no satisfactory
reply from the customer GRAVITA INDIA LTD issues investigation notice to banker who
guaranteed the customer ad the banker has to pay the money to GRAVITA INDIA LTD . Cheque
facility for such customers for all further sales stands cancelled.
Unsecured sales are made mostly to government agencies. There will be no security in such
cases. Credit period varies from 15=60 days. Generally, GRAVITA INDIA LTD cannot compel
government agencies for prompt release of payments due unlike private parties since they are
also part of government undertakings
Interest charges for credit sales:
Penal
interest on
Type
of
customer
Secured
Unsecure
d
violation
of redit
period
Project
customer
15%
17%
2%
Other
customer
16%
18%
2%
Receivable turnover ratio:
Receivable turnover ration is defined as ratio of total sales to average receivables. This ratio
indicates the number of times the management is able o convert the receivables in to sales and it
indicates the efficiency with which receivable are managed. The receivables turn over ratio of
GRAVITA INDIA LTD for past 10 accounting years are given in the table.
Receivables turnover ration= sales/ Average receivables
Receivables turnover ratio:
YEAR
SALES
AVG.
RECEIVABLE
S
2007
276113
12068
23
2008
297259
14062
21
2009
343596
16863
20.3
2010
408095
19316
21.1
2011
505900
21502
23.5
2012
617400
15159
40.72
REC.TURNOVER
RATO
Interpretation:
The receivables turnover ratio has always been around 21=23 almost every year. The turnover
ratio for GRAVITA INDIA LTD is high and this shows that bulk of GRAVITA INDIA LTD ’s
sales is cash sales through out the last accounting periods. The increase trend earlier was due to
cash constraint in GRAVITA INDIA LTD , which necessitated the need for GRAVITA INDIA
LTD to go only for cash sales. The decreasing trend in last year is due to sluggish market
conditions. Which prompted all steel manufacturers to push sales through credit sales and also
due to good cash position of GRAVITA INDIA LTD , which allowed it go for credit sales.
PAYBLE MANAGEMENT IN GRAVITA INDIA LTD
In GRAVITA INDIA LTD all payments are done through the cash section of finance department
in the head quarters. Cash sections monitor the cash position on a daily basis and prioritize the
payments. Cash section prepares cash report every morning and checks with the banks for cash
balance. Based on the balance available in the banks and prioritized of payments, cheques are
issued to the parties. Payments are prioritized so as to optimize the cost. Prioritized is done based
on the financial implication of non-payment of the due.
The financial implications considered by GRAVITA INDIA LTD for non-payment of due are
1. interest cost penal and over due
2. penalties and fines in case of statuary obligation
3. impact of production and sales in case of payment is for critical item.
Close liaison is maintained between purchase department, bill-passing section of finance
department and cash section for efficient management off account payable.
The major payments of the plant are towards:
1. purchase of raw material
2. purchase of stores and spares
3. employee wages
4. freight payments
5. interest on loans including working capital
6. repairs and loans including working capital
7. statutory duties like excise and sales tax
The company pays
1. excise duty-2crores/day
2. sales tax-12 crores/month
3. custom duty 12 crores/month
4. employee salary-35 crores/month
5. iron ore-15 crores/month
6. coal blast-70 crores/month
7. railway fright 50 crores/month
8. ocean fright-15 crores/month
Payable turnover ratio:
Payables turnover ratio is ratio of total purchases to average payable. It indicates the number of
times management is able to convert accounts payables into purchase. Payable turn over ratio=
purchases/average payable.
YEAR
Purchases
Avg.
Payabl
e
2007
1449.55
569.34
2.5
2008
1809.12
577.8
3.1
2009
1900.68
606.54
3.1
2010
2118.78
706.58
3.1
2011
1967.3
614.61
3.2
2012
2061.3
618.26
3.3
Payable
ratio
turnover
Interpretation:
The turnover ratio is maintained between 2.0 and 3.0. this was mainly possible due to improved
sales cost reduction purchase value reduction and better cash position.
FINDINGS:
1. The total sales of GRAVITA INDIA LTD are showing a positive trend despite cut
down in
steel prices across the globe. The rise in sales is 32.5% in terms of sales turnover
during 2013-2014 compared to 2012-2013 and 22.03% during 2012-2013 compared to 20112012. the increase in sales by over 20% indicates the excellence achieved by GRAVITA INDIA
LTD in spite of over capacity problem in the market.
2. The gross margin of GRAVITA INDIA LTD has increased from Rs 2073 crores in
2012-20094 to Rs503.89 crores in 2013-05 (an increase of 57.79%).
3. The payable turnover ratio is maintained on an average at 3.0 from 2007 onwards.
4. The consumption at raw material stage has increased from Rs 1394.32 crores in 200800 to Rs 2050.44 crores in 2009-01.
5. All units in GRAVITA INDIA LTD have achieved their rated capacity during the year
2009-01 and poised to exceed the same current year. This has resulted in
a.
reduction in cost of production of saleable steel. The cost of production of
GRAVITA INDIA LTD 1 following a decreasing trend over the past few years. This is evident
from following table given overleaf.
b.
The reduction is cost of production has increased the leverage to extend cash
discount to push sales. This is one of the major reasons for cap to register impressive sales
figures in spite of huge dumping from international players.
6. GRAVITA INDIA LTD has started making net profits from 2011-03. the net profit during
2012-04 was Rs1547 crores while the net profits touched Rs2009 crores in 2013-05. the
net profit was due to higher cash income than cash expenditure. This is also reflected by
net position of GRAVITA INDIA LTD .
7. For the first time GRAVITA INDIA LTD was able to raise working capital funds at an
interest rate of less than 4%. It is in the range of 1.8-3.6% in 2012-04 compared to 8-9%
in the previous year. This has resulted in the increase in net working capital significantly.
8. He current ratio of GRAVITA INDIA LTD is being maintained at 4.2. it shows a very
high
degree of short term liquidity position of the firm.
9. The dues payment by GRAVITA INDIA LTD is able to pay its dues early. For the past three
years GRAVITA INDIA LTD is able to pay its dues early. In 2010-02 parts of old debts were
paid. In 2011-03,another part of old debts was also paid ahead before the scheduled time and in
2012-04 cleared all term loans ahead of schedule time.
CHAPTER – 5
Conclusion
CONCLUSION
1) The interest rate at which GRAVITA INDIA LTD is producing its working capital is about 1415% against a normal rate of 9-12% in 2009-10, in 2010-11 it was 12%-14%, in 2011-12 it was
8%-9% and in 2012-04, it was only 1.8%-3.6%because of forex and exchange credit. Also higher
profit realization by selling the produces in higher margins will eventually result in higher cash
accrual and hence higher credit rating. Higher credit rating results in reduction in interest rates.
Hence the company should either try to enhance the production facilities or better investment
opportunities other than fixed deposits what the company currently is using for investing surplus
funds.
2) The non moving inventory is one of the gray areas in GRAVITA INDIA LTD ’s working
capital management. They account for 1/3 rd of value total inventory. This is really a critical area
where GRAVITA INDIA LTD’s management should focus to bring down the level of non
moving inventory. GRAVITA INDIA LTD has to identity areas for using inventory to dispose it.
Also identification of such items will help in preventing procurement of such items on future.
3) The other main area where GRAVITA INDIA LTD has tremendous scope for improvement is
in manufacturing value an added product. This will result in better sales realization and higher
profit.
4) The export sales of GRAVITA INDIA LTD are only 30% of total sales during 2012-14.
present scenario of steel industry indicates the need for more steel even with the cause of lower
production facilities. The company should now give more importance to exports because it
provides good net sales realization but also export benefits.
CHAPTER – 6
Recommendations, Bibliography,
RECOMMENDATIONS
The concept of working capital is used in two ways i.e., gross and net. Gross working capital
refers to the firms investments in current assets. Net working capital means the difference
between current assets and current liabilities, and therefore represents the position of current
assets, which is financed either from long term funds or banks borrowings.
Cash is required to meet a firm’s transactions and precautionary needs. A firm needs cash to
make payments for acquisitions of resources and services for normal conduct of business. Cash
is also held to meet emergency situations. Some firms hold cash to take advantage of speculative
changes in prices of input and out put. Management of cash involves three things.
a) managing cash flows in and out of a firm
b) managing cash flows within a firm
c) financing deficit or investing surplus cash
And thus, controlling cash balance sat any point of time. Firms prepare cash budget to plan and
control and cash flows. Cash budget can serve its purpose only when firm can manage its
collection and payments with in the allowed limits. A firm should hold optimum amount of cash
at any time and invest the temporary excess amount in short term securities.
Trade credit creates book debts accounts receivable. It issued as a marketing tool to expand or
maintain the firm’s sales. A firm’s sales. A firm’s investment on account receivable depends on
volume of credit sales and collection period through credit policy. Credit policy. Credit policy
includes credit terms and collection efforts the firm’s credit policy will be considered optimum at
the three methods monitor book debts.
They are:
a) average collection period
b) ageing schedule
c) collection experience matrix
the first two methods are based on the showing payments patterns and hence do not provide
meaningful information for collecting book debts. The third approach uses the desegregated data
and it is better method than first two methods.
Inventories constitute about 60% of current assets to public limited companies of India. The
manufacturing companies hold inventories in the form of raw materials work in process and
finished goods. They are three motives for holding inventories. They are transaction motive,
precautionary motive and speculative motive.
GRAVITA INDIA LTD is a multi product manufacturer unit with varying cycle time for each
product. The capital required by each manufacturing unit of GRAVITA INDIA LTD depends on
the individuals products cycle of each item. The department wise capital whose capital
requirement coupled with their production target for a year invites and effective working capital
management.
In finance, working capital is synonymous with current assets; GRAVITA INDIA LTD is a multi
product large organization with huge capital turnover where the working capital requirement
depends on the level of operation and the length of operation cycle. monitoring the duration of
the operating cycle is an important aspect of current assets management and control.
* the company’s average cost of interest is 3-4%, which the company has acquired by forex
funds replacing domestic loans and working capital facilities. If the company utilizes the forex
replacing domestic loans and working capital facilities. F the company utilizes the forex funds
where ever it is possible i.e. when ever the payment are made in Indian rupees of foreign
currency such as ocean freight, other music payments like suppliers. The company will be in
position to take a better advantage to increase the profits.
* Currently the company’s payables towards raw material are replaced with buyer’s
credit/suppliers credit in the form of forex funds. The company has tried to nullify the
exchange risk by going for forward cover considering India’s dependency on other countries in
exchange .Better risk monitoring would be required at the expansion stage when the quantum
of import rises.
* The steel industries are having very good time but GRAVITA INDIA LTD could not able to
take full of its advantage due to the constraints, primarily raw materials. Unlike any other steel
company, GRAVITA INDIA LTD is not having its own sources of raw material i.e coal mine.
These are very basic needs as the company always depends on its supplier for its raw material.
Had the company always depends on its supplier for its raw material. Had the company utilized
its 2-3 half% of working capital limits for acquisition of mines, purchasing of mines, etc. It
could have been a favorable situation.
* The company is getting all its funds i.e. day zero(0) when the rates are compared, the
company is investing surplus funds at 8-8.5% and paying at 7-8% to get the funds on zero(0)
day. This spread should be maintained during the time of expansion also.
* The company has already accumulated funds in excess of Rs.5500 Crores and can look
forward to bigger investment in building up capacities as compared to the proposed 6.1 Million
tons.
* GRAVITA INDIA LTD should invest its short investments in short term, low risk and
medium return instruments rather than in the fixed deposits which it is presently employing for
surplus funds, this would help the company manage its funds better at the time of expansion
when the liquidity would be at premium.
BIBLIOGRAPHY
Books1. Financial management
I.M. pandey
2. Working capital Management
I.M. pandey
Websites1. Company website Gravita India Ltd.
2. Website of Indian
