64002681 Working Capital Project

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MS RAMAIAH MANAGEMENT

INSTITUTE

AProject reportOn

WORKING CAPITAL MANAGEMENTat

Bharat Coking Coal Limited

(A subsidiary of coal India limited)

Dhanbad, Jharkhand

Under the guidance of: Mr. B.K.Parui

Mgr. (Fin.) Cost &Budget

N.N. MUKHOPADHYA

Chief Manager. (F)/TS to

D (F)

Submitted by: Koushik Gupta

BHARAT COKING COAL LIMITED


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PGDM (AIMA) 2010-12

AIMA Registration no.42120451

COLLEGERegistration no.102133

DECLARATION

I, undersigned Mr.Koushik Gupta hereby declare that the project report

entitled WORKING CAPITAL MANAGEMENT under the guidance of

Mr. J.P.Bhagat submitted in partial fulfillment of the requirements for

the award of the degree ofPost Graduate Diploma in Management,

from MS RAMAIAH MANAGEMENT INSTITUTE is my original work

research study Carried out during 4TH JULY,2011 to 13th AUGUST,

2011 and not submitted for the award of any other

degree/diploma/fellowship or other similar titles or prizes to any other

institution/organization or university by any other person.

Place: -Dhanbad Name of Candidate:-

Date: -13.08.2011 KOUSHIK GUPTA



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AIMA Registration no.42120451

COLLEGERegistrationno.102133

ACKNOWLEDGEMENT

Words are indeed inadequate to convey my deep sense of gratitude to all those who

have helped me in completing this summer project to the best of my ability. Being a

part of this project has certainly been a unique and a very productive experience on

my part.

I am really thankful to, Mr.J.P.Bhagat (General Manager Finance CA & T)

for making all kinds of arrangements to carry the project successfully and for guiding

and helping me to solve all kinds of quarries regarding the project work. His

systematic way of working and incomparable guidance has inspired the pace of the

project to a great extent.

I would also like to thank my mentor and project coordinator, Mr. Shyam

Agarwal for assigning me a project of such a great learning experience and

acquainting me with real life project financing and appraisal.

I am very grateful to Mr. Anupam Narula, Dean of MS RAMAIAH

MANAGEMENT INSTITUTE Who has given me the opportunity to do this project in

the Bharat Coking Coal Ltd. and very thankful to all lecturers of MIMS for their

useful guidance and advise.

This project would not have been successful without the help ofMr.P.Banarjee

(General Manager Finance, Fund) & Mr.P.K.Chakraborty (Chief General

Manager Finance) ofBharat coking Coal Ltd.

Last but not least I would like to thank all the employees ofBharat coking

Coal Ltd. who have directly or indirectly helped me with their moral support for the

completion of my project.



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KOUSHIK GUPTA

PREFACE

Practice makes it more perfect

In the field of management every time there is a requirement of

understanding or practical aspect of the organization with managerial

mind. There is requirement to go for practical training of any subject

supplement to the theoretical knowledge and clarified concept.

It is more applicable in the field of the managementespecially a professional course like Post Graduate Diploma in

Management from MS RAMAIAH MANAGEMENT INSTITUTE has

prescribed 6 week of practical training & a project report during the 3RD

Sem. as a part of PGDM programmers my training at the Bharat coking

Coal Limited is to comply with this requirements also.

The project report on Working Capital Of Company, which

provide perfect direction of invest the money. The data collections were

by annual report of the different companies, magazines related to the

cement association and discussion with concerned employees and

experts.

At the end findings and suggestions are reported.

I hope this serves the Purpose.



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Section 1

INTRODUCTION



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Introduction of Coal India Limited

India is the 3rd largest coal producing country. Coal India Limited is the coal

producing company in India.

Coal India Limited

Contributes around 85% of Coal Production in India.

It is the largest company in the World in terms of coal production.

Employs nearly 4 lakh persons and is the largest corporate employer in the

country.

It is one of the largest companies in the country, turnover being around Rs.

521.88 billion in 2010-11

It is one of the largest tax payer companies in the country; the provision on

account of Income Tax for the financial year 2009-10 was made for Rs. 43.42

billion.

Functions

Broad Functions

Laying down policies

Formulating long and short term strategies.

Monitoring the functions of the subsidiary companies.

Laying down system and procedures.

Assisting the subsidiary companies to achieve their objectives.



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Coordination with ministry of coal, ministry of railways, planning commission

and other ministries.

Specific Functions

Pricing and distribution of coal

Coal supply agreements

Consumer services through regional offices

Negotiations of wages

Executive cadre control recruitment, promotion/postings. Pay/perks etc.

Foreign collaboration.

Introduction of new technology

R&D activities

Mobilization of resources long term and short term

Accounting policies



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Background History

1774 Warren Hastings initiates Commercial coal mining at Raniganj (West Bengal)

1815-1820 First Shaft Mine opened at Raniganj.

1835 Carr, Tagore & Company takes over the Raniganj Coal Mines

1843Bengal Coal Company takes over Raniganj Coal Mines and others; is first Joint Stock

Coal Company in India.

Upto 1900 Minimal development; River transportation used to transport coal to Calcutta; railway

lines at Calcutta leads to expansion of Coal Production.

Early 1900sCapacity at 6 million tones per annum

1955-56Focus on Coal industry; capacity up to 38.4 Million ones.

1956 National Coal Development Corporation (NCDC) formed to explore and expend coal

mining in public Sector.

1972Coking Coal Industry Nationalized, Bharat Coking Coal Limited formed to manage

operations of all Coking Coal mines in Jharia Coalfield.

1973Non-coking coal nationalized; coal Mine Authority Limited set up to mange these

mines; NCDC operations bought under the ambit of CMAL.

1975

Coal India Limited formed as holding Company with 5 subsidiaries viz. Bharat Coking

Coal Limited (BCCL), Central Coalfield Limited (CCL), Western Coalfield Limited

(WCL), Eastern Coalfields Limited (ECL) and Central Mine Planning and Design

Institute Limited (CMPDIL).

1985Northern Coalfields Limited (NCL) and south Eastern Coalfields Limited (SECL) carved

out of CCL and WCL.

1992 Mahanadi Coalfield Limited (MCL) formed out of SECL to manage the Talcher and IB

valley Coalfields in Orissa.

2000De-regulation of Coal pricing and distribution of coal.

2007Coal India & four of its Subsidiaries, viz, NCL, SECL, MCL, WCL was accorded coveted

Mini Ratna Status.



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Board of Directors



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Permanent Invitee

Company Profile

Date of Incorporation:

Coal India Limited was formed as holdingCompany with 5 subsidiaries on 21.10.1975.

Corporate Status:

The Company is incorporated under the Companies 1956 and is wholly owned by the

Government of India (GOI)



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Business:

Engaged in the mining of coal, based products mining consultancy.

Wholly OwnedSubsidiaries: Eastern Coalfields Ltd.

Bharat Coking Coal Ltd.

Central Coalfields Ltd.

Northern Coalfields Ltd.

Western Coalfields Ltd.

South Eastern Coalfields Ltd.

Mahanadi Coalfields Ltd. and

Central Mine Planning & Design Institute Ltd.

North Eastern Coalfields in directly under

Coal India ltd

Overseas subsidiary: Coal India Africana Limitada

Registered Office: Coal Bhavan,

10 Netaji Subhas Road,

Kolkata 700 001(West Bengal, Kolkata)

COAL INDIA & ITS SUBSIDIARIES


Southeastern

Coalfields

Ltd. Bilaspur North

Coalfields Ltd. Singrauli

Western

Coalfields Ltd.

Nagpur


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LIMITED


(A subsidiary of coal India limited)


COAL INDIA KOLKATA Bharat Coking

Coal Ltd.

Dhanbad

Eastern Coalfields Ltd. Assa

Central

Coalfield Limited Ranchi

Central Mine Planning & Design Institute Ltd.

Mahanadi

CoalfieldsLtd

Sambalpur


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MISSION

The mission of Bharat Coking Coal Limited (BCCL) is to produce and market the

planned quantity of coal and coal products efficiently and economically with due

regard to safety, conservation and quality.

VISION

The vision of Bharat Coking Coal Limited (BCCL) is to be the leading player in

metallurgical coal production having an organization and culture committed towards

sustainable growth through best practices from mine to market.

Introduction of BCCL

BCCL produces coking coal for steel plants and non coking coal for the power sector

and other industries, from its open-cast and underground mines. It is only source for

prime coking coal in the country for supply to steel plants; as such it does not haveBHARAT COKING COAL LIMITED


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any domestic competitor. However, since the supply of coking coal by BCCL is

significantly less than the demand, coking coal is imported by steel sector and other

industries from outside the country. The company has 214 small coking coal mines in

Jharia & Raniganj Coalfields taken over by GOI on 16th Oct; 1971. It was incorporated

in January, 1972 under Companies Act. The company became a subsidiary of CoalIndia Ltd on 1-1-1975.

As a result of hike in price of coking coal in the international market in the recent

past rendering the important coal costlier than domestic coal, there is no perceptible

threat to the company of losing market demand at present as well as in near future.

BCCL coal commands significant premium among non-core sector consumers. In

order to internalize the same, BCCL introduced a transparent and fair mechanism

marking coal to such consumers through e-auction in 2004-05. as a result of first six

auction carried out, there was a significant gain over the notified price of coal.

Product & Services



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COKING COAL :

These coals, when heated in the absence of air, form coherent beads, free from

volatiles, with

Strong and porous mass, called coke.

These have coking properties

Mainly used in steel making and metallurgical industries

Also used for hard coke manufacturing

SEMI COKING COAL:

These coals, when heated in the absence of air, form coherent beads not strong

enough to be directly fed into the blast furnace. Such coals are blended with coking

coal in adequate proportion to make coke.

These have comparatively less coking properties than coking coal

Mainly used as blend-able coal in steel making, merchant coke manufacturingand other metallurgical industries

NLW COKING COAL:

This coal is not used in metallurgical industries. Because of higher ash content, this

coal is not acceptable for washing in washeries. This coal is used for power utilities

and non-core sector consumers.

NON-COKING COAL:

These are coals without coking properties.

Mainly used as thermal grade coal for power generation

Also used for cement, fertilizer, glass, ceramic, paper, chemical and brickmanufacturing, and for other heating purposes

HARD COAL:

Hard coke is formed from coking / semi-coking coal through the process of

carbonization.

Mainly used in metallurgical industries

Also used in industrial plants utilizing furnaces

WASHED AND BENEFICIATED COAL:These coals have undergone the process of coal washing or coal beneficiation,

resulting in value addition of coal due to reduction in ash percentage.

Used in manufacturing of hard coke for steel making

Beneficiated and washed non-coking coal is used mainly for power generation

Beneficiated non-coking coal is used by cement, sponge iron and otherindustrial plants

MIDDLINGS:


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Areas

Top of Form

Bottom of Form

Washery

BCCL WASHERIES

Introduction :

Coal Washing is a process of separation mainly based on difference

in Specific Gravity of Coal and associated impurities like Shale, Sand &

Stones etc so that we get relatively pure marketable coal without

changing its physical properties.

The Washed Coking Coal is meant for Steel Plants. The Washed

Power Coal/Washed Non-Coking Coal/Middlings is dispatched to various

Power Houses.

Washing Process:

Washery System of Washing

Dugda-II HM Cyclone (13-0.5mm), Flotation (-0.5mm)

Bhojudih Deshaling Jig (75-0mm), HM Bath (75-25mm),

Batac Jig (25-0.5mm), Flotation (-0.5mm)

Patherdih Deshaling Jig(75-0mm), HM Bath(75-13mm),

HM Cyclone (13-0.5mm)

Sudamdih

2 Stage HM Cyclone (37-0.5mm), Flotation (-

0.5mm)

Moonidih

2 Stage HM Cyclone (30-0.5mm),W/O Cyclone(-

0.5mm)

Mohuda HM Cyclone (25-0.5mm), Flotation (-0.5mm)

Madhuban Batac Jig (13-0.5mm), Flotation(-0.5mm)



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Details of Existing Washeries :

S.

No.Name of Washery Year of Commissioning

Operable Capacity

MTY

A. Coking Coal:

1 Dugda-II 1968 2.00

2 Bhojudih 1962 1.70

3 Patherdih 1964 1.60

5 Moonidih 1983 1.60

4 Sudamdih 1981 1.60

6 Mohuda 1990 0.63

7 Madhuban 1998 2.50

TOTAL (Coking Coal) 11.63

B. Non-Coking Coal:

1 Dugda I 1961/1998 1.00

TOTAL (Non-Coking Coal) 1.00

GRAND TOTAL 12.63

Remarks:

Dugda-I stopped since Oct.'96 for safety reasons and its Sink Up gradation Section is

being used for production of washed power coal w.e.f. '98.

Madhuban Washery was originally designed for washing Coking Coal. Due to non-

availability of Coking Coal because of stoppage of Block-II OCP, the Washery was

temporarily converted for Washing Non-Coking Coal which has been reverted back to

washing coking coal again from October 2008.

Modernization of Washeries:

Revival Plan of BCCL provides Rs. 125 Crores for Renovation of

Washeries.

Study was undertaken by CMPDI for performance improvement.



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In the 1st Phase, the Revival Schemes involving an expenditure

of Rs. 54.80 Crores has been approved by BCCL Board for

Dugda-I, Dugda-II, Bhojudih, Sudamdih, Moonidih & Mohuda

Washeries and they are under various stages of

implementation.



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Reasons for loss/sickness

1. Legacy from the takeover:

*Huge manpower:

When all take over completed, B.C.C.L. inherited a huge manpower which was very

much disproportionate to that of production because the manpower with the

company was much higher than required for production. This resulted in increment of

cost of Production but the revenues were the sales. Thus company started incurring

losses since inception.

Year 2006-07 2007-08 2008-

09

2009-10 2010-11

Manpower 87146 83578 80051 72465 67934

*Non-productive unit:-

Many non-productive units were added to the company during the take over, this

gradually started burdening the company economically especially on account of

surplus, under employed manpower and huge maintenance cost. This acted as a fuel

to the fire of losses.

2. Difficult mining condition:

A. Underground

* Low evacuation capacities shaft mining:-

Shaft mining is a extract the coal. Since the mine is very deep so evacuating the

coal is very difficult as the mine in very deep. The company does not have modern

mechanization so evacuating capacities and 100%.

Therefore, because of low capacities incurring machinery results in increase

machinery result in more cost and the production is comparatively less. This results

in increase in fixed cost and in turn the company faces losses.



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*Costly sand stowing operation@ Rs 300/Te:-

Whenever a mine is made it is very much necessary for to fill the vacant portion

with sand or any other thing. If this is not done so then land may subside. If in the

land there is a connecting road or rehabilitation or any public property it cannot be

left to subside. At this position sand stowing comes into action and this method is

very costly as costs Rs.300 per tone. This method is does not add to production but

rather increases cost of the production which the company cannot bear.

*High pumping cost (25T water/T of coal):-

When a mine is made there are a number of ways by which water can enter into the

mine, like boring rain, holes and sometimes there is underground water which comes

out during mining. It stops the production, therefore, pumping out is a costly affair

and adds to the cost of production, and therefore, again it adds to the losses.

Fires, unstable working &surface constraints:-

When the coal is excavated in the mine it is kept there for some time to transport.

Since coal is made of carbon it suffers from from spontaneous heating and catches

fire and gets destroyed. There are also other ways of fire. There were about 72-73

fire at the time of nationalization. The company could control only 5-6 fire as it is

difficult to control. Thus it reduces production but not the cost.

Inside the mine it is very difficult to work due to various reasons like hot

temperature, darkness, moving inside the mine etc. due to these reasons the

workers face a lot of problems in doing their work which results in dissatisfaction of

work, low O.M.S. and increase in cost.

Sometimes the company faces the problem of selective mining to avoid displacement

of rehabilitation, destruction of public property and so on .These problems are called

surface constraints .Because of all these problems the company has to leave the coal

there, like in the case of Jharia mines. These problems reduce the production and the

revenues are not enhanced resulting in more losses.



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B.OPENCAST

Dense population impedes acquisition of land:-

In case of opencast mining the mine is very deep i.e. the coal is found nearer to the

surface, so in this situation the earth over is taken out and then the coal is excavated

.This requires a huge area on the surface .But in the area of dense population the

acquisition of land becomes difficult as the company is unable to pay any

compensation for displacement. There some government laws also acting to protect

public areas .Due to these constraints the company cannot increase the production

easily, thus cant earn the revenue.

Restricts operations to smaller patches with low capacity HEMM: Dense

population makes the company work in small opencast mines .The company has to

use heavy electrical mining machinery and the cost of these is very high .But the

machinery required doing a particular task ,works lower than its actual capacity. The

working any lower capacity leads to low productivity of equipment and high cost of

mining.

*Requires large rehandling of OB due to non-availability of non- coal

bearing land:-

It is generally found that there non-coal bearing land near by the mine these areasgenerally have rehabilitation or any road etc. In this case there is huge rehandling of

over burden (OB).This is so because if there is a non coal rearing land near the mine

just after the evacuation then it is transferred to the coal yard or to other places.

In situation like this huge dumpers have to be used to keep the coal after crossing

the non coal bearing area. This, in return increases the cost due to heavy machinery

use and rehandling.

3. Non availability of land:

Physical possession of acquired land has remained a cause of concern for the

company. The production of the company faces constraints due to dense population

in the jharia coal fields. The matter has repeatedly been pursued with MOC (ministry

of coal) and state government. A few examples of such cases are:-

Diversion of Dumra- tundu road:

About 46 lakhs of prime coal beneath this road is blocked and under threat of getting

destroyed due to fire. The road is unsafe due to advancing fire; immediate action is

required for this road to B.C.C.L.



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Physical possession of acquired land in kenduadih:-

Physical possession of acquired land in subsidiaries prone areas of kenduadih held up

due to non- vacation 5000 families and encroaches residing in this area even after

order of Supreme Court due to law and order problem. Above are the examples

which depicts that the coal is either not excavated or may get destroyed due to fire.

Thus this problem reducing the production indirectly.

4. Hike in salary & wages incommensurate to paying capacity: In B.C.C.L.

there has been constantly pay revision done which led to increment of salaries and

wages. But all these revision were adding to the cost of production only as theproduction did not increase because of low O.M.S. Thus it was out of companys

capacity to pay more but half to pay because government laws and to preserve

industrial harmony. It was almost implementable on a stand alone basis.

5. Impact of loss:- Foregoing replacement of worn out equipment:-

Everybody needs to do capital expenditure. B.C.C.L. engaged in excavation of coal so

its need huge machinery thus requires capital investment. But the company was insuch bad position that it could not even pay for depreciation. So the fund could not

accumulate fund for further investment which led to use of old worn out machinery.

Due to the use of such kind of machinery the production capacity was reduced but

the cost was same.

6. Problem in working capital:-

The shortage of working capital was rendering the incapable of paying for the

procurement of critical items of stores and spares which was affecting adversely the

production and safety. Fund crunch leading to staggering payment of salary andwages & backlog of welfare amenities ultimately resulting in disenchantment &

despair among the workers. Delay in payment to various input providers i.e.,

suppliers and contractors, which degrade the brand value of the company & resulted

in shortage of supplier & contractors. There is backlog in the payment of statutory

dues.



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Current scenario of B.C.C.L.

Sri Tapas Kumar Lahiry elevated as Chairman cum Managing Director, Bharat Coking

Coal Limited (B.C.C.L.) with effect from 1st November 2008. In 2005-06 the company

reported profit of Rs. 203 crores for the first time in its history. The company adopted

a Revival plan. According to that plan, it is expected that negative net worth shall be

wiped out and turn positive in 2013-14

.

Therefore there are different strategies ofrevival plan which B.C.C.L. has adopted.

STRATEGIES OF REVIVAL PLAN

EQUIPMENT H/HEMM.

1. STRATEGIC INITIATIVE -1-REPLACEMENT OF WORN OUT EQUIPMENT

H/HEMM.

The company was continuously suffering from ageing of machinery beyond the rated

life due to shortage of cash. B.C.C.l. requires mainly HEMMs like shovels, dumphers

etc. It also resulted in the less production as the equipment work in the lower

capacity. By identifying this problem the company decided to replace the worn out

machinery and buy the new one. By taking these decisions there was a twin benefit

unit.

1. Firstly, since, the new machines would work in full capacity, so the number of

machine required wasless in number.

2. Secondly, since, the new machinery work in full capacity, the production would

increase.



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The major benefit was that the cost reduced and production also increased which

helped the company to earn more revenue. This is one helping hand in bringing the

company in profit in 2005-06.

STRATEGIC INITIATIVE-2-DEPLOYMENT OF H/HEMM IN PATCHES

The second initiative which the company took was the deployment of HEMMs. Nowthe company identified the HEMM which are not working in full capacity. These low

capacity machineries were transferred to the smaller open cast mines where they can

perform well. Company also started hiring of HEMMs to smaller patches to reduce

capital expenditure of purchasing the same. This hiring resulted in higher production

without increasing the cost. Thus it added profitability.

Strategic initiative -3- implementation of quick yielding OC project:-

The third initiative which was taken was to identify the quick yielding open cast

projects. It is sometimes seen that the coal is very near to the surface .BCCL tried to

find out such projects and work on it .This will not only reduce the cost of mining but

also increase the production . Here an interesting thing is that the cost of production

in this case reduces a lot which is great support of the company .It helps in earning

more revenues at lesser cost. It also helped in the proper utilization of manpower

which in turn reduces the burden of payment of wages and salaries on the company.

Strategic initiative-4-closure of 24 loss making UG mines & manpower

rationalization:


Particulars 06-07

actual

07-08

actual

08-09

actual

09-10

actual

10-11

actual

Op. manpower 87146 80051 76565 72465 71195

Reduction (-)

retirement (+)

other means

VRS

total

3611

51

3622

3791

-

3791

4364

-

4364

4396

-

4396

4818

-

4818

Intake(+) 94 964 878 300 300

Closing

manpower

83568 80051 76565 72469 67934


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As against the proposed closure of 41 loss making mines earlier, the modified

proposal envisage closure of 24 loss making mines during the period spread over 06-

07 to 11-12. This decision was taken to reduce the cost and also the losses of the

company. The closure of 24 mines is being spread over the projected years.

Because it cant done at a single moment. If done so then there will huge

unemployment of manpower. Since it is a government organization, so it cannot

retrench employees. So it is being implemented slowly. As mentioned earlier that due

to closure of mines the burden of manpower is going to increase for the company. To

solve this, the company reduced its intake of more employees and tried to place the

employees of closed mines into the new project of small OC mines as mentioned in

earlier strategic steps. In this table one can see that in near future the manpower of

the company will reduced.

Thus by analyzing the above tables we can infer that the manpower will reduce and

also the losses making mines will be closed. This will reduce the cost of the

company a lot as therewill be less payment of salaries and wages. It will also help to

reduce the losses of the company by closing of the mines. The closure of the loss

making mines will reduce the fixed cost of the company as the cost of HEMMs will be

less.

Strategic initiative-5- Modernization of UG mines and washeries:

Since inception of the company was earning losses. The company was using old

machinery which is now out dated. The working condition of the UG mines was very

poor. This gave rise to dissatisfaction of the employees and they turned unproductive

which gave low OMS this added to the burden of cost for the company. Due to the

use of this machinery the production of was not up to the mark and cost was thesame rather more in some mines. Analyzing the problem company decided to

improve the working condition of workers by bringing modern machinery and more

safety and comfortable job & comfortable working for the employees.

This generated the satisfaction of job and high OMS which increased the production

at lower cost. It helped in increment of revenues which helped in bringing profits

example procurement of long wall machinery.

Strategic initiative -6: E-Auction:



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E-auction is the most recent and modern step taken by the company. E-auction is

basically selling coal through internet. This gave the company a global exposure and

a more standard market. In E-auction the company could sell the coal at higher

prices than expected because of auction. This gave more revenues to the company

for the same amount of production. If we opt for the viral marketing we can reduce

the cost easily. Thus there were more revenues at lesser marketing cost which

proved profitable. The following table shows the gain over the notified prices i.e.,

B.C.C.L. could sell coal at higher prices than it could sell in domestic market.

Chronology of performance after revival plan

Year Manpower Production

(lakhs tone)

Profit/loss

( in lakhs)

2006-07 87146 242.05 4958

2007-08 83578 252.16 8681


Item 06-07 07-08 08-09 09-10 10-11

Qty sold/lifted(LT) 22.79 22.97 24.06 30.00 33.39

Add gain over

notified price (Rs cr)99.6 92.6 95.61 177.30 297.49


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MSRMI2008-09 80051 255.13 -138047

2009-10 76369 275.14 79419

2010-11 64186 290.07 109369

From the above table we can see that after revival plan B.C.C.L. continuously,

earning profit, reducing manpower and increasing production.

So its a good sign for the company

*Two reasons for making loss in the year 2008-09:

1. Huge payment of Rs 1600 crores arrears.

2. Loss in production due to bandhs on 88 days (called by both Maoist as well as

political outfits).

Section 2



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CONCEPTUAL

FRRMEWORK OFWORKING CAPITAL

MANAGEMENT

WORKING CAPITAL

Capital required for a business can be classified under two main categories via,

1) Fixed Capital

2) Working CapitalBHARAT COKING COAL LIMITED


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Every business needs funds for two purposes for its establishment and to carry

out its day- to-day operations. Long terms funds are required to create

production facilities through purchase of fixed assets such as p&m, land,

building, furniture, etc. Investments in these assets represent that part of

firms capital which is blocked on permanent or fixed basis and is called fixed

capital. Funds are also needed for short-term purposes for the purchase of

raw material, payment of wages and other day to- day expenses etc.

Working Capital is that portion of a business concerns total capital, which is

employed in term of operations. Without working capital, fixed capital would be idle

and ineffectual.

A number of definitions have been formulated: perhaps the most widely acceptable

would be;

WORKING CAPITAL represents the excess of CURRENT ASSETS over

CURRENT LIABILITIES

The same may be designated in the following equation:

WORKING CAPITAL= CURRENT ASSETS CURRENT LIABILITIES:

Funds thus invested in current assets keep revolving fast and are being constantly

converted in to cash and this cash flows out again in exchange for other current

assets. Thus it is known as revolving or circulating capital or short term capital.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

The gross working capital is the capital invested in the total current assets of the

enterprises current assets are those



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MSRMI

Assets which can convert in to cash within a short period normally one accounting

year.

CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances.

5) Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net

working capital is the excess of current assets over current liability, or, say:

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets

exceeds the current liabilities are more than the current assets. Current

liabilities are those liabilities, which are intended to be paid in the ordinary

course of business within a short period of normally one accounting year out

of the current assts or the income business.



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MSRMI

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation , if it does not amt. to app. Of profit.

6. Bills payable.

7. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net

working capital is an accounting concept of working capital. Both the concepts have

their own merits.

The gross concept is sometimes preferred to the concept of working capital for the

following reasons:

1. It enables the enterprise to provide correct amount of working capital at

correct time.

2. Every management is more interested in total current assets with which it

has to operate then the source from where it is made available.

3. It take into consideration of the fact every increase in the funds of the

enterprise would increase its working capital.

4. This concept is also useful in determining the rate of return on investments

in working capital. The net working capital concept, however, is also important

for following reasons:

It is qualitative concept, which indicates the firms ability to meet to

its operating expenses and short-term liabilities.



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MSRMI

IT indicates the margin of protection available to the short term

creditors.

It is an indicator of the financial soundness of enterprises.

It suggests the need of financing a part of working capital

requirement out of the permanent sources of funds.



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MSRMI

TYPES OF WORKING CAPITAL:-

Working Capital may be classified in to two ways:-

a) On the basis of concept.b) On the basis of time.

TYPES OF WORKING CAPITAL

Permanent or Fixed Working Capital:-

Permanent or Fixed Working capital is the minimum amount which is required to

ensure effective utilization of fixed facilities and for maintaining the circulation of

current assets. There is always a minimum level of current assets that is

continuously required by the enterprise to carry out its normal business operation.

For example every firm has to maintain minimum level of raw materials, work in

process, furnished goods and cash balance. The minimum level of current assets iscalled permanent or fixed working capital as their part of working capital is

permanently blocked in current assets. With the growth of business there is an

increase in current assets.

Temporary or Variable Working Capital:-Temporary or Variable Working Capital is the amount of working capital that isrequired to meet the seasonal demands and some special exigencies. Variable

working capital can be further classified as:-

a) Seasonal Working Capital.

b) Special Working Capital.

Most of the enterprises have to provide additional working capital to meet the

special and seasonal needs. The capital required to meet the seasonal needs of

enterprise is called Seasonal working capital. Special working capital is the part

of working capital which is required to meet the special exigencies such as part of



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MSRMI

working capital which is required to meet special exigencies such as launching of

extensive marketing campaigns for conducting research etc. is called Special

working capital.

IMPORTANCE OR ADVANTAGE OF ADEQUATE

WORKING CAPITAL

SOLVENCY OF THE BUSINESS: Adequate working capital helps in

maintaining the solvency of the business by providing uninterrupted of

production.

Goodwill: Sufficient amount of working capital enables a firm to make

prompt payments and makes and maintain the goodwill.

Easy loans: Adequate working capital leads to high solvency and credit

standing can arrange loans from banks and other on easy and favorable

terms.

Cash Discounts: Adequate working capital also enables a concern to avail

cash discounts on the purchases and hence reduces cost.

Regular Supply of Raw Material: Sufficient working capital ensures regular

supply of raw material and continuous production.

Regular Payment of Salaries, Wages And Other Day TO Day

Commitments: It leads to the satisfaction of the employees and raises the

morale of its employees, increases their efficiency, reduces wastage and costs

and enhances production and profits.

Exploitation Of Favorable Market Conditions: If a firm is having

adequate working capital then it can exploit the favourable market conditions

such as purchasing its requirements in bulk when the prices are lower and

holdings its inventories for higher prices.



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MSRMI

Ability To Face Crises: A concern can face the situation during the

depression.

Quick And Regular Return On Investments: Sufficient working capital

enables a concern to pay quick and regular of dividends to its investors and

gains confidence of the investors and can raise more funds in future.

High Morale: Adequate working capital brings an environment of securities,

confidence, high morale which results in overall efficiency in a business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run its

business operations. It should have neither redundant or excess working capital

nor inadequate nor shortages of working capital. Both excess as well as short

working capital positions are bad for any business. However, it is the inadequate

working capital which is more dangerous from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE

WORKING CAPITAL

1. Excessive working capital means ideal funds which earn no profit for the

firm and business cannot earn the required rate of return on its investments.

2. Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.

3. Excessive working capital implies excessive debtors and defective credit

policy which causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks

and other financial institution may not be maintained.



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MSRMI

6. Due to lower rate of return n investments, the values of shares may also

fall.

7. The redundant working capital gives rise to speculative transactions

DISADVANTAGES OF INADEQUATE WORKING

CAPITAL

Every business needs some amounts of working capital. The need for working capital

arises due to the time gap between production and realization of cash from sales.

There is an operating cycle involved in sales and realization of cash. There are time

gaps in purchase of raw material and production; production and sales; and

realization of cash.

Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares.

To pay wages and salaries

To incur day-to-day expenses and overload costs such as office expenses.

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

To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress, stores

and spares and finished stock.

For studying the need of working capital in a business, one has to study the

business under varying circumstances such as a new concern requires a lot of

funds to meet its initial requirements such as promotion and formation etc. These

expenses are called preliminary expenses and are capitalized. The amount needed

for working capital depends upon the size of the company and ambitions of its

promoters. Greater the size of the business unit, generally larger will be the

requirements of the working capital.



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MSRMI

The requirement of the working capital goes on increasing with the growth and

expensing of the business till it gains maturity. At maturity the amount of working

capital required is called normal working capital.

There are others factors also influence the need of working capital in a business.

FACTORS DETERMINING THE WORKING CAPITAL

REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working is very limited

in public utility undertakings such as electricity, water supply and railways

because they offer cash sale only and supply services not products, and no

funds are tied up in inventories and receivables. On the other hand the

trading and financial firms requires less investment in fixed assets but have

to invest large amt. of working capital along with fixed investments.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is

the requirement of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by

accumulating inventories it will require higher working capital.

4. LENGTH OF PRDUCTION CYCLE: The longer the manufacturing

time the raw material and other supplies have to be carried for a longer in

the process with progressive increment of labor and service costs before the

final product is obtained. So working capital is directly proportional to the

length of the manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a

firm requires larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle

completes one cycle determines the requirements of working capital. Longer

the cycle larger is the requirement of working capital.



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MSRMI

7. RATE OF STOCK TURNOVER: There is an inverse co-relationship

between the question of working capital and the velocity or speed with

which the sales are affected. A firm having a high rate of stock turnover

wuill needs lower amt. of working capital as compared to a firm having a low

rate of turnover.

8. CREDIT POLICY: A concern that purchases its requirements on

credit and sales its product / services on cash requires lesser amt. of

working capital and vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is

prosperous, there is need for larger amt. of working capital due to rise in

sales, rise in prices, optimistic expansion of business, etc. On the contrary in

time of depression, the business contracts, sales decline, difficulties are

faced in collection from debtor and the firm may have a large amt. of

working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we

shall require large amt. of working capital.

11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms

have more earning capacity than other due to quality of their products,

monopoly conditions, etc. Such firms may generate cash profits from

operations and contribute to their working capital. The dividend policy also

affects the requirement of working capital. A firm maintaining a steady high

rate of cash dividend irrespective of its profits needs working capital than

the firm that retains larger part of its profits and does not pay so high rate

of cash dividend.



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MSRMI

12. PRICE LEVEL CHANGES: Changes in the price level also affect the

working capital requirements. Generally rise in prices leads to increase in

working capital.

Others FACTORS: These are:

1. Operating efficiency.

2. Management ability.

3. Irregularities of supply.

4. Import policy.

5. Asset structure.

6. Importance of labour.

7. Banking facilities, etc.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in

attempting to manage the current assets, current liabilities. The basic goal of

working capital management is to manage the current assets and current

liabilities of a firm in such a way that a satisfactory level of working capital is

maintained, i.e. it is neither adequate nor excessive as both the situations are

bad for any firm. There should be no shortage of funds and also no working

capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm

has a great on its probability, liquidity and structural health of the organization.

So working capital management is three dimensional in nature as

1. It concerned with the formulation of policies with regard to profitability,

liquidity and risk.

2. It is concerned with the decision about the composition and level of

current assets.



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MSRMI

3. It is concerned with the decision about the composition and level of

current liabilities.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business.

Adequate amount of working capital is very much essential for the smooth

running of the business. And the most important part is the efficient

management of working capital in right time. The liquidity position of the firm is

totally effected by the management of working capital. So, a study of changes

in the uses and sources of working capital is necessary to evaluate the

efficiency with which the working capital is employed in a business. This

involves the need of working capital analysis.

The analysis of working capital can be conducted through a number of devices,

such as:

1. Ratio analysis.

2. Fund flow analysis.

3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The

technique of ratio analysis can be employed for measuring short-term liquidity



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MSRMI

or working capital position of a firm. The following ratios can be calculated for

these purposes:

1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from

which additional funds were derived and the use to which these sources were

put. The fund flow analysis consists of:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position

(working capital) business enterprise between beginning and ending of the

financial dates.

3. WORKING CAPITAL BUDGET



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MSRMI

A budget is a financial and / or quantitative expression of business plans and

polices to be pursued in the future period time. Working capital budget as a

part of the total budge ting process of a business is prepared estimating future

long term and short term working capital needs and sources to finance them,

and then comparing the budgeted figures with actual performance for

calculating the variances, if any, so that corrective actions may be taken in

future. He objective working capital budget is to ensure availability of funds as

and needed, and to ensure effective utilization of these resources. The

successful implementation of working capital budget involves the preparing of

separate budget for each element of working capital, such as, cash, inventories

and receivables etc.

Section 3



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MSRMI

R ESEARCH

METHODOLOGY

Research Methodology

For Every Comprehensive research a properresearch methodology is indispenensable & it has

to be properly conceived. The methodology

adopted by me is as follows:-

Research Design

Problem Identification

@ Find out Ratios related to working capital

management of BCCL and compare with last 2years.



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MSRMI

@ Find deviation of calculated from standard or Norms

@ Calculating the working capital requirement ofBharat Coking Coal Ltd.

Information needed

@ Information about firms assets, liabilities, revenue, expenditure, bankers,

investment etc.@ Information about firms loan, security, stock level & other financial information.

Data Collection

My data collection source was secondary i.e.

@ Annual reports of companies

@ Balance sheet

@ Profit & Loss Accounts

Analysis & Interpretation

The data collected and analysed subjectively as well as graphically where it is

possible. The analysis is based upon available information & interpreted accordingly.

Conclusion

On the basis of analysis conclusion has been drawn.

Suggestion

Suggestion has been given in order to improve performance of the firm.

Limitation

My scope of study is limited to the annual reports, Balance sheet of units foranalysis

Section 4



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MSRMI

ANALYSIS OF WORKINGCAPITAL

MANAGEMENT OFBHARAT COKING COAL

LIMITED

BALANCE SHEET Rs (in lakhs)

PATICULARS 2006-07

2007-08

2008-09

2009-10

2010-11

SOURSES OFFUNDS:SHAREHOLDERSFUND:

SHARE CAPITAL 211800 211800 211800 211800 211800.00

RESERVES ANDSURPLUS



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MSRMISUB TOTAL 21180

021180

021180

0211800 211800.

00

LOAN FUNDS:SECURED 30784.

2320843.

1611826.

733946.1

63259.7

UNSECURED 157620

.1

108330 108330 108329.

98

108330

SUB TOTAL 188404.4

129173.1

120156.7

142276.14

111589.7

TOTAL 400204.4

340973.1

331956.7

354076.14

323389.56

APPLICATION OFFUNDS:FIXED ASSETS:GROSS BLOCK 372797

.5385584

.4391474

.6408879.

58436019.

96LESS: DEPRICIATION 260545

.9273094 278134 286242.

37300377.

81NET BLOCK 112251

.6112490

.4113340

.6122637.

21135642.

15CAPITAL WORK INPROGRESS

8399.24

5407.66

9138.47

8304.24 8345.70

SUB TOTAL 120650.9

117898.1

122479

130941.45

143987.85

INVESTMENT 12470.4

11084.8

9699.2 8313.6 6928.00

INVENTORIES 52189.14

57352.91

70725.53

93890.02

111236.22

SUNDRY DEBTORS 8617.47

5144.03

18682.5

39380.24

61813.50

CASH AND BANKBALANCES

96097.25

77289.22

91088.72

92302.76

130683.59

LOANS $ ADVANCES 16329.25

17978.53

22070.92

31950.62

29736.02

SUB TOTAL 173233.1

157764.7

202567.7

257523.64

333469.33

LESS: CURRENTLIABILITY&PR

585327.3

639235 834296.4

794790.34

803714.85

NET CURRENTASSETS

-41209

4

-48147

0.3

-63172

9

-537266

.7

-470245.

52MISC. EXPTPROFIT AND LOSSA/CS

679177.3

693460.5

831507.2

752087.79

642719.23

TOTAL 400204

.4

340973

.1

331956

.7

354076.

14

323389.

56



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MSRMI

Profit and loss account Rs (lakhs)

Particulars2006-07 2007-08 2008-09 2009-10 2010-11

INCOME:

Sales of coal, coke,

etc.

287919.8 295478 339913.2

461933.67 615711.23

Coal issued for

other purposes per

contra 67775.9 68588.2 75532.0

7 68355.31 93809.90

Other receipts 40026.91 27937.6 69167.3

1 50536.63 30755.98

Accretion in stock 554.77 4962.42 11857.1

4 26809.03 17389.26

Total 396277.4 396966 496469.

72

607634.6

4 757666.37

EXPENDITURE:

Decretion in stock --- --- ----- -----

-----

Purchase/transferof coal/coke etc. --- --- ---- ---- -----

Internalconsumption ofcoal per contra

65319.64 66071.3 73232.72 66193079 93317.74

Employeesremuneration &benefits

175151.5 188518 276118.98 264274.59 302312.58

Impact of arrear

wages underNCWA VII

--- --- --- ----

------



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MSRMIParticulars

2006-07 2007-08 2008-09 2009-10 2010-11

Impact of arrear

adhoc/IR exe. &non-exe.

32346.1

Consumption ofstores & spareparts

32064.86 23346.1 83895.16 39124.98 43796.58

Power & fuel23270.86 33015.8 37548.98 30600.21 21781.36

Differential tariff--- 23346.6 23414.38

Repairs(Purchased) 4945.45 --- 5623.64 7071.88 7926.54

Contractualexpenditure 16845.28 4944.75 29475.38 37818.66 64335.17

Social overheads

(Includes freeissue of coal to

employees)

24480.5 25688.7 30550.41 34071.91 34304.63

Interest7885.74 9347.2 7842.76 6659058 4201.68

Depreciation14267.22 17550 16005.93 17103.50 17245.59

Impairment ofassets

2053.98 330.53 296.24 -3535.72 823.40

Provision229.58 170.25 273.7 779.57 127.88

Other expenditure27576.91 28747.1 43322.43 38679.74 54884.36

Total expenditure393892 453759 627600.71 538842.69 646832.11

Add/less: OBR adj:1781.97 -3321.77 5214.94 -10963.49 2056.53

Net total

expenditure 395673.5 450437 632815.65 527879.20 648888.64

Profit/loss(-) for

the year 603.89 -53470.7 -

136345.93

79755.44 108777.73

Fringe benefit tax-272.82 -1043.64 -347.83 ---- 26.30

Prior period adj.4626.93 13885.6 -1352.95 -362.32 590.83

Waiver of apex

interest --- 49290.2 -----

Total profit

4958.4 8681.35 -138046.71



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PR

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MSRMIParticulars

2006-07 2007-08 2008-09 2009-10 2010-11

Balance loss(-)

brought forward

from last years

accounts

-684136 -679177 -693460.5 -831507.21 -752087.79

Transitional prov.

As per rev. AS 15 --- -22944.6 ----

Loss(-)carried

forward to balance

sheet

-679177 -693461 -

831507.21

-752087.79

-642719.23

Line graph showing Profit and Loss of BCCL

From 2006-2011

The Company has earned a profit of Rs.1087.78 crore in 2010-2011 against a profit

of Rs.794.19 crore for the previous year.


RS.(In


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MSRMI

*Two reasons for making huge loss in the year 2008-09:

1. Huge payment of Rs 1600 crore arrears.

2. Loss in production due to bandhs on 88 days (called by both Maoist as well as

political outfits).

ANALYSIS OF SHORT TERM FINANCIALPOSITION OR TEST OF LIQUIDITY

The short term creditors of a company such as suppliers of goods of credit and commercial banks

short-term loans are primarily interested to know the ability of a firm to meet its obligations in

time. The short term obligations of a firm can be met in time only when it is having sufficient

liquid assets. So to with the confidence of investors, creditors, the smooth functioning of the firm

and the efficient use of fixed assets the liquid position of the firm must be strong. But a very high

degree of liquidity of the firm being tied up in current assets. Therefore, it is important proper

balance in regard to the liquidity of the firm. Two types of ratios can be calculated for measuring

short-term financial position or short-term solvency position of the firm.

1. Liquidity ratios.

2. Current assets movements ratios.

A) LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and when these become

due. The short-term obligations are met by realizing amounts from current, floating or circulating

assts. The current assets should either be liquid or near about liquidity. These should be

convertible in cash for paying obligations of short-term nature. The sufficiency or insufficiency of

current assets should be assessed by comparing them with short-term liabilities. If current assets

can pay off the current liabilities then the liquidity position is satisfactory. On the other hand, if the

current liabilities cannot be met out of the current assets then the liquidity position is bad. To

measure the liquidity of a firm, the following ratios can be calculated:

1. CURRENT RATIO

2. QUICK RATIO

3. ABSOLUTE LIQUID RATIO

1. CURRENT RATIO



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MSRMI

Current Ratio, also known as working capital ratio is a measure of general liquidity and its most

widely used to make the analysis of short-term financial position or liquidity of a firm. It is

defined as the relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITESThe two components of this ratio are:

1) CURRENT ASSETS

2) CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors, inventories and

work-in-progresses. Current liabilities include outstanding expenses, bill payable, dividend

payable etc.

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay itscurrent obligations in time. On the hand a low current ratio represents that the liquidity position of

the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal

or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to

be satisfactory.

WITH INTERNAL

CURRENT LIABILITY

WITHOUT INTERNAL

CURRENT LIABILITY

YEAR CURRENT RATIO CURRENT RATIO

2010-2011

2009 - 2010 32.40%

2008 - 2009 24.28%

2007-2008 24.48%



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MSRMI

2006 -2007

64002681 Working Capital Project

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