A SUMMER TRAINING REPORT ON

“WORKING CAPITAL MANAGEMENT”

AT

CENTRAL COALFIELDS LIMITED

RANCHI (Head Quarter)

Submitted in Partial fulfillment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

Manoj Kumar

(MBA/1023/2010)

ACKNOWLEDGEMENT

I would like to express my sincere and deep felt thanks to Mr. A. D. Wadhwa (Dy. Finance Manager), my project guide, whose valuable guidance and constant co-operation provided invaluable throughout my study.

I would also like to extend my thanks to all the faculty members of Department of Management for their encouragement, co-operation and timely suggestions, without which this project has not been possible.

I thanks all whose great efforts kept the project moving so that I could successfully achieve the completion the project.

Manoj kumar

TO WHOM IT MAY CONCERN

This is to certify that Mr. Manoj Kumar, a student of MBA at Birla Institute Of technology, Mesra, Ranchi has gone summer training in our organization from 20th May 2011 to 5th July 2011.

During this period he has successfully completed the training and submitted the Report titled “WORKING CAPITAL MANGEMENT” at CENTRAL COALFIELDS LIMITED .

In course of training he showed positive attitudes towards attainment of training objectives.

We wish him a bright and successful career.

Mr. A. D. Wadhwa (Dy. Finance Manager)

DECLARATION

I Manoj Kumar, here by declare that the training project, entitled “Working capital management” submitted to the Department of management BIRLA INSTITUTE OF TECHNOLOGY in partial fulfillment of the requirements for the award of degree of Master in Business Administration is a record of original and independent research work done by me during 20th May 2011 to 05 July 2011 under the supervision and guidance of Mr. A.D. WADHWA, and it has not formed the basis for the award of any Degree/Diploma/Associate ship/Fellowship or other similar title to any candidate of the university.

Date:

Place: Signature of Student

CONTENTS

Particulars Page no.

Acknowledgment

Declaration

Objectives of the Project

Introduction of CIL & CCL

Working Capital Managemet

Research methodology Cash

Debtors

Inventory

Working Capital analysis

Recommendation

Conclusion

Bibliography

OBJECTIVES OF THE STUDY

TO study and analyze the working capital policy of the CENTRAL COALFIELDS LIMITED.

TO study the affairs of the company with reference to the working capital management and methods of its estimation used in the company.

To understand the general performance of the company.

To use quantities data for defining company’s financial performance.

To know the profitability, production and efficiency of the firm.

To study the methods of financing working capital.

To analyses the performance effectiveness of the company.

RESEARCH METHODOLOGY

Research Design: The study is based on descriptive and applied research.

Data Source: Both primary and secondary data are used for the collection of the information required for the report.

Primary data:

1. Interview schedules with officers of account department.

2. Interview schedules with officers of inventory department.

3. Interview schedules with officers of cash department.

4. Interview schedules with officers of purchase department.

Secondary Data:

1. Annual report of the company.

2. Company’s data records.

3. Company’s website.

EXECUTIVE SUMMARY

The basic idea behind selection of this topic is mainly due to its nature and importance in overall financial management of any organization.One of the most important areas in the day to day management of the firm is the management of working capital. Working capital management is the functional area of finance that covers all the current accounts of the firm. It is concerned with management of the level of individual current assets as well as the management of total working capital.Primary function of financial management is not only procurement of fund but also their effective use with the objective maximizing the owner’s wealth. The allocation of funds, therefore, is an important function of financial management.

Coal India

India is the third largest coal producing country.

Contributes around 85% of coal production in India

Is the largest company in the World in terms of coal production.

Employs nearly 4.25 lakh persons and is the largest corporate employer in the country.

Is one of the largest Companies in the country, turnover being around Rs. 386.31 billion in 2007 – 08.

Is one of the largest tax payer (corporate Tax Rd. 35.75 billion) in 2007 – 08

Has paid Dividend of Rs. 17.054 Billion to the Govt. of India in 2007 – 08

Open cast and underground mining :

Underground mining was the main procedure being followed earlier, the thrust is shifting from underground to open cast mining. In the 1970s, 80% of the total coal production was from underground mines. In 1990, underground mines produced 40% of the total output, the remaining 60% being from open cast mines. In the CCL mines, in 1990-1991, 82.8 % of the mining was open cast, which will increase further. All of its new projects in the last decade in the east and west Bokaro coalfields, Ramgarh and North karanpura are open cast mines in Jharkhand state. The land use in open cast mining is considerable, most of it originally being forest and agriculture and; Requirement for open cast mines varies with reserves of coal per unit area, stripping ratio, the type of excavating equipment and the method of dumping wastes. In an open cast mine in CCL, with a reserve of 345 mt. and designed to produce about 10 million tones per year, the area of land assessed to be required is about 1,602 ha for quarries and the rest of a total of 2,281 ha for magazines, colony, industrial site, etc. This works out to about 7 ha per million tones of reserves.

The India Coal Sector Environment and Social Mitigation project (CSESMP)

The India Coal Sector Environment and Social Mitigation Project (CSESMP) was initially conceived as a component of the Coal Sector Rehabilitation Project (CSRP) of the World Bank, then it was taken up as a separate project as “the Indian Coal Sector Environmental and Social Mitigation Project” (CSESMP). Its objective was to assist the Coal India Ltd. in making coal production more environmentally and socially sustainable. The three main objectives were to

i) Enhance CIL’s institutional capacity to deal more effectively with environmental and social issues.

ii) Implement policies for environmental and Rehabilitation and Resettlement (R&R) mitigation of affected people.

iii) Help CIL develop its policies for R&R, Community Development, Environmental Management. These objectives were to be achieved by means of:-

a) Rehabilitation Action Plans (RAPs) for 14 mines where people were to be resettled.

b) Indigenous peoples Development Programme (IPDP) in 25 mines for the villages within 1 km radius of the mines.

c) Capacity building and institutional changes in CIL (appointment and training of Rehabilitation and Resettlement officers, Public Information Centre).

d) Appointing NGOs to facilitate the RAPs and IPDPs.

e) Formation of Village Working Group.

f) “Self employment” as the main strategy for economic rehabilitation.

The Coal sector Rehabilitation project (CSRP)

The Coal Sector Rehabilitation Project (CSRP) of the World Bank was formed with the objective of financing the purchase of mining equipment for modernization and maintenance of 24 CIL open cast mines, chosen on the basis of a larger profitability. This would increase the total output of the mines from 78.6 million to 104.6 million tons / year. The loan would also contribute to the overall modernization and profitability of Coal India. CIL, which is the recipient on the Indian part, is holding company for 7 subsidiaries, who are owners and managers of the 25 mines of the project. East Parej is one of the mines owned and operated by the subsidiary, CCL. The Environment Impact Assessment (EIA) estimates that by the end of 2004, the project would thus boost Coal India’s annual production to about 320 million tons, as compared to the above 240 million tons without the project. The World Bank Board approved the loan for the CSRP in September 1997. This loan was due to expire June 2003. However, for reasons this study has been unable to ascertain, the second phase was cancelled on 24th July 2000. At that time International Bank for Reconstruction and Development (IBRD) loan disbursements had reached $ 1.41m. Japanese Bank for International Cooperation (JBIC) disbursements were the equivalent, JBIC was also cancelled. Reasons for cancellation of the second phase of loan are rather ambiguous. As per the official version, the revised demand made by the Dept. of Coal indicated that coal demand would not grow as fast as initially estimated, and hence with the main equipments brought in the first stage of the loan, the second phase is not necessary. There seems to be more. Business line (June 24, 2000) indicated that Government of India has done little to reconstitute the domestic coal sector which the bank has a conditionally. This would include amending the Coal Nationalization Act., opening the mining sector to private sector etc. It is acknowledged that the failure of Income restoration to resettled communities is also a factor.

COAL INDIA LIMITED

Coal India Limited (CIL) is an Indian state-controlled coal company headquartered in Kolkata, West Bengal, India and the world's largest coal miner with revenue exceeding Rs 51,925 Cr (FY2009-10). It was formerly owned entirely by the Union Government of India, under the administrative control of the Ministry of Coal. It is involved in coal mining and production industry. In April 2011, CIL was conferred the Maharatna status by the Union Government of India .

In 2010, CIL's initial public offering (IPO) got subscribed 15.28 times, collecting a record over Rs 2,40,000 crore (Rs 2,400 billion) – the highest IPO subscription so far. On the first day of its listing on the Sensex, its stock closed 40% higher than IPO price.

Coal India Limited was formed in 1973 as Coal Mines Authority Limited. In 1975 it was changed to Coal India Limited as a holding company with five subsidiaries:

Bharat Coking Coal Limited (BCCL)(Dhanbad, Jharkhand)

Central Coalfields Limited (CCL)(Ranchi, Jharkhand)

Western Coalfields Limited (WCL)(Nagpur region)

Eastern Coalfields Limited (ECL)(Sanctoria, Asansol, West Bengal)

Central Mine Planning and Design Institute Limited (CMPDIL)(Ranchi, Jharkhand)

In 1985 two more subsidiaries were added:

South Eastern Coalfields Limited (SECL)(Bilaspur)

Northern Coalfields Limited, Singrauli (NCL,Singrauli)

In 1992 one more subsidiary added:

Mahanadi Coalfields Limited (MCL) (Sambalpur)

One International Subsidiary

Coal India Africana Limited (CIAL) (Mozambique)

Two indirect subsidiaries (held through our subsidiary, Mahanadi Coalfields Limited)

MJSJ Coal Limited

MNH Shakti Limited

Western Coalfields South Eastern Coalfields Limited Nagpur Ltd. Bilaspur

Mahanadi Coalfields Limited Northern Coalfields LimitedSambalpur Singrauli

COAL INDIA LIMITED

Central Coalfields Limited CALCUTTA Eastern Coalfields LimitedRanchi Asansol

Bharat Coking Coal North Eatsern Central Mine Limited Dhanbad Coalfields Planning & Design

Guwahati Institute Ltd. Ranchi

CENTRAL COALFIELDS LIMITED

Central Coalfields Limited (CCL) is a subsidiary of Coal India Limited (CIL), an undertaking of the Government of India. CCL manages the nationalized coal mines of the Coal Mines Authority, Central division. The registered and corporate office is at Darbhanga House, Ranchi, Jharkhand.

It presently has 63 mines (26 underground, 37 open cast) in areas of East Bokaro, West Bokaro, North Karanpur, South Karanpur, Ramgarh and Giridih. Their facilites include seven coal preparation plants, three for non-coking coal and four for medium coking coal. They earned their Mini Ratna status in 2007.

CCL has been on the coal map of the country as a public sector since October 1956.

CCL are proud to have been on the coal map of the country as a public sector for over for decades making invaluable contribution in meeting the energy demand of the nation and to the socio-economic development of the state of Jharkhand.

Mission: The mission of CCL is to produce and market the planned quantity of coal economically with due regard to safety, conservation and quality. The main trust of CCL in the present context is to orient its operations towards market requirement maintaining at the same time financial viability to meet the resource need.

Vision : To become a world class, innovative, competitive & profitable coal mining operation to achieve customer satisfaction as top priority.

Business objective: Coal mining through efficiently operated mines. Besides fulfilling coal need of the customer in term of quantity, focus on quality, value addition and beneficiation to the satisfaction of the customers.

Core values (4Cs):

Customer Care

Concern for Environment & Safety

Care for employees

Cost consciousness

OVERVIEW OF CCL

CCL are spread over in the districts of Jharkhand. There are 13 areas of CCL they are:

Argada Barkakhana Cs-Cws Kuju Hazaribagh Rajrappa Giridih Kothara B & K (Bokaro & Kargali) Dhori NK (North Karnpura Area) Piprawar Daltanganj

All the above areas send their requisition for capital & revenue expenditure on week to week basis to CCL Ranchi head quarter.Depending upon sales realization fund section remittances to different areas through bank on the basis of this capital & revenue expenditure report send by the different areas. CCL provides fund to these areas on the basis of pending bill claims, so this capital & revenue expenditure report must be verified by the two authorized person of CCL

Area manager of CCL Finance manager of CCL

Marketing of coal as main product:

To optimize generation of internal resources by improving productivity, preventing wastage and to mobilize adequate external resources for meeting investment needs.

To maintain high standards of safety for accident free coal mining through safe mining practices and continuous safety audit and risk assessment.

To conserve environment through of Committed Plan for reclamation and plantation.

To maintain the quality of ambient air and water within the prescribed norms.

To introduce mass production technology viz. continuous miners etc. for enhancing underground production of quality coal.

To operate mega opencast projects using high capacity equipment with higher availability and utilization secured through long term Maintenance and Repair Contract (MARC).

To beneficiate coal on a substantially larger scale by adding new capacities and supplying quality coal as per customer’s choice.

To create an enabling environment for full realization of employee’s potential through mindset change, customized HRD programmers and synergic teams.

To provide adequate number of skilled manpower to run the operations and impart technical and managerial training for up gradation of skill.

To improve work life balance by better health care, quality life in townships and excellent educational facilities.

To focus on inclusive growth of the community in the command areas of CCL through a host of CSR measures making mining socially sustainable.

CCL campus is very wide with lots of facilities and departments like: Human Resource Development Department Finance Department Sales Department Hospital Facility Canteen Facility etc.

ORGANIZATIONAL SET UP OF CCL

The chairman cum Managing Director is the whole time chief executive of

the company. The chief vigilance officer is responsible to see that the work

is done as per the set rules producer and guidelines and being the guilty to

book secretary to board is responsible for keeping the meeting agenda.

The Board of Directors consists of functioned directors and nominees from

the state and central Govt. The functional Directors are for personnel

operation etc.

All functional Directors are indirectly related to the area general managers.

Each area general manager is fully responsible for the performance of the

area having separate project. Officer for each project is supposed to achieve

the projected target fixed by the company as a whole. Each project has a

colliery manager to individually supervise all types of activities like

transport, production sales realization.

The functional director has separate departmental heads namely G.M. sales

and marketing, Quality control, Finance personnel administration. All have

separate work or duties but are indirectly internally related to each other.

SOCIAL SIDE OF BUSINESS

CCL has played a catalytic role in the socio-economic growth of the Jharkhand region. For the last 5 decades of its existence, it has virtually brought about a metamorphosis in many backward areas through its mining activity by creating employment opportunities and reaching basic infrastructure to many remote and inaccessible areas. Mining has turned out to be a main source of earning for the State Exchequer of Jharkhand.

Major Contributor to Basic Infrastructure: Spend over Rs. 1042 crores on social overhead onwards 1998. Constructed over 160 kms. of heavy duty coal transportation

roads, 300 kms of approach road and equal length of colony roads, 6 major bridges on river Damodar (2 under construction), 59455 permanent houses, 19 hospitals, besides water supply schemes covering over a population of 5.02 lakhs.

Grant in aid & infrastructure facilities to 195 educational institutions.

Building permanent road link “COAL TRUNK ROAD” of about 196 kms length linking its areas and various districts.

Major Employer: 62827 (as on 1.11.2006) directly employed (35% belonging to

scheduled caste & scheduled tribes). Sources of indirect employment to over 2, 00, 000 people in

loading, transportation, civil construction, small industries, coke ovens, manufacturing agencies, ancillaries etc.

Major Contributor to State Exchequer: State central Exchequer have earned over Rs. 2811.56 crores of

royalty and other taxes from CCL’s mining activities after formation of Jharkhand state. (2000-01 to 2005-06)

Community Development

CCL has been contributing to community development and tribal welfare by augmenting drinking water facilities, health care, education, rural and link roads, besides promoting trades for self-employment opportunities in around 500 villages adjacent to its areas of operation. Community Development Programme was initiated in 1981 and since then it has spent over Rs. 18 crores on these activities.

New Projects The following projects have been taken up by CCL in X

plan to augment coal production and to meet the demand of nation:

Magadh open coal (12 Mty) Amrapali open coal (12 Mty) Ashok Expansion open coal (6.5 Mty) North Urimari open coal ( 3 Mty) Karo open coal (3.5 Mty) Konar open coal (3.5 Mty)

Safety Safety in mines is CCL’s first priority. The work in mines of

CCL is carried out as per the provision laid down in the Coal Mines Regulation, 1957 under the Mines Act, 1952 as per the permission and guidance of Director General of Mines Safety. We have three tier system of safety committee, viz. Unit, Area and Corporate level to review, formulate and suggest safety measures of mines. In addition to supply personal protective equipments, free periodicals medical check-up is being carried out to each worker every five years. Safety Fortnight is also being organized every year and best area and best workmen are rewarded to keep them aware related to Safety in mines. There is an emergency cell in CCL for dealing emergency.

ENVIRONMENT

Eco-friendly mining techniques concept are being followed to keep our environment safe. CCL is adopting concurrent reclamation for projects like Piparwar, Ashoka, KDH and Parej East OCP. In other projects decoaled area is reclaimed through internal dumping and subsequently planted. Plantation is also being done on external dumps. A green belt is also created around quarry, CHPs etc. by planting rows of trees to arrest fugitive dust as well as the noise. In addition to this, regular water spraying on haul roads by mobile water sprinklers are being done to suppress air pollution. In some of the fields fixed water sprinkles are also provided. Company is providing domestic gas to our workmen in lieu of coal to avoid air pollution. Not only this, regular monitoring of ambient air and water, quality of each mines are being carried out to check environment.

CCL’s Coal Consumers More than 20 thermal Power stations including those in

Jharkhand. Five Steel Plants. Five Fertilizer Plants. 20 Cement Plants. Around 600 Industrial units Large, Medium and Small Scale.

Products Raw Coal Washed Non-Coking Coal Washed Medium Coking Coal Hard Coke Coal Tar

CCL STRIVE

To make Jharkhand state rich and strong and also to help in establishing coal based industries in this region.

Land Marks of CCL

1815 Coal mining started in India 1850 Private railway started coal mining in India 1925 First Nationalization of coal mining by Railway board 1944 Railway collieries transferred to coal board under coal

Commissioner 1956 National coal development corporation limited. (NCDC)

formed as the first public sector coal company under central govt. with 11 states railway collieries and annual production of 3.11 million tones.

1959 First coal washery at Kargali setup. 1971 Nationalization of coking coal mines – BCCL formed. 1973 Nationalization of Non-coking coal mines – CMAL formed

andNCDC becomes central division of CMAL.

1975 Coal India Limited formed as the holding company for coal. Entire coal industry under public sector reorganized under CIL’s central umbrella. NCDC (central division of CMAL) renamed central coalfield limited. (CCL)

1986 Reorganization of CCL Singrauli and Talchar areas become separate companies viz. N.C.L. and M. C. L.

2005 11 areas, 63 mines, 07 washeries, 1 central workshop (ISO-9001 certified), 5 Regional workshops out of which 03 are ISO-9001 certified. Central Hospital, Gandhi Nagar (ISO-9001 Certified).

2006 Recorded highest profit of Rs. 1165 crores in the history of CCL and for the first time paid Rs. 291.40 crores as dividend.

2007 Registered a profit of Rs. 1020 crores.

CCL – At a Glance

No. of Mines: 63 Mines under 13 areas (26 underground & 37 opencast mines).

Washeries: 7 washeries, 4 medium coking coal washeries, 3 non coking coal washeries.

Workshop: 1 central workshop, 5 regional workshops (the Central workshop & regional workshops are ISO-9001 Certified).

Operating coal field: 6 (East Bokaro, West Bokaro, North Karanpura, South Karanpura, Ramgarh, Giridih).

Major Consumers: Power Sectors, Steel Sectors, Cement & Fertlizer Sectors and Others (like sponge iron, SSF/BRK and Others etc.).

Command area: 2600 sq. kms. spread over Giridih, Bokaro, Ranchi, Chatra, Hazaribagh, Latehar and Palamu Districts of Jharkhand state.

Total lease hold area: 762 sq. km.

Hospital: 2 central hospitals (1 C.H. at Ranchi is ISO- 9001 Certified), 1 Central hospital Naisarai, 7 Regional hospitals, 10 colliery hospitals, 63 Dispensaries.

SWOT analysis of CCL :

STRENGTH –1. CIL (holding company of CCL) has the monopoly in coal production in

India, so there is no competition in the field of coal production.2. It is a public sector.3. There is no competition with private parties.4. It is very strong in its corporate social responsibilities.5. It has large and trained manpower resources.6. It has large stock of coal.7. It always remains updated with the new technologies.8. It has vast experience in this field from a long time.

WEAKNESS –1. Its major consumers are government organizations, which results in non-

realization of dues, time to time.2. This organization is suffering from bureaucracy.3. The average age of working employees is very high.4. It has the indifferent attitude toward its customers.

OPPORTUNITIES –1. To develop new coal mining areas.2. To face competition due to existing strength.3. It has the government’s support.

THREAT –1. To have the competition from big private corporate houses.2. Threat from new product development by private parties, like

gasification of coal or liquefied coal.3. Distribution of the customers in case of government’s permission to the

competition with the private parties.4. The attitude of employees towards the organization.

WORKING CAPITAL MANAGEMENT

One of the most important areas in the day-to-day management of the firm deals with the management of Working Capital, which is defined as the short-term assets used in daily operation.

Funds are needed for short term purposes for the purchase of raw materials, payment of wages and other day to day expenses etc. These funds are known as WORKING CAPITAL. In simple words working capital refers to that part of firm’s capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. Funds, thus invested in current assets keep revolving fast and are being constantly converted into cash and this cash flows out again in exchange for other current assets. Hence it is also known as revolving or circulating capital so working capital is the amount of funds necessary to cover the cost of operating the enterprise.

Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture, etc. Investments in these assets represent that capital which is fixed.

Kinds ofWorking Capital

On the On theBasis of basis ofConcept time

Gross Working Net Working Variable FixedCapital Capital Working working

Capital Capital

Special Seasonal Reserve RegularWorking Working Working WorkingCapital Capital Capital Capital

Classification of working capital:

On the basis of concept: Gross working capital Net working capital

On the basis of periodicity of requirement: Fixed and permanent working capital Variable working capital

On the basis of concept

There are two interpretations of working capital under basis of concept:a) GROSS WORKING CAPITALb) NET WORKING CAPITAL

a) Gross working capital is the capital invested in total current assets of the enterprise. Current assets are those assets which in the ordinary course of business can be converted into cash within a short period of normally one accounting year such as:

CashShort term securitiesDebtorsBills receivableInventoryTemporary investment of surplus funds

The concept of gross working capital focuses attention on two aspects of current assets management:

Optimum investment in current assets Financing of current assets

b) Net working capital: Net working capital is the difference between current assets and current liabilities.According to this concept working capital refers to the difference between current assets and current liabilities.

It is the excess of current assets over current liabilities. Current liabilities refers to the claims of outside which are expected to the mature payment within an accounting year. It includes –

Creditors for goodsBills payableBank overdraftShort term bank loans and advancesPrepaid expenses

Net working capital can be “positive” or “negative”.

Positive net working capital: it arises when current assets exceed current liabilities.

Negative net working capital: it occurs when current liabilities are in excess of current assets.

The net working capital concept indicates the liquidity position of the firm and suggests the extent to which working capital need may be financed by permanent sources of funds.

Thus gross working capital concept is financing or going concern concept whereas net working capital is an accounting concept of working capital. Both concepts have got their own merit, but in general practice net working capital is given more priority.

On the basis of periodicity of requirement

Fixed & permanent working capital

It represents the part of capital permanently locked up in the current assets to carry out the business smoothly this investment in current assets is of the permanent nature. It increases as the size of the business expands. Such as investment required the maintenance of minimum quantity of raw material, work-in-progress, finished products etc.

The permanent working capital can again be sub divided into two parts:

Regular working capital Reserve margin working capital

Regular working capital: It is the minimum amount of liquid working capital required to keep up the circulation of the capital from cash to inventories to receivable and again to cash. This includes minimum bank balance to discount all bills to maintain adequate supply of raw material etc.

Reserve margin of working capital: It is the excess capital over the need or regular working capital that should kept in reserve for contingencies that may arise at any time. These contingencies include rising price. Business depression, strikes, special operations such as experiments with new product etc.

Variable working capital:

Variable working capital change with the increase or decrease in the value of business. It may also be sub divided into seasonal special working capital.

Seasonal variable working capital: The working capital to meet the seasonal liquidity of the business is seasonal variable working capital.

Special variable working capital: It is the part of variable working capital which is required for financing special operations such as extensive marketing campaigns, experiments with product or model of production.

WORKING CAPITAL CYCLE

The working capital cycle refers to the length of time between the firms paying cash for materials etc., entering into the production process/stock and the inflow of cash from debtors (sales).

It indicates the length of time between a company’s paying for materials, entering into stock and receiving the cash from sale of finished goods. It can be determined by adding the number of days required for each stage in the cycle. For example, a company holds raw materials on an average for 60 days, it gets credit from the supplier for 15 days, production process needs 15 days, finished goods are held for 30 days and 30 days credit is extended to debtors.

Fig. Operating cycle

The totals of all these, 120 days is the total working capital cycle. The duration of the operating cycle for the purpose of estimating working capital is equal to the sum of the durations of each of the above said events, less the credit period allowed by the suppliers.Thus there is a complete cycle from cash to cash wherein cash gets converted into raw materials, work in progress, finished goods, debtors and finally into cash again. Short term funds are required to meet the requirements of funds

CASHRAW

MATERIALS

WORK IN PROGRESS

FINISHED GOODS

SALES

DEBTORS

during this time period. This time period is dependent upon the length of time within which the original cash gets converted into cash again. This cycle is also known as operating cycle or cash cycle.

Working capital management: A managerial accounting strategy maintaining efficient level of both components of working capital, current assets & current liabilities in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short term debt obligations and operating expenses.

Working capital management or short term financial management which is concerned with decision relating to current assets & current liabilities; short term financial decision typically involve cash flow within a year or within the operating cycle of the firm.

Definition: Working capital management is concerned with the problem that arises in attempting to manage the current assets & current liabilities and the interrelationship that exists between them.

Working capital management refers to all aspects of the administration of both current assets & current liabilities.

Working capital management is divided into six parts, these are as follows:

1. Working capital policy2. Cash and liquidity management3. Credit management4. Inventory management5. Working capital financing6. Working capital management: extensions

1. Working capital policy: Working capital management is a significant fact of financial management its important stems policy is two reasons:

Investment is current assets represents substantial portion of total investment.

Investment is current assets and the level of current liabilities has to be geared quickly to changes in sales.

Working capital policy is divided into seven heads, these are as follows:

a. Characteristic of current assetsb. Factors influencing working capital requirementsc. Level of current assetsd. Current assets financing policye. Profit creation for working capital

A) Characteristic of current assets: In the management of working capital two characteristic of current assets must be borne in mind: (i) short life span and (ii) swift transformation in other assets form.Current assets have a short life span. Cash balance may be held idle for a week or two, account receivable may have a life span of 30 to 60 days, and inventories may be held for 30 to 100 days. It depends upon the time requirement.

B) Factors influencing working capital requirements:The working capital need of a firm is influenced by numerous factors. The important ones are:

a) Nature of businessb) Seasonality of operationc) Production policyd) Market conditionse) Condition of supply

a) Nature of business: The working capital requirement of a firm is closely related to the nature of its business. A service firm, like electricity undertaking, it has a short operating cycle and its sales predominantly on cash basis, has a modest working capital requirement. On the other hand a manufacturing concern like a machine tools unit, which has a long operating cycle and which sales largely on credit have a very substantial working capital requirement.

b) Seasonality of operation: Firms which have marked seasonality in their operations usually has highly fluctuating working capital requirements. To consider firm manufacturing ceiling fans, the sale of ceiling fan reaches a peak during the summer months and drop sharply during the winter period.

c) Production policy: A firm marked by pronounced seasonal fluctuation in its sales may pursue a production policy which may reduce the sharp variation in working capital requirements.

d) Market condition: The degree of competition prevailing in the market place has an important bearing on working capital need.

e) Condition of supply: The inventory of raw material, spares and stores depend on the condition of supply. If the supply is prompt and adequate, the firm can manage with small inventory. A similar policy may have to be followed when the raw material is available only seasonally and operation is carried out around the year.

(C) Level of current assets:An important working capital policy decision is

concerned with the level of investment in current assets. Under a flexible policy, the investment in current assets is high and under a restrictive policy the investment in current assets is low.

(D) Current assets financing policy:After establishing the level of current assets, the firm

must determine how these should be financed and what mix of long term capital and short term debit should the firm employee to support its current assets.Several strategies are available to a firm for financing its capital requirements.

Strategy A: Long term financing is used to meet the fixed assets requirements as well as peak working capital requirement. When the working capital requirement is less than its peak level, the surplus is invested in liquid assets.

Strategy B: Long term financing is used to meet fixed assets requirement, permanent working capital requirement and a portion of fluctuating working capital requirement during seasonal up wings, short term financing is used during seasonal down swing, surplus is invested in liquid assets.

Strategy C: Long term financing is used to meet fixed assets requirement and permanent working capital requirement. Short term financing is used to meet fluctuating working capital requirement.

(E) Profit creation for working capital:Current assets can be easily liquidated and value realized on liquidation

would be more or less equal to the amount invested initially put differently investment in current assets is reversible. For reversible investment the certain of net profit per period is equivalent to the certain of net present value.

CASH MANAGEMENT

Meaning and Importance of cash

Cash, the most liquid asset and also referred to as the life blood of a business enterprise is of vital importance to the daily operations of business firms. Its efficient management is crucial to the solvency of the business because cash is the focal point of the funds flow in a business. Cash plays a very important role in the entire economic life of an organization. A firm needs cash to make payments to its suppliers, to incur day to day expenses and to pay salaries, wages, interest and dividend etc. Cash is money that is easily accessible either in the bank or any business.

It is very essential for a business to maintain an adequate balance of cash. But many a times a concern operates profitably and yet it becomes very difficult to pay taxes and dividends. This may be because:

Although huge profit have been earned yet cash may not have been received because of large credit sale was made.

Even if cash has been received, it may have drained out (used for some other purposes).

This movement of cash is of vital importance to the management, so proper management of cash is very important.

Cash/fund management

Cash/Fund, the most liquid assets is the vital importance to the daily operations of the business firms. The proportion of corporate assets held in the form of cash is very small, often between 1 and 3 percent, its efficient management is crucial to the solvency of the business enterprise because in a very important sense cash is the focal point of fund flows in business. It is generally referred to as the “life blood of a business enterprise”.

There are three possible motives for holding cash:

i. Transaction motiveii. Precautionary motive

iii. Speculative motiveThe need for holding cash arises from a variety of reasons which are briefly summarized below.

Transaction motive

A company is always entering into transactions with other entities. While some of these transactions may not result in an immediate inflow/outflow of cash (e.g. credit purchases and sales), other transactions cause immediate cash inflows and outflows. So firms always keep a certain amount as cash to deal with routine transactions where immediate cash payment is required.

Precautionary motive

Contingencies have a habit of cropping up when least expected. A sudden fire may break out, accidents may happen, employees may go on strike, creditors may present bills earlier than expected or debtors may make payments later than warranted. The company has to be prepared to meet these contingencies to minimize its losses. For this purpose companies generally maintain some amount in the form of cash.

Speculative motive

Firms would like to tap profit making opportunities arising from fluctuation in commodity price, security price, interest rate, and foreign exchange rates. A cash rich firm is better prepared to exploit such bargains. Firms which have such speculative leanings may carry additional liquidity. Most firms their reserve borrowing capacity and marketable securities would suffice to meet their speculative needs.

Cash Management Cycle

Cash management is concerned with the managing of: Cash flows into and out of the firm. Cash flows within the firm. Cash balances held by the firm at a point of time by financing

deficit or investing surplus cash.

It can be represented by a cash management cycle as shown below. Sales generate cash which has to be disbursed out. The surplus cash has to be invested while deficit has to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the same time, it also seeks to achieve liquidity and control. The management of cash is important because it is difficult to predict cash flows accurately, particularly the inflows and there is no perfect coincidence between the inflows and outflows of cash. During some periods, cash outflows exceed cash inflow, because payment for taxes, dividends or seasonal inventory builds up. At other times, cash inflow can be more than cash payment because there may be large cash sales and debtors may be realized in large sums promptly.

Cash management is also important because cash constitutes the smallest portion of the total current assets, yet management’s considerable time is devoted in managing it. An obvious aim of the firm now-a-days is to manage its cash affairs in such a way as to keep cash balance at a minimum level and to invest the surplus cash in profitable investment opportunities.

Cash

CollectionBusiness

Operations

Information

And controlCash

Payments

Deficit

Surplus

Borrow

Invest

Fund/cash management in CCL

As we discuss fund/cash plays a very important role in every organization, so in CCL fund/cash is very important to fulfill its day to day requirement. Because of this importance fund section of CCL is working directly under the centre of general manager (GM) of finance. Means fund section is directly controlled by the GM of finance in CCL. Here fund section is responsible for effective fund/cash management of entire CCL.

There are many sources of funds, from which CCL gets funds according to their requirement. In CCL cash are mainly realized from sale of coal which is supplied to various sectors. Some of the main sources of funds are:

Power sectors like: Jharkhand State Electricity Board(JSEB) Punjab State Electricity Board (PSEB) Haryana State Electricity Board (HSEB) Delhi Vidyut Corporation (DVC) National Thermal Power Corporation (NTPC) BTPP

Steel sectors like: Steel Authority of India Limited (SAIL) VSP etc.

Other sectors like: Defence Rural Fertilizers etc.

Thus, the main sources of fund/cash from which CCL gets funds are: Realization from sundry debtors Cash sales Other receipts

The quantum of sales realization in CCL is approximately Rs 6000 crores/year.

SALE OF COALIn CCL coal is basically sold in two ways:

Cash: 10% Credit: 90%

Cash sale of CCL is very low (about 10%). CCL mainly sold coal in cash to private parties like:

TISCO, Jharkhand IISCO, Jharkhand Anil Chemical Enterprise, Ranchi Balaji Fuel Private Limited, Patan Maharaja Baba Lime India, U.P. etc.

CCL sold coal to private parties on advance payment basis. In this, they take payment of coal in form of cheque or DD before dispatching the coal. When DD/cheque is cleared bills is received and delivery is made within 72 hrs of it. Coal is not sold in credit to private parties. Credit is only given to the govt. parties.

A big percentage of total sales of CCL are made on credit basis (about 90% ). CCL mainly sold coal in credit to Govt. parties like:

PSEB JSEB HSEB NTPC SAIL etc.

Sale of Coal

Cash (10%)

Credit(90%)

Parties send cheques or demand drafts in two centers of CCL.

o At Kolkata district officeo At Ranchi headquarter

Money Requirements

The major money requirements for CCL are for: Wages and salaries Vendor payment Coal transporting CHP-Coal handling plant

The money requirements are met by 60% realization from Kolkata office and 40% realization from CCL, Ranchi.

Investment of surplus cash

Surplus fund is identified based on current and future expenditure. The surplus cash investment is done by Kolkata office. The period of investment on to when cash is required is basically done through nationalized banks. It is basically given on higher returns. The cash budget is prepared on a monthly basis of CCL.

How shortages are met in CCL?

CCL is basically as on date a cash rich company. So there is no question of shortage of funds.

CONTROL MECHANISM

For controlling the operations of business every business organization needs to employ proper controlling steps for the growth of the business. Every business organization needs repeated stimulus. Thus, proper control mechanism is

pertinent for any organization to flourish. Given below is the control mechanism of CCL:

Bills are admitted/recognized as liability. Based on which fund is indented for headquarters. Based on above, fund is remitted by HQ through banks.

Steps taken to improve cash/fund management in CCL

The cash/fund management department is using information technology tools and e-banking procedure. However there is scope of continuous improvement. The advent of IT as a highly leveraged enabling tool for delivery of services in Government, corporate, cooperative and private sector has now been universally recognized. The use of IT has opened up opportunities to enhance and improve on the day-to-day working processes to strengthen the monitoring of vital functional areas and decision making process. E-Governance has become the policy of the Central Government and many state Governments to provide SMART – Simple, Moral, Accountable, Responsive and Transparent services to the public through the use of IT with optimal quality at the desired time, place and cost.

CCL mainly used cash flow projection and budget for cash planning and control. Cash flow projection is also used to determine for optimum cash balance of CCL. All expenditure except payment of dues like Royalty, corporate income taxes etc. are incurred by areas/units for which fund is remitted to areas.

The capital expenditure of CCL is approximately Rs 400 crores. The revenue expenditure is approximately Rs 5000 crores.

CCL has not faced any kind of liquidity crunch in past five years. This indicates that CCL maintain a sufficient cash balance. However CCL has WCDL (working capital demand limit) with SBI along with CIL against hypothecated of current assets.

If any surplus arises in CCL then this surplus fund is deposited with varying period of maturity of fixed deposit. Listed bank are decided by the board of directors of CCL. They decided any bank on the basis of net worth of that bank.

There is no bank loan in respect of CCL to fulfill their working capital need. This shows that CCL has enough cash balance to fulfill its day to day requirement of cash.

CCL has taken a loan from World Bank to fulfill their fixed capital requirement.

ACCOUNTING STANDARDS

The professional bodies in the field of accounting all over the world have already declared a conceptual framework of accounting to satisfy the varying information needs of various users by preparing a common set of financial reports/statements. This has led to the evolution of accounting standards and it is a function of accounting standards to provide a rational structural framework so that credible financial statements of top quality may be prepared. “Accounting standards are the policy documents issued by the recognized expert accountancy body relating to various aspects of measurement, treatment and disclosure of accounting transactions and events.”

Development of accounting standards is the most important step in developing accounting as a business language. These standards are not rigid as we have in physical sciences. They possess a reasonable degree of flexibility and also subjectively in responding to a specific circumstances of an enterprise. They can also be modified according to the changes in economic environment, social needs, legal requirements and technological developments. But at the same time, they are intended to remove irrational and diverse accounting policies and practices. The whole idea of accounting standards is centred around the harmonization of accounting policies and practices followed by businesses to

standardize the diverse accounting practices followed by many aspects of accounting. The need for harmonization of accounting policies is both at national level as well as at international level.

NEED FOR ACCOUNTING STANDARDS

Accounting concepts, assumptions and principles provide a base for accounting system and they determine the rules to be used in accounting activities. But there is no any compulsion or obligation regarding the use of such rules; rather their use depends upon the general public. If the accountants wish to change the rules based on basic assumptions and concepts, they can do so freely.

Accounting standards are most important for removing the complexities in accounting practices and for incorporating credibility in the system. They are also significant for harmonization of financial statements – their preparation and presentation. The objectives of these accounting standards based on internal as well as external compulsions is to offer a sound base/foundation for accounting activities of an enterprise.

ACCOUNTING STANDARDS AT NATIONAL LEVEL

Almost in each country an expert regulatory accounting body at national level has been set up to control the direction of accounting. For example, in the U.S.A. Financial Accounting Standards Board (FASB) has been entrusted to issue accounting standards known as Statement of Financial Accounting Standards (SFAS) and it has also established Emerging Issues Tasks Force (EITF) to deal with matters not covered by the existing accounting standards. In the U.K. these are known as Financial Reporting Standards (FRS) and Urgent Issues Task Force (UITF). In India, Institute of Chartered Accountants of India (ICAI) has set up board which has issued accounting standards and various guidance notes to deal with matters not covered by existing accounting standards.

ACCOUNTING STANDARDS AT INTERNATIONAL LEVEL

Setting up of International Accounting Standards Committee (IASC) in 1973 was the important step in the process of harmonization and standardization of accounting practices. This committee has come up with its conceptual framework to develop accounting standards, to review existing standards and to assist in developing national accounting standards. The International Accounting Standards Committee aims at ensuring uniformity in financial reporting at global level. Many member-countries have more than one professional bodies in accounting and thus the number of professional bodies in IASC at present representing more or less 100 countries exceeds 140 or so. The committee has set the following two objectives:

1) To formulate and to publish in public interest those accounting standards which are to be adopted in presenting financial statements and also promoting the world-wide acceptance and observance of these standards.

2) To work for harmonization and improvement of regulations, accounting standards and procedures relating to the presentation of financial statements.

Till today the list of International Accounting Standards (IAS) issued by International Accounting Standards Committee has gone up to 41, out of which some standards have been withdrawn and replaced by some other improved ones. The member countries either adopt these standards or use it as a basis for developing national accounting standards. Due to globalization the need for International Accounting Standards still persists as reflected in the IASC statement.

SCOPE OF ACCOUNTING STANDARDS

1) The accounting standards issued are in conformity with the provision of the applicable laws, customs, usages and business environment of our country.

2) The accounting standards by their nature cannot and don’t override the local regulations/rules which govern the preparation and presentation of financial statement in our country.

ACCOUNTING STANDARDS

There are 32 accounting standards issued till date.

Out of these AS 2 is related with Valuation of inventories and AS 3 is with cash Flow Statement.

ACCOUNTING STANDARD – 3 CASH FLOW STATEMENTS

AS-3 cash flow statements (revised 1997), issued by the council of ICAI, comes into effect in respect of accounting periods commencing on or after 1-4-1997. This standard supersedes, AS-3 changes in financial position, issued in June 1981. This standard is mandatory in nature in respect of accounting periods commencing on or after 1-4-2004 for the enterprises which fall in any one or more of the categories of level I enterprises, at any time during the accounting period. The enterprises which do not fall in any of the categories of level I, are encouraged, but are not required, applying this standard.

An enterprise should prepare a cash flow statement and should present it for each period for which financial statements are presented. The cash flow statement should report cash flows during the period classified by operating, investing and financing activities. An enterprise should report cash flows from operating activities using either:

a) The direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or

b) The indirect method, whereby net profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals

of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.

METHOD USED BY CCL FOR PREPARING CASH FLOW STATEMENT

CCL used direct method for preparing cash flow statement. The direct method provides information which may be useful in estimating the future cash flows and which is not available under indirect method. Therefore, direct method is considered more appropriate than indirect method. Under the direct method information about major classes of gross cash receipts and gross cash payments may be obtained either:

From the accounting records of the enterprise. By adjusting sales, cost of sales (in the case of financial enterprise

interest and similar income and interest expense and similar charges) and other items in the statement of Profit & Loss for:1) Changes during the period in inventories and operating receivables

and payables;2) Other non-cash items and3) Other items for which the cash effects are investing or financing cash

flows.

`

Central Coalfields Limited, Ranchi

Cash Flow Statement for the month of March 2011

Amount in Rs. Lakh

    March 2011 Progressive 2010-11

  Particulars    

    Actual Actual

A. Opening Balance 17338.38 16217.50

B. Receipts :-    

  Sales – Credit 14732.29 165490.38

  Sales –Cash  11399.75   145755.11

  Interest on Investment 52.48 154.55

  Income Tax Refund 0.00 3041.11

  Others 0.00 762.46

  Gratuity Fund 6391.37 7636.99

  Remitt Kol to Ran 53300.00 307600.00

Total Receipts   85875.89   630440.60

  OB+ Receipts  103214.27   646658.10

C  Payments

  Royalty 5526.81 52327.50

  Royalty Advance 9000.00 9000.00

  CMPF/Pension 1482.86 53663.64

  Corporate Tax 0.00 20808.00

  FBT--- 0.00 0.00

  Wealth Tax 0.00 1.07

  Dividend Tax 0.00 6416.29

  Divided 0.00 0.00

  TDS 1690.76 11744.51

  Service Tax 57.98 308.41

  Clean Energy Cess 3416.13 16335.11

  Adv IT 25000..00  41900.00

  Sale Tax 1534.48 2911.64

  Adv Sale Tax 4777.00 4777.00

  Central Exice Duty 642.32 642.32

  1%Energy Bill 4.43 187.39

  Misc. 118.91 332.36

  Area Remitt-Revenue 27746.00 366938.00

  Area Remitt-Capital 1030.00 15813.00

  Gratuity Fund 5360.43 26725.70

  CIL 0.00 0.00

  Payment from Kolkata 0.00 0.00

  Total Payment 87388.11 630831.94

  Closing Balance 15826.16 15826.16

Suggestions for improvement

CCL has not faced any kind of liquidity crunch in past five years. This indicates that CCL maintain a sufficient cash balance. However CCL has WCDL (working capital demand limit) with SBI along with CIL against hypothecated of current assets.

If any surplus arises in CCL then this surplus fund is deposited with varying period of maturity of fixed deposit. Listed bank are decided by the board of directors of CCL. They decided any bank on the basis of net worth of that bank.

There is no bank loan in respect of CCL to fulfil their working capital need. This shows that CCL has enough cash balance to fulfil its day to day requirement of cash.CCI has taken a loan from World Bank to fulfil their fixed capital requirement.

Debtors Management

The basic objectives of the debtor’s management are to optimize the return on investment on the assets. Its main aim is to promote sales and profit until that point is reached where the return on investment is further funding of debtors is less than the cost of funds raised to finance that additional credit.

When a firm makes sale of goods and services and does not receive payment, it grants trade credit and creates Debtors accounts, which would be collected in the future. These represent the extension of credit on an open A/c by the firm to its customers, as the substantial amount is tied up in trade debtors, it needs careful analysis and proper management.

Size of Investment in Debtors: Investment in debtors A/c is a major part of their assets in most of business enterprises. Debtors A/c is one of the major components of working capital. The financial executives should pay due attention to the management of debtors, so that each rupee invested in debtors may contribute to the net worth of the organization.

The Basic Problem of Debtors Management: The basic problem of debtor’s management is the balancing of profitability & liquidity. Soft credit terms attract sales and so the longer the time a company allows to pay to its customers the greater the sales and higher the profits.The longer the period of credit the greater the risk, the greater the level of debt and greater the strain on the liquidity of the company.

Debtors Management in CCL

In CCL coal was sold basically on two bases:

Sale of Coal

10% 90%

1. Power Sectors: I. State Electricity Boards

Cash Credit

CCL sold coal in cash basically to private parties like:

TISCO

IISCO

VSP etc.

In cash sale payments are taken in advance before dispatching the coal and payments taken through Demand Draft or Cheque.

CCL big share of total sale is made on credit basis. Credit sale of coal is only given to Government parties.

These Government parties are also made payments through Demand Draft or Cheque.

Some of the main Govt. parties are discussed below.

a) JSEB (Jharkhand State Electricity Board)b) HSEB (Haryana State Electricity Board)c) DVB (Delhi Vidyut Board)d) PSEB (Punjab State Electricity Board)e) UPRVUNL (Uttar Pradesh Rajya Vidyut Udyog Nigam Ltd.)

II. TVNL (Tenughat Vidyut Nigam Limited)In every state level some “Thermal Power Stations” are situated, where CCL supply coal to produce power. Because in India these Thermal Power Stations produce 60-70% of total required power.

III. NTPC (National Thermal Power Corporation), DVC (Delhi Vidyut Corporation)NTPC is a big Government organization and is one of the best customers of CCL. It consumes about 40-42% of total coal produced by the CCL. Their payment system is very good. They settle their dues time to time. DVC is also one of the best customers of CCL. As NTPC, DVC’s payment system is also very good.

2. Steel Sectors: I. SAIL (Steel Authority of India Limited)

a) BSP (Bhilai Steel Plant)b) BSL (Bilaspur Steel Ltd.)c) RSP (Rourkela Steel Plant)d) DSP (Durgapur Steel Plant)

II. Private Steel Parties a) TISCOb) IISCOc) VSP

3. Other Sectors I. DefenseII. Cement

III. Private Parties – JSMDC

CCL has 64-65 mines, spread all over the country. CCL supply coal to different parties with the help of “SLC” (Standing Linkage Committee) which is situated in Kolkata head office. SLC two or three months previously decide that which colliery supply coal to which party, this system is called Standing Linkage. According to this linkage mines supply coal to different parties.SLC formed by the combination of 3 different parties:

Consumer Company RailwaySLC takes linkage decision after agreement with these three parties.After taking the linkage decision coal dispatched to different parties through mainly Railway and Road transport.After dispatching the coal, company makes bills and sends it to the relative customers.

Problems/Disputes Faced by the CCL in Payments: Quality Problems Quantity Problems Under loading / Over loading Moisture Problem Over loading / Under loading charge Stone Problem

Quality Problem: In CCL coal are mainly divided into 2 heads –

Cooking Non-cooking ST 1

ST 2

W 1

W 2

W 3

A

B

C

D

E CCL mainly produces this

F grade of coal.

G

Sometimes CCL supply D grade of coal to party but party said that it receives E grade of coal then, it wanted to give payment according to the rate of E grade of coal but CCL wanted payment according to D grade of coal this create problems in the time of payment.

Quantity Problem:

Quantity problems arise because parties not getting the dispatched quantity of coal because of theft ness and loss due to transportation.

For example CCL dispatch 1, 000 MT coal to a party but party only receives 800 MT coal finally. This creates problems in payment because CCL wanted full payment of 1, 000 MT coal but party gives payment of only 800 MT coal.

Moisture Problem:

In moisture problems party claims that he receives moisture coal and after getting coal dry, the weight of coal is get down. This also creates disputes in payment.

Stone Problem:

In stone problem party arguments that, there is large amount of stones are presented in coal which he receives. So he wanted to give payment after deducting the amount equal to the value of stones he received in the total coal.

Coal Sale Outstanding as on 31th March’2011:

Consumer Amt(Rs.in crs)s

SAIL 263.99RINL 80.81IISCO 20.21UPRVUNL 22.45DVB 3.86HPGCL 40.01BTPP 43.41DADRI 21.61UNCHAHAR 26.63RVUNL 0.86NTPC 11.49TANDA 13.60BSEB 155.48JSEB 267.24DVC 94.25TVNL 384.77OTHERS 5.19TOTAL 1461.94

Settlement of Disputes:If any dispute arises between CCL and parties then, there are two methods used to settle the disputes:

Internal Settlement

External Settlement

Internal Settlement If both parties wanted to settle the disputes by their mutual agreement, this is called “Internal Settlement”. In internal settlement both parties wanted to settle the dispute through “Negotiation” carried out in good faith.For the purpose of conducting negotiation, each party shall designate in writing to the other party a representative, who shall be authorized to negotiate on its behalf with a view to resolving any dispute. Each such representative shall remain authorized until his replacement by the party he represents.

The representative of the party which considers that a dispute has arisen shall give to the representative of the other party a written notice setting out the material particulars of the “Dispute Notice”. Within thirty days, or such longer period as may be mutually agreed, of the dispute notice having been delivered to the other party. The representatives of both parties shall meet in person, to attempt in good faith and using their best endeavors at all times, to resolve the dispute. Once the dispute is resolved, the terms of the settlement shall be reduced in writing and signed by the representatives of the parties.

External Settlement If any dispute is not resolved by internal settlement then, this dispute goes for the External Settlement.In external settlement firstly CCL write letter to middle management of related party to settle the dispute and if middle management not take any kind of action to resolve the dispute then, matter goes to top management. If top management is also not clear the dispute then matter finally goes to government.For settlement of dispute government appointed four zonal umpires these are:

Eastern Umpire Western Umpire

Northern Umpire Southern Umpire

The matter related to that zone, the umpire of that zone listen to both party’s argument. After analyzing the both party’s argument, he gives the final decision which both parties must be accepted.After taking the decision, if party said that he is not able to pay the disputed amount at a time. Then government imposed “Securitization Scheme”.

Salient Features of Securitization Scheme:

1. It is tri-partite agreement among – (a) The President of India acting through Joint Secretary, Ministry of Finance, Government of India, (b) The Governor of state, through Finance Secretary, Government of State, and (c) The Reserve Bank of India through Executive Director, RBI. This agreement shall remain in force until 31.10.2016.

2.This scheme has been introduced because “SEBs has large outstanding dues payable to CPSUs (Central Public Sector Undertakings) and has requested GOI to permit their conversion into long-term Bonds, to be issued by the State Government in favour of the CPSUs”.

3. In respect of overdue of CPSUs, the following main points of the scheme of Securitization would be effective from 1.10.2001. –a) The cut-off date for reckoning of outstanding payment in respect of

the CPSUs shall be 30.09.2001.

b) All surcharge and interest payable by the SEBs on the overdue of CPSUs shall be written of to the extent of 60% thereof.

c) All amount payable in accordance with the above shall be converted into long term loans to be repaid by the State Government over a period of 15 years in 20 equal 6 monthly installments commencing from 1.10.2006 i.e. after a moratorium of 5 years.

d) The State Government would issue Bonds to the respective CPSU who will be free to trade them in the market in a phased manner i.e. 10% of the bonds will be eligible for trading in the secondary market every year on a cumulative basis, thus releasing all the bonds for trading in a period of 10 years.

e) To facilitate trading and redemption of the bonds, the total amount of lone would be divided into 20 equal parts and each party will carry a fixed tenor with bullet redemption. The first set of bonds would thus be redeemed on 1.10.2006.

f) The bonds issued through RBI would carry a nominal tax-free interest rate of 8.5% per annum, payable once every six months.

g) Dispute related to payments of dues shall be resolved in accordance with the due process of law. As and when a dispute is settled, the amount awarded shall be payable as if the bonds had been issued as on 1.10.2001, with the exception that the rate of interest for the period between 1.10.2001 and the actual date of securitization shall be 12% per annum.

4.Payment of current dues: (a) SEBs or their successor entities shall open and maintain irrevocable LCs

that is equal to 105% of their average monthly billing for the preceding 12 months.

(b) The requisite LC would be open no later than 30.09.2002, and failure to that shall attract reduction in supplies.

(c) SEBs shall be free to establish any other security mechanism that is mutually acceptable to be contracting parties.

(d) SEBs that open LCs or establish mechanism by 30.06.2002, and operate them without any default until 31.12.2002 shall be entitled to a cash incentive equal to 2% of the nominal value of the bonds. The incentive will be paid on or before 31.01.2003.

5. Incentive for compliance: States that comply with the aforesaid provisions without committing any default during a block of six months in the years 2002-03, 2003-04, 2004-05 and 2005-06 shall be eligible for a financial incentive. The bi-annual incentive shall, in 2002-03, be equal to 3% of the nominal value of bonds issued to the respective CPSU and shall be paid in cash by the CPSU to the eligible SEB on September 30 and March 31 in respect of the immediately preceding 6 months. Similarly, the bi-annual incentive payable for 2003-04 shall be 2.5% while that for 2004-05 and 2005-06 shall be 2%.

6.Till date two SEBs have issued bonds in favor of CCL as per above scheme –

HPGCL Rs.13.33 Crs. UPRVUNL Rs.80.90 Crs.

INVENTORY MANAGEMENT

Inventory consists of raw material, semi-manufactured products and completely manufactured products. It has been defined by the Accounting Principles Board as “The aggregate of those items of tangible personal property which (a) are held for sale in the ordinary course of business, (b) are in the process of production for such sales, or (c) are to be currently consumed in the production of goods or services to be available for sale”.

Every firm invests a huge amount to maintain a certain level of inventory, or say stocks. Thus a large portion of working capital is involved in stock. On an average, inventories are approximately 60% of the total current assets in public limited companies in India.

The level of inventories for a firm depends upon the nature of its business. A manufacturing firm will have high level of all three types of inventories, while a retail or wholesale firm will have a very high level of finished goods, no raw material and no work in progress inventories.

Firm also maintain a fourth kind of inventory suppliers OR stores and spares. It includes office and plant cleaning materials like soap, brooms, oil, bulb etc. These materials do not directly enter in production but are necessary for production process.

Because of the large size of inventory and the considerable fund engaged in Inventories it is become necessary to manage it in an effective and efficient manner. Material is as much cash as cash as cash itself and any theft, waste and excessive use of materials leads to immediate and direct financial loss. The process of managing inventory is called INVENTORY MANAGEMENT.

PURPOSE FOR HOLDNG INVENTORY

As we all know that huge fund is required to maintain a certain level of inventory, so the question is if it is expensive to maintain inventory, why do firms hold inventories? A company should maintain adequate stock of material for a continuous supply to the factory for an uninterrupted production. Sometime it is not possible for the company to procure raw material whenever it is needed. Also there exists uncertainty in procuring raw material in time in many occasions. The procurement of material may be delayed because of such factors as, transport, disruption, short supply, strike etc. Therefore, the firm should maintain sufficient stock of raw materials at a given time to streamline production.

Other factors which may neccessiate purchasing and holding of raw material inventories are quantity discount and anticipate price increase. The firm may purchase large quantities of raw material than needed for the desired production and sales levels to obtain quantity discount of bulk purchasing. At times the firm would like to accumulate raw material in anticipation of price rise.

Thus there are three general purposes for holding inventories:

Transaction motive

Precautionary motive

Speculative motive

1. TRANSACTIONS MOTIVE : It emphasizes the need to maintain inventories

to facilitate smooth production and sales operation.

2. PRECAUTIONARY MOTIVE : It necessitates holding of inventories to guard against the risk of unpredictable change in demand and supply forces and factors.

3. SPECULATIVE MOTIVE: It influences the decision to increase or deduce inventory level to take advantage of price fluctuations.

OBJECTIVES OF INVENTORY MANAGEMENT

The objective of inventory management is to maintain sufficient inventory for the smooth production and sales operations and to avoid excessive and inadequate levels of inventory. Some other objectives are as below;

Ensure a continuous supply of raw material to facilitate uninterrupted production.

Maintained sufficient stock of raw material in period of short supply and anticipate price changes.

Maintain sufficient finished goods inventory for smooth sales operation and efficient customer service.

Minimize the carrying cost and time and

Control investment in inventories and keep it at an optimum level.

INVENTORIES MANAGEMENT TECHNIQUES

Various techniques commonly used for inventory control are listed below:

ABC technique

Stock level – minimum, maximum and re-order level

Economic order quantity (EOQ)

Inventory turnover ratio to review slow and non – moving material

Perpetual inventory system

Methods of pricing of materia

ABC TECHNIQUE

ABC Technique is a value based system of material control. In this technique material are analyzed according to their value so that costly and more valuable materials are given greater attention and care. All items are classified according to their value ie, high, medium and low values, which are known as A, B and C items respectively.

A items: High in value and low in quantity. These items engage 70% of funds and 10% of space in the inventory.

B items: Medium in value and medium in quantity. These items engage 20% of funds and 20% of space in the inventory.

C items: Low in value and high in quantity. These items engage only 10% of fund and 70% of space in the inventory.

Thus the ratio between A, B and C is as follows:-

1. PRICE WISE – 7:2:1

2. QUANTITY WISE – 1:2:7

STOCK LEVELS

In order to check under stocking and over stocking most of the large companies adopt a scientific approach of fixing stock levels.

These levels are:

Maximum level = Re – order level + Re – order quantity – (Max. consumption* Max. re-order period)

Minimum level = Re-order level-(Normal consumption* Maximum Re-order period)

Re-order level=Maximum consumption* Maximum re-order period

Average stock level = ½ (Maximum level + Minimum level)

Danger level = Normal consumption *Maximum re – order period under emergency condition.

ECONOMIC ORDER QUANTITY (EOQ)

Economic order quantity is that size of order which gives maximum economy in purchasing any material and ultimate contribution towards maintaining the material at the optimum level and at minimum cost. It is also called RE-ORDER QUANTITY.

EOQ=√ (2*O.C.*A.D./C.C)

Where,

O.C. = Ordering cost, the cost of placing an order.

A.D. = Annual demand, annual consumption of material in units.

C.C. = Carrying cost, this is the cost of holding the stock in storage.

INVENTORY TRUNOVER RATIO TO REVIEW SLOW AND NON-MOVING MATERIAL

Inventory turnover ratio tells us how many times in a year stock are used up and replaced. The greater the stock turnover, the more efficient is the stock policy.

Stock turnover ratio= Cost of material consumed during the period/ Average stock of materials during the period

Stock turnover in terms of days= days of period / stock turnover rate

In order to detect the slow and non-moving materials, a standard stock turnover rate should be computed for each item of material with the help of following formula:

Turnover rate of an item= Budgeted consumption/Average stock level

PERPETUAL INVENTORY SYSTEM

A perpetual inventory system is defined as “The method of recording stores balance after each receipt and issue to facilitate regular checking and obviate closing down for stock taking.”

METHOD OF PRICNING OF MATERIALS

Some important methods of pricing are as follows:

LIFO (Last in fast out)

FIFO (First in first out)

Simple Average Price

Weighted Average Price

INVENTORY MANAGEMENT IN CCL, RANCHI

Central Coalfield Limited (CCL) one of the nine subsidiaries of Coal India Limited (CIL) a Navranta company is the pioneer coal mining Company in India and one of the leading suppliers of coal to power and steel sector in India. CCL offers a wide grade diversity of coal to the consumers in core and non-core sector in India. CCL was formed in 1975 with 63 mines grouped in 11 areas (26 underground and 37 open costs) with 7 washeries (4 medium coking coal and 3 non-coking coal). The Company has six operating coalfields and Central Workshop (ISO9002 certified) and 5 Regional Workshops, 3 of them ISO9002 certified.

Based on the performance of the company, the government of India has conferred MINIRATNA-I status to CCL on the 4th October 2007.

Inventory management of CCL is working directly under the Chief Material Manager (CMM). He controls the inventory of CCL from head quarter of CCL, Ranchi.

In CCL inventory are basically consist of five items:

Stock of stores and spears

Stock of coal (finished good)

Workshop job (work in progress)

Press

Medicine (central hospital)

These five items are maintained in two different departments, in first department only the first item ie stock of stores and spears is maintained and the rest four items are maintained by a different department.

STOCK OF STORES AND SPEARS

This is consisting of HEMM (heavy earth moving machine), E & T (eg. Transformer etc.), Safety items, washeries spears and consumable spears like nut bolt etc.

STOCK OF COAL

It consists of:

1. Raw coal

2. Soft coke

3. Hard coke

4. Washed coal

5. Middling/slurry

6. Magnetite

7. Coal tar and by-product

Presently CCL has:

7 washeries

4 medium coking coal washeries

3 non coking coal washeries

WORKSHOP JOB

Presently CCL has

1 Central workshop

5 regional workshop

The central w/s and 3 regional w/s are ISO 9001 certified.

PRESS

It contains all stationary items.

MEDICINE

Only the medicine of central hospital comes under this head.

VALUATION METHOD USED IN CCL

Earlier FIFO (First in first out) method was used in valuation but now Weighted Average Method is used in CCL.

In CCL the different between book stock and measured stock should not more then 5.

ie Book stock- Measured stock = + - 5

PURCHASING

Purchasing can be done at centralized level or area wise or local purchases.

Local purchases are financed by project officers. All items are divided into centralized and decentralized items; centralized items can not be purchased at local or area level.

For HEMM (Heavy earth moving machine) a separate budget is made and for the rest of items a different budget is made. Indents are sending from every region regarding materials required to purchase to the Ranchi head office and on the bases of which purchase order is made. CCL also issues tenders to invite application from different suppliers.

WASTE / UNUSED MATERIALS

CCL use to send notice to all subsidiary companies of CIL about the unused material so that who so ever require the material can take it from CCL.

ASSEST VERIFICATION

Verification is done by Audit process ie physical verification method is used in CCL. In CCL the difference between book stock and measured stock should not more then 5.

ie book stock- measured stock = + - 5

That is all about the inventory management in CCL.

INVENTORIES IN CCL :

PARTICULARS As at 31.12.2010(RS in lakh)

As at31.03.2010(Rs in lakh)

1.Stock of Stores & Spares

19206.23 18625.83

Less: provision 3591.15 3614.0115615.08 15011.82

Add: in transit/ under inspection

634.40 465.09

Stock adjustment 0.0 16249.48 1.97 15478.882.Stock of coal: a)Raw coal Revenue mines 70129.62 84904.85 Capital mines 0.00 70129.62 0.00 84904.85 b)coke Soft coke 0.69 0.69 Hard coke 61.53 62.22 62.05 62.74 c)Washery products Washed coal 4241.87 4440.61 Middlings/Slurry 11638.15

15880.0211186.09 15626.70

Magnetic 1.61 1.61Coal tar & other by-products

41.91 41.91

86115.38 100637.81

86115.38 100637.813.Workshop jobs:-4. Press 205.87 234.63

Work in progress/finished goods

124.59 132.44

5.Medicines (Central Hospital)

54.32 59.80

Non-CIL Block 119.32

1173.97

TOTAL:- 103943.96

117717.53

WORKING CAPITAL ANALYSIS

Working capital level The consideration of the level investment in current assets should avoid two danger points excessive and inadequate investment in current assets. Investment in current assets should be just adequate, not more or less, to the need of the business firms. Excessive investment in current assets should be avoided because it impairs the firm s profitability, as idle investment earns nothing. On the other hand inadequate amount of working capital can be threatened solvency of the firms because of it s inability to meet it s current obligation. It should be realized that the working capital need of the firms may be fluctuating with changing business activity. This may cause excess or shortage of working capital frequently. T he management should be prompt to initiate an action and correct imbalance

Size of working capital : (Rs. In lakhs) PARTICULARS 2006 2007 2008 2009 2010

A) Current Assets : Inventories :

Inventories of coal,coke etc.

57881.77 68268.19 85803.88 80626.38 100637.81

Inventories of stores & spares etc.

13518.08 12793.06 12947.48 14199.42 15478.88

Other inventories

184.70 302.26 326.58 1980.52 1600.84

Sundry debtors 61106.59 47217.31 54130.98 74526.48 51244.83Cash & Bank balances 23482.02 33408.78 111546.67 181588.39 260700.75Loans & advances 188181.5

2207696.63 223695.97 274092.26 136980.64

TOTAL Current Assets 344354.68

369686.23 488491.56 627013.45 566643.75

B) Current Liabilities :

Current liabilities & provisions

309780.55

340848.12 471391.32 621854.11 531679.68

TOTAL Current Liabilties

309780.55

340848.12 471391.32 621854.11 531679.68

NET Working Capital 34574.13 28838.11 17100.24 5159.34 34964.07

(A-B)Working capital trend analysis

In working capital analysis the direction at changes over a period of time is of crucial importance. Working capital is one of the important fields of management. It is therefore very essential for an analyst to make a study about the trend and direction of working capital over a period of time. Such analysis enables as to study the upward and downward trend in current assets and current liabilities and it s effect on the working capital position.

In the words of S.P. Gupta The term trend is very commonly used in day-to-day conversion trend, also called secular or long term need is the basic tendency of population, sales, income, current assets, and current liabilities to grow or decline over a period of time

Working Capital Size:

PARTICULARS 2006 2007 2008 2009 2010NET Working Capital (A-B)

34574.13 28838.11 17100.24 5159.34 34964.07

WC indices 100 83.41 49.45 14.92 101.12

2006 2007 2008 2009 20100

20

40

60

80

100

120100

83.41

49.45

14.92

101.12

WC indices

WC indices

Observations It was observed that in the CCL the year 2007 current assets increased by 7.5% and current liabilities increased around by 10% which affect as working capital decreased by around 17%. In the year 2008, net working capital decreased to Rs 17100.24 from Rs. 28838.11 million, the decrease in working capital is close to 41% and in the year 2009 , the net working capital decreased

to rs. 5159.34 from Rs.17100.24, the decrease in working capital is around 69%. The fall in working capital is a clear indication that the company is utilizing its short term resources with efficiency. In the year 2010, the net working capital increased to Rs. 34964.07 from Rs. 5159.34 .It shows that management is using long term funds to short term requirements.

Composition of current assets Analysis of current assets components enable one to examine in which components the working capital fund has locked. A large tie up of funds in inventories affects the profitability of the business or the major portion of current assets is made up cash alone, the profitability will be decreased because cash is non earning assets.

2006 2007 2008 2009 20100

50000

100000

150000

200000

250000

300000

Chart Title

inventoriessundry debtorscash & bank balancesloans & advances

Axis

Title

Observations It was observed that the size of current assets is increased each year, in 2010 the current assets had decreased to 566643.75 lakhs .ie. decreased by 9.6%.Current liabilities Current liabilities mean the liabilities which have to pay in current year. It includes sundry creditor s means supplier whose payment is due but not paid yet, thus creditors called as current liabilities. Current liabilities also include short term loan and provision as tax provision. Current liabilities also includes bank overdraft. For some current assets like bank overdrafts and short term loan, company has to pay interest thus the management of current liabilities has importance.

Current liabilities size:

PARTICULARS 2006 2007 2008 2009 2010Current Liabilities : Current liabilities & provisions

309780.55

340848.12 471391.32 621854.11 531679.68

TOTAL Current Liabilties

309780.55

340848.12 471391.32 621854.11 531679.68

Current Liabilties indices

100 110.02 152.16 200.74 171.63

2006 2007 2008 2009 20100

50

100

150

200

250

100 110.02

152.16

200.74171.63

C.L. Indices

C.L. Indices

Observations Current liabilities show continues growth each year because company creates the credit in the market by good transaction. . As a current liability increase in the year 2009 by 32% it reduce the working capital size in the same year. In the year 2010 , the current liabilities decreased by around 15% which leads to increase working capital. But company enjoyed over creditors which may include indirect cost of credit terms.

Working capital leverage :

Working capital leverage= % Changes in ROCE / % Changes in current assets

Return on capital employed= EBIT/ TOTAL Assets

The working capital leverage reflects the sensitivity of return on capital employed to changes in level of current assets. Working capital leverage would be less in the case of capital intensive capital employed is same working capital leverage expresses the relation of efficiency of working capital management with the profitability of the company.

Calculation of working capital leverages:

Year 2007 2008 2009 2010% ROCE 19.54 15.66 9.32 19.17% Change in ROCE

-17.76 -19.85 -40.48 105.68

% change in current assets

7.35 32.13 28.35 -9.62

W.C.Leverages -2.42 -0.62 -1.43 -10.99Working capital ratio analysis:

1. Liquidity ratio:

Current ratio: This ratio shows the relationship between current assets and current liabilities of a company. It is an important measure of analyzing the firm's ability to pay off its current obligations out of its short-term resources. The higher the CR, the higher is the amount available per rupee of current obligations and accordingly, the higher is the feeling of safety and security. The rule of thumb about the CR is 2:1.

Current ratio = Current assets / Current liabilities

Particulars 2006 2007 2008 2009 2010Current Assets 344354.68 369686.23 488491.56 627013.45 566643.75Current Liabilties

309780.55 340848.12 471391.32 621854.11 531679.68

Current ratio 1.111 1.084 1.036 1.008 1.065

2006 2007 2008 2009 2010

current ratio 1.111 1.084 1.036 1.008 1.06499999999999

0.950.970.991.011.031.051.071.091.11

current ratio

Observation:The current ratio in CCL registered a fluctuating trend during the period 2006-2010. It varied between 1.11 in 2006 and 1.07 in the year 2010. On an average,the CR in CCL was 1.06 during the period 2006- 2010. As a conventional rule,a current ratio of 2:1 or more considered satisfactory. The central coalfields limited (ccl) has a current ratio less than 2:1 every year ,during the period 2006-2010 . Therefore ,it may be interpreted to be insufficient liquid.

Quick ratio: The quick or acid test ratio takes into consideration the difference in the liquidity of the components of current assets .it represents the ratio between CA,and the total CL.This ratio is yet another widely used parameter of judging the short-term repaying ability of a firm in the near future.

Quick ratio: ( current asset – inventory)/ current liability

2006 2007 2008 2009 2010Current Assets 344354.68 369686.23 488491.56 627013.45 566643.75Inventory 71583.93 81364.05 99077.94 96806.32 117717.53Loans & advances

188181.52 207696.63 223695.97 274092.26 136980.64

Liquid Current Assets 84589.25 80625.58 165717.7 256114.9 311945.6Current Liabilties

309780.55 340848.12 471391.32 621854.11 531679.68

Quick ratio 0.27 0.23 0.35 0.41 0.58

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Quick ratio

Quick ratio

Observation:The rule of thumb about QR is1:1. It is evident from above table that the QR also shows the fluctuating trend during the period 2006-2010 and ranged between 0.27 in the year 2006 and 0.58 in the year 2010. On an average the QR in CCl was 0.37 during the period of 2006-2010, i.e quick assets are 0.37 times of current liabilities. It clearly indicates that the liquidity Position of the company was not so good during this period. From 2008, company’s QR shows better than previous years. This shows company is now strengthen their liquidity position.

Absolute liquid ratio Even though debtors and bills receivables are considered as more liquid then inventories, it can not be converted in to cash immediately or in time.

Therefore while calculation of absolute liquid ratio only the absolute liquid assets as like cash in hand cash at bank, short term marketable securities are taken in to consideration to measure the ability of the company in meeting short term financial obligation. It calculates by absolute assets dividing by current liabilities. Absolute liquid ratio : absolute liquid assets / current liabilities

Absolute liquid ratio:

Particulars 2006 2007 2008 2009 2010Absolute Liquid Assets

23482.02 33408.78 111546.67 181588.39 260700.75

Current Liabilties

309780.55 340848.12 471391.32 621854.11 531679.68

Absolute liquid ratio

0.08 0.10 0.24 0.29 0.49

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.08 0.1

0.240.29

0.49

Absolute liquid ratio

Absolute liquid ratio

observation

Absolute liquid ratio indicates the availability of cash with company is sufficient because company also has other current assets to support current liabilities of the company. Every year from 2006-2010, shows that the company’s absolute liquid ratio has increased .The year 2010, shows the highest increase ,this is because of company carry more cash balance, as a cash balance is ideal assets company has to take control on

such availability of funds which affect on cost of the funds.

2. Efficiency ratio :

Working capital turnover ratio :It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase in sales contemplated working capital should be adequate and thus this ratio helps management to maintain the adequate level of working capital. The ratio measures the efficiency with which the working capital is being used by a firm. It may thus compute net working capital turnover by dividing sales by working capital.

Working capital turnover ratio = sales / net working capital

Particulars 2006 2007 2008 2009 2010

Sales 391000.70 390072.61 436294.37 521088.78 548822.42

Net W.C. 34574.13 28838.11 17100.24 5159.34 34964.07

W.C.Turnover 11.30 13.52 25.51 100.99 15.69

2006 2007 2008 2009 20100

20

40

60

80

100

120

11.3 13.5225.51

100.99

15.69

w.c.turnover

w.c.turnover

Observations High working capital ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in working capital. In the year 2009 the ratio was around 101 times, it indicates that the capability of the company to achieve maximum sales with the minimum investment in

working capital. Company’s working capital ratio shows mostly increasing trend , except for the year 2010, i.e. 15.69 times this is because of excess of cash balance in current assets which occurred due to encashment of deposits. The reciprocal of the ratio indicates that for one rupees of sales the Company needs Rs 0.09, 0.07, 0.04, 0.01, 0.06 respectively of Net current assets.

Inventory turnover ratio Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. This ratio focuses light on the inventory control policy adopted by a concern. This ratio shows the relationship between the cost of goods sold or sales during a particular year and inventories kept by a concern during that year. Higher ITR shows higher efficiency of the management and vice versa.It is calculated by dividing the cost of good sold by average inventory:

Inventory turnover ratio: cost of goods sold / avg. inventory

Particulars 2006 2007 2008 2009 2010

Cost of goods sold

274502.69 288042.22 332769.86 444708.39 395517.41

Average inventory

66085.12

76473.99

90220.995

97942.13

107261.93

Inventory Turnover 4.15 3.77 3.69 4.54 3.69

2006 2007 2008 2009 20100

0.51

1.52

2.53

3.54

4.55

4.153.77 3.69

4.54

3.69

Inventory turnover

Observations

It is evident from above that the Inventory Turnover of CCL shows a fluctuating trend during 2006-2010. The average of this ratio during the periodof 2006-2010 was 3.97 times . It can also be observed from above table that this ratio started improving after reaching at the lowest (3.69) in the year2008 this ratio increase to 4.54 times in 2009 It is thus, clear that the management tried to control its inventory levels to a great extent during that period.Again in 2010 , the company’s inventory turnover ratio comes down to 3.69 times.

Debtors turnover ratio :

This ratio throws light on the credit and collection policy pursued by a concern. Debtors are convertible into cash over short period and therefore ,are included current assets.DTR is an important tool of analyzing the efficiency of liquidity, working capital management of a company. The liquidity position of a company depends on the quality of debtors to a great extent. It measures the rapidity or the slowness of their collectability.

Receivable turnover ratio : gross sales / avg. Accounts receivable

Particulars 2006 2007 2008 2009 2010

Gross sales 451290.55 450640.99 506054.49 597837.36 629192.03

Avg. Debtors 63545.31 54161.95 50674.15 64328.73 62885.66

Receivable Turnover

7.10 8.32 9.99 9.29 10.01

2006 2007 2008 2009 20100

2

4

6

8

10

12

7.18.32

9.99 9.29 10.01

receivable turnover

Observation:

The high Debtors Turnover Ratio implies the prompt payments made by debtors and vice versa.It can be seen from above table that the DTR also recorded a fluctuating trend during 2006-2010 in CCL. It was highest in the year 2010 and lowest in the year 2010.On an average, the DTR in CCL was 8.95 during the period 2006-2010.The DTR in CCL was much higher most of the years under study. It signifies speedy of collection efforts and efficient credit policy followed by the CCL. It indicates good working capital management policy.

Current assets turnover ratio Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current assets current assets includes the assets like inventories, sundry debtors, bills receivable, cash in hand or bank, marketable securities, prepaid expenses and short term loans and advances. This ratio includes the efficiency with which current assets turn into sales. A higher ratio implies a more efficient use of funds thus high turnover ratio indicate to reduced the lock up of funds in current assets. An analysis of this ratio over a period of time reflects working capital management of a firm

Current asset turnover

Current asset turnover= Sales/ current assets

Particulars 2006 2007 2008 2009 2010

Sales 391000.70 390072.61 436294.37 521088.78 548822.42

Current Assets

344354.68 369686.23 488491.56 627013.45 566643.75

Current Assets Turnover

1.14 1.06 0.89 0.83 0.97

2006 2007 2008 2009 20100

0.2

0.4

0.6

0.8

1

1.21.14

1.060.89 0.83000000

0000001

0.970000000000001

Current asset turnover

Current asset turnover

Observation

It was observed that current assets turnover ratio fluctuating trend over the period of time. Turnover ratio was 1.14 in the year 2006 and decrease to 1.06 ,0.89 and 0.83 in the year 2007 ,2008 and 2009 respectively. In the year 2010, company increased its sales , thus current assets turnover ratio increased to 0.97 times from 0.83 times in the year 2009.

Receivables Management

Receivables or debtors are the one of the most important parts of the current assets which is created if the company sells the finished goods to the customer but not receive the cash for the same immediately. Trade credit

arises when firm sells its products and services on credit and dose not receive cash immediately. It is essential marketing tool, acting as bridge for the movement of goods through production and distribution stages to customers. Trade credit creates receivables or book debts which the firm is expected to collect in the near future. The receivables include three characteristics 1) It involve element of risk which should be carefully analysis. 2) It is based on economic value. To the buyer, the economic value in goods or services passes immediately at the time of sale, while seller expects an equivalent value to be received later on 3) It implies futurity. The cash payment for goods or serves received by the buyer will be made by him in a future period

Size of Receivables of CCL:

PARTICULARS 2006 2007 2008 2009 2010 Sundry debtors 61106.59 47217.31 54130.98 74526.48 51244.83

Indices 100 77.27 88.58 121.96 83.86

2006 2007 2008 2009 20100

20

40

60

80

100

120

140

100

77.2788.58

121.96

83.86

sundry debtors

sundry debtors

Average collection period The average collection period measures the quality of debtors since it indicate the speed of there collection. The shorter the average collection period, the better the quality of the debtors since a short collection period implies the prompt payment by debtors. The average collection period should

be compared against the firm s credit terms and policy judges its credit and collection efficiency. The collection period ratio thus helps an analyst in two respects. 1. In determining the collectability of debtors and thus, the efficiency of collection efforts. 2. In ascertaining the firm s comparative strength and advantages related to its credit policy and performance. The debtor s turnover ratio can be transformed in to the number of days of holding of debtors. Avg. collection period:

Particulars 2006 2007 2008 2009 2010

Gross sales 451290.55 450640.99 506054.49 597837.36 629192.03

Avg. Debtors

63545.31 54161.95 50674.15 64328.73 62885.66

Receivable Turnover

7.10 8.32 9.99 9.29 10.01

Avg. Collection period (days)

51 43 36 39 36

2006 2007 2008 2009 2010

Avg. Collection period 51 43 36 39 36

51525354555

Avg. Collection period

Observations

The size of receivables are changing every year it indicates that the company was allowing more or less credit year to year, the company gives highest credit in year 2009,i.e. 74526.48 lakhs Average collection period are reducing to present situation, CCL average collection period has been decreasing every year this is good sign for the company the year 2010 it was 36 days. It indicates good effective collection policy follows by CCL.

Balance sheet of CCL

For the year ending 31st March 2010

Source of fund

As at 31.03.2010(RSinlakh)

As at31.03.2009(Rs in lakh)

Shareholder’s fund:-Share capital 211800.00 211800.00Reserve &Surplus 0.00 211800.00 0.00 211800.00Loan funds:- Secured 33946.16 11826.70 Unsecured 108329.98 142276.1

4108329.98 120156.70

Application of fundsFixed assets:-A Gross block 408879.58 391474.55 Less-Dep.& impairment -286242.37 -278133.99 Net block 122637.21 113340.56 Capital work in progress 8304.24 130941.4

5 9138.47 122479.00

Investment 8313.60

9699.20

Current assets, Loan & Adva:-

Inventories 93890.02 70725.53 15626.70 Sundry debtors 39380.24 18682.50Cash & Bank balance 92302.76 91088.72Loan & advance 31950.62 22070.92 257523.64 202567.67

Less- Current Liabilities & provision

794790.34

834296.43

Net Current Assets -537266.00 -631720.80Profit & Loss a/c 752087.7

9

831507.80

Total 354076.14

331956.70

RECOMMENDATIONS

A well designed and implemented working capital management is expected to contribute positively to the creation of a firm’s value. The trend in working capital needs and profitability of firms are examined to identify the causes for any significant differences between the industries. High investment in inventories and receivables is associated with lower profitability.

A firm is required to maintain a balance between liquidity and profitability while conducting its day today operations. Liquidity is a precondition to ensure that firms are able to meet its short-term obligations and its continued flow can be guaranteed from a profitable venture. The importance of cash as an indicator of continuing financial health should not surprising in view of its crucial role within the business. This requires that business must be run both efficiently and profitably. In the process, and asset-liability mismatch may insolvency. On the other hand, too much focus on liquidity will be at the expense of profitability.

How to Improve Working Capital Management

1. The essence of effective working capital management is proper cash flow forecasting. This should take into account the impact of unforeseen events, market cycles, loss of a prime customer, and actions by competitors. The effect of unforeseen demands on working capital should be factored in.

2. It pays to have contingency plans to tide over unexpected events. While market leaders can manage uncertainty better, other companies must have risk management procedures. These must be based on an objective and realistic view of the role of working capital.

3. Addressing the issue of working capital on a corporate-wide basis has certain advantages. Cash generated at one location can well be utilized at another. For this to happen, information access, efficient banking channels, good linkages between production and billing, internal systems to move cash and good treasury practices should be in place.

4. An innovative approach, combining operational and financial skills and an all encompassing view of the company’s operations will help in identifying and implementing strategies that generate short term cash. This can be achieved by having the right set of executives who are responsible for setting targets and performance levels. They are then held accountable for delivering. They are also encouraged to be enterprising and to act as change agents.

5. Effective dispute management procedures in relation to customers will go along way in freeing up cash otherwise locked in due to disputes. It will also improve customer service and free up time for legitimate activities

like sales, order entry, and cash collection. Overall, efficiency will increase due to reduced operating costs.

6. Collaborating with your customers instead of being focused only on your own operations will also yield good results. If feasible, helping them to plan their inventory requirements efficiently to match your production with their consumption will help reduce inventory levels. This can be done with suppliers also.

Working capital management is an important yardstick to measure a company’s operational and financial efficiency. This aspect must form part of the company’s strategic and operational thinking. Efforts should constantly be made to improve the working capital position. This will yield greater efficiency and improve customer satisfaction.

CONCLUSION

Central coalfields limited (CCL) one of the subsidiary of the Coal India limited (CIL). At present it is a Mini-Ratna organization and registered the highest ever profit in the history of the company in 2010-11,recording around 21% increase compared to the previous financial year.

According to the latest audit report released by the CCL, the company recorded profit before tax (PBT) was Rs 1,860.22 crore for 2010-11 against Rs1,533.10 crore for the previous financial year. Coal production for the financial year was 47.52 million tons (MT) registering one percent growth compared to corresponding last fiscal when the production was 47.08 MT. Coal dispatch was 46.23 MT in 2010-11 compared to 44.29 MT previous year. The company has 60 operational mines in Jharkhand. Citing the audit report, it shows the company had also paid Rs 1,703.83 crore including royalty of Rs 613.28 crore to the state government. “This is the highest ever revenue to the state government by the company including the highest corporate tax payer of the state”. In 2009-10, the CCL had paid Rs 1,465.89 crore, including Rs 583.36 crore royalty, to the government exchequer.

Therefore we arrive at a point where we are at a fairly satisfactory position to comment on the working capital management of CCL.

During the tenure of my project regarding the subject matter at CCL, I have come to appreciate the fact it is a unique organization in terms of working capital management in the field of coal mining.

The organization has great potential to run the coal mines in a effective manner. All employees of the organization are very much supportive. The organization has high level of financial skills to meet the interest of its creditors and employees.

Working capital turnover ratio which shows the better utilization of working capital in the firm and the working capital turnover ratio of the CCL are better than the ECCL.

Finally I conclude that CCL performance has been pretty satisfactory and within no time it will achieve great heights.

BIBLIOGRAPHY

Books & references:-

M. Y. KHAN and P. K. JAIN,FINANCIAL MANAGEMENT

I. M. KHAN FINANCIAL MANAGEMENT

ANNUAL REPORTS 2009-2010

Websites:-

www.google.co.in

www.cil.nic.in

www.ccl.gov.in