A Project Report

On ANALYSIS OF BALANCE SHEET & WORKING

CAPITAL OF HINDUSTAN ZINC LIMITED

SUBMITTED FOR

Partial fulfillment of the requirement of two year full time course in Master of Business Administration (MBA)

SUBMITTED BY

HIAMSNHU NIMAWAT

(2014-15)

FACULTY OF MANAGEMENT STUDIES, MOHAN LAL SUKHADIA UNIVERSITY

UDAIPUR (RAJ.) 313001

ACKNOWLEDGEMENT

“FOR ANY SUCCESSFUL WORKS, IT OWNS THANKS TO MANY.”

Every nature individual in professional life is keenly aware of his/her sense of indebtedness to many people who have stimulated & influenced his/her intellectual development ordinarily. This feeling is formally expressed in customary gesture of acknowledgement. Therefore it seems right to acknowledge my gratitude with sense of veneration to almighty god for the blessings showered on me and varies people who helped me during the course of my investigation.

Prima facie I express my profound gratitude & indebtedness to my research supervisor Mr. Satish Sharma (Associate General Manager- finance) for his worthy, scholarly & unimpeachable efforts, inspiring supervision & invaluable guidance which helped me to complete my dissertation.

I also owe my sincere gratitude to the director, Faculty of Management Studies Mr. K. Saxsena for providing me this opportunity.

I acknowledge my gratitude with sense of reverence to the management of HZL who provide me opportunity to undergo research in there esteemed organization.

Finally I wish to express warm gratitude to my family, it is entirely due to their blessing & constant encouragement that I have been able to complete credibly my dissertation.

Himanshu Nimawat

Preface

It is my great privileged to have the vocational training in such an esteemed business empire chanderiya lead zinc smelter of Hindustan zinc limited.

The practical training is an essential requirement for an MBA student . The student has to take the training for the pre-described period as per the university norms. The purpose of training is to help to student to gain the industrial experience. Moreover, as for the utility of concerning, it can be said that the student gets a chance during her theoretical knowledge about the subject in field work & to clear the difficulties in a better way of looking the whole process in the person. I took my training at chanderiya lead zinc smelter, properly known as CLZS a unit of m/s Hindustan zinc limited of “VEDANTA RSOURCES GROUP”.

Finally, all research is cumulative. I have, as a researcher, needed to cull out priorities, interpret and finally put down my analysis.

CONTENTS

ACKNOWLEDGEMENTPREFACE

CHAPTER-1 COMPANY PROFILE

ABOUT VEDANTA GROUP ORGANIZATION STRUCTURE

CHAPTER-2 HINDUSTAN ZINC LTD:-AN OVERVIEW

HZL-INTRODUCTION VISION & MISSION BOARD OF DIRECTOR AWARD & RECOGNITION MINES & SMELTER OF ZINC

CHAPTER-3 CHANDERIYA LEAD ZINC SMELTER

CLZS AT A VIEW

CHAPTER-4 RESEARCH METHOLOGY

CHAPTER-5 PROJECT PROFILE

Objective Of The Project Project Design

CHAPTER-6 RATIO ANALYSIS

CHAP[TER-7 WORKING CAPITAL MANAGEMENT

CHAPTER-8 CONCLUSION OF STUDY

CHAPTER-9 LIMITATION OF THE STUDY

CHAPTER-10 WORKING CAPITAL FOR FOUR YEARS CHAPTER – 11 P&L ACCOUNT AND BALANCE SHEETS

CHAPTER-12 BIBLIOGRAPHY

CHAPTER-1

COMPANY PROFILE

ABOUT VEDANTA GROUP

VEDANTA is metals & mining company situated in London. The major metals

produced are Aluminum, Copper, Zinc & Lead. Vedanta is India's only integrated

Zinc producer. A London listed metals and mining major with Aluminum, Copper and

Zinc operations in UK, India and Australia. The Principle operations are in Rajasthan,

dominated by Rampura Agucha Mine, Rajpura Dariba Mine ,Zawar Mines, Kayad

Mine and Sindesar Khurd Mine. The Zinc business of Vedanta is managed with in

Hindustan Zinc Limited. HZL is India's only integrated Zinc Company with a purpose

to make India self-reliant. Zinc company operation from mines to finished metal &

supplies around 90% of India's Zinc requirements.

Expansion has taken pace to increase output from the Rampura Agucha Mine along

with larger facilities at the nearby Chanderiya Smelter. The ore Produced at the mines

contains Lead, which is smelted alongside the Zinc. Zinc is used mainly in

galvanizing steel to improve its durability.

HZL plays a role in develop the market of the end product. The capacity for

galvanized steel in India is increasing significantly due to the demand for the product

in infrastructure & construction work.

ORGANIZATION STRUCTURE OF VEDANTA GROUP

CHAPTER-2

AN OVERVIEW

INTRODUCTION OF HZL

Hindustan Zinc Limited (HZL) is India’s leading Zinc producer. A

vertically integrated Mining & Smelting company, with purpose to make India self –

reliant in Zinc, HZL is currently gearing up to become a global lowest cost producer.

As a part of Vedanta Resources, HZL takes advantage of its mineral resources and

related core competencies and believes it has growth opportunities for increasing

products and improving returns.

Continuous operational improvements, debottlenecking, meticulous planning,

constant innovation, process improvements and much more- HZL has come a long

way and grown into multi location company producing Zinc, Lead, and silver.

Hindustan Zinc Ltd. was created from the erstwhile Metal Corporation of India (MCI)

on 10th January 1966 as a Public Sector Undertaking. In April 2002, Sterlite acquired

a 46% interest in HZL from the Government of India and the open market, and it

became a part of the Sterlite group. Since then HZL has been growing from strength

to strength. In August 2003, Sterlite acquired a majority stake in HZL by acquiring

another 18.9% interest from the Government of India. Today HZL is India’s leading

Zinc producer.

HZL is a vertically integrated Mining & Smelting company, gearing up to:

Harnessing mining resources to help India maintain self-sufficiency in

Zinc.

Become a global leader in Zinc.

Create value for all entities whether it is Customers, Investors or

Employees.

Constant innovation, meticulous attention to detail, extensive investments in R&D

and technology are the hallmarks of HZL making it a multi-unit and multi-product

company.

The company has created the Research, Planning and Development wing which has

played a   major role in the planning and designing of projects besides improvements

of existing operations. The company has a well-equipped

Central Research and Developments Laboratory (CRDL) which is listed in the

American Society of Testing Materials (ASTM)'s directory of International Testing.

Laboratories Recognized R & D Centre by Dept. of Science & Technology.

The company has 6 regional offices in Calcutta, Mumbai, Delhi, Bangalore,

Jaipur and Hyderabad. It also has strong marketing network countrywide. Mining and

smelting operations are in Rajasthan, Andhra Pradesh, Orissa and Bihar. 

Registered Office Yashad Bhawan Udaipur (Raj.)313001

VISION & MISSION OF COMPANY

Vision:-

To be the world’s largest and most admired zinc-lead and silver company

Mission:-

o Enhance stakeholder value Through exploration, Innovation, operational Excellence and sustainability

o Be a lowest cost Zinc producer on a global scale, maintaining market

leadership

o Maintain market leadership and enhance customer delighto Be innovative, customer oriented and eco-friendly, maximizing stake-holder

value

o The only integrated Zinc producer in India

o Refined Zinc production capacity 749,167 MT in 2014

o Refined Lead production capacity 129,858 MT in 2014

BOARD OF DIRECTOR

Mr. Agnive sh Agarwal, Mr. Akhilesh JoshiChairman. CEO & Whole-time Director.

Mr. Navin Agarwal Mr. Durga Shanker Mishra Mr. A. R. Narayanaswamy Director Director Director

Ms. Shaukat Ara Tirmizi Ms. Anjali Anand Srivastava Mr. Rajib Sekhar Sahoo Director Director Director

AWARDS AND ACCOLADES

Hindustan Zinc’s initiatives in the various fields like Health, Safety, Environment and Corporate Social Responsibility have been well recognized by several commendations such as:

Corporate:

Business Today Best CEO (Core sector) award to Mr. Akhilesh Joshi, CEO of Hindustan Zinc

Indian Institute of Metals ‘Gold Medal’ to Mr. Akhilesh Joshi Dun & Bradstreet Corporate Excellence Award Top 100 CISO Award CIO100 Award NASSCOM IT User Award CII National HR Excellence Award ‘Strong Commitment to HR Excellence’ –

Commendation Certificate

Sustainability:

IMC - Ramakrishna Bajaj National Quality Award awarded to Chanderiya Lead Zinc Smelter (CLZS) for its exemplary contribution in the area of quality and business excellence.

National Energy Conservation Award - 2nd prize to Sindesar Khurd Mine Green Manufacturing Excellence Award to CLZS The Economic Times Indian Manufacturing Excellence Award ‘Gold Award’ to

Hydro-II, CLZS Par Excellence Award at National Convention on Quality Concept Circles

MINING & SMELTER OF HZL

CHAPTER-3

CHANDERIYA LEAD ZINC SMELTER

The Chanderiya Lead Zinc Smelter is one of the modern smelting Units situated in the north of CHITTORGARH. The plant is in PUTHOLI, 12 Km. from CHITTORGARH. It’s technology has been imported from U.K., GERMANY & is also called a super smelter as the capacity of the plant is as follows :-

MAIN PRODUCTS

1. Good Ordinary Band (Gob Zinc (98.5%) 2. Special High Grade (SHG) Zinc (99.99%)3. Lead 50000 TPA4. Captive Power 234MW

BY PRODUCTS

1. Cadmium2. Silver (99.9%) – 100 TPA3. Sulphuric acid (98.5%)4. Copper Sulphet

Commissioned: - 1991

Location:- 120 Km. east of Udaipur, Rajasthan, India.

Capacity:- 105,000 tpa of refined Zinc, 85000 tpa of refined lead pyrometallurgical Lead – Zinc Smelter. 420,000 tpa of refined Zinc – Hydrometallurgical Zinc Smelter.

Details:- A pyrometallurgical Smelter using ISP tm technology. Main by – products are sulphuric Acid and Silver. A hydrometallurgical Smelter using the state – of – the art RLE technology commissioned in the year 2005 – 06. main by - product is Sulphuric Acid. An AusmeltTM lead Smelter commissioned in February 2006.

Certifications: - ISO 9001:2000, ISO 14001:1999 (For Pyro Plant). OHSAS 18001:1999

Captive Power:- captive power plant Commissioned in 2005.

Targets:- Annual production capacity :-

Main Product: Zinc : 476950 MT Lead : 53749 Mt

By – Products:Sulphuric Acid: 586191 MTCadmium: Silver:

CLZS

UNIT -1PYRO

UNIT-2HYDRO

UNIT-3CPP

CAPTIPE POWER PLANTCOMMISSION

ED: 2005

ORTOKUMPU TECH.

COMMISSIONED:2005

ISF TECHNOLOGYCOMMISSION

ED:1991

AUSMELTTECHNOLOGYCOMMISSION

ED:2005

CLZS AT A VIEW

CHAPTER- 5

Research Methodology

This chapter furnished the methodological details of present

investigation. Procedural specification and through observation of

study and design which are indispensable feature for any research

work.

OBJECTIVES:

To study in the analysis of balance sheet is the ratio analysis

To study the meaning, concept & importance of working

capital.

To study the concept of collections & payment of debtors,

creditor & bills.

To study the meaning of Working Capital and describing its

various procedures.

To study various techniques of working capital used in HZL.

To study the management of working capital. How to use its

working cash.

To study its current assets and liabilities.

TECHNIQUES USED:

Collections, payment, classification, completion, tabulation,

analysis & interpretation of information, facts and figures

relevant to the company.

Consultation and personal observation.

Discussion with officers and employee of the company.

Drawing conclusions through applications of various statistical

& financial tools and technique.

Graphical and diagrammatical presentation of data.

SOURCE OF INFORMATION:

PRIMARY SOURCE .

Information schedule prepared for collection primary data relevant to the

working capital management of the company.

Personal observation & interviews with officers.

With the help of my supervisor and company’s employees.

SECONDARY SOURCE.

Annual financial statement of the concerns i.e. Balance Sheet, Profit &

loss account related to the period.

Annual reports tread Journal, magazines & periodical of the company.

References book, journals, statistical bulletins & newspaper.

CHAPTER-5

PROJECT PROFILE

Objective of the study:-

Judgment of the overall performance of the company by analysis of financial statements.

Span of the study:- Analysis of financial statement for the period of 4 years i.e. from 2011 to 20014.

The study included the following.

1. Study of the financial statements through ratio analysis.2. Analysis of the possible reason for the change in the

performance of the company.3. Study of the role of uncontrolled factors like LME prices,

taxation policy etc on the profit.4. Study of the expansion plans of the company.

DESIGN OF STUDY:

The study comprises of 11 chapters in all. The first, second and third chapter discusses the introduction part of Vedanta and hzl and clzl. In fifth chapter the Ratio Analysis of HZL. The six chapter deals in detail with theoretical concept of the working capital management.and finally main conclusions have been drawn & suggestion given in the last chapter. To facilitate an easy understanding of the chapter, the timely helps of diagrams & charts has been taken.

Objective of the study

The analysis of financial statements is very important in the modern business. The financial analysis is very useful for management as well as for other interested parties to know the performance of company. The management can take corrective action on adverse or undesirable aspect.

The following are the main objective of our study.

1. To access the overall performance, liquidity position, solvency position, profitability of the company through Ratio Analysis.

2. To make item wise analysis of the financial statements to identify items responsible for changes in the liquidity, solvency, profitability and overall performance.

3. To identify the various factors affecting profit and steps taken by new management for improving performance and their effect on the company.

4. To know the effect of uncontrolled factors on the profits.5. To make overall judgment of the company.

CHAPTER-6

RATIO

ANALYSIS

INTRODUCTION

Ratio analysis is a widely used tool or finance analysis. The term ratio in it refers to the relationship expressed in mathematical term between two individual figures and group of figures connected which each other in some logical manner and are selected from financial statement of the concern. The ratio analysis is based on the fact that a single accounting figure by itself may not communicate any meaningful information but when expressed as a relative to some other figure, it may definitely provide some significant information. The relationship between two or more accounting figures/ groups is called a financial ratio. A financial ratio helps to express the relationship between two accounting figures in such a way that users can draw conclusions about the performance, strength and weakness of a firm.

The operations and financial position of a firm can be described by studying its short terms and long terms liquidity position, profitability and its operational activities. Therefore, ratios can be classified into following four board categories.

1- Liquidity Ratio

2- Capital Structure/ Leverage Ratios

3- Activity Ratios

4- Profitability Ratios

** Liquidity Ratios:-

The terms ‘Liquidity’ and ‘Short term solvency’ are used synonymously. Liquidity and short term solvency means ability of the business to pay its short term liabilities. Inability to pay off short term liabilities affects its credibility as well as its credit rating. Continuously default on a part of the business leads to commercial bankruptcy. Eventually such commercial bankruptcy may lead to its sickness and dissolution. Short term lenders and creditors of the business are very much interested to know its state of liquidity because of their financial stake. Traditionally, two ratios are used to highlight the business ‘Liquidity’. These are Current Ratio and Quick Ratio.

Significance of the Current and Quick Ratio:-

Current Ratio in a business concern indicates the availability of current assets to meet its current liabilities. Higher the ratio better is the coverage. Traditionally, it is also called 2:1 ratio, i.e. 2 is the standard for current assets for each unit of current liabilities.

Quick asset consists of only cash near cash assets. Inventories are deducted from current assets on the belief that these are not ‘near cash assets’.

** Capital Structure/ leverage Ratio.The Capital Structure/ Leverage Ratios may be defined as those

financial ratios which measure the long term stability and structure of the firm. These ratios indicate the mix of funds provided by owners and lenders and assure the lenders of the long term funds with regard to:-

1- Periodic payment of interests during the period of the loan and 2- Repayment of principal amount of maturity.

Therefore leverage ratios are two types:-

1- Capital structure Ratio and2- Coverage ratio

** Activity Ratio:-

The activity ratios are also called the Turnover ratios or Performance ratio. These Ratios are employed to evaluate the efficiency with which the firm manages and utilized its assets. These ratios usually indicate the frequency of sales w.r.t. its assets. These assets may be capital assets or WC or average inventory. These ratios usually calculated with reference to sales/ costs of goods sold and are expressed in term of rate or times. Several activity ratios are follows:-

1- Capital Turnover Ratio

2- Fixed Assets Turnover Ratio

3- Working capital Turnover ratio

4- Inventory turnover Ratio

** Profitability Ratios

The Profitability ratios measure the profitability or the operational efficiency of the firm. These ratios reflect the final result of business operations. The result of firm can be evaluated in term of its earning with reference to a given level of assets or sales or owners interests etc. Therefore, the profitability ratios are broadly classified in three categories:-

1. Profitability ratio required for analysis from owners point of view.

2. Profitability ratio based on assets / investments.

3. Profitability ratio based on sales of firm.

Application of ratio for evaluating financial performance

A popular technique of analyzing the performance of a business concern is that of financial ratio analysis. As a tool of financial management, they are of crucial significance. The importance of ratio analysis lies in the fact that is presents fact on a comparative basis and enables drawing of inference regarding the performance of firm. Ratio analysis is relevant in assessing the performance of a firm in respect of following aspects:-

** Liquidity position –

With the help of ratio analysis one can draw conclusions regarding liquid position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligations when they become due. A firm can be said to have ability to meet its short term liabilities if it has sufficient liquid funds to pay the interest on its short maturity debt usually within a year as well the principal. This ability is reflected in the liquidity ratio of the firm. The liquidity ratios are particularly useful in credit analysis by bank and other supplier of short term loans.

** Long term solvency –

Ratio analysis is equally useful for assessing the long term financial viability of a firm. The aspect of the financial position of a borrower is of concern to the long term creditors, securities analyst and the presents and potential owner the business. The long term solvency is measured by the leverage/ capital structure and profitability ratios which focus on earning power and operating efficiency. Ratio analysis reveals the strength and weakness of the firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or weather heavily loaded with debt in which case its solvency is exposed to serious strain. Similarly, the various profitability ratios would reveal weather or not the firm is able to offer adequate return to its owners consistent with risk involved.

** Operating efficiency –

Ratio analysis through light on the degree of efficiency in the management and utilization of its assets. The various activity ratios measure this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, department upon the sales revenues generated by the use of its assets total as well as its component.

** Overall Profitability –

Unlike the out side parties which are interested in one aspects of the financial position of the firm, the management is constantly concern about the overall profitability of the enterprises. That is, they are concerned about the ability of the firm to meet its short term as well as long term obligation to its creditors, to ensure a reasonable return to its owner and secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken and all the ratios are considered together.

** Inter firm comparison –

Ratio analysis not only throws light on the financial position of a firm but also serves as a stepping stone to remedial measures. This is made possible due to inter firm comparison. A single figure of particular ratio is meaningless unless it is related to some standard or norm.

SAMPLE

TYPE OF DATA : SECONDARY DATA

SOURCE OF DATA : ANNUAL REPORT

PERIOD OF DATA TO BE ANALYSE : 2011-- 2014

Financial Ratio

Source : Dion Global Solutions Limited

AnalysisDebt Equity Ratio

Debt equity ratio used to measure long term financial solvency of a

firm. It can be calculated by the following formula:-

Total Debt Debt Equity Ratio =

Share’s holder’s equity(total assets – total liabilities)

Table: 1 (Rs. In million)

Return on Total Assets:-

YEAR DEBT EQUITY RATIO

2011 0

2012 0

2013 0

2014 0

Return on total assets is measured in terms of the relationship

between Net Profit and Assets. Formula to calculate it is:-

Net Profit

Return on Total Assets =Total Assets

Table: 2 (Rs.

In million)

YEAR NET PROFIT TOTAL ASSETS

ROTA

2011 49,004.90 225,569.80 21.72

2012 55,260.40 268,984.10 20.54

2013 68,994.80 323,039.70 21.35

2014 69,046.20 374,739.80 18.42

GRAPH: 2

RETURN ON TOTAL ASSETS

YEAR

Interpretation:-

In graph it is that the return on total assets is increasing and

decrease but in current year the ROTA is decline by appro. 3% as compare to

previous year.

Return on Capital Employed: -

Capital Employed is defined as total assets less current liabilities. Return On Capital Employed is a ratio that shows the efficiency and profitability of a company's capital investments. The ROCE should always be higher than the rate at which the company borrows money.ROCE can be calculated by the following formula:-

Net Profit Return On Capital employed =

Capital Employed

Table: 3

YEAR NET OPRATING

PROFIT

CAPITAL EMPLOYED

ROCE

2011 59,595.50 210,057.00 29.36

2012 69,445.40 254,206.40 28.16

2013 78,201.20 304,223.90 26.53

2014 79,697.10 349,294.00 23.00

GRAPH: 3

RETURN ON INVESTMENT

YEAR

Interpretation:-

The return on capital employed is every year decline.

Current ratio

This ratio measures the solvency of the company in the short term. This

can be calculated by using the following formula:-

Current assets, Loans & advances

Current Ratio =

Current liabilities & Provisions

Table: 4 (Rs.

In million)

YEAR CURRENT ASSETS

CURRENT LIABILITIES

CURRENT RATIO

2011 71,228.40 15,512.80 4.59

2012 69,419.50 14,777.70 4.69

2013 92,224.60 18,815.80 4.90

2014 55,427.30 25,445.80 2.17

GRAPH: 4

CURRENT RATIO

YEAR

Interpretation

The graph show that the current ratio is high in previous yerar but in current

year the CR is decline .in previous years the ca is more but in current year the

current assest is decline and current liabilities increase. The company’s CR in

20014 is 2.17 which are higher than ideal (2:1).

Working capital turnover ratio:-

This ratio indicates the extent of working capital turnover in achieving

sales of the firm. The ratio can be calculated by the following formula:-

Sales Working capital turnover ratio=

Net working capital

Table: 5 (Rs.

In million)

YEAR SALES NET WORKING CAPITAL

W.C.TURNOVER RATIO

2011 100,391.70 55,715.60 1.80

2012 114,053.10 54,641.80 2.09

2013 126,998.40 73,408.80 1.73

2014 136,360.40 29,981.50 4.55

GRAPH: 5

WORKING CAPITAL TURNOVER RATIO

YEAR

Interpretation:-

There is a significance changes in 2014 as working capital turnover ratio

is highest. In 2014 it is due to increase in sales which contributes in increased

working capital.

Net Profit Ratio

Net profit ratio reflects net profit margin on the total sales after deducting

all expenses but before deducting interest and taxation. This ratio measured

the efficiency of operational of the company. This can be calculated by the

following formula:-

Net Profit Net profit ratio =

Sales

Table: 6 (Rs.

In million)

YEAR NET PROFIT SALES NET PROFIT RATIO (%)

2011 49,004.90 100,391.70 1.9752012 55,260.40 114,053.10 1.841

2013 68,994.80 126,998.40 2.064

2014 69,046.20 136,360.40 2.049

GRAPH: 6

NET PROFIT RATIO

YEAR

Earning per Share:-

The earning per share is one of the important measure economic

performance of a corporate entity. It can be calculated by the following

formula:-

Net profit available for Equity Share holder Earning per share =

Number of equity Share

Table: 7

YEAR EARNING PER SHARE

2011 11.60

2012 13.08

2013 16.33

2014 16.34

GRAPH: 7

EARNING PER SHARE

YEAR

Interpretation:-

Earning per share is increasing with high rate. In 2014 EPS is 16.34

which are highest.

Du Pont Analysis

CHAPTER-7

Working

Capital

Management

CONCEPTS & DEFINITION OF WORKING CAPITAL

A manufacturing concern needs finance not only for acquisition of fixed assets but also for its day-to-day operations. It has to obtain RM for processing, pay wages, Bills and other manufacturing expenses. A non manufacturing trading concern may not be require funds for purchase of RM and their processing but it also needs finance for storing goods and providing credit to customers similarly, a concern engaged in providing service may not have to keep inventories, but it may have to provide credit facilities to its customers. Thus, all enterprises engaged in manufacturing and trading or providing services require finance for their day to day operations. The amount required to finance day to day operation is called Working Capital.

It is that capital which makes the company work. Fixed assets from the skeleton while WC is the Flash and blood. WC is also known by other terms. Viz. circulating capital, fluctuating capital, revolving capital etc. The peculiarity of WC is that keeps on changing continuously in course of business operations. The assets and liabilities created during the operating cycle are called current assets and current liabilities.

The term WC can be looked at in two ways.

1) Gross Working Capital (GWC): it refers to the total of all current assets of the company.

2) Net Working Capital (NWC): It refers to the difference between CA & CL.

The goal of Working capital management is to manage the CA and CL in such a way that an acceptable level of net working capital is maintained.

While the study of GWC indicate the nature and extant of working capital requirements, the analysis of NWC indicates the liquidity positions of an enterprise.

NEED FOR WORKING CAPITAL

The objective of financial decision making is to maximize the Shareholders wealth. To achieve this, it is necessary to generate sufficient profit, which will depends upon the magnitude of the sales, among other things. However, sales do not convert into cash instantly; there is invariably a time lag between the sales of goods and the receipt of cash. There is therefore, a need of working capital in the form of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity. Technically, this is referred as the operating or cash cycle. The operating cycle can be said to be at the heart of the need of working capital.

The term operating refers to the length of time necessary to complete the following cycle of event.

1. Conversion of cash into inventory2. Conversion of cash into receivable 3. Conversion of receivable into cash.

The operating cycle, which is a continuous process, is as shown in figure 1

Phase 3

Phase 2

Phase 1

RECEIVABLE

INVENTORY

CASH

OPERATING CYCLEFig.1-- If it were possible to complete the sequences instantaneously, there would be no need for current assets (working capital).Since cash inflows and cash outflows do not match, firm have to necessarily keep cash or invest in short term liquid securities.So that will be in a position to meet obligations when they become due similarly, firm must have adequate inventory to guard against the possibility of not being able to meet a demand for their products. Adequate inventory, therefore, provides a cushion against being out of stock. If firm have to be competitive they must sell goods to their customers on credit which necessities the holding of account receivable.

The concept of operating cycle is a cycle is a more precise tool for financial management to precisely measure the WC requirements, to trance its change and to determine the optimum level of WC requirement. It is emphasized that the various component of the operating cycle have to be continuously moving and changing from one status to another.

The following situation prevalent in a business is assessed in an operating cycle approach to WC management.

Nature of WC changes with the passage of time & also with day-to-day business transactions.

There are businesses which are seasonal in nature of buying of row materials. A company manufacturing and selling seasonal items like packed tea, has to buy the raw materials during the seasonal which means more money is required during that period.

What is “current” (either assets or liabilities) for a particular period for particular industries depends on technologies and business characteristics peculiar to each nature of business.

Maintaining of two small WC may yield higher return of capital employed temporarily but in the succeeding periods and also in the long run the profitability and yield on capital employed may reduce.

The levels of WC to be maintained as a direct bearing on the profitability of the business beside the question of maintain liquidity.

Production cycle consist of the following in respect of a manufacturing concern.

I. Buying of row materials.II. Storage of row materials.III. Input of row materials to the productions process.IV. Output as finish goods.V. Selling of goods.VI. Collection of money from credit customers.

The sum total of days starting with the input of raw materials and the selling of finish goods and the collection against sales involved in each segment will be the “Gross Operating Cycle Period.” When the average payment of the company to the suppliers is deducted from the gross operating cycle period it is called the “Net Operating Cycle Period” or simply cycle period. The shorter the duration of operating cycle period, the faster will be the transformation of current assets into cash; as a consequence the lesser will be the necessity of WC fund.The average inventory of row material and store consumption cost of production, cost of sales and the purchases are derived by dividing the respective year-end figures by 365 days.The total number of days against each formula is found out for (a) to (d) which is the gross operating cycle and the total number of days against (e) is deducted to arrive at the net operating cycle.

CURRENT ASSETS AND LIABILITIES

CURRENT ASSETS:-

The term ‘current assets’ includes assets which are acquired with the intention of converting them into cash during the normal business of the company.

The board categories of CA, therefore, are –

1. Cash including fixed deposits with bank

2. Accounts receivable, i.e., trade debtors and all bills receivables.

3. Inventories, i.e., stock of row materials, work in progress, finish goods, Store and spare parts.

4. Advances recoverable, i.e., the advances given to suppliers of goods and services or deposits with government and public authorities, e.g.- customs, port-authorities, advance income tax.

5. Prepaid expenses, i.e., cost of unexpired services, e.g., prepaid advances, etc.

CURRENT LIABILITIES:-

The liabilities payable within a year and out of current assets. The value of these liabilities generally changes within one year. Long term liabilities if matured and are to be paid in the current period and out of CA, will become CL.

Long term categories of current liability are:-

Accounts payable, e.g. Bills payable and Trade Creditors.

Out standing Expenses – Expenses for which service have been

received by the business but from which payment have not been

made.

Bank Overdraft

Short term loan i.e. loan from bank etc. which are payable within one

year from the date of Balance Sheet.

Advance payment received by the business for the services to be

rendered or goods to be supplied in future.

Current maturities of Long Term Loans.

There is another way of looking at the WC on the basis of time

element; the WC can be classified into two categories.

1. Fixed or Permanent or Hard-core WC – It represents the minimum

amount to ensure effective utilization of FA and supports the normal

operations. It is permanently invested and can be realized only when

the business operations are closed down. Every business has to

maintain a minimum stock of RM, WIP (work in progress), FG

(finished goods), Tools, and Spares etc. Similarly it required certain

amount for disbursement of wages, salaries and other expenses

regularly. In Characteristics it is very similar to fixed assets, since it is

employed almost permanently and it cannot be retrieved at a short

notice.

2. Variable or Temporary or Fluctuating WC – It fluctuated with the

activity level in the firm. Such as fluctuation are subject to season’s

variation or cyclical changes. The temporary EC could be funded by

short term sources of finance.

CHAPTER -8

Conclusion of the study

The following are the main conclusion of the study.

The current ratio maintains at a level of 2.17 times

The cash and the bank balance have increase and the creditors have

decrease. At the same time the sundry debtors have also decrease.

There has been increase in the profitability of the company. The net profits

in 20014 have shown a good increase.

Sales have increased by 135.83% in 2014 as compared to 2011.

Return on capital employed and return on share holder equity has shown

continuous improvement as compared to the previous year. The EPS was

11.60 in 2011 which has increased to 16.34 in 2014.

At the end of March 2012 the company had Cash and marketable securities of

about Rs. 18000cr, which is about 34% of its market cap. In the past the company

has failed to deploy this cash in profitable projects like Zinc International as a

result of opposition from a major shareholder.

Thus the overall position and the performance of the company are very

good. From shareholder point of view, their investments are quit safe and they

are likely to get more and more benefits in the future. The short terms as well

as the long term lenders of loan funds are also very safe. The company’s

future is very bright.

CHAPTER -9

Limitations of the study

Every project work has its limitations further, a work in social sciences

and commerce can not be like that of any natural science where results are

universally true.

In the absence of universally accepted norms, interpretations of results

often become a matter of judgment uniformity and the present study is not an

exception to do it. Despite my best endeavor to maintain uniformity and

maximum converge.

Each ratio is indicative of certain aspects of the organization, e.g. CR is

with respects of CA & CL only and as such totally is not possible to be

drowned.

Ratios have overbearing reflection of post position.

The study is limited to only four years (2011-2014) performance of the

company.

The data used in this study have been taken from published annual report

only. As per the requirement and the necessity some data are grouped and

sub grouped. Therefore the data is not comparable over the year.

CHAPTER-10

WORKING CAPITAL AS AT THE END OF FINANCIAL YEARS

(Rs. In million)

CHAPTER 11

PROFIT AND LOSS

ACCOUNTS

&BALANCE SHEETS

2010-11 2011-12 2012-2013 2013-14

7,623.802,088.9056,329.102,466.80

7,979.403,324.5052,553.203,379.60

11,110.904,028.7069,421.004,156.40

11,982.403,995.1030,314.206,083.00

68,508.60 67,236.70 88,717.00 52,374.70

3,682.405,670.80

4,102.905,039.40

4,034.708,248.70

5,103.2010,157.80

9,353.20 9,142.30 12,283.40 15,261.00

59,155.40

-------

58,094.40

-1,061.00

76,433.60

18,339.20

37,113.70

-39,319.90

PROFIT & LOSS ACCOUNTSAS AT THE END OF FINANCIAL YEARS

(Indian Rupee .in Millions)  Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 No of Months 12 12 12 12+ Gross Sales 149,330.50 136,581.40 120,610.90 106,168.50 Sales 145,250.20 132,220.00 116,590.80 103,461.10

Revenue from wind power generation 1,779.00 2,015.70 1,232.60 677

Export Benefits 530.4 604.2 1,285.80 760.1 Sales - Scrap 1,344.30 1,215.30 940.4 752

Subsidy / Grants / Incentives 124.9 201.1 0 0

Others operational income 301.7 325.1 561.3 518.3 Net Sales 136,360.40 126,998.40 114,053.10 100,391.70 EXPENDITURE : + Increase/Decrease in Stock -1,567.30 -1,045.00 873.6 -1,514.30 Work In Progress 3,859.60 2,873.00 3,774.20 2,361.80 Finished Goods 408.4 269.6 312.8 168.8 Less : Work In Progress 5,269.90 3,859.60 2,873.00 3,774.20 Finished Goods 549.7 408.4 269.6 312.8

Excise Duty on Finished Goods 15.7 80.4 70.8 42.1

+ Raw Materials Consumed 5,012.60 7,663.40 2,176.90 1,692.30 Opening Raw Materials 1,960.90 242.2 196.7 0 Purchases Raw Materials 3,660.50 9,382.10 2,222.40 1,889.00 Closing Raw Materials 608.8 1,960.90 242.2 196.7+ Power & Fuel Cost 11,551.30 10,704.60 12,278.40 10,226.00 Elecricity & Power 11,551.30 10,704.60 12,278.40 10,226.00+ Employee Cost 6,800.60 6,499.10 5,346.40 5,107.80 Salaries, Wages & Bonus 5,752.50 5,310.40 4,426.10 3,895.70

Contributions to Employers Provident Fund & Pension Funds 363.4 525.6 410.9 771

Workmen and Staff Welfare Expenses 684.7 663.1 509.4 441.1

+Other Manufacturing Expenses 39,226.50 32,943.00 28,525.60 25,256.60

Repairs & Maintenance 8,492.00 6,955.30 5,676.80 4,579.00 Building & Premises 306.7 275.5 237.6 253 Plant & Machinery 8,169.50 6,663.20 5,430.20 4,314.30 Others 15.8 16.6 9 11.7 Research & Development 32.7 31.2 48 36.2 Royalty 10,272.50 9,199.40 8,378.80 8,033.30

Freight, transportation, port charges 1,884.60 1,394.70 1,133.90 1,414.80

Stores, spare parts and tools consumed 13,335.50 11,750.70 10,466.60 8,829.10

Other Manufacturing expenses 5,209.20 3,611.70 2,821.50 2,364.20

+General and Administration Expenses 1,546.70 1,405.20 1,171.80 983.9

Rent,Rates & Taxes 30.8 141.4 78.4 56.6 Rent 14.7 15.8 14.9 11.8 Rates & Taxes 16.1 125.6 63.5 44.8 Insurance 230.9 253.8 238.1 231.7 Travelling and conveyance 330.3 230 192 197.4 Payment to Auditors 18.9 17.6 14.8 13.5 Directors' remuneration 5.7 4.1 1.1 0.8 Other Administration 930.1 758.3 647.4 483.9

+Selling and Distribution Expenses 2,484.00 2,088.20 1,799.90 1,741.30

Freight and Forwarding 2,198.40 2,069.10 1,768.90 1,722.20 Other Selling Expenses 285.6 19.1 31 19.1+ Miscellaneous Expenses 3,401.10 1,656.30 1,185.90 821

Loss on disposal of fixed assets (net) 188.8 192.6 0 0

Loss on sale of non-trade current investments 1,710.30 0 0 0

Donations 46.8 49.9 80.3 55

Other Miscellaneous Expenses 1,455.20 1,413.80 1,105.60 766

Total Expenditure 68,455.50 61,914.80 53,358.50 44,314.60 Operating Profit (Excl OI) 67,904.90 65,083.60 60,694.60 56,077.10+ Other Income 20,704.20 20,031.90 15,428.30 8,660.20 Interest 7,334.80 8,679.50 5,975.40 3,474.00

Profits on sale of Investments 0 5,706.20 6,406.30 271.8

Income from other investments 0 0 2,681.40 2,368.70

Forex Exchange Gains 13,369.40 5,646.20 358 138.4 Operating Profit 88,609.10 85,115.50 76,122.90 64,737.30+ Interest 449.4 268.6 139.5 182.8 Interest on Term Loan 0 52.9 0 0

Bank Charges etc 287.7 188.1 18.5 46 Others 161.7 27.6 121 136.8 PBDT 88,159.70 84,846.90 75,983.40 64,554.50 Depreciation 7,845.90 6,470.40 6,106.70 4,747.40

Profit Before Taxation & Exceptional Items 80,313.80 78,376.50 69,876.70 59,807.10

+Exceptional Income / Expenses -616.7 -175.3 -431.3 -211.6

Other exceptional Expenses -616.7 -175.3 -431.3 -211.6

Profit Before Tax 79,697.10 78,201.20 69,445.40 59,595.50+ Provision for Tax 10,650.90 9,206.40 14,185.00 10,590.60 Current Income Tax 16,400.50 15,429.80 14,089.50 11,422.20 Deferred Tax 3,890.40 1,655.60 1,356.30 2,212.90 Others -9,640.00 -7,879.00 -1,260.80 -3,044.50 Profits After Tax 69,046.20 68,994.80 55,260.40 49,004.90 Profit Balance B/F 217,241.70 170,519.20 138,044.70 98,950.60+ Appropriations 286,287.90 239,514.00 193,305.10 147,955.50 Interim Dividend - Equity 6,760.50 6,760.50 6,338.00 0 Proposed Equity Dividend 8,028.10 6,338.00 3,802.80 4,225.30 Corporate Dividend Tax 2,513.40 2,173.80 1,645.10 685.5 Profit & Loss Balance C/F 261,985.90 217,241.70 170,519.20 138,044.70 Equity Dividend % 175 155 120 50 Earnings Per Share 16.34 16.33 13.08 11.6 Book Value 88.56 76.39 63.62 53.33

BALANCE SHEET

AS ON THE END OF FINANCIAL YEARs

(Indian Rupee .in Millions) Particulars Mar 2014 Mar 2013 Mar 2012 Mar 2011 SOURCES OF FUNDS + Share Capital 8,450.60 8,450.60 8,450.60 8,450.60 Equity – Authorised 10,000.00 10,000.00 10,000.00 10,000.00 Equity – Issued 8,450.60 8,450.60 8,450.60 8,450.60 Equity – Subscribed 8,450.60 8,450.60 8,450.60 8,450.60 Equity - Called Up 8,450.60 8,450.60 8,450.60 8,450.60 Equity - Paid Up 8,450.60 8,450.60 8,450.60 8,450.60 Face Value 2 2 2 2+ Total Reserve 365,725.50 314,306.80 260,362.00 216,881.30 Capital Reserves 6.1 6.1 6.1 6.1 Profit & Loss Account Balance 261,985.90 217,241.70 170,519.20 138,044.70 General Reserves 103,831.80 96,831.80 89,831.80 78,831.80

Investment Allowance (Utilised) Reserve 0 115.9 0 0

Hedging Reserve -98.3 111.3 4.9 -1.3 Reserve excluding Revaluation Reserve 365,725.50 314,306.80 260,362.00 216,881.30 Shareholder's Funds 374,176.10 322,757.40 268,812.60 225,331.90+ Unsecured Loans 563.7 282.3 171.5 237.9 Other Unsecured Loan 563.7 282.3 171.5 237.9 Total Debts 563.7 282.3 171.5 237.9 Total Liabilities 374,739.80 323,039.70 268,984.10 225,569.80 APPLICATION OF FUNDS : + Fixed Assets 135,841.10 122,648.00 116,579.00 98,023.30 Freehold Land 1,788.60 1,076.20 771.1 324.4 Buildings 11,773.40 10,959.90 10,174.50 9,072.80 Plant& Machinery 112,950.70 105,888.90 100,479.80 84,679.70

Furniture & Fixtures & Office Appliances 2,022.70 1,944.50 1,801.30 1,652.50

Vehicles 281.5 267.1 245.6 200.9 Railway Tracks & Sidings 106.3 106.3 106.3 110 Leasehold Land 1,608.40 1,024.50 916.3 453.6 Computer Software 218.7 218.7 110.5 110.5 Patents, trademarks and designs 1,175.50 0 0 0 Other Fixed Assets 3,915.30 1,161.90 1,973.60 1,582.90+ Less: Accumulated Depreciation 44,368.60 37,810.60 31,450.80 25,481.20 Buildings / Premises 1,692.20 1,438.40 1,142.70 878.7 Plant& Machinery 40,142.60 34,256.50 28,084.10 22,687.60

Furniture & Fixtures & Office Appliances 998.2 890 754.5 626.4

Vehicles 122.4 103.3 81.6 65.3

Railway Tracks & Sidings 82.2 80.2 75.8 74.9 Computer Software 149.1 118.2 106.4 79 Patents, trademarks and designs 6.9 Other Fixed Assets 1,175.00 924 1,205.70 1,069.30+ Net Block 91,472.50 84,837.40 85,128.20 72,542.10 Freehold Land 1,788.60 1,076.20 771.1 324.4 Buildings / Premises 10,081.20 9,521.50 9,031.80 8,194.10 Plant& Machinery 72,808.10 71,632.40 72,395.70 61,992.10

Furniture & Fixtures & Office Appliances 1,024.50 1,054.50 1,046.80 1,026.10

Vehicles 159.1 163.8 164 135.6 Railway Tracks & Sidings 24.1 26.1 30.5 35.1 Leasehold Land 1,608.40 1,024.50 916.3 453.6 Computer Software 69.6 100.5 4.1 31.5 Patents, trademarks and designs 1,168.60 0 0 Other Fixed Assets 2,740.30 237.9 767.9 513.6 Capital Work in Progress 15,409.40 10,818.50 4,449.60 5,948.20+ Investments 254,457.50 166,773.60 135,852.60 100,810.90 Long Term Investment 29,421.70 21,401.80 8,930.00 7,485.80 Unquoted 28.1 27 25.9 20.8 Joint Venture & associated Companies 28.1 27 25.9 20.8

Other Long Term Unquoted Investments 29,393.60 21,374.80 8,904.10 7,465.00

Currents Investments 225,035.80 145,371.80 126,922.60 93,325.10 Quoted 19,770.70 21,511.00 13,796.10 0 Quoted Debentures / Bonds 19,770.70 21,511.00 13,796.10 Unquoted 205,265.10 123,860.80 113,126.50 93,325.10 Mutual Funds Units 205,265.10 122,760.80 113,126.50 93,325.10 Unquoted Equity Shares 1,100.00 + Inventories 11,982.40 11,110.90 7,979.40 7,623.80 Raw Materials 608.8 1,960.90 242.2 196.7 Work-in Progress 5,269.90 3,859.60 2,873.00 3,774.20 Finished Goods 549.7 408.4 269.6 312.8 Stores and Spare 4,483.40 4,612.90 4,052.40 2,726.80 Goods in transit 1,070.60 269.1 542.2 613.3+ Sundry Debtors 3,995.10 4,028.70 3,324.50 2,088.90 Debtors more than Six months 26.4 109.8 51.2 29.5 Considered good 26.4 109.8 51.2 29.5 Debtors Others 3,968.70 3,918.90 3,273.30 2,059.40 Considered good 3,968.70 3,918.90 3,273.30 2,059.40+ Cash and Bank 30,314.20 69,421.00 52,553.20 56,329.10 Cash in hand 0.2 0.2 0.3 1.5 Balances at Bank 30,314.00 69,420.80 52,552.90 56,327.60 With Scheduled Banks 30,314.00 69,420.80 52,552.90 56,327.60+ Other Current Assets 6,083.00 4,156.40 3,379.60 2,466.80 Interest accrued on Investments 5,786.30 3,930.80 3,228.10 2,310.70 Prepaid Expenses 233.5 187.9 147.6 142.4

Others 63.2 37.7 3.9 13.7+ Loans and Advances 3,052.60 3,507.60 2,182.80 2,719.80

Advances recoverable in cash or in kind or for value to be received 2,131.60 3,000.00 1,580.10 1,839.20

To Others 2,131.60 3,000.00 1,580.10 1,839.20 Loans 21.6 27.4 28.5 25.6 To Employees 21.6 27.4 28.5 25.6

Balances with customs and excise authorities 899.4 480.2 574.2 855

Total Current Assets 55,427.30 92,224.60 69,419.50 71,228.40 Less : Current Liabilities and Provisions + Current Liabilities 15,288.00 10,567.10 9,738.30 9,842.00 Sundry Creditors 5,103.20 4,034.70 4,102.90 3,682.40 For Purchases 5,103.20 4,034.70 4,102.90 3,682.40 Unclaimed Dividend 19.2 16.5 12.7 6.8

Investor Education Protection Fund - Other 0.8 0.8 0.8 0.8

Unearned revenue / Advances received from customers 698.9 819.4 639.9 458.2

Trade and Other deposits 2,620.10 1,842.20 2,373.80 2,782.40 Other Liabilities 6,845.80 3,853.50 2,608.20 2,911.40+ Provisions 10,157.80 8,248.70 5,039.40 5,670.80 Proposed Equity Dividend 8,028.10 6,338.00 3,802.80 4,225.30 Provision for Corporate Dividend Tax 1,364.40 1,077.10 616.9 685.5 Provision for Tax 765.3 833.6 619.7 760 Total Current Liabilities 25,445.80 18,815.80 14,777.70 15,512.80 Net Current Assets 29,981.50 73,408.80 54,641.80 55,715.60+ Deferred Tax Assets / Liabilities -16,581.10 -12,798.60 -11,088.10 -9,447.00 Deferred Tax Assets 367.6 219.8 192 70.7 Voluntary retirement scheme 276.5 164.4 153.1 54.9 Other Deffered Assets 91.1 55.4 38.9 15.8 Deferred Tax Liability 16,948.70 13,018.40 11,280.10 9,517.70 Fixed Assets 13,882.00 12,121.60 10,482.60 9,025.20 Other Deffered Liabilities 3,066.70 896.8 797.5 492.5 Total Assets 374,739.80 323,039.70 268,984.10 225,569.80+ Contingent Liabilities 20,074.90 18,657.70 14,305.80 11,275.40

Claims against the company not acknowledged as debts 19,436.60 17,998.70 13,683.40 10,815.20

Liabilities under Guarantees 638.3 659 622.4 460.2

BIBLIOGRAPHY

READINGS:-

1. S.N Maheshawari: Cost & Management Accounting: Sultan Chand & Sons, New Delhi

2. M.Y.Khan & P.K.Jain: Management Accounting; Tata McGraw Hill Publishing Co. Ltd., New Delhi.

3. I.M.Pandey: Management Accounting Vikas Publishing (P) LTD., New Delhi.

4. N.K. Agarwal: Cost Accounting; Shuchita Prakashan (p) Ltd. Allah bad.

REFERENCES:-

5. N.K. Prasad: Principals and Practices of Cost Accounting: Book Syndicate (P) Ltd., Calcutta.

Published Accounts, Reports & Statistical Bulletins & Periodicals:

6. Annual Reports of HZL. From 2011 to 2014.7. Company’s annual data & Financial Statements.8. Finance & Commerce.9. Records, Journals & Magazines of HZL.

Websites:

10. http://acekp.in/balance-sheet/10018811. Hzlindia.com