a project report on working capital management of hindalco for the last five years

Working Capital Management of Hindalco for the last five years

CONTENTS

S No Titles Page No

1. CHAPTER – 1

Executive Summary

Introduction

Literature Review

Research Design

Management Problem

Statement of Problem

Importance of Study

Objectives of Study

Limitation of the Study

2. CHAPTER – 2

Organizational structure

Company Profile

Data Collection Method

3. CHAPTER – 3

Research Analysis

Findings & suggestions

Conclusion

4. CHAPTER – 4

Bibliography

Babasabpatilfreepptmba.com



Executive Summary Introduction Literature review Management Problem Research Problem Purpose of the study Scope of the study


EXECUTIVE SUMMARY

The discussion in this report is focused on “Working Capital Management” at

Hindalco Belgaum Works. The various information regarding classification,

determinants, components, sources, arrangement of working capital & operating cycle

have been also discussed in my study and also aspects relating to the perspective of

Hindalco Industries Ltd, Belgaum.

I have also emphasized more on need & Importance of Working Capital

Management. The Four Major aspects of Working Capital Management have been

outlined below :

Debtors Management

Creditors Management

Inventory Management

Cash Management

Ratio Analysis has been carried out using Financial Information for last four

accounting years i.e. from 2004 to 2007 like Working Capital Turnover Ratio, Quick

Ratio, Current Ratio, Inventory Turnover Ratio, Debtors Turnover Ratio have also been

analyzed. A Statement of Changes in Working Capital has also been analyzed and

attached Turnover & Performance of the Company for last five years has also been

analyzed.

After conducting my study I have found that Working Capital has been

Effectively managed and all the other departments are working in perfect co-ordination

to ensure the progress of Hindalco Industries Ltd, Belgaum. But I have given some

suggestions & Conclusions on the basis of my project study, which is highlighted in my

study.



INTRODUCTION

Working Capital is defined varyingly keeping in view the objectives and purposes.

To businessman. Working Capital comprises Current Assets of Business, where as to the

Accountant or Creditors investment analysis Working Capital is understood as the

difference of Current Assets & Current Liabilities. This also called as Net Working

Capital.

There is operative aspects of Working Capital i.e. Current Assets which is know as

funds also employed to the business process form the Gross Working Capital. Current

Assets Comprises : Cash Receivables, Inventories, Marketable Securities held as short-

term Investment and other items nearer to Cash or equivalent to Cash. Working Capital

Comes into business operation when actual operation takes place generally the

requirement of quantum of Working Capital is determined by the level of production

which depends upon the management attitude towards risk and the factors which

influence the amount of Cash, Inventories, Receivables and other current assets require

to support given volume of production.

Working Capital Management as usually concerned with administration of the

Current Assets as well as Current Liabilities. The area includes the requirement of funds

from various resources and to utilize them in all result oriented manner. It can be stated

without exaggeration that effective working capital management is the short requirement

of long term success.



LITERATURE REVIEW:

WORKING CAPITAL MANAGEMENT

Working Capital is needed for the smooth conduct of day to day business

activities. It is needed to finance the current assets of the firm. The working capital

should neither be in excess nor should it be inadequate. Excessive investment in current

assets would have a negative impact on the firm’s profitability because of idle nvestment

on the other hand, inadequate working capital would lead to inability to meet the current

obligations which would hamper the firm’s creditability and thereby its reputation.

Usually the current assets are maintained at twice the level of current liabilities

i.e., the current ratio is 2:1. But the quality of current assets is important. The current

assets should be easily marketable i.e., they should be liquid. If the Liquidity is harmful,

it may be due to miss management of current assets.

A. On the basics of Concept

(a) Net Working Capital:

This is the difference between current assets and current liabilities. Current

Liabilities are those that are expected to mature within an accounting year and

include creditors, bills payable and outstanding expenses. Investment is current assets

represent a very significant portion of the total investment in assets. In case of public

limited companies in India, current assets constitute around 60% of the total capital

employed. Therefore the finance manager should be attention to working capital

management. Working Capital Management is no doubt significant for all firms, but

its significance is enhanced in cases of small firms. A small firm has more

investment in current assets than fixed assets and therefore current assets should be

efficiently managed. The working capital needs increase as the firm grows. As sales

grow, the firm needs to invest more in debtors and inventories. The finance manager

should be aware of such needs and finance them quickly.



Current Assets can be financed through long-term and short-term sources. The

ratio of long-term to short-term source will depend on whether the firm is aggressive

of conservative.

It the firm is aggressive then it will finance a part of its permanent current assets with

short term funds. On the other hand, a conservative firm will finance its permanent

assets and also a part of temporary current assets with long-term financing.

(b) Gross Working Capital

This refers to the firm’s investment in current assets. Current Assets are the

assets which can be converted into cash within a short period say, an accounting

year. Current assets include cash, debtors, and bill receivable, short-term securities.

etc.

B. On the basis of Time

(a). Permanent Working Capital

Permanent Working Capital is permanently locked up in the circulation of current

assets. It covers the minimum amount requested for maintaining the circulation of

current assets.

i. Initial Working Capital

At its inception and during the formative period of its operations a

company must have enough cash fund to meet its obligations. The need for

initial working capital is for every company to consolidate its position.

ii. Regular Working Capital

It refers to the minimum amount of liquid capital required to keep up the

circulation of the capital from the cash inventories to account receivable and

from account receivables to back again cash. It consists of adequate cash

balance on hand and at bank, adequate stock of raw materials and finished

goods and amount of receivables.



(b). Variable Working Capital

It refers to the past of the Working Capital that changes with the volume

of business, it may be divided into two classes.

i. Seasonal Working Capital

There is many line of business where the volumes of operations are

different and hence the amount of working capital varies with seasons. The

capital required to meet the seasonal needs of the enterprise knows as Seasonal

Working Capital.

ii. Special Working Capital

The capital required to meet any special operations such as experiments

with new products or new techniques of production and making interior

advertising campaign etc, are also know as Special Working Capital.

C. Other Determinants of Working Capital

In order to manage the Working Capital optimally; on has to give due

consideration to the factors that influence the amount of Working Capital to be

maintained.

The determinants of Working Capital are stated below with reference to the

operations of Hindalco Industries Ltd. Belgaum:-

Nature of Business

Capacity Utilization

Credit Policy

Demand, Sales & Conditions

Availability of Credit

Price Level

Degree of Competition

Conditions of Supply



Finance Department at Hindalco, Belgaum unit


Costing

Vice President Works

Vice President Works

Deputy General manager Accounts

Manager Accounts

Fixed Assets

Payroll Cash and Bank

Sales Invoice

Stores A/c Excise Cell

Bills payable


The main objective of the finance department is to keep all the accounts of the

financial matters. It is responsible for maintaining up to date accounts. The various

activities are allocated to different sections

The costing section determines the costs incurred on various items in relating to

consumption and management information system is adopted in this department for work

efficiency. They deal with only working capital management with various banks of the

Belgaum city. Excise section files periodic returns under acts like central tax, etc. This

section carries out all the activities concerned with the excise. Pay roll section prepares

the pay sheet. They keep accounts of the raise in pay, bonus, and deduction in salary of

an each employee. The net salary of each employee is tabulated here.

Cash in bank section deals with day today cash transactions. This section issues

cheque to suppliers after the instruction give by the bills payable section. It also makes

the reconciliation statement of bank and customers. It also provides all records to the

internal and external auditors.

Bills payable section verifies the purchases bills and receives the debit notes and

credit notes as per the instruction of the purchases of the purchase department.

Sales invoice section looks after both Indian & abroad market. There are 30-40

grades for sales invoice. Transactions with foreign countries can be done with help of

clearing agents. Sales officers negotiate the matter. Execution of sales order is done by

on –line base. Hindalco at Belgaum works sends all the figures to the Head office for the

further calculation, like preparing balance sheet, profit and loss account, etc.



COMPONENTS OF WORKING CAPITAL

There are two components of Working Capital

A. Current Assets

B. Current Liabilities

A. Current AssetsAn asset is termed as current assets when it is acquired either for the purpose of

selling or disposing of after taking some required benefit through the process of

manufacturing of which constantly changes in form and contributes to transactions

take place with the operation of the business although such assets does continue for

long in the same form.

Components of Current Assets are as follows:

Cash & Bank Balance

Stock of Raw Material at cost- work in process and Finished Goods.

Advanced Recoverable in Cash or kind or kind or for value to be received.

Security deposits with electricity board-telephone department balances with

customers.

Deposits under the company scheme.

Prepaid Expenses.

Miscellaneous Stores implements goods in transit.

Advanced payment of income takes credit certificates.

Excise duty and sales tax recoverable.

Outstanding debts for a period exceeding six months.

Balance with central excise authorities.



B. Current Liabilities:

Components of Current Liabilities are as follows:

Non-Refundable non-interest bearing advances against subscription to shares.

Sundry Creditors for the goods and expenses.

Income tax deducted at sources from contractors.

Expenses Payable.

Amount due to promoter of company.

Unclaimed Dividend.

Security Deposits.

Dealers Deposits.

Liabilities for bills discounted.

Bank Overdraft Acceptance.

Dividend warrants but not un-cashed.



SOURCES OF WORING CAPITAL


SOURCES OF WORKING CAPITAL

Internal & External

Depreciation Funds

Provision for Taxation

Accrued Expenses

Long Term Sources:

Issue of Shares

Issue of Debentures

Retained Profit

Reserves & Surplus

Long Term Loans

Short Term Sources

Short Term Sources

Trade Credits

Bank Credits

Credit Paper

Consumer Credit

Public Deposits

Financial Co-Operation

Government Assistance

Loan from Directors


ARRANGEMENT OF WORKING CAPITAL

The trade credit and cash creditors are two primary sources of working capital in

India. Bank loan and trade creditors together account for finance about 75% of the

working capital credit requirements of industry. The bankers after granting of the loans

and applications on the line suggested by Reserve Bank of India determine the maximum

line of credit permissible for the period based on the margin requirement of the security

offered. After getting the over all credit limit sanctioned by the banker the company

actually draws the funds needed from time to time using all or any of the following

forms of credit.

1. Loan Arrangement

The bank credits the entire amount of loan to the parties account. Interest

is payable on the entire amount or when loan is repaid in installments on the

actual balance of outstanding.

2. Overdraft Arrangement

The party is permitted to overdraft on his current account with his banker

up to a specified amount and during a specified period. Interest is charged on

the amount actually utilized and repayments and permitted.

3. Cash Credit Arrangement

The borrower is allowed to withdraw funds from the bank up to the

sanctioned credit once rather he can draw periodically to the extent of his

requirements and repay by depositing surplus funds in his cash credit amount.

4. Term Loan for Working Capital

Under this arrangement borrower can obtain a loan for appeared three to

five years and the said amount in nearly or half yearly installments.



5. Bills Purchased or Bill Discounted Bills are purchased by bankers and

advance bills are discounted whether bills are purchased as discounted the

amount need available under this arrangement is covered by cash and over

draft element. In obtaining commercial bank credit the various modes of

security are such as:

i. Hypothecation

Under hypothecation money is borrowed by owner of gods on the

security of movable property (normal inventories) without parting with the

possession of movable property. The right of the hypothecation depends

upon the term of the contract between parties.

ii. Pledge

Under this arrangement the borrower is required to transfer the physical

possession of the property offered as security to the bank to obtain credit.

iii. Lien

It is the right of retaining goods belonging to the another until the

debts due to him are paid.

iv. Mortgage

It is the transfer of interest in specific immovable property for

securing the

payment of money advanced.



OPERATING CYCLE OF WORKING CAPITAL

The operating cycle can be said to be at the heart of the need for Working

Capital. “The continuing flow from cash as advances to suppliers, to inventory, to

accounts receivable and back into cash is what is called the operating cycle”.

It is essential that the operating cycle should be kept up continuously. Others the

fixed asset will remain idle and to the cost without brining any reserve. So long with

fixed capital ready and adequate working capital is necessary to get the understanding

successful on a sound pedestal.



NEED FOR WORKING CAPITAL

The needs for the working capital cannot be once emphasized. Every business

need some amount of working capital. The need for working capital arises due to the

time gap between production and realization of cash form sales. Therefore Working

Capital required for:

To meet the cost of inventories including total of raw materials purchased

parts, operating supplies, work in progress, finished goods.

To pay wages, salaries, for indirect labor, clerical staff, managerial and

supervision staff.

To meet overhead costs, including those of maintenance services activities,

fuel, power charges, taxes and general expense administration

To bear the expansion (with regard to promotion of sales) e.g. expenses on

packing, advertisement, salesmanship, Sales Servicing, After requires, Credit

Facilities, Delivery Services, etc.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Adequate working capital created certainty, security and confidence in the minds

of the persons in the management as well as in the minds of creditors and workers.

It creates a good credit standing for the firm because credit standing depends upon

the ability to pay promptly. A Company with adequate working capital is always

able to meet current liabilities.

It ensures solvency and stability of the enterprises. It also ensures continuity in

production and sales.

It enables the company to take advantage of cash discount offered by the suppliers of

raw materials or merchandise.

It enhances the prestige of the company and moral of its workers because a company

with adequate working capital is always able to pay wages and salaries promptly and

regularly.

It enables the company to procure loans from banks on easy and competitive terms.



In times of boom, it enables the company to meet increasing demands for its

products.

In times of dispersion the company to overcome the crisis successfully.

It enables the company to hold carry on its business successfully and active

continued progress and prospective.

It enables the company to carry on its business successfully and active continued

progress and prosperity.

Working Capital Management is concerned with the following aspects:

Debtors Management

Creditors Management

Inventory Management

Cash Management

All these aspects will be analyzed in relation to the functioning of Ashok Iron

Works Ltd. In the report as below:

Debtors Management

Now a day’s debtor’s management has assumed a lot of importance. If the

debtors are efficiently managed, the blocked capital will be reduced and thereby the

associated costs. Due to the increase in Competition, one cannot do away with credit

sales. Credit provision can increase sales. It is particularly appealing to those customers

who cannot borrow form other sources or find it inconvenient to do so.

A firm’s investment is accounts receivable depends on how much it sells on

credit and how long it takes to collect receivables. The firm should be very good at

assessing the credit worthiness of its customers and effective collection methods. Debt

collection is no doubt challenging but a firm, which executes it efficiently, will reduce

costs to a great extent.

Debtor’s Management mainly concerns itself with three major aspects:



Credit Policy

Credit Analysis

Collection Policy

INVENTORY MANAGEMENT

The inventory is broadly classified into the following

1. Raw Material Inventory.

2. Consumables Inventory consisting of tools, stationary, fuel etc.

3. Work in Progress Inventory.

4. Finished Goods Inventory.

Usually the finished goods inventory is maintained at zero level. The parts are

manufactured to fulfill the current demand. Raw Materials (basic) are usually in stock

for 4 to 15 days. Raw Material (others) or consumables are kept for 15 days to 1 month.

The duration depends the availability, prices, demand and other market factors. Say, if

the price of a certain raw material is expected to increase or it is likely to be in short

supply in the future, then the quantity purchased will be more than usual and it will be

stocked. On the other hand if the raw material is freely available, then it will be

purchased as and when required.

ABC Analysis is carried out to determine the relative importance of the types of raw

materials and the stocking duration is determined based on the rating assigned to the

particular raw material. The materials with rating ‘A’ will be the most controlled

because they constitute a major portion of the investment.

Economic Order Quantity (E.O.Q.) & Re-Order Level (R.O.L.)

Now, two important questions need to be answered – ‘when to purchase?’ and

‘How much to Purchase?’ The first question can be answered by fixing the Re-Order

level (ROL). This is the level after reaching which the order for the material should be

placed. Calculation of this level and its practical implementation will ensure the smooth

flow of production activity without bottlenecks. This is calculated as:

ROL = Average Daily Consumption * Lead Time + Safety Stock



The second question can be answered by finding out the Economic Order

Quantity (EOQ). Now, EOQ is the trade-off between the carrying costs and the ordering

costs. It is that quantity at which the ordering costs and carrying costs are minimum.

This is calculated by using the formula:

E.O.Q = 2AO / C

Here,

A = Annual Consumption

O= Ordering Cost Per Order

C= Carrying Cost Per Unit

Safety Stock is maintained to avoid unnecessary stoppage in production.

Minimum & Maximum stock level is also calculated on average yearly basis. But all

these calculations made may be altered depending on the activity of market forces.



CASH MANAGEMENT

Cash is the basic input of any business. It is necessary for the smooth flow of the

business operations. The cash balance with any business firm should neither be in excess

or in shortage. Inadequate cash will disrupt the business operations and excess cash will

result in higher opportunity costs because it is idle.

Cash management is important function of the finance manager. Sufficient cash

balance has to be maintained to run the firm efficiently. But at the same time, the finance

manager has to bear in mind that cash balance is an idle resource which has an

opportunity cost. The liquidity provided by the cash holding is by sacrificing the profits

of a forgone alternative investment opportune Hence the finance manager should:

Establish reliable forecasting and reporting systems,

Improve cash collections & disbursements &

Achieve optimal conservation and utilization of funds.

There are three possible motives for holding cash. They are:

Transaction Motive

Precautionary Motive

Speculative Motive



Transaction Motive:

Cash is required to carry out the numerous transactions involved in day to day

business activities. The firm needs cash to make payments for wages and salaries, for

purchase other operating expenses, taxes, dividends, etc. There would have been no

need to hold cash if their receipts and payments were perfectly synchronized.

Precautionary Motive:

Cash is also needed to effectively confront uncertainties in the future. There may

be some uncertainty about the timing of cash inflows form sale of goods & Services,

assets, etc. Similarly, there may be uncertainty about cash outflows resulting form

purchase an other obligations. Stronger the ability of the firm to borrow at short notice

less the need for precautionary balance. The precautionary balance may be kept in cash

and marketable securities.

Speculative Motive:

This motive relates to the holding of cash for investing in profit making

opportunities arising from fluctuation in commodity prices, security prices, interest rates

and foreign exchange rates. A Cash –rich firm is better prepared to exploit such bargains.

By and large business firms do not engage in speculations.

Four Facts of Cash Management

In order to manage cash effectively, the firm should evolve strategies regarding

the following four facets of cash management.



a) Cash planning:

Cash inflows & outflows should be planned to project cash surplus or deficit for

each period of the planning period. Cash planning is a technique to plan and control the

use of cash. Projected cash. Projected cash statement is prepared form forecast have

expected cash inflows and Outflows for a given period. The forecasts may be bases on

the present operations or the anticipated future operations.

Cash planning may be done on daily, weekly or monthly basis. The period and

frequency of cash planning generally depends upon the size of the firm and the

philosophy of the management. Large firms prepare daily and weekly forecasts.

Medium size firms usually prepare weekly and monthly forecasts. Small firms not

prepare formal cash forecasts.

b) Managing Cash Collection & Disbursements :

The projected cash flows should match the actual cash flows actual cash flows

and the finance manager should ensure that there is no significant deviation. To achieve

this, cash management efficiency will have to be improved through proper control on

cash collection and disbursements. Generally it is recommended that the collections

should be accelerated and the payments should be delayed. But to manage cash

efficiently we need to understand the concept of float. The cash balance shown by a

firm in its books is called the book or ledger balance shown it its bank account is called

the available or collected balance.

The difference between the available and the ledger balance is called float. There

are two kinds of float-disbursement float and collection float. Say a company has issued

a cheque worth Rs.1Lakh. It will reduce the company’s available balance only when the

cheque is presented for encashment. The created disbursement float of Rs. 1Lakh.

Similarly we have the collection float. When a company receives a cheque of say of Rs.

2Lakhs, then it will increase its book balance by the above amount. However, the

company’s bank will increase the available balance only when the cheque is presented to

the customer’s bank.



C] Optimal Cash Balance :

It is one of the primary responsibilities of the finance manager to maintain a

sound liquidity position so that the production operation is carried on smoothly and also

the dues are settled in time. If a firm maintains a small cash balance, it has to sell its

marketable securities more frequently and this will result in increasing transaction costs.

On the other hand if the firm maintains a large cash balance then it will lead to higher

opportunity costs. Therefore the cash balance should neither be too small nor too large.

We find that there is a trade-off between transaction costs and opportunity costs. Hence

the balance maintained should result in minimum possible transaction costs and

opportunity costs. This case is similar to the calculation of E.O.Q. We have the

Baumol’s Model to find optimal cash balance under certainty.

The formula is : C = 2FT/K

Where,

C= Optimal Cash Balance

T= Per Transaction Cost

F= Total Funds Requirement During the year.

K= Opportunity Cost.

The Baumol Model does not provide a solution in cases of uncertainty. To

overcome this disadvantage we have the Miller-Orr Model. It assumes that the net cash

flows are normally distributed with a zero value of mean and a slandered deviation. In

this case the firm should fix the upper control limit. The lower control limit and the

return point. The return point is normal level of cash balance, which is a healthy level. If

the firm’s cash flows fluctuate and touch the upper. Control Limit, then it buys sufficient

marketable securities to reach the return point if the cash balance touches the lower

control limit then sufficient marketable securities are sold to reach the return point. The



firm sets the lower limit a at a point, which is its minimum cash requirement. The

formula for determining the distance [Z] between the upper and lower control limit is:

Z = [ ¾* Transaction Cost* Cash flow Variance/Interest Rate] 1/3

d] Investing Surplus Funds:

The Surplus funds with a company can be invested for short periods before they

are required. The surplus can be invested in marketable securities, which can be sold

easily later when funds are required. The various options available for investments are as

follows:

i. Term Deposits with Scheduled Banks:

Banks accept term deposits for periods ranging from 15 days to 5

years. The interest may vary from 6% to 11% per annum. The interest

rates rises sharply as the period of deposit increases from 30 days to 1

year.

ii. Mutual Funds Schemes:There are a variety of schemes offered by mutual funds likely

equity schemes, balance schemes and debt schemes. The most popular

scheme is the debt scheme for investing short-term surplus because the

investments are for a short period and highly and therefore less risky.

iii. Treasury Bills:Treasury bills are the short-term obligations of the government.

They have maturity periods of 91 days, 182 days and 364 days. They do

not carry an explicit interest rate [Coupon Rate] but are instead sold at

discount and redeemed at par.

iv. Inter-Corporate Deposits:An inter-corporate deposit is a deposit made by one company with

another for a period of six month. The inter-corporate deposits represent

unsecured borrowings; hence the lending company must satisfy itself

about the credit-worthiness of the borrowing firm. There are also certain



conditions prescribed under section 370 of the Company’s Act 1956,

which should be adhered to by the lending company.

v. Bills Discounting:A bank may purchase a premature bill from the drawer at a

discount and it will release the worth of the bill less discount to the

drawer. Similarly a company can purchase a bill like a bank at a discount

and thereby invest its idle funds. But a company should ensure that the

bill and should try to go for bills that are backed by letters of credit for

security.

TECHNIQUES OF WORKING CAPITAL MANAGEMENT:

Working Capital Management involves deciding upon the amount and

compositions of current assets and how to finance the assets. These decisions involve

trade off between risk and profitability.

Working Capital Balances are measured forms the financial data of the

company’s Balance Sheet. A study of the causes of changes of working capital that takes

placed in the balance form time to time in necessary. These changes can be measured in

rupee amount and also in percentage by company current assets, current liabilities and

working capital over the given period.

The important tools of Working Capital are:

1. Ratio Analysis of Working Capital

2. Funds flow analysis of Working Capital

3. Working Capital Budget.

4. Trend Analysis.



1. Ratio Analysis of Working Capital:

Management as a means of checking upon the efficiency with which working

capital is being used in the enterprises can the ratio analysis of working Capital. The

important ratios of working capital management are:

[a] Turnover of Working Capital Ratio:

It can be calculated as net sales divided by average net working

capital. The turnover of net working capital ratio measured the rate of

working capital utilization. The ratio shows how many times working

capital turns over the trading transactions.

Formula:

Turnover Working Capital = Net Sales/Net Working Capital

[b] Current Ratio

It can be calculated as current assets divided by current liabilities.

The current ratio measured the relative ability of a company to pay its

short-term debts. The ratio is used to reveal how well a company could

meet a sudden demand to pay off its short-term creditors.

Formula :

Current Ratio = Current Assets/ Current Liabilities

[c] Current Debt to Tangible Net worth :

It can be calculated as current liabilities divided by tangible net

worth. The ratio of current liabilities to tangible net worth shows how

much capital used in the enterprises has been provided by the short

creditors and how much by other owners.

Formula:

Current Debt to Tangible Net worth = Current Liabilities/ Total Net Worth



[d] Quick Ratio [Acid Test Ratio]

Quick Ratio can be calculated as quick assets divided by current

liabilities. Quick ratio establishes relationship between quick of liquid

assets and current liabilities and asset is liquid or quick if it can be

converted into cash immediately or reasonably soon without a loss of

value.

Formula:

Quick Ratio = Quick Assets /Current Liabilities

[e] Inventory Turnover Ratio:

Turnover Ratio can be calculated at cost of goods sold by average

inventory. It shows the number of times the stock in trade is turned over

in business during a period. This may be used to arise stock utilization

and efficiency of the firm in selling its products.

Formula:

Inventory Turnover Ratio=Cost of Goods Sold/Average Inventory

[f] Debtors Turnover Ratio:

It can be calculated as Sales divided by debtors. Debtor’s turnover

indicates the number of times the debtors are turn over during a year.

Formula:

Debtors Turnover = Sales/Debtors



2. Funds Flow Analyses of Working Capital It is an effective management tool to study how funds have been procured for a

business and how they have been employed. This technique helps to analyze

changes in working capital components between two data. The comparison of

current asset and current liabilities, at the beginning and at the end of specie period

shows changes in such type of current asset and resources from which working

capital has been obtained. Funds flow statement contributes material to the financial

aspects of the answers to such questions.

Why the net current assets were done through the net income was

upon visa versa.

How was it possible to distribute divided in excess of current

earning and in the present of a net loss for the period?

How was the expansion in equipment, plant and machinery

financed?

What happened to the proceeds of sales and plants equipments?

How was the retirement of the department accomplished?

What becomes to the process of share issue or debenture issue?

How was the increase in working capital Financed?

3. Working Capital Budget : The working capital budget is an important phase of overall financing budgeting.

This budget should be distinguished from a cash budget that is designed to measure

all the financial requirements of a business including funds for fixed assets,

repayments of business including funds for fixed assets, repayments of loans, and

similar items on the requirements and assures that they are duly provided for. The

objectives of that budget are to secure an effective utilization of investments.



4. Trend Analysis A Trend analysis indicates the changes, which have taking place from time to

time an individual item of current assets. Current liabilities and net working capital on

the basis of some slandered year and its effect on working capital portion. It enables

evaluate the upward and downward trend of current assets and current liabilities. These

are usually measured from review of the comparative balance sheets. Of a concern at the

end of the accounting years and results are drawn on the basis of trend shown by them.



RESEARCH DESIGN:

TITLE OF THE STUDY

A Study on “Working Capital Management” at Hindalco Industries

Belgaum works, group of Aditya Birla Group of Industries.

MANAGEMENT PROBLEM

There is a fluctuation in working capital i.e. increase and decrease and also

current and quick ratio of the firm is not adequate, the firm want to know the reason for

declining the working capital and also the there is no effectively utilized by other

resources the want to find the reason.

STATEMENT OF THE PROBLEM

The study has been taken in the organization for the purpose to know the

“Working Capital Management” of the company for five years.

IMPORTANCE OF THE STUDY

There are numerous aspects of working capital management that makes it an

important topic for the study:

Working Capital needs is generally financed through outside sources.

So a continuous care in necessary to utilize them is best manner.

Fixed assets can be often acquired even on lease but in case of current

assets there is no alternative way of avoiding an investment in

inventory,receivables.

Firms level of working capital should optimize the firms rate or

return. The optimum level is the point of which the incremental cost

associated with a decline in working capital investment is equal to

incremental gain associated with it.

Investment to fixed or working capital should contribute to the net

worth of the firm.



OBJECTIVES OF THE STUDY

I as a researcher kept the following main objectives for the purpose of present

study, they are as follows:

To Study and examine the present situation and nature of Working

Capital Position.

To analyze the Working Capital with the help of the Ratio & identify

the strength and weakness of the Organization.

To study the sources and uses of the Working Capital.

LIMITATIONS OF THE STUDY

The most important limitation of the study is that the study slowly depends on

the published data and documents such as balance sheet and income

statements.

It was difficult to obtain confidential data from the concern department with a

viewpoint of secrecy that the company would like to observe.

The summer in Plant Training period was not sufficient to study all the

aspects.




Organization Structure

Company Profile

Data collection methods


ORGANISATION STRUCTURE

Hindalco’s organization is structured into Strategic Business Units (SBU’s) each

responsible for its own production, technology development and marketing, drawing

upon centralized service functions in Corporate Finance, Human Resource Development,

Corporate Affairs, Planning & Monitoring, Legal, Engineering Projects & Materials

Management, Secretarial &Investor Services and Info-com.

The heads of each business and function along with the Chief Operating Officer

constitute the Management Committee. This Committee formulates strategic plans and

policies to take the business forward and monitors/reviews implementation of the

Company’s Strategic Business Plans.



ORGANIZATION STRUCTURE


Vice president chemical business

Chief executive

(Operations)

Chemical business unit head

Head of BRDC Head of

Operations

Head of

Systems

Head of

HR

Head of

CP & BP

Head of

Materials

Head of machinery,

boiler, house, and service

Engg

Head of production

bayer process

Head of EDP

Head of production

special products

Head

Of

R & D

Head

Of

E & I

Head of

Accounts


Company profile:

Hindalco Industries Limited, a flagship company of the Aditya Birla Group, is

structured into two strategic businesses — Aluminium and copper — Hindalco is an

industry leader in both segments. A non-ferrous metals powerhouse, close to global

scale, it ranks among India's top 10 companies in terms of market capitalization.

Hindalco commenced its operations in 1962 with an Aluminium facility at

Renukoot in eastern Uttar Pradesh. Over the years, it grew into the largest integrated

Aluminium manufacturer in the country. With an eye to build size and scale, Hindalco in

FY 2000 has acquired a majority stake in Indian Aluminium Company Limited (Indal) -

having a major presence in downstream aluminum products and a leader in special

alumina from Alcan of Canada.

In August 2004, the boards of Hindalco and Indal approved a Scheme of

Arrangement wherein all the assets of Indal other than the foil unit at Kollur in Andhra

Pradesh were to be demerged into Hindalco. This has come into effect retrospectively

from 1 April 2004.

Hindalco is Asia's largest primary producer of Aluminium and among the most

cost-efficient producers globally. In India, Hindalco enjoys a leadership position in

primary Aluminium and downstream products.

Smelters are located at Hirakud, Orissa, with a captive power plant and coal

mines, and at Alupuram, Kerala. Rolled product manufacturing facilities are located at

Belur and Taloja and an extrusions plant at Alupuram.

The company's R&D centers are located at Belgaum, Renukoot and Taloja. The

government of India’s Department of Scientific and Industrial Research (DSIR) has

recognized these. Hindalco's units are ISO 9001 and 14001 certified, while several have



also attained the OHSAS 18001 - the occupational health and safety certification. On the

export front, the company has been accorded a 'Trading House' status by the Indian

government.

As a member of the Aditya Birla Group, Indal is a part of a $6 billion

corporation, with a market cap of $5 billion. The Group’s multi-cultural, multi-lingual

workforce of 72,000 employees belongs to 20 different nationalities and its products and

services reach across more than 100 countries. Its flagship companies include Hindalco,

Grasim, Indian Rayon and Indo Gulf.

Indal along with Hindalco and its Copper Division forms a non-ferrous metals

powerhouse of global size and scale, with the Hindalco-Indal combine providing

opportunities for synergy and strong market position.

INDIAN ALUMINIUM COMPANY, LIMITED (INDAL)

(Now part of Hindalco industries)

India’s foremost aluminum producer and a member of the country’s leading

business house – the Aditya Birla Group. A partner to Hindalco, India’s largest

aluminium producer, together forming a non-ferrous metals powerhouse. With technical

know-how acquired from its original promoter, Alcan Aluminium Limited, Canada (now

Alcan Inc.), Indal has brought aluminium to touch every aspect of modern day industry

and life in India.



Complete Capabilities in Aluminium

Hindalco's facilities cover a wide range of operations: bauxite mining, alumina

refining, aluminium smelting with captive power generation to downstream rolling of

sheet, foil and other semi fabricated products. With technological expertise of over 60

years of experience in the aluminium industry in India, HINDALCO is a market leader in

the upstream range of standard and speciality alumina products in India, providing

applications for refractors, ceramics and electrical industries.

In the downstream segment, HINDAL is the largest manufacturer of rolled

products in India with the widest range of extrusions, meeting the requirements of

different industrial applications such as building, transportation, consumer durables,

packaging and telecommunication.

Creating and Adding Value

Established in 1938, Indal operates across the value chain from bauxite mining to

alumina refining, smelting and rolling. A nationwide spread of plants, mines and offices

gives Indal the advantage of being in proximity to various regional markets within and

outside the country. The Company’s plants and mines are certified with ISO 9001, ISO

14001 and OHSAS 18001 certifications for quality, environment, safety and health.

Hindalco enjoys a leading market position in India for specialty alumina chemicals and

value-added products of aluminium sheet.

The Hindalco units comprise two smelters, one located at Hirakud, Orissa, with a captive

power plant and coal mines, and the other at Alupuram, Kerala, two sheet plants at Belur,

West Bengal, and Taloja, Maharashtra, and an extrusions unit at Alupuram. The

Company's two DSIR recognized R&D centers are located at Belgaum and Taloja.



TAKE A VIEW OF HINDALCO INDUSTRIES BELGAUM.

HISTORY OF THE PLANT (Belgaum works)

The HINDALCO plant at Belgaum was established in 1968 and started operations on

the 7th November 1970. It is situated about 6 Kms., from Belgaum City, beside the

National Highway. It has a total area of 1400 acres.

This was the only unit of INDAL, which started with both the facilities - Alumina Plant

and Smelter Plant. The main products of this unit are Alumina Hydrate, Calcined

metallurgical grade alumina and Special grades of aluminas and Hydrate. The Alumina

Plant was set up with a capacity of 1,60,000 tons of Alumina per year and Smelter Plant

had a capacity of 73,000 tons of metal per year. Due to the hike in the power rates, the

potlines in the Smelter had to be de energized in 1995. The subsidiary of Smelter plant –

Carbon Paste and Block Plant is still in operation. Owing to increased demand of

hydrate, aluminas and Speciality chemicals in the export market, the Alumina Plant was

expanded in several stages and currently operates at about 3,40,000 T of Hydrate (as

Alumina) per annum.

The Specials plant – a branch of Alumina plant manufacturing specialty grades of

hydrate and Alumina is being operated at 60 KT per annum. The raw material-Bauxite is

brought from Durgmanwadi Mines 140 Kms from Belgaum. About 70% of the total

production are exported. The Carbon Paste and Block Plant is operated using imported

raw materials (Carbon Pitch Coke) from Korea.

Marketing of Hydrates and Aluminas is a major business objective, both at the

domestic and International Levels. The non-metallurgical grade Aluminas, also termed

as ‘Special Alumina Chemicals’, find wide usage in diverse industries such as high-grade

refractors, zeolite, alum, plastics, paper, industrial ceramics and high-tension insulators.



VISION

“To be a premium metals major,

Global in size and reach,

With a passion for excellence”

MISSION

“To relentlessly pursue the creation of superior

Shareholder value by exceeding customer

Expectations profitability,

Unleashing employee potential and being a

Responsible corporate citizen adhering to our

Values”

SOCIAL VISION

“To actively contribute to the social and economic

Development of the communities in which

We operate and beyond.

In so doing build a better, sustainable

Way of life for the weaker sections of society

And help rise the country’s Human Development Index.”



VALUES

Integrity

Honesty in every action.

Commitment

On the foundation of integrity, doing whatever it takes to deliver, as promised

Passion

Missionary Zeal, arising out of an emotional engagement with work.

Seamlesssness

Thinking and working together across functional silos, hierarchy levels business and

geographies.

Speed

Responding to stakeholders with a sense of urgency.



Strategic Objectives

The Company recognizes that the conduct and effectiveness of an organization

are mainly anchored to the quality of its workforce. In order to fulfill its purpose and to

achieve its objectives the company requires commitment and dedication of its employees

who place high value not only in the interest of the company but also in the interest of

other individual entities.

The other Objectives are:

To operate at a level of profitability, which will ensure the long term

economic viability of the company by providing a return on equity, which

compares favorably with other industries of similar capital intensity and risk

which will enable the company to attract adequate to support its growth.

To aspire towards a high level of operating, technical and marketing

excellence, and to make the optimum use of assets, which will ensure a strong

competitive position in the markets served by the company.

To strive to satisfy customers by integrating there needs into the company

products and services with efficiency and professionalism and to give the best

value to them by promoting quality products.

To improve the process of managing the company affairs through proper

planing, timely implementation of plans and regular performance reviews.

To sustain an organization of able and committed employees and to provide

the with opportunities for growth and advancement.

To foster a culture of innovation with the application of new ideas and

methods to solve business problems and seize opportunities.

To recognize and seek to balance the interest of shareholders, employees,

customers, suppliers, government as well as the public at large.

To uphold the highest standards of integrity in the conduct of all phases of

business.



SECRET OF SUCCESS:

The Board of Directors of Hindalco and Indal in their respective meetings today

have approved a scheme of arrangement between the two Companies, which entails the

demerger of all the businesses of Indal with the exception of the business pertaining to

the foil plant at Kollur, into Hindalco. The scheme of arrangement is subject to

necessary approvals, and will take effect retrospectively from 1 April 2004 when

sanctioned by the courts. According to Mr. Kumar Mangalam Birla, Chairman of the

Aditya Birla Group, “Hindalco owns nearly 97 percent equity in Indal. I believe that the

time is opportune to take this strategic stake to its logical conclusion. We would like to

bring the maximum focus and harness all possible synergies to attain even higher levels

of growth and enhance stakeholder value.”

Over the last four years, both Hindalco and Indal have worked in tandem for the

growth and development of the aluminium sector. Both Hindalco and Indal have posted

path-breaking results. Such a move would help in leveraging their combined strength

even further said Mr. D. Bhattacharya, Managing Director, and Hindalco.

Future outlook

The company’s business strategy is to ensure profitable growth in the future will

be through: Realization of synergy gain with Hindalco to ensure better market position,

combining Indal’s strengths in Alumina and down stream segments with Hindalco’s

advantage in primary metal.

Higher assets utilization across plant location, particularly leveraging the benefits of

the upgraded rolling mills as well as taking steps to optimize use of idle physical

infrastructure assets and enriched product mix for higher returns from existing assets.



Strengthening of exports with an emphasis on consolidating Indal’s presence in

existing market while tapping new regions for export of value added product viz.,

especially alumina and downstream sheet, foil and extrusions. Cost control efforts

including better logistics, higher operating efficiencies and improved working capital

management.

Strategic growth plans

All apex plans pertaining to Hindalco, for which a sum of Rs.2000 crore has been

earmarked, will be undertaken as planned under the aegis of Hindalco.

Among these are:

The expansion of its metal capacity to 100,000 MT per annum,

Its power generating capacity to reach 267.5 MW at Hirakud,

Ramping up the alumina plant at Muri to 500,000 MT per annum and

Enhancing the special alumina chemical capacity to 127,000 MT per annum at

Belgaum.



PRODUCTS OF HINDALCO – BELGAUM:

CHEMICALS (Aluminium Capacity 14,01,000 TPA)

The chemicals units comprise bauxite mining at lohardaga (Jharkhand),

Durgmanwadi (Maharashtra), the alumina refineries at Muri (Jharkhand) and Belgaum

(Karnataka), including facilities for specialty grade alumina chemicals.

ALUMINUM

Metal & Power (Metal capacity 1,10,10,000 TPA captive power 67.5 MW)

Indal’s smelters are located at Hirakund (Orissa) & Alupuram (Kerala).

SHEET

Indal’s sheet rolling mills are located at Bellur (West Bengal) and Taloja

(Maharashtra). The continuous caster at Hirakund (Orissa) Provides Comcast coils for

cold rolling at Bellur.

FOIL & PACKAGING

The foil plant is located at Kalwa (Maharashtra) is equipped with the latest

microprocessor based gauge control system to ensure world class rolling of foil and state

of the art converting equipment.

EXTRUSIONS

Indal’s extrusions unit based at Alupuram (Kerala) offers the widest range of

alloys and shapes in India.



PRODUCTS

The main products of Alumina Plant, Special Products & Carbon Paste & Block

Plant are as under:

Aluminium Hydrate

Calcined Alumina

Vanadium Sludge

Various Grades of Alumina & Hydrate produced as Special Products.

Carbon Paste & Blocks.

SPECIAL PRODUCTS

Alumina can be broadly divided into two types-Metallurgical and Non-

Metallurgical Grades. Metallurgical grade alumina is being used for the production of

aluminium. While Speciality grade hydrate & alumina is used for various other

applications like fusion, grinding media, tiles, refractory, high tech ceramics, filler in

SMC/DMC compound, Alum, Glass etc.



The Belgaum Works is divided into the following Departments:

Alumina operations and production

Specials

Alumina R&D

Alumina mechanical

Boiler house

Machine shop

Garage

PPC

CPBP

Civil & pump house

Alumina electrical E & I

Smelter R&D

HR

Accounts

Purchase

Stores

Exim

Dispatch

Systems

BRDC

In all there are around 777 employees, who include the management, workers these all

are full time enrolled people.



Marketing

Hindalco has no marketing division at Belgaum works, the units work

independently and for the sales and marketing there are the separate centers which co-

ordinate with all the units and look into the sales and marketing of the products. The

sales office is in Bangalore, Delhi and Hyderabad.

Finance (Accounts Department)

This department handles all financial transactions, costing and billing operations

negotiation process, maintaining and preparing various invoices, payments and receipts

are the to major areas of operation done by this department. In addition taxation cash

loan normal and statuary payments expenses, this section handles advances and other

operations relating to banks.

Operations

The main operations are based in the CPBP, Alumina and special products. These

department are the core for the manufacturing of Alumina carbon block, carbon paste

and special products. These departments comprise of smaller departments and each of

these 3 major departments has a department head. The majority of the people are

working in Alumina, CPBP and Special products departments, and the work is carried

out in shifts.

Research and Development:

Hindalco’s R&D centers at Belgaum and Taloja are recognized by the department

of Scientific and industrial research (DSIR). The Belgaum R & D center carries out

studies on ores, alumina and specially grades and carries out overseas assignments in

collaboration with ALCAN. The R & D lab has the status of “Center of Excellence” for

predicting organic behavior in refineries. A joint technical development program with

ALCAN is under execution in the field of raw materials. Both the R & D centers have

attained ISO 9001 &9002 certification, with the Belgaum R&D center having recently



adopted the revised ISO9001:2000 standard. Over the last five years, about rupees 560

million has been spent on R &D – a testimony to HINDALCO’s commitment towards

developing new applications for alumina/aluminum, optimizing manufacturing process

and ensuring environmental friendliness.

Human Resource Department

Belgaum works has a separate HR Department, which looks into the daily

administration and also into the specific and nitty gritty of the company, it is the bridge

between the production, employees, management and the outside world. This department

is concerned with implementation of the plans, with the welfare of the plant, with the

industrial relations and above all safety and security of the plant and the work force is its

prime concerns. This department looks after the subsidiaries like recruitment selection

training and induction, canteen community development disciplinary actions ESI,

welfare, security, guesthouse medical facility etc.

OTHER VARIOUS DEPARTMENTS:

Commercial Department Stores Department

Purchase Department

Accounts Department

Dispatch Department

Production Department

Accounts Department



Other departments are:

Traffic Department

Exports Department

Project Department

Legal Cells

Systems Department

Environment Department

Work Managers Office

WORLD CLASS MANUFACTURING ACTIVITIES: WCM

WCM is a competitive strategy that aims for shareholder’s value creation enough

focus on sustainable and superior QCEIP performance and other parameters. The

objective of our WCM initiative is to successfully compete with any organization in

which every employee from top to bottom is working towards making that organization

the best in its particular field. It is based on the idea that each person is an expert in his

or her own job, and by synergizing the collective thinking power, creativity and job

knowledge of everyone in the organization, we can accomplish this objective. One

cannot seek cultural change in a business like manner. It is not something that can be

bought or installed like computer software. Developing a culture is like planting a

garden. It takes time. It requires vision, planning and systematic & disciplined

application of skill & effort. We could understand that the task is by no means easy, as

part of the problem is duality of WEM philosophy that stresses both on Instrumental and

the inspirational. The inspirational is essentialfor sustaining the initial flush of

enthusiasm.



Main Purposes of WCM Workshop are:

To introduce and proliferate the concepts, tools and techniques of World Class

Manufacturing at all levels.

Develop Leads (known as Champions of Change) to further proliferate the WCM

Concepts in plant once the Conference Cum Workshop is over.

Establish a common language amongst the Champions of Change.

Develop a Culture for Excellence involving People, and creating a Mindset for

doing quality work in all that we do, everytime, and all the time.

WCM (WORLD CLASS MANUFACTURING)

A main aspect of the company, it is moving towards building a WCM unit in the

organization.

Below is the WCM model of the company.

ZERO DEFECTS



ZERO LOSSES

ZERO BREAKDOWNS

ZERO POLLUTION

ZERO ACCIDENTS

ZERO CUSTOMER COMPLAINTS

EIGHT DIMENSIONS:

1. Waste Elimination (MUDA): Waste is anything which customer does not look

for or pay for. Any activity, which is not adding any value to business, is considered

as MUDA.

2. Work Environment (5s): It stands for good house keeping concepts and is

considered the basis for continuous productivity and quality improvements Respect

Standards and cultivates good habits.

The 5s Stands for:

Sorting

Systematic Arrangement

Spick & Span

Serene Atmosphere

Self Discipline

3. Just In Time: The prime goal of just in time is the achievement of Zero Inventories

not just within the confines of a single organization but ultimate through.

4. Equipment Effectiveness / TPM: It is an innovative approach to maintenance

that Optimized Equipment Effectiveness, Minimizes waste promote, Zero Accidents,

Zero Breakdowns & Zero Pollution- through team activities involving all levels of

employees.



5. Customer Driven (Internal & External): This dimension ensures customer

delight, both internal as well as external in enables understanding of customer

expectations of our products / services.

6. Strategic Quality Management (SQM): It is the process of establishing long-

term quality goals and defining the approach to meet these goals. It is centered on

quality based on the participation of all its members and aiming at long-term success

through customer’s satisfaction and benefits to the members of organization and

society. SQM is developed, implemented and led by the upper management. Here,

we integrate quality into strategic planning.

7. Liaison and Understanding: Liaison is co-ordination/communication between

the two extreme ends, liaison needs proper scheduling to achieve the satisfaction of

your customer liaison and understanding therefore is most essential. The need for

liaison and understanding is to meet the immediate demand of the market.

8. Information, Systems, Technology & Cash Flow: Keeping upto date with

information from various sources the suppliers, customers, competitors, employees

and other stake holders is extremely necessary for managing the business systems for

effective manufacturing, continuous up-gradation of technology and effective cash

flow are the basic requirements and WCM.



AWARDS & RECOGNISATION

1996: National Award for Energy Conservation (Aluminium Sector) from

ministry of Power, Government of India.

2001: National Energy Conservation Award for Belgaum.

2003: Greentech Gold Award for Environment Management.

2004: Greentech Gold Award for Safety.

2007: Best Employers In India.

2007: Best Employers In Asia

MAJOR PLAYERS

The Industry is oligopolistic in nature with three players in the sector

National Aluminium Co Ltd. (NALCO)

Sharat Aluminium Co Ltd. (SALCO)

The Madras Aluminium Co Ltd. (MALCO)



SWOT Analysis of Hindalco Industries Limited, Belgaum WorksSTRENGTS:

Integrated Operations from Bauxite Mining, Alumina Refining & Specials.

Dominate Player in Domestic Market in Specialty Alumina & Hydrates.

Established Export Presence in 30 Countries.

Highly Competent, Committed & Skilled Operatives & Technical Personnel.

Among the Best in Specific Energy Consumption in Alumina Industry.

WEAKNESS:

Non-Global Scale of Operations.

High Exposure to Furnace Oil as majors Source of Energy Input.

High Cost of State Grid Electrical Energy & Supply interruptions.

Higher Cost of Logistics & Inward and Outward Material movement 100% by

Road.

Alumina Quality More Suited to HSS Technology, which is getting phased out.

OPPORTUNITIES:

Growing Speciality Alumina & Hydrate Market.

Changes In Speciality Market Structure with two Major Global Players Vacating

the Market.

Growing Metallurgical Alumina Demand.

Lower Investment Cost for Brownfield Expansion.

THREATS:

Inadequate Bauxite Reserves for operations both at current level & for

Expansion.

Cyclical Metallurgical Alumina Prices Causing Wide Fluctuations in Profitability

Cyclical & Rising Furnace Oil Prices



DATA COLLECTION METHOD:

To fulfill the set of objectives regarding study of working capital. The researcher

collected mainly secondary data, primary data & Information was also collected to a

substantiate the findings derived form the secondary data.

A. Primary Data

Primary Data is collected during the course of training through observations

&n discussions with departmental heads, accountants, assistants & officers.

B. Secondary Data

Secondary Data is collected from published annual reports and prospects of

the company. The process of data collection is further supplemented by an

extensive library conducted in the library of IMER.



Research Analysis

Findings And Suggestions

Conclusion



RESEARCH ANALYSIS

Statement’s showing Changes in Working Capital in 2002-2003

( Rs in Thousand App.)

Particulars 2001-2002 2002- 2003 Increase Decrease

A]. Current Assets

Cash & Bank

Balance

16,834 1,515 15,319

Sundry Debtors &

Others

2,78,541 3,01,361 22,820

Inventory 6,51,891 5,87,964 63,927

Loans &

Advances

42,101 24,843 17,258

Total of A 9,89,367 9,15,683

B].Current

Liabilities

Current liabilities 1,80,997 1,98,309 17,312

Provisions 1,47,029 90,021 57,008

Total of B 3,28,026 2,88,330

Change in Working

Capital (A-B)

6,61,341 6,27,353

Decrease in

Working Capital

33,988 33,988

Total 6,61,341 6,61,341 1,13,816 1,13,816

COMMENTS:-



Above table shows that working capital has been decreased by Rs.33,988

thousand in the year 2002-2003.

This is because in the year 2002-03 only debtors have increased and remaining

assets are decreased as compared to last year i.e. 2001-02.

And further current liabilities are increased in the year 2002-03 as compared to

last year.




(Rs in Thousand App.)


A]. Current Assets

Cash & Bank Balance

1,515

← 359

----- 1,156

Sundry Debtors &

Others

3,01,361 2,51,787 ----- 49,574

Inventory 5,87,964 4,36,579 ----- 1,51,385

Loans & Advances 24,843 34,887 10,044 -----

Total of A 9,15,683 7,23,612

B].Current Liabilities

Current liabilities 1,98,309 2,02,192 ----- 3,883

Provisions 90,021 1,01,365 ----- 11,344

Total of B 2,88,330 3,03,557 ----- -----

Change in Working

Capital (A-B)

6,27,353 4,20,055 10,044 2,17,342

Decrease in Working

Capital

----- 2,07,298 2,07,298 -----

Total 6,27,353 6,27,353 2,17,342 2,17,342



COMMENTS:-

Above table shows that working capital has decreased by Rs.2,07,298 thousand

in the year 2003-2004.

This is because we can see in the above table the Current assets is decreased as

compared to the last year, as there is only increase in the Loan & Advances and

all others assets have been decreased as per the comparison of the last year.

As we can see there is decrease in both the current liabilities, so it is good for the

company as compared to the last year current liabilities.






A]. Current Assets

Cash & Bank

Balance

359

← 241

----- 118

Sundry Debtors &

Others

2,51,787 2,07,823 ----- 43,964

Inventory 4,36,579 7,58,938 3,22,359

Loans &

Advances

34,887 40,323 5,436 -----

Total of A 7,23,612 10,07,325

B].Current

Liabilities

Current liabilities 2,02,192 2,24,330 ----- 2,21,38

Provisions 1,01,365 1,78,346 ----- 76,981

Total of B 3,03,557 4,02,676 ----- -----

Change in Working

Capital (A-B)

4,20,055 6,04,649 3,27,795 1,43,201

Increase in

Working Capital

1,84,594 ----- ----- 1,84,594

Total 6,04,649 6,04,649 3,27,795 3,27,795



COMMENTS :-

In the above table we can notice that after two years of gap there is an increase in

the working capital as compared to last year 2003-2004 by Rs 1,84,594 thousand.

This is because as we can see that there is a great increase in Current Assets as

the company is looking to invest more in inventory of raw material in this year

2004-2005 because of the shortage of raw material for that year, so overall there

is increase in the current assets.

As we can see there is decrease in the liabilities of the company which is good for

the company.

So from all the above calculation we can say that there is good increase in the

working capital as compared to the last year working capital. So we can say that

company is more likely to increase their inventory because they are thinking it for

the long term perspective.





Particulars 2004- 2005 2005- 2006 Increase Decrease

A]. Current Assets

Cash & Bank

Balance

241 ← 57,588 57,347 ------

Sundry Debtors &

Others

2,07,823 3,08,145 1,00,322 ------

Inventory 7,58,938 5,04,056 ------ 2,54,882

Loans &

Advances

40,323 40,037 ------ 286

Total of A 10,07,325 9,09,826

B].Current

Liabilities


Provisions 1,78,346 2,31,606 ----- 53,260

Total of B 4,02,676 4,81,914 ----- -----

Change in Working

Capital (A-B)

6,04,649 4,27,912 1,57,669 3,34,406

Decrease in

Working Capital

------ 1,76,737 1,76,737 ------

Total 6,04,649 6,04,649 3,34,406 3,34,406



COMMENTS:-

We can view from the above table that there was decrease in working capital as

compared to the last year.

As we can see in Current Assets there is an increase in cash & Debtors from the

last year, but there is much more decrease in inventory & Others.

We can see their is decrease in Inventory due to unavailability of raw material

(Bauxite).

On other side Current Liabilities has been being decreased for both Provision and Current

liabilities





Particulars 2005- 2006 2006- 2007 Increase Decrease

A]. Current Assets

Cash & Bank

Balance

57,588 ← 12,825 ----- 44,763

Sundry Debtors &

Others

3,08,145 1,64,921 ----- 1,43,224

Inventory 5,04,056 9,39,138 4,35,082 ------

Loans &

Advances

40,037 63,050 23,013 ------

Total of A 9,09,826 11,79,934 ----- ------

B].Current

Liabilities


Provisions 2,31,606 2,10,337 21,269 ------

Total of B 4,81,914 5,54,444 ----- -----

Change in Working

Capital (A-B)

4,27,912 6,25,491 4,79,364 2,81,786

Increase in

Working Capital

1,97,579 ----- ----- 1,97,579

Total 6,25,491 6,25,491 4,79,364 4,79,364



COMMENTS:-

In the above table, it is seen that working capital has been increased by Rs.

1,97,579 thousand in the year 2006-2007.

This is because there is increase in all the Current Assets as per the last year,

as shown in the above table.

As we can see there is increase in the current liabilities & there is decrease in

other provisions for the liabilities.



1. Working Capital Turnover Ratio :

Working Capital Turnover Ratio = Net Annual Sales

Net working Capital

Net Working Capital = Gross Current Assets - Current Liabilities

Table Showing Working Capital Turnover Ratio of Hindalco Industries, Belgaum

Year Net Annual Sales

(Rs In Lakhs)

Net Annual

Capital (Rs In

Lakhs)

Calculation Ratio

2002-2003 29074.00 6613.41 29074.00/6613.41 4.39

2003-2004 28357.00 6273.53 28357.00/6273.53 4.52

2004-2005 32015.10 6046.49 32015.10/6046.49 5.29:1

2005-2006 42868.00 4279.12 42868.00/4279.12 10.00:1

2006-2007 77704.00 6254.91 77704.00/6254.91 12.42:1



Working Capital Turnover Ratio

4.39 4.52 5.29

1012.42

0

2

4

6

8

10

12

14

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Ratio

Analysis

The above table shows that the working capital ratio of Hindalco industries,

Belgaum is changing significantly over the period under the study. The ratio was 12.42

in the year 2006-07 & it was decreased to 5.29 in the year 2004-2005.due to the overall

economic recession.



2. Quick Ratio :

Quick Ratio/Acid Test Ratio = Current Assets – Inventories

Current Liabilities

Table Showing Acid Test Ratio of Hindalco Industries, Belgaum

Year Current Assets – Inventories Current Liabilities Ratio

2002-2003 9156.83 - 5879.64/2883.30 1.14:1

2003-2004 7236.12 - 4365.79/3035.57 0.95:1

2004-2005 10073.25 - 7589.38/4026.76 0.62:1

2005-2006 9098.26 - 5040.56/4819.14 0.84:1

2006-2007 11799.34 - 9391.38/5544.44 0.43:1



Analysis:

An acid test ratio or quick ratio of 1:1 is considered satisfactory, the above

figure in the table are satisfactory to certain extent, as the company is able to meet its

debt. It is observed that comparing to 2002-2003 ,Quick ratio was reduced from 1.14 to

0.43 in the year 2006-2007.



3. Current Ratio:

Current Ratio = Current Assets

Current Liabilities

Table showing current ratio of Hindalco industries. Belgaum

Year Current Assets/Current Liabilities Ratio

2002-2003 9156.83/1983.09 4.61

2003-2004 7236.12/2021.92 3.57

2004-2005 10073.25/2443.30 4.12

2005-2006 9098.26/2503.08 3.63

2006-2007 11799.34/3441.07 3.42



Analysis

From the above table it is seen that the current ratio of the company is flexible

throughout five years. It means in 2002-2003 it was 4.16 to 1, in 2003-2004 it was 3.57

to 1 in the year 2004-2005 it was 4.12 to 1, But in the year 2005-2006 it was 3.63 to

1.and in the current year 2006-2007 it was decreased to 3.42. It shows that the liability is

more than the assets so for this reason the ratio of the company is changing frequently.



4. Inventory Turnover Ratio :

Inventory Turnover Ratio = Sales

Average Inventory

Average Inventory = Opening Stock + Closing Stock

2

Table Showing the Inventory Turnover Ratio of Hindalco Industries, Belgaum

Year Sales Turnover

(RS IN LAKHS)

O/p stock + C/o stock

2

(RS IN LAKHS)

AVERAGE

INVENTORY

Inventory T/O Ratio

(NO,TIMES)

2002-2003 29074.00 6518.91 + 5879.64/2 6199.28 4.70

2003-2004 28357.00 5879.64 + 4365.79/2 5122.72 5.50

2004-2005 32015.10 4365.79 + 7589.38/2 5977.59 5.40

2005-2006 42868.00 7589.38 + 5040.56/2 6314.97 6.80

2006-2007 77704.00 5040.56 + 9391.38/2 7215.97 10.80



Analysis:

From the above table it is seen that Inventory Ratio of the company was 4.70 in the

year 2002-2003,But it was increased to 10.80 in 2006-2007 it is good to company,

because the standard norm is 5 to 6 times, it should not less than 5 to 6 times. The above

table shows the efficient inventory management of the company.



Table Showing growth in working capital of Hindalco Industries,

Belgaum

Particular 02-03 03-04 04-05 05-06 06-07 Average Invested

In Rs.

Percentage

Inventory 5879.64 4365.79 7589.38 5040.56 9391.38 6453.35 68.13

Cash & Bank 15.15 3.59 2.41 575.88 128.25 145.05 1.53

Sundry

Debtors

3013.61 2517.87 2078.23 3081.45 1649.21 2468.07 26.05

Loan &

Advances

248.43 348.87 403.23 400.37 630.50 406.28 4.29

Gross Capital 9156.83 7236.12 10073.2 9098.26 11799.34 9472.75 100

Graphical Representation of Working Capital on percentage basis

PARTICULAR 02-03 03-04 04-05 05-06 06-07 Average

Invested

Percentage



In Rs.

Current

Liabilities

1983.09 2021.92 2443.30 2503.08 3441.07 2478.49 60.42

Provisions 900.21 1013.65 1783.46 2316.06 2103.37 1623.35 39.57

Total 2883.30 3035.57 4026.76 4819.14 5544.44 4101.84 100

Table Showing the Current Liabilities of Hindalco Industries, Belgaum

Graphical Representation of Current Liabilities in Percentage



Chart Showing Sales Turnover of the company


Year Turnover of the company

2002-2003 29074.00

2003-2004 28357.00

2004-2005 32015.10

2005-2006 42868.00

2006-2007 77704.00


Findings & Suggestions:

From the study conducted over the Working Capital Management” at Belgaum

Works. We have used “Statement Change in Working Capital” & “Ratio Analysis”.

Findings:

Overall the working capital Turnover Ratio is low it shows that the current assets

have been utilized properly by the company in making more sales.

The quick ratio or acid ratio of the company shows that the liquidity position of

the company is very good (Prefer Table).

Current Ratio is changing subsequently due to the reason that current liability is

more than the assets.

As we can see that their inventories is 68.13% of all the current assets. So main

finding of the working capital management is that company is more looking to

invest in their inventories rather than other assets and also looking to decrease

their liabilities year by year.



Suggestions:

The firm has insufficient cash and bank balances due to more credit sales of the

company. So the company should transact more on cash basis.

The materials available locally should be minimized to the larger extent as they

may be purchased within shorter period of time, this will reduce the block of

money as well as increase the liquidity position of the division.

Every year on an average 26% of amount is invested in sundry debtors it should

be reduced as much as possible. (debts must be recollected from the debtors)

Having an Optimum Stock Level of raw materials, by storing only the required

material which will help.



CONCLUSION:

It has been an excellent opportunity for me to carry out the study on working

capital management at Hindalco Industries, Belgaum it has helped me to a great

extent to have an insight into the practical realities of the subject. I have been

able to study and suggest to the best of my knowledge. I try my best effort for the

completion of my project study.

According to me Hindalco Industries is managing there working capital quite

well. The Finance Department is carrying out its responsibilities efficiently. All

the major departments are cooperating and synchronizing their efforts for the

progress of Hindalco Industries, Belgaum.

A Firm should always invest in current assets for smooth & uninterrupted

production & sale.

The concept of working capital is used in two ways gross working capital refers

to the firms Investment in current assets. Net working capital occurs the

difference between current assets and current liabilities.

Working Capital Management changes as per the season, as the company are

looking to make stock of Bauxite before the commencement of rainy season, it

automatically increases the Inventory which also increases the Current Assets.

At the end I Thank to each & every one who have helped me in the completion

of my implant training at Hindalco Industries, Belgaum Plant (Karnataka).



BIBLIOGRAPHY



BIBLIOGRAPHY

1. Financial Management by : M. V. Khan and P. K. Jain

2. Financial Management by : I. M. Pande

3. Financial Management by : S. K. Pant

4. Financial Annual Reports of Hindalco Industries Ltd for the year

2002-2003 to 2006-2007

5. Fundamentals Of Financial Management by : Prasanna Chandra

6. Internet: www.hindalco.com


http://www.hindalco.com/

a project report on working capital management of hindalco for the last five years

Documents

gross working capital

net working capital

capital management of

capital turnover ratio

current ratio

management attitude

current assets of business

study scope