1. A STUDY ON WORKING CAPITAL MANAGEMENT
WITH REFERENCE TO BAJRANBALI ALLOYS
PRIVATE LIMITED, ORISSA
A project report submitted to GITAM Institute Of Management, Vishakhapatnam on
partial fulfillment for the award of Degree of
BACHELOR OF BUSINESS MANAGEMENT
Submitted By
CH. PADMA
Under the esteemed guidance of
Mrs.I.Madhvi (M.A.Eng.),
Assistant Professor
CMS, GITAM
COLLEGE OF MANAGEMENT STUDIES
AN AUTONOMOUS & NAAC ACCREDITED ‘A’ GRADE INSTITUTION
GANDHI INSTITUTE OFTECHNOLOGY AND
MANAGEMENT,
GANDHINAGAR CAMPUS,RUSHIKONDA
VISKHAPATNAM- 530045
2006 - 2009
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2. DECLARATION
I hereby declare that this project report entitled “WORKING
CAPITAL MANAGEMENT : A study with reference to BAJRANBALI
ALLOYS PRIVATE LIMITED in ORISSA” has been prepared by me
during the period of 45 days of my summer holidays in partial fulfillment of
requirement for the award of Degree of Bachelor Of Business Management
by ANDHRA UNIVERSITY.
I also hereby declare that this project is the result of my own
effort and that it has not been submitted to any other University for the
award of any Degree.
PLACE: Vishakhapatnam NAME: Ch. Padma
DATE: Roll No. :
2

3. CERTIFICATE
This is to certify that this project report entitled “A STUDY ON STRATEGY RED
OF HINDUSTAN COCO COLA BEVERAGES PVT LTD” With
Respective to Ameenpur Depot is a bonafide work done under my guidance
and direction in partial fulfillment for the award of the post graduation PGDM, during
summer internship for 45 days.
PLACE: Hyderabad Dr. Lakshmi Kumari (economics)
DATE: Assistant Professor,
Institute of Public Enterprise
3

4. ACKNOWLEDGEMENTS
I wish to express my deep sence of gratitude to Prof. K. SHIVARAMA
KRISHNA, director, Gitam institute of management, Gandhi institute of
management and technology, visakhaptnam for permiting me to do the
project.
I would like to express my heartful thanks to Prof. Ram Mohan Rao, Head
of the department, Gitam institute of management, Gandhi institute of
management and technology, visakhapatnam for the necessary cooperation
extended to me in doing my project work.
I first and foremost acknowledge my sincere heartiest thanks to I.Madhavi
(M.A.eng), Gitam institute of management, Gandhi institute of management
and technology, Visakhapatnam, who has been my guide for providing me
constant encouragement and consistent interest towards the effective
presentation of this project report.
With immense pleasure, I would like to express my sincere thanks and
gratitude to Bajrangbali Alloys private limited, Orissa, and my co-guide Mr.
Rajendra Prasad Agarwal for providing necessary information during my
project period.
I would take opportunity to express my deep and profound gratitude to my
family members and friends who have helped me directly and indirectly in
the successful completion of project.
Ch.Padma
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5. CONTENTS
PAGE NO.
Chapter 1: THEORETICAL FRAMEWORK 8-35
1.1 TOPIC RELATED CONCEPT 9-10
1.2 OBJECTIVES 10-18
1.3 IMPORTANCE 18-19
1.4 PRINCIPLES 20-22
1.5 CASH MANAGEMENT 22-24
1.6 INTERNAL CONTROL SYSTEM 25-28
1.7 WORKING CAPITAL ANALYSIS 29-35
Chapter 2: METHADOLOGY 36-40
2.1 NEED FOR STUDY 36
2.2 SCOPE OF THE STUDY 37
2.3 OBJECTIVES OF THE STUDY 38
2.4 DATABASE AND METHODOLOGY 38-39
2.5 LIMITATION OF THE STUDY 39
2.6 PRESENTATION OF THE STUDY 40
Chapter 3: ORGANISATION PROFILE 41-69
3.1 INDUSTRY PROFILE 41-44
3.2 COMPANY PROFILE 44-69
Chapter 4: ANALYSIS OF NET WOKING 70-108
CAPITAL
Chapter 5: STUDY FINDINGS 109-112
5.1 FINDINGS 109-110
5.2 SUGGESTIONS 111
5.3 CONCLUSION 112
BIBLOGRAPHY 113
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6. LIST OF TABLES
TABLE NO. DESCRIPTION PAGE NO.
TABLE NO. 4.1 CHANGES IN WORKING CAPITAL 91
(YEAR 2003-2004)
TABLE NO. 4.2 CHANGES IN WORKING CAPITAL 92-93
(YEAR 2004-2005)
TABLE NO. 4.3 CHANGES IN WORKING CAPITAL 94
(YEAR 2005-2006)
TABLE NO. 4.4 CHANGES IN WORKING CAPITAL 95
(YEAR2006-2007)
TABLE NO. 4.5 CONSOLIDATED STATEMENT OF 96
CURRENT ASSETS
TABLE NO. 4.6 CONSOLIDATED STATEMENT OF 98
CURRENT LIABILITIES.
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7. LIST OF GRAPHS
FIGURE NO. DESCRIPTION PAGE NO.
FIGURE NO. 4.6 CURRENT LIABILITIES 98-99
FIGURE NO. 4.7 COMPARISON OF SUNDRY DEBTORS 100
FIGURE NO. 4.8 COMPARISION OF INVENTORIES 101
FIGURE NO. 4.9 COMPARISION OF CASH AND BANK 102
FIGURE NO. 4.10 COMPARISION OF LOANS AND 103
ADVANCES
FIGURE NO. 4.11 COMPARISION OF LIABILITIES 104
AND PROVISIONS
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8. CHAPTER – I
THEORITICAL FRAMEWORK:
Working Capital Management is concerned with the problems that
arise in the attempt to manage the current assets, the current liabilities and
the inter-relationship that exists between them. The aim of the working
capital management is to manage the concerns current assets and current
liabilities in such a way that an adequate level of the working capital is
maintained. An adequate level of the working capital provides a business
with operational flexibility. A business with an adequate level of working
capital has more options available to it, and can make its own choices as to
when working capital will be used and how it will be used; on the other
hand, if a firm is short of working capital, it may be forced to limit business
operations, extension of credit to customers and the amount that it invests
inventory. This will adversely affect production as well as sales, which in
turn will affect profitability of the concern.
Working Capital Management is an integral part of overall financial
management. It has been looked upon as the driving seat of the financial
manager. Moves and actions in the operating fields of production,
procurement, marketing and services are ultimately interpreted and viewed
in financial terms. Hence, the preoccupation can be marked with the
financial implications of the management of working capital and its
segments. In the words of Louis Brandt : We need to know when to look for
working capital funds, how to use them, and how to measure, plan and
control them. Thus, it is concerned with obtaining economic funds, using
8

9. them in a profitable manner and controlling them to maintain economy and
profitability. Working Capital Management helps to establish a proper
balance among risk, liquidity and profitability.
Session Objectives:
• Objective of Working Capital Management
• Static view of working capital
• Dynamic view of working capital
• Determination of Operating Cycle
• Evaluating working capital management
TOPIC RELATED CONCEPTS:
Working Capital Management:
Working capital management is concerned with the problems that arise
while managing current assets, current liabilities, and inter-relationship
that exists between them.
Current assets are those assets that, in ordinary course of business, can be
converted into cash within one year without undergoing any diminution in
value. The major current assets are cash, marketable securities, accounts
receivable, and inventory.
In contrast to this, fixed assets are those assets that are permanent in nature
and are held for use in business activities. For example, land, building,
machinery etc.
Current liabilities are those liabilities that are obligations that have to be
paid in a single accounting period. Examples of current liabilities are:
accounts payable, bills receivable, bank over-draft and outstanding
9

10. expenses. Long-term liabilities, on the other hand, are obligations that can
be repaid over a period greater than a single accounting period. Examples
of long-term liabilities are: share capital, debentures, long-term loans etc.
CONCEPTS OF WORKING CAPITAL:
There are two concepts of working capital:
a. Gross working capital: It is equal to the total investment in
current assets.
b. Net working capital: It is the difference between current
assets and current liabilities. It can be described as that part of a
firm’s current assets which is financed with the help of long-term
funds.
Both the concepts have equal significance in working capital
management.
Gross working capital helps in analyzing:
a. Ways to optimize investment in current assets and
b. Methods for financing current assets.
Net working capital indicates the liquidity position of the firm. It also
reflects the extent to which the working capital needs should be
financed by long-term sources of funds.
OBJECTIVE OF WORKING CAPITAL MANAGEMENT:
The goal of working capital management is to manage the current assets
and liabilities in such a way that an acceptable level of net working capital
is maintained. There are two issues that are dealt under working capital.
They are:
10

11. 1. Determining the level of working capital to be maintained:
The exact amount of working capital that should be maintained varies
from firm to firm and depends on various factors like nature of business,
degree of competition etc. Keeping in view the uncertainty associated
with the dynamic environment in which a firm operates, the amount of
investments in current assets should be made in such a manner that it not
only meets the needs of the forecasted sales but also provides a built-in
cushion in the form of safety stocks to meet unforeseen contingencies
arising out of factors such as delays in the arrival of raw materials,
sudden spurts in sales demand etc.
If a firm follows a conservative approach, then it will make a higher level
of investment in current assets. But this would also mean that the
company will not have sufficient amount to invest in profitable avenues.
On the other hand, if the finance manager opts for an aggressive
approach, the firm will have lesser investment in current assets thus
leaving more amounts for investing in profitable alternatives. Thus,
conservative approach provides more liquidity but less profitability and
aggressive approach provides more profitability and less liquidity.
2. Decision regarding financing of current assets:
Once the appropriate level of working capital is chosen, the next decision
pertains to determining the finance-mix for current assets. Some of the
sources that are used to finance current assets are:
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12. a. Spontaneous liabilities: Short-term liabilities such as sundry
creditors, accrued expenses, etc. and provisions that arise during
the normal course of business serve as non-interest bearing source
of financing current assets.
b. Bank borrowings, Public deposits and long-term sources
of finance
The difference between the amounts of current assets and liabilities is
usually financed through a combination of bank borrowings by way of
cash credit/overdraft arrangement and long-term sources of finance such
as debentures and equity capital. Companies can also opt for fixed
deposits (obtained for a period of one to three years) for financing
current assets.
The decision regarding the financing of current assets using the above
sources of finance depends on the attitude of the company towards risk.
The financing policy opted by the firm can be classified into two
categories based on its risk attitude:
a. Conservative financing policy: A firm following a
conservative financing policy will use long-term sources like
equity and debentures, for financing current assets. Consequently,
these firms will have a lower risk as there is a reduced probability
of “technical insolvency” that arises when a company is not in a
position to honor its current liabilities.
12

13. But following a conservative policy would imply a higher cost of
financing since:
i. Equity has the highest cost of capital and it does not have the
advantage of tax-deductibility that exists in the case of debt
capital.
ii. The interest on debentures has to be paid irrespective of the
fluctuating needs for financing current assets.
b. Aggressive financing policy: A firm following an aggressive
financing policy will use more of bank borrowings and public
deposits and less of long-term sources of finance for financing its
current assets. Such a policy will be useful for companies that
have a fluctuating need for current assets because usually the bank
borrowings are geared to move in tandem with the fluctuating
level of current assets so that the total interest charge for the
company is likely to be low. But an aggressive financing policy
involves higher risk of “technical insolvency.”
Hence, depending upon the attitude of management towards risk
and keeping in view the constraints imposed by banking sector
with respect to short-term credit, the firm should choose the
appropriate financing policy.
STATIC VIEW OF WORKING CAPITAL
As per the static view, working capital can be defined in two ways:
Gross working capital: It is equal to the total current assets (including
loans and advances).
13

14. Net working capital: It is the difference between current assets and
current liabilities (including provisions). It can be also described as that
part of a firm’s current assets which is financed with the help of long-
term funds. The net working capital of a firm helps in comparing the
liquidity of the same firm over a period of time. The liquidity of a firm
can be defined as the ability of the firm to satisfy short-term obligations
as they become due.
The static view of working capital lays more emphasis on the level of
current assets compared to the level of current liabilities.
Drawbacks of static view of working capital:
The static view of working capital has the following drawbacks:
1. The working capital under this view is computed using the
data given in the balance sheet that is static in nature and fails to
reflect the dynamic nature of working capital that is crucial in
decision making.
2. The net working capital which is computed as the difference
between current assets and current liabilities does not reflect the
correct amount of working capital due to the following reasons:
-Short-term bank borrowings that are used for financing current assets
are shown separately under the heading of secured loans and not as a part
of current liabilities.
-Short-term Public deposits utilized for financing current assets are
shown under the category of unsecured loans and are not included in
current liabilities.
-Short-term marketable securities that are held for the purpose of
providing liquidity to the firm are shown under the heading of
investments and are not included in the current assets.
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15. The reasons mentioned above lead to a miscalculation of the amount of
working capital.
II. DYNAMIC VIEW OF WORKING CAPITAL
The dynamic view defines working capital as the amount of capital
required for the smooth and uninterrupted functioning of the normal
business operations of the firm encompassing various activities
commencing with the procurement of raw materials, conversion of raw
materials into finished product for sale, creation of accounts receivable
on account of goods sold on credit and finally realization of profits from
sales and cash from accounts receivable. As per this definition of
working capital, the following activities would come under the purview
of working capital management.
1. Determination of the appropriate level of raw material
inventory:
A firm needs to decide the appropriate level of working capital by
keeping in view the following factors:
- Existence of raw materials in the domestic market.
- Need for importing the raw materials if not available indigenously.
- Existence of restrictions imposed by government.
- The time lag between ordering and receiving of raw materials
- Discounts offered by suppliers.
- Price movements of raw materials in a period of high inflation.
2. Determination of appropriate level of work-in-process
inventory:
15

16. Depending on the nature of process technology used, the firm should
decide the required level of work-in-process inventory. The level of
work-in-process inventory will be higher in case of firms where the raw
material has to pass through several stages during the process of
production.
3. Determination of appropriate level of finished goods inventory:
Following are some factors that help in determination of the required
amount of finished goods inventory:
-Degree of accuracy in forecasting sales demand.
-Ability to meet sudden spurt in demand.
-Seasonality of demand.
-Nature of finished goods: For example, if it is a perishable good then
lower inventory should be maintained.
4. Determination of credit policies and credit period to be
extended to customers:
The degree of competition in the industry and the general attitude of the
competitors towards credit sales are two major factors that determine the
credit policies of the firm. Apart from these factors, the credibility of the
customer is also crucial in deciding the credit policy.
5. Determination of the level of cash to be maintained by the firm:
The required level of cash should be decided keeping in view the
following factors:
- Ability to meet cash payments.
- Ability to avail sudden cash discounts offered by the suppliers.
16

17. - Credit period extended to customers.
- Credit period extended by suppliers.
- Degree of synchronization between cash inflows and cash
outflows.
- Minimum amount of cash to be maintained.
IMPORTANCE OF WORKING CAPITAL MANAGEMENT
Proper management of working capital is very important for the
success of an enterprise. “It aims at protecting the purchasing power of
assets and maximizing the return on Investment. The manager of
administration of current assets to a very large extent determines the
success of the operations of a firm. Constant management is required to
maintain appropriate levels in the various working capital accounts. The
observation of Kennedy and MC Mullen does not carry weight when they
way that, A study of working capital is of major importance to internal and
external analysis because of its close relationship to current day-to-day
operations of business, Inadequacy or mismanagement of working capital is
the leading cause of business failures. Shortage of working capital, so often
advanced as the main cause of failure of Industrial concerns, is nothing but
the clearest evidence of mismanagement, which is so common.
The current assets and current liabilities flow round in a business like
an electric current. The working capital plays the same role in the business
as the role of the heart in the human body. Just as the heart gets blood and
circulated the same in the body, in the same enterprise, adequate amount of
working capital is pre-requisite. The adequacy of cash and current assets
together with their efficient handing virtually determine the survival or
demise of a concern. Inadequate working capital is a business ailment as
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18. compared to the availability of excess working capital may lead
carelessness.
About costs and therefore, to inefficiency of operations. Many a
times business failure takes place due to lack of working capital. If a
concern maintains an adequate amount of working capital, it enjoys a good
credit rating and gets discount on payment. It will ensure proper functioning
of the business operations and help in the maximization of threat of return.
A business house can maximize its rate of return on the capital invested
provide in keeps pace with the scientific and technological developments
taking place in the field to which it pertains. As soon as some technological
and scientific development takes place, a business enterprise in order to
accelerate its profitability should immediately introduce the same to its
productive process. In reality, however the sufficiency of working capital
will determine the course of decision in this regard.
PRINCIPLES OF WORKING CAPITAL MANAGEMENT
The following are the general principles of a sound working capital
management policy:
(1) Principle of Risk Variation:-
Risk here refers to the inability of a firm to meet its obligations as
and when they become due for payment. Larger investment in current asset
with less dependence on short term borrowing increases liquidity reduces
risk and thereby decreases that opportunity for gain or loss. On the other
hand less investment in current asset with greater dependence on short-term
borrowings increases risk, reduces liquidity and increases profitability.
18

19. (2) Principle of Cost of Capital:
The various sources of raising working capital finance have different
cost of capital and the degree of risk involved. Generally, higher the risk,
lower is the cost and lower the risk, higher is the cost. A sound working
capital management should always try to achieve a proper balance between
these two.
(3) Principle of Equity Position:
The principle is concerned with planning the total investment in
current assets. According to this principle, the amount of working capital
invested in each component should be adequately justified by a firm’s
equity position. Every rupee invested in the current assets should contribute
to the net worth of the firm. The level of current assets may be measured
with the help of two rations:
(i) Current assets as a percentage of total assets, and
(ii) Current assets as a percentage of total sales. While deciding about the
composition of current assets, the financial manager may consider the
relevant industrial averages.
(4) Principle of Maturity of Payment :
This principle is concerned with planning the sources of finance for
working capital. According to this principle, a firm should make every
effort to related maturities of payment to its flow of internally generated
funds. Maturity pattern of various current obligations is an important factor
in risk assumptions and risk assessments. Generally, shorter the maturity
schedule of current liabilities in relation to expected cash inflows, the
greater the inability to meet its obligations in time.
19

20. To sum up, working capital management should be considered as an
integral part of corporate management. In the words of Louse Brand, “We
need to know when to look for working capital funds, how to use them and
how to measure, plan and control them”. To achieve the above mentioned
objectives of working capital management, the financial manager has to
perform the following basic function.
(i) Estimating the working capital requirements.
(ii) Financing of working capital needs.
(iii) Analysis and control of working capital .
Working capital management involves the management of the three
most important components of the working capital, i.e Cash, Receivables
and Inventory.
CASH MANAGEMENT
Objectives of Cash management
1. To make short-term forecasts about cash inflows and outflows of the
firm.
2. To find profitable avenues for investing surplus cash.
Arranging finance in case of cash deficit.
Cash Forecasting and Budgetting
Cash budget is a vital tool used for planning and controlling cash receipts
and payments. A cash budget is a summary statement about the firm’s
expected cash inflows and outflows over a short period of time. With the
help of the information given in the cash budget, the finance manager can
estimate the timing and magnitude of the expected cash flows and can use
20

21. it to determine the future needs of the firm; for planning the sources of
finance for these needs and for exercising control over the cash and
liquidity of the firm. The time horizon for which the cash budget is
prepared varies from firm to firm.
Firms that are affected by seasonal variations would usually prepare
monthly budgets. Firms whose cash flows are relatively unstable in nature
and are affected by extreme fluctuations prepare daily or weekly cash
budgets.
Short-term forecasts will help in determining the cash requirements for a
pre-determined period by making projections about the expected cash
flows. These forecasted figures are used in the preparation of cash budget.
The other utilities of short-term forecasts are:
1. The short-term forecasts will enable the finance manager to adjust
the differences in the cash receipts and cash payments.
2. They help in planning the investment of surplus cash in marketable
securities.
3. They help in choosing securities with appropriate maturities and
acceptable levels of risk.
4. They help in planning short-term financing arrangements with
banks and are useful in determining the minimum and maximum balances
to be maintained with the bank.
One of the commonly used methods of forecasting short-term cash flows
is the receipts and disbursements method.
Cash Reports:
Cash reports are prepared in situations where cash inflows and outflows do
not fluctuate much and the collection and payment patterns are stable.
21

22. They help in comparing the actual figures with forecasted figures and in
controlling the deviations that exist. If the fluctuations in the cash position
are high, then the reports are prepared on a weekly and sometimes even on
a daily basis. The important categories of cash reports are:
1. Daily Cash Report: It provides information about the daily cash
position. It indicates opening and closing cash balances, payments made to
creditors, repayments of loans and other cash flows.
2. Daily Treasury Report: A daily cash report does not indicate the
position of accounts receivables, accounts payables and marketable
securities. The daily treasury report fulfils the requirement of presenting a
comprehensive statement about the opening, the closing and the net
balances of cash, marketable securities, accounts receivable and accounts
payable.
3. Monthly Cash Report: It shows the cash receipts and payments over
an entire month.
Internal Control system
Need for Internal Control System: Internal control system is needed for
accounting and controlling the deviations of actual cash flows from the
expected cash flows. With an increase in the size of the organization, it is
not possible to scrutinize all aspects of the business. There are various
risks that a large company faces like entry of counterfeit documents into
the accounting system, careless attitude on behalf of the management,
inaccuracy in recording or reporting transactions, loss of vital documents,
etc. In order to prevent the occurrence of such events, it is necessary to
implement an efficient internal control system. The existence of internal
control systems will help in controlling the actions of fraudulent people, as
they will be aware of the fact that their actions are being monitored.
22

23. Formulation of Internal Control System: The formulation of an internal
control system depends on the size of the firm. The treasury department,
audit staff or an outside consultancy can be helpful in framing the design
of an internal control system. The following points should be taken care of
while formulating the internal control system:
 Responsibilities should be categorized based on the functions
performed. Activities related to the maintenance of records should be
assigned to the controller and activities related to custody of cash and
other liquid assets should be allocated to the treasurer.
 It should ensure proper documentation and recording procedures.
 The policies and procedures should be formulated in consensus with
the organization’s long-term goals.
 The system should ensure that jobs are assigned to suitable personnel
on the basis of their qualifications, interest and experience. The treasurer
and controller should list some basic skills that are required for a particular
type of job. Companies should also try to conduct training programs to
familiarize its employees with latest business practices and latest
technology.
Internal audit:
Internal audit is an appraisal activity performed within an organization. It
aims at reviewing the financial aspects and other policies and procedures
of the company. Internal audit becomes more important in case of large
organizations in order to prevent non-compliance of the company’s rules
and regulations. The job of performing internal audit is assigned to the
audit staff or to the internal audit committee.
Objectives of Internal Audit:
23

24. 1. Internal audit assesses the effectiveness and adequacy of the control
measures implemented in the areas of accounting, treasury and operations
of the firm. The audit staff should also perform a cost-benefit analysis of
the internal control system.
2. Internal auditors should verify the documents related to the branches
and should check the accuracy of the accounting books and records. They
should also see the extent to which the company’s assets are accounted for
and should review the methods employed to prevent losses.
3. Internal auditors should ensure that the rules and regulations of the
organization are being adhered to. The internal auditors should also try to
identify the flaws existing in the rules and regulations of the firm.
4. Internal audit should also ensure that liabilities have been incurred for
legitimate purpose of the business.
5. Internal audit should help in the preparation of reports that would
provide assistance to the various levels of management and would also
help the external auditor.
Elements of Internal Audit:
For ensuring the effectiveness of internal audit, the following aspects
should be taken care of:
1. Totality: Totality implies that the internal audit should consider all the
aspects of the organization for the purpose of review and control.
2. Expertise: The members appointed as internal auditors should have the
required qualifications, experience and should be thorough with the
principles and practices of internal audit.
3. Independence: The internal auditors should have the freedom to report
directly to the top management.
24

25. 4. Objectivity: Besides ensuring the accuracy and reliability of the
records, the internal audit system should also be able to safeguard the
assets.
5. Utility: The system should not be redundant in nature.
Limitations of Internal Audit:
1. If the internal audit staff is inefficient then the whole purpose of
internal audit will fail.
2. Inefficiency creeps into the records if they are not reviewed in time by
the internal audit staff.
3. Proper internal audit will not be performed if the internal audit staff is
assigned other functions of the company.
25

26. WORKING CAPITAL ANALYSIS
26

27. Working capital is one of the most difficult financial concepts to
understand for the small business owner. In fact, the terms means a lot of
different things to a lot of different people.
By definitions, working capital is the amount by which current assets
exceed the current liabilities. However, if you simply run this calculation
each period to try to analyze working capital, you won’t accomplish much
in figuring out what your working capital needs are and how to meet them.
DETERMINANTS OF WORKING CAPITAL ANALYSIS:
The main determinants that affect the working capital of a firm are:
CURRENT ASSETS
Current assets are those which can be converted into cash as and
when needed, i.e., those assets which can turn to cash as per the
requirement of the business within the accounting period.
SUNDRY DEBTORS
Debtors are those to who products are supplied on credit basis. These
amounts are collected within the accounting period. Therefore, they are
converted into cash as per requirement, hence they are considered under
current assets.
INVENTORIES
27

28. Closing stocks or inventory includes raw materials, work in progress
and finished goods, which are needed for the smooth running of the
organization. Generally inventory is maintained by every organization,
which is bound to meet its demand in the market. The amount of inventory
maintained by the firm represents its profitability position. The quality must
not be in excess or inadequate, it must be according to the requirement. The
quality stores must be able to meet the market demand.
CASH AND BANK
Every organization or firm maintains cash reserves in their accounts.
This is the major key on which working of the entire organization is
dependent upon. This is required in every aspect of production, marketing,
financing etc. In other words, it can be said that it plays a vital role in the
functioning of any organization.
LOANS AND ADVANCES
Advances to staff are those advances, which are given to the
employees as festival advances. These advances are treated as current assets
as they are given advance to the employees and are collected with in the
accounting year. It doesn’t result in any default payment as the amount is
deducted from their salaries directly during their payment. Their advances
are prepared and are collected in the accounting year. These are the loans
and advances amount that are given by the organization in procuring of raw
materials. Amount is given in advance to its supplier in supplying the raw
materials required and this is adjusted after receiving the raw material. The
final settlements take place only after deducting the advances amount from
total amount.
CURRENT LIABILITIES
28

29. Current liabilities are those which are payable during an accounting
year. These are paid out of current assets like cash. When current assets
availability is present there exist the current liabilities but current assets
must always be in excess to current liabilities. This provides the
organization to be in a good position.
SUNDRY CREDITORS
Creditors are those from whom products are purchased on credit
basis. These amounts are paid within the accounting period. If the creditors
number increase the amount payable also increases which further increases
the liquidity.
PROVISION
Provisions are those liabilities, which are provided by the
organization to meet its taxes on its income in the future. They include
provision for taxes or provision for dividend. But as this organization need
not provide any dividend to its shareholders but also there is no payment of
taxes, because there is no income or profit to this organization from the past
ten years. A useful tool for the small business owner is the operating cycle
analyses the accounts receivables, inventory and accounts payable cycles in
terms of days. In other words, accounts receivables are analyzed by the
average number of days it takes to collect an amount. Inventory is analyzed
by the average number of days it takes to turn over the sale of a product
(from the point it comes in your door to the point it is converted to cash or
an account receivable). Account is payable are analyzed by the average
number of days it takes to pay a supplier invoice.
Most businesses cannot finance the operating cycle (accounts
receivables inventory days) with accounts payable financing alone.
29

30. Consequently, working capital financing is needed. This shortfall is
typically covered by the net profits generated internally or by externally
borrowed funds or by a combination of the two. Most businesses need
short-term working capital at some point in their operations. For instance,
retailers must find working capital to fund seasonal inventory buildup
between September and November for Christmas sales. But even a business
that is not seasonal occasionally experiences peak months when orders are
unusually high. This creates a need for working capital to fund the resulting
inventory and accounts receivable buildup. Here are the five most common
sources of short term working capital financing:
EQUITY:
If your business is in its first year of operation and has not yet become
profitable, then you might have to rely on equity funds for short-term
working capital needs. These funds might be injected from your personal
resources or from a family member, friend or third party investor.
TRADE CREDITORS:
If you have a particularly good relationship established with your trade
creditors, you might be able to solicit their help in providing short-term
working capital. If you have paid on time in the past, a trade creditor may
be willing to extend terms to enable you to meet a big order. For instance, if
you receive a big order that you can fulfill, ship out and collect in 60 days,
you could obtain 60-day terms from your supplier if 30-day terms are
normally given. The trade creditor will want proof of the order and may
want to file a lien on it as security, but if it enables you to proceed, that
shouldn’t be a problem.
FACTORING:
30

31. Factoring is another resource for short term working capital
financing. Once you have filled an order, a factoring company buys your
account receivable and then handles the collection. This type of financing is
more expensive than conventional bank financing but it is often used by
new businesses.
LINE OF CREDIT:
Banks to new business do not often give lines of credit. However, if
your new business is well capitalized by equity and you have good
collateral, your business might qualify for one. A line of credit allows you
to borrow funds for short terms needs when they arise. The funds are repaid
once you collect the accounts receivables that resulted from the short-term
sales peak. Lines of credit typically are made for one year at a time and are
expected to be paid off for 30 to 60 consecutive days sometime during the
year to ensure that the funds are used for short-term needs only.
SHORT TERM LOAN:
While your new business may not qualify for a line of credit from a
bank, you might have success in obtaining a one-time short-term loan (less
than a year) to finance your temporary working capital needs. If you have
established a good banking relationship with a banker, he or she might be
willing to provide a short-terms note for one order or for a seasonal
inventory and/or accounts receivable buildup. In addition to analyzing the
average number of days it takes to make a product (inventory days) and
collect on an account (account receivable days) Vs. the number of days
financed by accounts payable, the operating cycle analysis provides one
other important analysis. From the operating cycle, a computation can be
made of the dollars required to support one day of accounts receivables and
31

32. inventory and the dollars provided by a day of accounts payable. Working
capital has a different impact on cash flow in a business.
CHAPTER – II
METHODOLOGY
32

33. NEED FOR THE STUDY:-
Manufacturing Industry is one of the major public sectors in India.
This industry plays a major role in the economic development of a nation.
From the first five year itself the Government of India has emphasized on
the Manufacturing Industry. This industry is considered as the core industry
in every economy of the world.
Working capital gives an idea to the investor as well as the
management of any firm about the functioning of the organization.
Preparation of a separate statement of working capital gives us an idea
about the gross as well as the net working capital of the statement. One can
know or plan about the day-to-day expenses.
Working capital is the difference between the current assets and the
current liabilities. This working capital must also be adequate (i.e.,) not too
high, neither too low. An optimum level of working capital is a good
significance for the progress of the organization. This study of working
capital management would give me the insight about the level of working
capital required in this organization.
A study of working capital management in BAJRANGBALI
ALLOYS PRIVATE LIMITED gives out the exact idea of working capital
because it is an organization with huge requirement of working capital. This
is life blood without which the organization may not be able to perform its
responsibilities.
SCOPE OF THE STUDY:-
33

34. The study was conducted in the BAJRANGBALI ALLOYS
PRIVATE LIMITED in ORISSA. The aim of the study is to analyze the
working capital management of the firm.
Working Capital is the difference between the current assets and
current liabilities of a firm. The current assets and the current liabilities of
the firm were taken into account and the computation of the working capital
was made. The study comprises of the working capital of five consecutive
financial years of the firm.
The importance of the study is very significant. This is because
without the working capital no company can continue its day-to-day
business activity.
The use of the study is that by following the methodology of this
study one can get a hint of the working capital of any firm in the
engineering industry as well as in the plastic industry. Moreover, this
method of study can be used to find out the management of working capital
in other organizations.
OBJECTIVES OF THE STUDY:-
The present study “Working Capital Management of BAJRANGBALI
ALLOYS PRIVATE LIMITED” is intended to analyze the practice of
Working Capital Management. The efficiency of the Working Capital
34

35. Management is determined by the efficient administration of its various
components.
The study has been carried out with following objectives: -
 To know the process of Working Capital Management in
BAJRANGBALI ALLOYS PRIVATE LIMITED in ORISSA.
 To study the Cash Management, Receivables Management and
Inventory Management in detailed manner.
 To understand the ability of BAJRANBALI ALLOYS
PRIVATE LIMITED in ORISSA to meet its obligations.
 To know the extent to which the BAJRANBALI ALLOYS
PRIVATE LIMITED in ORISSA is efficiently using its
resources.
DATABASE AND METHODOLOGY :-
35

36. Any financial survey collects data systematically and analyses it to
meet the objectives. The data can be broadly classified into two types, i.e.,
Primary data and Secondary data.
The primary data was collected through personal discussion and
contacts with the concerned executives of the unit BAJRANBALI
ALLOYS PRIVATE LIMITED in ORISSA.
The secondary data was collected through journals and annual reports
of the unit and published and unpublished records of Unit BAJRANBALI
ALLOYS PRIVATE LIMITED in ORISSA.
LIMITATIONS OF THE STUDY:-
 Time factor is the most crucial one. The study was conducted
within a short period of one month.
 The investigator has to wait for a long time to make contact
with the executives, they being busy with their work.
 To collect information from persons involved in their working
hours all against their threat of being exposed in case of
employees and reserved and resisting attitude of managers was
a very critical job.
 It is also found that some of the executives lack interest,
enthusiasm, initiative and involvement, which in turn
demotivates the researchers.
 The final and foremost thing is that very often the organization
secrecy stands on the way to find out the organizational
information regarding some aspects of the study. But in spite
36

37. of these limitations, attempts have been taken to make the
study a scientific and reliable one.
PRESENTATION OF THE STUDY: -
The study of working capital management in BAJRANBALI
ALLOYS PRIVATE LIMITED is made into a report consisting of five
chapters.
Chapter 1 : Theoretical Framework of Working Capital management
Chapter 2 : Deals with the introduction need for the study, objectives,
methodology and limitation of the study.
Chapter 3 : Describes the profile of BAJRANGBALI ALLOYS PVT.
LTD, organizational set up and the functional areas.
Chapter 4 : Analysis of Working capital Management. Explains the
Working Capital Management in Unit BAJRANBALI
ALLOYS PRIVATE LIMITED, ORISSA.
Chapter 5 : Documents the summary of findings, suggestions and
conclusions.
37

38. CHAPTER – III
ORGANISATION PROFILE:
INDUSTRY PROFILE:
INTRODUCTION
Steel is the metal of the new millennium. It is the world's most useful,
economical & suitable building material. Icon Steel, with its continuous
improvement in the production process, modernization and introduction of
state-of-the-art technology, has evolved as a supplier of choice who profits,
cares and promises for a safer, stronger and better tomorrow. It is one of
those few prestigious steel producing companies of the country to obtain the
ISO 9002 certification. The combination of superior technology, quality
control and experienced workforce has helped (he company develop value-
added steel which caters to residential as well as industrial requirement and
at the same time maintains customers' i. At Icon Steel, the quest for
excellence is not just a process, but a way of life….
1. Over the last few years, there has been a great deal of change in the
Indian economic scenario which has concomitant impact on
industries. From a protected, inward looking economy, with an
inefficient and highly protected industrial sector, it has quickly
become a market driven and internationally competitive economy.
Under the spell of liberalization, the Indian steel industry has
witnessed a rapid growth. Fortunes of this industry started to look up
from late 1993, with a revival in demand and prices, strong growth in
38

39. end user industries such as constructive, infrastructure, automobiles
and white goods have been responsible for this upsurge.
2. Bajrangbali Alloys (p) ltd. Incorporated on 03.09.1993,set up an 3.50
Mt induction furnace at India manguli chhak near NH 5 with term
loan assistance from union Bank of. The unit commenced operation
from January, 1995. In their forward integration programme, the
company set up a re rolling mill with a capacity of 10,2000 TPA with
term loan assistance of 100 lac from SIDBI from October, 1998. The
Company was registered as an SSI unit, the DIC PMT no. being
151600567 dt.06.04.99. The products of the company have been
approved by Bureau of Indian Standard. The Quality Management
System of the unit has been certified by NQRQSR Ltd. As ISO
9001:2000 Standard.
3. The Performance of the company has remained very satisfactory over
the years. The term loans of both Union Bank of India & SIDBI have
been fully repaid within the scheduled time. The company availed a
STWC loan of Rs.50 lace from SIDBI in January 2004 & has, so far,
repaid the monthly installment(s) amounting Rs.8.40 lac. Working
capital; loan facility to the tune of Rs.125.lac has been extended by
Union Bank of India who has security charge over the assets of the
induction furnace division. SIDBI has security charge over the Re-
Rolling Mill division assets.
4. The Company now intends to modernize their re-rolling mill whereby
the capacity shall increase by 9000 TPA. Besides the existing activity
of manufacturing of CTD Bars, the Company proposes to include the
39

40. TMT Section, Angles, and Channels & Sections in their re-rolling
mill. The additional raw material. That may be required for this
activity shall be met either from internal production or from open
market.
5. Considering the above factors and future prospects of the Sponge
Iron Industry, the Promoters, all of whom hell from a successful
business family and have themselves in the present line of activity
decided to set an additional capacity of 100TPD Sponge Iron Unit at
its present factory location.
MARKET:
The up-ward trend in steel production, increasing importance of
Induction furnaces, recent use of sponge in Blast Furnace as intermediary
raw-materials, scarce availability of scrap, lack of uniform & good quality
scrap, existence of less tramp material is making sponge iron an ideal
substitute for scrap. The change in Govt policy and liberalization process
will go a long way in boosting the demand for sponge iron. The market for
sponge iron is very bright in the coming years.
The Integrated Setup
Located on the banks of river Birupa besides National Highway -5 & about
12 km* away from the Silver city Cuttack, the Icon Steel manufacturing
plant facilitates a melting shop, a double drive ten stand steel mill, double
roller bearing water cooled driving rolls, natural cooled cooling bed with
necessary processing line - all integrates through automated control
systems.
40

41. Advanced Level-1 and two semi-automated systems, AC main drive & AC
auxiliary drive control are provided for fully semi-automatic process with
The objective of achieving strict tolerance for nominal sizes, shapes, length
and strength The setup function is designed to perform the rolling strategy
over a wide range of products using mathematical module and semi-
autoadaptive algorithms. Hydraulic conveyor is developed to reach high
performances under all rolling conditions. Data exchange with production
planning, melt shop and semi-automation completes the system in all
respects.
PROFILE OF THE COMPANY
“BAJRANG”, the RUDRA God, is the strength behind BAJRANG
STEEL.
Conceived in 1992 by two young relatives – a businessman of long standing
& one project financier, who traveled the nook & corner of Andhra Pradesh
& other parts of the country to gain practical knowledge on industries –
M/S. Bajrangbali Alloys (p) Ltd. Started its commercial production on
02.01.95 in the ingot division with financial assistance from Union Bank of
India, College Square, Cuttack – 3 Branch to the tune of Rs. 65.00 lac as
term loan & Rs. 35.00 lace as working capital loan. Although the unit
suffered from the initial jolts of the operational aspect for quite some time,
it has overcome the same over the years & is now marching ahead to meet
its social & economic goals. Initially, the unit was manufacturing
M.S.ingot/billets of 3”*4”*4’6” size with one 10,800 M.T./P.A. capacity
induction furnace from scrap collected from local market. Through the unit
was not free from the ups & downs that the iron & steel sector witnessed
during the last decade, M/S. Bajrangbali Alloys (p) Ltd. has, to its credit,
added the expansion in the re-rollable items i.e M.S. rods & M.S. tort or
41

42. varying from 8mm dais to 20 mm dais having an installed capacity of
10,200 M.T./P.A. with effect from 19.10.98. And with the setting up of a
sponge iron unit in collaboration with another relative entrepreneur, the unit
is now producing the re-rollable M.S. items from iron ore; thereby assuring
the best quality to the ultimate consumers.BAPL, thus, takes pride in being
the 1st unit of this type in the state of orissa to convert iron ore to sponge
iron to ingots &then to M.S rod &tor. The present project envisages
installation of a Thermo Mechanical Treatment plant in the unit which shall
be the 1st of its kind in the state of Orissa for better mechanical properties of
the product manufactured. Bajrangbali Alloys (p) ltd. is promoted by two
groups of established & renowned business houses & is now handling the
following Promoter directors.
1.Mr.Rajendra Prasad Agarwal.
2.Mr.Dindayal Agarwal.
3.Mr.Deepak Agarwal.
4.Mr.Dinesh Agarwal.
Situated on the side of N.H5 on the bank of the river “Birupa”, the unit is
12k.m.away from the silver city of Cuttack quite away from inhabitant area
& thus does not pos any problem to the populace. The regd.office of the
company is at Malgodown,Cuttack-753003.
OUR VISION:
Our Vision is to be an ever-growing company of quality, economy and
reliance. Out Cote Values include commitment, continuous improvement
through Research & Development, technical Upgradation, use of cutting-
edge technology for strategic advantage, setting and surpassing world-class
benchmarks, concern for environment, innovation and Customer
42

43. satisfaction. We are committed to providing quality products at affordable
prices and customer service round the clock.
Apart from the above our aim is to expand out supply network so as to
make our products available at each and every corner of urban as well as
rural areas.
INDUSTRY AT A GLANCE
1. NAME OF THE COMPANY : BAJRANGBALI ALLOYS
PVT. LTD.
2. CONSTITUTION : PRIVATE LIMITED
COMPANY
3. COMPANY REGD. NO : 15 – 03400 OF 1993 – 94.
Date : 03.09.1993
4. REGD. OFFICE FACTORY : MALGODOWN, CUTTACK –
753003
: N.H. – 5, MANGULI, P.O. –
CHOUDWAR, CUTTACK-754025
5. POWER : CESCO / GENERATOR
6.Govt.consent : OBTAINED.(EXISTING)
7.INSTALLED CAPACITY : EXISTING(ROLLING MILL)
10,200 TPA.
PROPOSED ADDL. 9,000 TPA
43

44. 8. PRODUCT : TMT BARS, ANGLES,
CHANNELS & SECTIONS
9. CAPACITY UTILISATION : 1ST 2ND 3RD
65% 75% 85%
10.PRODUCTION : 12,480 14,400
16,236.99
11.TURNOVER IN QTY. : 11,967.12 14,300.02
16,236.99
12. TURNOVER [IN LACS] : 2405.39 2945.80
3426.00
13. SELLING PRICE/MT. : RS19,500.00 RS20,000.00
RS20,500.00
ANGLES, CHANNELS & SECTION: RS21,500.00 RS22,000.00
RS22,500.00
14. WORKING CAPITAL [IN LACS]: 1ST 2ND 3RD
TOTAL 171.81 211.32
245.53
BANK 126.00 155.00
180.00
MARGIN 45.81 56.32 65.53
15. PROJECT COST.
44

45. PARTICULAR AMOUNT[IN LACS]
Land & land development Existing
Civil & structural works 38.60
Plant & machinery 220.42
Electricals & Fittings. 50.00
Contingency 9.27
Prel. & pre-operative exps. 12.00
Margin Money for working cap 45.81
Total 376.10
16. MEAN OF FINANCE. AMOUNT
promoter’ contribution 176.10
Term loan 200.00
Total 376.10
17.FINANCIAL PARAMETER :
DEBT EQUATY RATIO. 1.14:1
DSCR 2.03
BREAK EVEN POINT. 59%
18. PROFITABILITY
45

46. RETAINED EARNINGS AFTER TAX 315.49
ADD.DEPRECIATION 99.84
415.33
TERM LOAN REPAYMENT 200.00
AVAILABLE NET SURPLUS 215.33
CORE VALUES :
Honesty: To be principled, straight-forward and fair in all dealings.
Integrity: Maintaining the highest standards of professional adaptability.
Flexibility: Adapting to stay a step ahead of change.
Respect: Giving each person room to contribute and grow.
Knowledge: To acquire and adopt leading edge expertise in all aspects of
concerned business.
Performance: The team comes first; none of us is as good as all of us!
Strategic Intent
Bajrangbali Alloys (P) Ltd.,{BAPL}, in the recent years has evolved
as a more dynamic, knowledge-driven organization. Aimed at making the
organization more market-oriented and customer-centric, the following
initiatives are to drive Bajrangbali Alloys (p) Ltd. ,{BAPL}forward in the
rapidly changing business environment:
46

47. Consolidation: A continuous streamlining of capacity and product in core
business area.
Brand Building
Increasing brand involvement for the products amongst customers, to
reduce market fragmentation and to attain ‘generic-brand’ status for
Bajrangbali Alloys (pvt) Ltd., {BAPL} is planned through strategic
branding.
Product-mix rationalization
Maintaining an intelligent product-mix based on value and demand curves
to maximize returns.
Exploring global markets
Reaching out to international markets with world-class products while by
maintaining leadership in India is the goal of Bajrangbali Alloys (pvt) Ltd.,
{BAPL}.
Operational Improvements & Cost-competitiveness
To attain higher efficiency levels and world-class quality in production
processes.
Increasing capacities
Expansion of manufacturing and processing capabilities across product
range, in line with market dynamics is the aim to increase the capabilities.
47

48. Sound Investments
Accelerate growth by way of investments into focused, synergetic
acquisitions.
Captive Market Share
Sustaining and strengthening Bajrangbali Alloys (p) Ltd., leadership
position in its market segments way ahead of competitors.
Extending ‘Touch-Points’
Building a wider and ‘intelligent’ distribution network that enables
Bajrangbali Alloys (p) Ltd., to serve its markets in a customized and
localized manner and attain higher penetration, without losing the
economies of scale.
Corporate Milestones
Bajrangbali Alloys (p) Ltd.,{BAPL}have demonstrated a sensation in
traditional leadership. Over the year, it has only emerged as a more
dynamic, focused corporate.
LOCATIONAL ADVANTAGE:
Bajrangbali Alloys Pvt.Ltd is an existing unit with its factory location at the
side of N.h-5, Manguli Choudwar Cuttack . it has Started Operation Initially
with a 3.5 Ton capacity Induction furnace in the Year 1995 . Subsequently,
Forward integration in the shape of Setting up of a rolling Mill with a 5
MT/hour capacity was installed at the site which started production during
1998. It has now been Proposed to enhance the capacity of the Rolling Mill
& add TMT bar, angles Channels & section.
48

49. The new location of the plant has been considered in the State of Orissa.
Orissa is endorsed with rich mineral deposits like Iron Ore, Bauxite, and
Manganese Ore, Chromites etc. which has enabled the State to have Core
Industries like steel Plant, Aluminum Smelter, Charge Chrome Plants, and
Sponge Iron Plants etc.
Power Situation in Orissa is aloes Fair. Power being one of the prime
movers of the economy, State Government has been endeavoring
substantial investments in Power Sector to step up generating capacity in
the state.
The Plant is situated at an approximate distance of 12km from the silver
city of Cuttack towards Balasore. The Plant site is very close to the coal and
iron ore mines, by which the company is able to save a lot towards
transportation cost. Labour is being available cheaply. The Finished Product
is being sold to units inside & outside orissa without any transportation
problem. Since the unit is in operation since last 5/6 years it has all location
advantages.
HISTORY AND BACKGROUND
THE PROJECT
The company is presentely engaged in the production of pencil steel ingot
having production capacity of 10800 tones per annum & CTD bars with an
installed capacity of 10200 TPA. The project envisages enhancing and
diversifying the production capacity of the existing Re-Rolling Mill plabt
for manufacture of rerolled products like CTD bars, a Thermo Mechanical
Treatment Plant with addition of Flats, Channells, Angles & sections. The
proposed production capacity of the plant after expansion and
diversification have been narrated else where.
49

50. History and Background:
Bajrangbali Alloys (p) Ltd. ,{BAPL}is an existing unit engaged in
manufacturing of pencil steel Ingots & RE-Rolling items since last 10
years.The promoters of the company Mr.Ranjendra Prasad Agarwal,
Mr.Dindyal Agarwal, Mr.Dinesh Agarwal & Mr.Deepak Kumar Agarwal
are highly experienced & one of the leading group in both steel trading and
manufacturing in Orissa since last many years. After having successfully
established their unit, infrastructure, market & all that is required for
successful operation of the unit, the promoters have mooted the idea of
enhancing the capacity in the rolling mill unit with additional items having
more value added for a still better viability of the unit. This strategy
emerging from the past experience of the promoters will not only ensure
lower cost of inputs via-a-vis cost of production but also will enhance ppofit
by value addition and reaching to still a larger clientel.
NAME OF THE CONSTITUTION:
The company was incorporated as a private limited company duly
registered with the Registrar of companies, Orissa bearing registration
No.15-03400 dated 03.09.1993. The company has obtained the permanent
registration certificate from Dic, Cuttack (earlier-Jagatpur) bearing
No.151600567.
RESUME ON THE PROMOTERS.
The promoters of the project are highly experienced in business and are also
financially sound. They are capable enough to bring-in their equity
50

51. & run the project successfully. The brief bio-data of each promoter is given
here after.
FINANCIAL ASSISTANCE.
The initial term loan availed from union bank of India has been fully
Liquidated. However; the company enjoys a working capital term loan of
RS.125.00 lac from the said bank. The company had availed a term loan of
RS.65.75 lac from SIDBI during January,1998 to March,1999 which has
since been prepaid by November,2003.All the institutional loan dues were
paid regularly & on before the due dates. Mean while, BAPL has availed a
short term working capital loan of RS.50.00 lac from SIDBI& the
installments are being paid regularly with the interest dues. The outstanding
in this account is RS.41.60 lac as on date.
Electrical/ Controls:
Power
The Company draws electricity from the 33 KV feeders at Tangi-Choudwar
sub-station. The company is playing a monthly electricity charge of around
Rs. 35.00 lac to Rs. 40.00. lac on an average.
The total connected load for operation of Blast Furnace, Pig Casting
Machine, pumps, Compressors, E.O.T. Crane ventilation and air
conditioning system, plant lighting etc is estimated as 1500kw with the
maximum demand of 1700 KVA. Power will be drawn at 33KV from
CESCO and necessary step down facilities have been provided in estimate.
Electricity supply system shall comprise switchgear, transformer with
substation and distribution line and circuit breaker has been provided in the
project cast estimate.
51

52. Power supply and distribution:
The power requirement of the proposed plant is estimated at 350 KVA on
30 mm maximum demand with an annual energy consumption of 1.95
million KWH. Power would be tapped from Orissa State Electricity Board
[OSEB] grid at 33 KV and stepped down to 415 V in the substation to be
installed inside the plant premises. A DG set of 5QO KVA rating would be
provided to cater to the emergency power requirement of critical equipment
of the plant requiring uninterrupted power supply.
Shop Electricals:
AC motors will normally be used in the plant. Drives requiring variable
speed like to kiln / cooler would be with AC motors with variable controls.
Motor control centers have been planned m different areas.
SOCIAL ACTIVITIES:
The operations in all section inside the factory are taking place in a very
congenial atmosphere. The safety of the workers as also the supervisors has
been the prime focal point of the management. Safety shoes, gloves,
helmets and the likes are regularly supplied to the field personnel besides
continuous supply of drinking water, lemon/salt water during summer
season & regular health check-up.
The manufacturing operation of the factory is being done on contract basis
under the registered contractors.
The workers are covered under ESI & regular health check-ups are being
done. They are also covered under the EPF & the monthly contributions are
deposited with the appropriate authority regularly.
The management is very much serious on the pollution aspect & anti
pollution equipments have been installed besides plantation of trees inside
52

53. the factory premises and the periphery areas. The unit has obtained
necessary certificate from State Pollution Control Board
REGISTRATION ETC:
The unit is registered with the Directorate of Industries, Orissa, under the
factories Act & other Govt. agencies as per the provision. The products
manufactured confirm to B.I.S.specification under IS 1786:1985 having the
licence no. CM/L – 5136050. BAPL has been certified as on ISO-9001 :
Company by M/S.NQA Quality System Registrar Ltd for manufacture &
supply of cold twisted deformed bar. The quality policy of the company is
to satisfy the customers by supplying qualitative C.T.D bar conforming to
the agreed specification at all the times.The company is having a web site
with the address as www.info_steel.com.
RAW MATERIALS:
As has been explained earlier, ingots were manufactured from heavy &
commercial scrap at the initial period. After setting up of the sponge iron
unit near Byree as a sister concern, the unit now manufactures the re-
rollable items mostly from iron ore directly. BAPl had also imported quality
scrap from the United Kingdom during 2001-02 to the tune of RS.121.64
lac & is now planning to import further scrap from foreign countries.
PLANT ARCHITECTURE:
The plant is designed to combine production characteristics of m line
process with the high flexibility of rolling mill, which consists of the
following.
53

54. ⇒ SF6 Breaker, coupled with 33KV power system fitted with air
circuit breaker of L & T make assembled with automatic power
factor controllers.
⇒ Medium frequency induction furnace of ABB make having twin
crucibles {1500KW] with digital regulators for refinement sponge
iron of maximum 85%.
⇒ 3x4 size Ingot caster with capability to produce Ingots up to 60"
length.
⇒ Reheating tunnel-type double row pusher furnace of 20ft width and
80 ft length with a heating capacity upto 1200oC temperature and
output capacity of 10 MT per hour.
⇒ Ten stand double drive mill coupled with reduction gear, pinion
stand, roll-cooling system and online roll grinding.
⇒ Hot flying shear (drum-type rotary) for end cutting and sizing.
⇒ Natural-cooled cooling bed having transfer capacity of 5 MT per
hour with maximum bed length of 150 ft..
MARKET.
In all ventures, market plays a vital roll for continuous sustenance of an
enterprise. The steel sector is very much venerable to the ups&down of
market end. After witnessing a bleak period, this sector is also not free from
these ups & down of the market.
Besides catering to the requirement of steel trading concerns, the unit has
cuctomers in up state Bridge corporation Ltd, Methodist Engineering Co.(p)
Ltd., Metro Builders ,Z Engineering Corporation Ltd, Methodist
Engineering Co.etc. The product has reached the common man in the
54

55. districts of Mayurbhanj , Keonjhar , all the areas of the undivided districts
of Balasore , Cuttack ,puri , Dhenkanal & Ganjam through numerous retail
trading outlets. From July-August, 2003, BAPL is supplying bulk quantities
of their product to the four southern states viz:Andhar Pradesh, Tamil Nadu,
Karnatak & Kerala where the product have received & high demand.
AWARDS :
BAPL has received the “NATIONAL AWARD” to small scale
Entrepreneure-2000 for their Performance as small entrepreneur. Sri
Dindayal Agarwal, Director of the company, received the trophy & the
certificate from Honble Sri Jaswant Singh , the then Finance Minister of
Govt. of India on 28th August , 2002.
Orissa has recognized the role of BAPL in the small sector by honouring
them in FUSION-2002 on 20.09.2002.
The Company has also been awarded with Prestigious “RASHTRIYA
UDYOG AWARD , 2002 -2003 “ by International Integration And
Growth Society , New Delhi for the excellence in the field & for the
growth of Indian Economy .Other awards best owed the company fpr its
excellent performance include:-
1.Dhatu Nayak Award – 2002 by the Indian Society for Industry &
Intellectual Development, New Delhi.
2.Rashtriya Udyog Ratan Award – 2002 by the Indian Society for
Industry & Intellectual Development, New Delhi. Bajrang steel has never
failed in discharging its social responsibility. Over the years, BAPL has
organized eye camp, health check up camps, blood donation camps etc.
During 2002 , Bajrang Steel Organised a talent hunt Competition amongst
the School & College going Students of the twin cities of Cuttack &
55

56. Bhubaneswar at saheed Bhawan & Sri Ramchandra Bhawan. The event ,
which was spread over 3 days , attracted a large no. enthusiastic budding
citizens to come out with their hidden talents.
TECHNICAL SPECIFICATIONS
Here are some of the grades that Icons Steel Specification in:
Cold Twisted Deformed Bars TMT (Terncore processed) Bar
Designation : Fe 310, Fe415, Fe 500, Confirms to
fe S5Q etc specifications under 15:1786, Fe415
Confirms to :IS226, JS1977r IS1786, The high Strength
JS7887 & reinforcement bar, produced
IS2062 having yield strength of 250 using the Temp core
MPa to 550 process, ensures high
MPa according to the designation. ductility & tensile strength.
Sizes: 3, 10,12,16, 20, 25, 28 & 32mm Sizes:8, 10,12, 16, 20, 25, 28 &
32m
56

57. Organization & Manpower:
Manpower requirement of the plant including executives, supervisors, and
skilled, semi-skilled, unskilled arid clerical staff would be about 64.
Construction Planning:
The project is expected to be commissioned in 6 months from the ‘Zero
date' i.e. from end of May – 2004.
Capital costs:
The estimated capital cost of the proposed plant is Rs.545.68 lakhs. The
break-up of the capital cost with details of civil construction. Main Plant &
Machinery, Electrification and Installation & Misc. Fixed assets have been
elaborated hereafter.
The capital cost is based on the prices prevailing during the First quarter of
calendar year 2004 and also takes into account any minor variations. It,
however, does not include any provision for future escalation in steel,
cement, consumables, labour etc.
FINANCIAL AND ECONOMIC ANALYSIS
PROJECT COST
The total cost of the project under expansion including margin money for
working capital is estimated to be amount Rs. 376.10 lacs. The details of the
project cost are given in annexure.
The promoter has already taken up the project construction work & the
implementation is in cull swing.
57

58. LAND AND SITE DEVELOPMET:
The existing land of the company at Manguli Chhak is sufficient and no
additional expenditure will be incurred under this head for the purpose of
the expansion project.
BUILDING
As the unit is an existing one, it has already got a factory shed and some
other miscellaneous construction. However cost of 38.06 lacs.
PLANT AND MACHINERIES
The promoters have already finalized the suppliers of the machines. The
total cost of the plant and machinery including its accessories, misc. fixed
assets, electrical installation and auxiliary equipments is projected at Rs.
270.42 lacs. This amount includes the duties, packing and forwarding and
also the installation charges. This value has been finalized with the
suppliers after due deliberations and negotiations. The suppliers of the plant
and machinery are most reputed in this line.
PROVISION FOR PRICE ESCALATION
Considering the registration period, a nominal escalation of 5% on building
and the cost of plant and machinery including electricals & installation are
included in the project cost.
MEANS OF FINANCE
The total requirements for the project, Rs. 200.00 lacs is proposed to be
financed by way of term loan arrived at Rs. 176.10 lac. The loan component
works out to be 63% of financiable assets or 53% of the total project cost.
WORKING CAPITAL FINANCE & MARGIN
The total working capital requirement has been estimated at Rs. 171.81 for
the 1st year. For the 3rd year, when maximum capacity utilization is
estimated, the total requirement has been arrived at Rs.245.53 lac. The
promoters’ margin for the 1st year working out is to be Rs. 45.81 lacs.
58

59. The details of the calculation of the working capital are given in Annexure
attached to this project report.
Presently the unit is enjoying working capital limit of Rs. 125.00 lacs with
Union Bank of India, College Square Branch, Cuttack and the account is
regular. The promoters are negotiating with 2 / 3 nationalized banks for
sanction of substantial enhanced working capital limit & switch over from
the existing bank i.e. Union Bank of India. The response has very
encouraging.
PROJECT PROFITABILITY
The detailed computation of projected profitability is given in Annexure.
PROJECTED DSCR
The DSCR of the project has been estimated at 2.0 and the detailed
computation is given in Annexure.
PROJECT FUND FLOW
The projected fund flow is given in Annexure.
PROJECTED BALANCE SHEET
The project Balance-sheet is given in Annexure.
PROJECT BREAK EVEN ANALYSIS
The projected break even analysis is given in Annexure. The break even
point has been arrived at 56% of the installed capacity & 66% of the
maximum utilized capacity.
NATURE OF ACTIVITIES:
Types of Product:
All the products made by Bajrangbali Alloys (p) Ltd.,{BAPL} are made
according to the needs of the customer or the clients of the company. The
main products are:
59

60. a. Different sizes of Iron Rod
b. Nail
MANUFACTURING PROCESS:
The product is basically formed in different parts. Each and every part of
the final product is made at different places simultaneously. Grooving,
Sizing are the main steps in this. Then the different parts are assembled
together at the end. The manufacturing process undertaken by the company
is given below:
The Ingots is shown on 1000 c heat, and then this is placed down to
the Roll stands .which is further divided to different steps:
1. Roughing stage: 3 stands are used in this process
2. Intermediary stage: 8 stands are used in this process
3. Finished goods: 2 stands are used in this process. 750 c is used
to produce the rods.
BASIC RAW MATERIALS:
As the products are made according to the specifications given
by the clients the raw materials are also not too much in number. Four basic
raw materials are used by the company in the manufacturing process. The
lists of the basic raw materials are given below:
a. Silicon Manganese.
b. Ferro Silicon.
c. Sponge Iron
60

61. d. Aluminum
e. Ramming Mass
f. Boric Acid
g. Mould
MAJOR CLIENTS:
Bajrangbali Alloys (P) Ltd.,{BAPL}has a range of clients both in the
national and international market. The company’s electrical product clients
are all placed in the international market while in the plastic division the
company resorts to domestic wholesalers and distributors which cater to the
domestic market.
DESCRIPTION OF VARIOUS DEPARTMENTS:
A brief description of all the departments of Bajrangbali Alloys (p) Ltd.,
{BAPL} are given below :
Purchase Department:
The production supervisor prepares the INDANE (requirement list) and
gives it to the purchase department who does the necessary purchases of the
company. The purchase department then receives the TENDERS /
QUOTATIONS from other companies who are willing to supply in this
organization. The company who quotes the least price for supplying the
material is given the order by the purchase department. Then the stores
department of Bajrangbali Alloys (p) Ltd.,{BAPL} receives the material
and sends it to the quality control(QC) department for checking the quality
of the material purchased. After checking the material the QC department
61

62. sends the material back to the stores department for issuing according to the
needs of the organization.
Finance Department:
Fund is maintained by the cash department of each of the four factories for
the day to day expenses incurred. Loans to the workers, emergency
payment to suppliers, emergency expenditure in case of accident, all these
expenses are taken from the account of the organization.
Marketing Department:
The marketing team goes to different international locations to understand
the needs of the various companies. Moreover Bajrangbali Alloys (P) Ltd.,
{BAPL} has mediators who help them to get international orders. In the
domestic market Bajrangbali Alloys (P) Ltd.,{BAPL}wholly depends on
the wholesalers for the sale.
Inventory Department:
Iron rods being the primary raw material for the production is stored in
large quantities as orders keep on flowing. The stores department plays a
vital role as many other secondary raw materials are used in the production
process viz, nuts, bolts, screws, hammers, gloves and so on. The foreign
clients report to those warehouses (office) about their requirements and
after the production they get the delivery from those warehouses.
Human Resource Department:
This department plays a vital role for the day to day working of Bajrangbali
Alloys (p) Ltd.,{BAPL}. Maintaining four manufacturing units at different
places without any hassle is not an easy task to accomplish. Bajrangbali
62

63. Alloys (p) Ltd.,{BAPL} has over 800 employees in all. Managing all of
them towards the positive growth of the company is a very difficult task. To
Bajrangbali Alloys (p) Ltd.,{BAPL} human capital is very important.
Training and developmental activities are a continuous process in the
organization. Dynamic professionals are recruited viz, engineers, hr
executives, front office executives, MBAs, CAs and so on. International
students from Turkey, Switzerland, Malaysia, Mexico and Singapore come
to take internship at Bajrangbali Alloys (p) Ltd.,{BAPL}.
SOCIAL RESPONSIBILITY:
Company has contributed immensely towards the benefit of the society as a
whole and towards the needy in specific. Constructed road dividers, donated
ambulances to different municipal corporations, sponsored different events
which contribute to the society both culturally and socially.
OVERVIEW:
The manufacturing industry is the basic industry in any developing or
developed economy. It is considered as the backbone of the economy.
Manufacturing industry is considered as the core industry. The
manufacturing industry contributes around to 50% to the GDP of any
developing nation and 30% in case of a developed nation.
Manufacturing is the organized activity devoted to the transformation of
raw materials into marketable goods. In technical parlance, marketable
goods are known as economic goods. They cannot be obtained without
paying a price. This is in contrast to free goods, which are available at no
cost. The manufacturing system usually employs a series of value-adding
processes to convert raw materials into more useful forms, and eventually
into finished products.
63

64. The outputs from one manufacturing system may be utilized as the inputs to
another. A manufacturing system is, therefore, a typical input-output
system, which produces outputs (economic goods) through activities of
transformation from inputs (raw materials).
In an industrialized country, the manufacturing industries are the backbone
of the national economy, because it is mainly through their activities that
the real wealth is created. Recently, there has been what may be termed as a
revolution in the fundamental ways of thinking about manufacturing
management.
This has received its impetus and inspiration from the Chinese management
system, wherein such manufacturing activities which do not add value to
the product are meticulously eliminated. One of the direct consequences of
this revolution has been the much greater emphasis on the simplification of
products set-ups, and the smooth flow of materials through the factory.
Such innovative and productive techniques have given China a clear,
competitive edge over others in the global market: and this has created an
urge among industries in other countries, including India, to follow the
Chinese pattern.
64

65. CHAPTER – IV
WORKING CAPITAL MANAGEMENT [ANALYSIS]
WORKING CAPITAL/OPERATING CYCLE
The time period between the purchase of raw materials and the collection
of cash for sales is referred to as operating cycle. It consists of the
following components:
1. Raw Material Storage Period: The raw material storage
period is computed as:
where,
Average stock of
raw materials =
And Average daily consumption of raw
materials =
2. Conversion Period: The average work-in-process inventory period
can be computed as:
65

66. where,
Average
stock of
work-in-
process =
and Annual cost of production = Opening stock of work-in-process +
Annual consumption of raw materials + Manufacturing costs such as
wages and salaries, power and fuel etc. + Depreciation –Closing work-in-
process.
Average Daily cost of production
=
3. Finished Goods Storage Period:
The finished goods storage period is computed
as:
where, Average
stock of finished
goods =
66

67. Annual cost of sales = Opening stock of finished goods + Annual cost of
production + Excise Duty + Selling and Distribution costs + General
administrative costs + Financial costs – Closing stock of finished goods.
Average daily cost of sales =
4. Average Collection Period: It is computed as:
Average
balance
of
sundry
debtors
=
Average daily credit sales of the
company =
67

68. 5. Average Payment Period: The average payment period is
computed as:
Average
balance of
sundry
creditors =
Average daily credit purchases made
by the company =
Computation of Operating Cycle:
Gross Operating Cycle = Raw material storage period + Conversion
period + Finished goods storage period + Average collection period
Net Operating Cycle = Gross operating cycle – Average payment period
Uses of Operating Cycle: It helps in comparing each component of
working capital cycle with standards and helps in exercising control if
any deviations exist.
1. For implementing better control measures, separate working capital
cycles can be prepared for the slack season and the busy season.
2. It helps in estimating the future requirements needed to support the
forecasted sales of the company.
Insurance
68

69. Insuring the assets of the company also comes under the purview of the
internal control of the firm. Several companies take the assistance of
consultants who specialize in the field of insurance. The company should
make a proper analysis about the issues related to insurance of its assets
like maintaining a proper list of all the policies that the company has;
ensuring that all policy documents are safely kept; ensuring that no two
policies cover the same risk; and preparing a statement to declare that the
cover provided by the policy is adequate and not excessive. Conducting an
analysis of this kind will help the company in making the required changes
in the insurance provided for its assets.
Types of Insurance Coverage:
i. Blanket Policies: These policies insure all those risks that are not covered
under any other policy.
ii. Business Interruption Policy: This policy protects the company against
losses that occur as a result of a sudden break in the operations of the firm.
For example, financial losses caused by interruption of production due to
machinery breakdown are covered under this policy.
iii. Employees Health Insurance Policies: The Employees State
Insurance Act has made it compulsory for all organizations to cover their
employees under this act. Under the Employees Health Insurance policy,
the employer and the employee contribute to the premium.
iv. Insurance against Non-Performance: These policies cover material
damages arising as a result of non-performance of tasks.
v. Fidelity Guarantee Policy: This policy provides cover with respect to
direct pecuniary loss suffered by the insured as a result of acts of
dishonesty, forgery, fraud and larceny that are committed by the
employees in connection with their opportunities and duties.
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70. vi. Life Insurance of the Key Personnel: This policy covers the loss
arising as a result of the death of the key-personnel.
Information Systems and Reporting:
Information systems provide the managers with vital information that is
useful in planning and controlling the operations of the firm. With the help
of information systems, reports about the investments, income and
expenditure of the organization are prepared. Result orientation, totality,
accuracy, promptness, proper forecasting of funds for the future, are some
essential features of an effective reporting system.
Formal Methodology of reporting involves the following steps:
1. Programming: It involves formulation of various strategies to achieve
the long-term policies of the company.
2. Budgeting: Budgets reflect the forecasted income and expenditure
over a period of time.
3. Accounting for the deviations: Once the actual expenses and revenue
figures are available, they are compared with the forecasted figures to
check for any deviations. The actual data is also used for future
programming and in evaluating the performance of managers of each
responsibility centre.
4. Reporting and analysis: Once all the transactions are analyzed,
various reports are prepared for reviewing the performance of various
responsibility centres. Daily stock report on raw materials, reports
regarding bank deposits and withdrawals, reports related to accounts
receivables, cash inflows and outflows etc. are certain classes of reports
generated by the treasury department.
Measuring the Performance of the Treasury Department:
70

71. In order to measure the performance of treasury we need to analyze the
extent to which it has achieved the goals of the firm. A goal is a future
target set by an organization. In order to be effective, goals should be
challenging, attainable, specific, quantifiable, time bound and relevant.
After setting the goals, the finance managers should develop the plans to
achieve the goals. They should also analyze the costs and risks involved in
achieving the goals. In order to review the achievement of goals, the
profits generated in the current year should be compared with previous
years. The performance of the treasury can be maximized by constantly
reviewing the progress of the company’s policies.
INVENTORY MANAGEMENT
Purpose behind maintaining Inventories
1. To avoid lost sales: If the firms do not hold adequate amount of goods,
then there is a probability that the firm might lose some business.
2. To gain quantity discounts: Many suppliers provide goods at reduced
prices if the firm orders for a large amount of goods.
3. To reduce ordering costs: When the firm places fewer orders of large
quantities, the ordering costs will reduce.
To achieve efficient production run: In order to have an uninterrupted
production process, a firm needs to maintain a buffer stock. Also it needs
to maintain a stock of certain vital raw materials and many other
components so that their shortage does not halt the production.
Classification of Inventories:
71

72. Inventories may be classified into three categories.
1. Raw Material Inventory: It consists of the basic materials that have
not been committed to the production process. It helps in uncoupling the
production function from the purchasing function so that any delay in
shipment of raw materials does not cause production delay.
2. Work-in-Process Inventory: It consists of those materials that have
been committed to the production process but have not been completely
converted into finished goods.
3. Finished goods Inventory: It consists of completed products that are
awaiting sale. This inventory uncouples the production and sales functions
so that it is no longer necessary to produce the goods before a sale can
occur.
Cost Associated with Inventories:
There are three direct costs and two indirect costs that are associated with
inventories:
Direct Costs associated with inventories:
1. Material Costs: These include purchasing costs, transportation costs
and handling costs.
2. Ordering costs: Ordering costs include the entire cost of acquiring the
raw material, i.e. all the costs associated with activities like:
requisitioning, purchase ordering, transporting, inspecting and handling
costs at the warehouse for storing. Ordering costs would increase with an
increase in number of orders i.e. higher the frequency of acquiring the
inventory, greater will be the ordering costs. If the firm maintains a large
inventory, only a few orders will have to be placed and ordering costs will
72

73. be relatively less. Thus ordering costs decrease with an increase in the size
of the inventory.
3. Carrying costs: These are the costs that are incurred for maintaining a
given level of inventory. They include storage costs, insurance, taxes,
deterioration and obsolescence. The storage costs include cost of storage
space, handling costs and administrative costs like salaries to staff and
workers etc. Carrying costs increase with an increase in the inventory size.
Indirect Costs associated with inventories:
1. Cost of funds tied up in inventory: Maintaining inventories involves
certain costs as funds that might have been used for other purposes are
locked up in the form of inventory.
2. Costs of running out of goods: If the firm is not able to provide
materials to the production department, or supply finished goods to the
marketing department, then the firm will have to incur some costs in the
form of loss of production due to stoppage of work, uneconomical prices
associated with cash purchases etc. Apart from these quantitative
aspects, there are certain qualitative aspects related to these costs in the
form of adverse effect on the relationship with the customer, and damage
done to the image of the company when the demand is not met.
Inventory management aims at minimizing the total costs associated with
holding inventories. The firm faces two conflicting needs with respect to
management of inventories:
a. To maintain a sufficient size of inventory for efficient and smooth
production and sales operations. Maximization of profit is done by
maintaining minimum investment in inventories. Hence, keeping in view
these two conflicting goals, the firm should try to strike a trade-off
73

74. between the ordering and carrying costs so that the costs are minimized
and the profitability is maximized.
Inventory Management Techniques:
Inventory management includes three sub-systems or techniques that help
in the efficient utilization of inventories. They are:
1. Economic Order Quantity
2. Reorder-point subsystem
3. Stock-level subsystem.
Economic Order Quantity (EOQ): One of the major problems
associated with inventory management is with regard to the quantity of
inventory that should be added to replenish it. The Economic Order
Quantity (EOQ) is the optimal order size that minimizes the total costs
(ordering costs + carrying costs) associated with maintaining inventory.
The total costs associated with inventories are computed as:
Total costs = Total inventory costs + Total Ordering costs
Total Costs =
where,
U is the annual usage
Q is the quantity ordered
F is the fixed cost per order
P is the purchase price per unit
C is the carrying costs expressed as a percentage of purchase prices.
We know that the ordering costs decrease with an increase in size of the
inventory and carrying costs increase with an increase in the size of the
inventory. This can be graphically represented as:
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75. From the above graph, we can infer that the total costs will be minimum
when the ordering costs are equal to carrying costs. The point Q* at
which the total cost is minimum is known as Economic Order Quantity.
It can be derived in the following manner:
At Q* (i.e EOQ) Ordering costs will be equal to carrying costs,
i.e.
Hence EOQ or Q* =
where, U is the annual usage of material
F is the fixed cost per unit
P is the purchase price per unit
C is the carrying costs.
Reorder Point Subsystem:
75