Professional Documents
Culture Documents
2009-2011
The industrial training has been an integral part of MBA program .This has an
everlasting impact on the trainee & helps in setting himself in industrial environment
when he takes up a job.
For a management student theoretical knowledge as well as practical orientation
exposes oneself to experiences, one can again be mastering it is best possible time.
MBA curriculum has been fine tuned in such a way that students not apply the
theoretical knowledge but also gain it in a practical sense. Thus objectives can be
attained through application of theory tools concepts and techniques of
Management.
Balanced theoretical and practical knowledge are essential for every student and
MBA curriculum is conceived in such a way so as to facilitate practical purpose.
During this project report I have tried my best to gain some valuable knowledge &
experience & also tried to give some valuable suggestion to the organization.
ACKNOWLEDGEMENT
I express my sincere thanks to my project guide, Mr.Rajiv Loadha (F&A Manager) &
B.L. Salvi, Deputy Manager, HRD, RSMML. For guiding me right form the inception
till the successful completion of the project.
Suman Singh
EXECUTIVE SUMMARY
Stewart H. Britt rightly said, “Doing business without knowing problems is like
winking at a girl in the dark, you know what you are doing but nobody else does”.
The very objective of the company is to achieve cost effective technological
innovations in the mining of minerals and to diversify into mineral based downstream
projects.
RSMML occupies a place of pride in non metallic of India. RSMML is a multi mineral
and multi location enterprises engaged in mining and marketing of rock phosphate,
SMS grade lime stone, Gypsum and Salanite.
I had taken the project “the study of working capital of management” At RSMML.
It was a grate experience for me to come in close contact, communication skills and
overall interaction capabilities have improved.
This training report has been an effort to summarize all the piece of information
gathered by me during my training session.
The early topics in this training report include the introduction of working capital of
management, industry and organization, its group companies, its journey to reach
acme of success and its organization structure, products, board of directors etc.
In this project I have shown the details with the Research Methodology. It includes
the rationale of the study followed by the research objective, planning of the project
and how the data collection was performed. Further it explains the research design,
analysis of data. Primary and secondary data collection was performed for the
purpose. Channel distribution was also done; observation was divided in the time
slots. A table format was designed to collect the data.
In the next session of this report is follow the analysis of various ratio & calculation
of working capital ,managing working capital ,working capital financing, working
capital management ,financial mix of RSMML etc.
In the next session of this report is concerned collected data was interpreted to find
the results. The first hand collected data was analyzed using tables and graphs.
In the last part of this training report includes my conclusions & suggestions ,which
will be beneficial for the company. Financial analysis is the process of identifying the
strength& weakness of the firm .SWOT analysis has been drawn and I have tried to
give suggestions from my side after undertaking this research or project.
TABLE OF CONTENTS
Certificate from the Organization
Preface
Acknowledgement
Executive Summary
1. Introduction to the Industry
1.1 Introduction to RSMML
1.2 Corporate profile of RSMML
1.3 Amalgamation
1.4 Strategic business unit & profit centers
2. Introduction to the Organization
2.1Board of director
2.2 Product
2.3 Research & development
2.4 Environment & safety
2.5 Social responsibility
3. Research Methodology
0 3.1 Title of the Study
1 3.2 Duration of the Project
2 3.3 Objective of Study
3 3.4 Sources of data
4 3.5 Reliability of data
5 3.6 Scope of Study
6 3.7 Limitation of Study
4. Financial Management
4.1 Objective
4.2 Financial Affairs of RSMML
4.3 Investment Decision
5. Working Capital Management
5.1 Meaning
5.2 Classification
5.3 Need
5.4 Factor’s affecting
6. Managing Working Capital
7. Working Capital Financing
8. Data Analysis and Interpretation
Charts &Graphs
9. SWOT Analysis
10. Conclusion
11. Bibliography
INDUSTRY PROFILE
1. RSMML -INTRODUCTION
Rajasthan state mines & minerals limited (in short RSMML) is one of the leading and
progressive undertakings of the government of Rajasthan. It occupies a place of
pride in production and marketing of non-metalistic minerals of India. RSMML is
multi minerals and multi location enterprise engaged in mining of Rock Phosphate,
lignite, SMS grade Limestone and gypsum. RSMML is not only leader in mining &
selling of Rock Phosphate, gypsum across the country, but also global pioneer in
technology in open cast mining & mineral beneficiation of carbonate Rock
phosphate.
Besides minerals, RSMML has also forayed into Energy Sector and setup 15 MW
installed capacity Wind Power Project at Jaisalmer, Rajasthan.
Rajasthan State Mines & Minerals Limited (RSMML) is one of the premier public
sector enterprises of the Government of Rajasthan, primarily engaged in mining and
marketing of industrial minerals in the State. The very objective of the company is to
achieve cost effective technological innovations in the mining of minerals and to
diversify into mineral based downstream projects. Apart from the above, the
Company is also aiming at long term fuel supply to lignite based power projects,
apart from setting up wind energy farms at Jaisalmer. This company is
professionally managed and remains focused towards increasing productivity and
growth.
3. AMALGAMATION
After amalgamation, the following four mineral based Strategic Business Units &
Profit Centres (SBU & PC) namely Rock Phosphate, Lignite, Gypsum and
Limestone have been set up as a part of corporate restructuring: -
Rock Phosphate continued its prime position in the business profile of the Company
and catered to almost 94% of the indigenous demand. The capacity of industrial
beneficiation plant was increased from 1500 TPD to 3000 TPD and the production
got streamlined. The production of lignite was streamlined at Giral and the company
is gearing up fast for providing one million tonnes of lignite for the lignite based
thermal power plant at Giral under state owned Company, Rajasthan Vidyut
Utpadan Nigam Ltd. Being pioneer in the lignite field, RSMML has ensured its strong
presence in the lignite based power sector in Rajasthan. Despatches of gypsum
touched 3.39 million ton in 2008-09. Renewed emphasis on environmental
management was stressed upon for the management of gypsum mines. Supply of
SMS grade limestone to the steel plants of India touched the record level of 2.30
million tonnes in 2008-09.
In the year 2008-09, company has achieved the profit before tax Rs. 177.89 crores
in comparison to profit before tax of Rs. 186.75 crores in 2007-08. The Company
started a number of R&D activities to further strengthen its R&D activities. Generous
contributions were made for creation of life saving medical infrastructure in 8 project
districts. The dividend of Rs. 15,51,03,000/- was declared for the year 2008-09.
RSMML today has broken away from its monopolistic moorings and welcomes
competition. From a small backwaters company, it is now rated as a technologically
advanced company and an innovator. It boasts of a highly trained and competent
workforce and strong financial base. It has established itself as the most successful
public sector company in Rajasthan.
HIGH LIGHTS
He revenue of the company has increased from Rs. 6364 millions to Rs. 9723
millions in the year 2008-09.
Revenue Pie- Share of Various Minerals (Rs. Crore)
Limestone Lignite
64.1 49.29
13% 10%
Gypsum,
85.63 Rock
17% Phosphate
Rajphos 229.76
Bneficiated 47%
4.56 Rock
1% Phosphate
57.07
12%
2. The revenue of the company has increased from Rs. 4301 million
to Rs. 5108 million.
1. BOARD OF DIRECTOR
iii. Shri C.K. Mathew, IAS Principal Secretary to the Government of Rajasthan,
Department of Finance, Jaipur
iv. Shri Sunil Arora, IAS Principal Secretary to the Government of Rajasthan,
Department of Industries, Jaipur
2. PRODUCTS
We are producing following products: -
• Lignite
• Gypsum
Gypsum Powder
ROM Selenite
It is used for manufacturing of Plaster of Paris and Ceramics.
• Limestone
We are producing following products: -
• Rock Phosphate
MAP OF RAJASTHAN
3. RESEARCH AND DEVELOPMENT
The company has developed the organic fertilizer called Phosphate Rich Organic
Manure (PROM) by using high grade rock phosphate with farm yard waste and
other organic matter. The field trials conducted through the different agricultural
universities in the country have shown that the agronomic efficacy of this new P-
fertilizer is higher than that of the complex phosphatic fertilizers available in the
market today. ‘PROM’ is suitable to neutral and alkaline soils, which will prove to be
a boon to the Indian farmers. In the long run, this product will be a winner as it has
significant price advantage vis-à-vis the other chemical fertilizers. Commercialization
of the PROM technology will help utilization of waste and also help in conservation
of the mineral rock phosphate as PROM shows good residual effect.
The company has put a major thrust on the R&D activities in the recent past and
several new R&D projects have been taken up.
Research project taken up for development of fused Ca-Mg phosphate to utilize the
vast reserves of low-grade ore of rock phosphate.
• Beneficiation of low grade gypsum for producing high grade 80% + material
for cement industry.
• R&D efforts on apatite mineral to be used in jewelry and decoration. (moving
towards value added product)
• Company has started a Training and Consultancy Center at Jaipur,
Rajasthan
A Comprehensive energy audit of all the units of the company has been carried out
by Petroleum Conservation Research Association (PCRA).
RSMML has constructed a huge dam of 200 mcft. Fresh water storage capacity on
Jhamari River, which has helped in recharging the regional water table.
Extensive afforestation / planatation work is being done in and around all mines.
Industrial Beneficiation Plant is "Zero discharge plant". The waste water is treated at
acid water Treatment plant, resulting in an saving of about 1.5 million CuM of fresh
water.
Regular monitoring and control of different environmental parameters i.e. air, water,
dust, noise and heat etc.
Installation of dust extraction system at crushing and screening plant and at Central
Gypsum Grinding Unit, Rawla, Bikaner.
The mined out area is being back filled simultaneously to reclaim the land.
Sajjan Niwas Garden established in 1883 has been adopted by RSMML and is
being restored to its pristine glory.
Company has a safety and health policy. Company follows statutory requirements
as per Mines Act 1952. Every year Safety week celebrated at different units under
the aegis of Director General of Mines Safety (DGMS).
A well equipped vocational training center at Phosphate SBU caters to need of
various training regarding safety and occupational health for the employees.
5. SOCIAL RESPONSIBLITY
As a responsible corporate entity committed to discharge its social obligations,
RSMML has been contributing generously towards the development of the areas
located near its mining sites and other areas of operation.
These contributions have been in the areas of –
• Medical & Health Care
• Drinking water
• Education
• Environment
• Development of village infrastructure
Medical Facilities at Project Districts
• The Company has been providing medical, educational and other facilities to
the villages situated around its mines.
• To improve the medical infrastructure of Udaipur region, which is
predominantly a tribal district, RSMML has contributed Rs. 13.15 crores in
last six years for establishment of Cardio-Thoracic Surgery Centre, Neo-Natal
Special Care Unit, 64-Slice CT Scan Centre, Central Oxygen supply system
and other facilities at the M.B. Government Hospital, Udaipur.
• A contribution of nearly Rs. 20.00 crores in last six years has been made to
Chief Minister Fund for development of Medical and Health infrastructure
facilities at Medical colleges / District Hospitals at project districts :- Udaipur,
Bikaner, Jodhpur, Barmer, Sri Ganganagar, Jaisalmer, Hanumangarh,
Jhalore and Nagaur.
• Medical Camps are being regularly organized in the villages around the mine
location and project areas of the company where free check-up and
medicines are provided.
RSMML has provided land for the project for setting up a 100-beded multi super
specially hospital at Udaipur under a JV arrangement with M/s American
International Health Management Limited, Total capital investment on the hospital
envisaged – Rs. 20 millions.
CORPORATE OFFICE:
RESEARCH METHODOLOGY
A systematic approach is essential in any project work. Each and every step must
be so planned, so that each step leads to next step. The project has been divided
into number of procedural steps. Planning and organizing are the part of this
systematic approach with lot of emphasis given to the interdependence of various
steps.
RESEARCH
Research means search for knowledge. Research can also be defined as,
systematic, scientific objective collection, analysis and recording of information in
relation to some subject or problem.
Methodology adopted to collect the information from various sources for the
preparation of the report was both from primary as well as secondary data. The
research methodology adopted for conducting research was as following as given
by Philip kotler and illustrated as:
DEFINING THE RESEARCH
OBJECTIVE
RESEARCH DESIGN
Research Design constitutes the blue print for the collection, measurement and
analysis of data. As such, the design includes an outline of what the researcher will
do from writing the hypothesis and its operational implications to the final analysis of
data.
SOURCES OF DATA
There are two types of sources from which data can be collected, these are as
follows:-
PRIMARY DATA:- Primary Data are those, which are collected for the first time by
the researcher for any particular problem. Since there was not much scope for
collecting primary data on consumer’s attitude towards Rock phosphate (RP) so the
primary data collected from regional customers only which were very few in
numbers.
SECONDARY DATA:- Those data, which are collected for some earlier research
work and are applicable or usable in the study researcher has primarily undertaken.
The primary data in one research work may take the form of secondary data. The
following sources of data have been consulted by me for the purpose of research.
RESEARCH MATERIAL
RSMML has its own library where large number of books, magazines and
papers are present on mines and minerals. These played a vital role in my
project.
For my research work I have taken only the Secondary Data because this study is
about knowing the financial performance of the company, which can only be done
by the past records of the company.
For the purpose of my study only Internal Sources of Secondary Data are being
used here.
Data Collection Sources for the Study:-
In order to achieve the objectives of my study, different methods are adopted
including:-
• Review of relevant literature on Ratio Analysis,
• Study of published annual reports of R.S.M.M.L.,
• Discussions with company’s management, etc.
These exercises helped a lot in collecting relevant data and requisite information in
time for the purpose of the present study and also to interpret and analyze the
results as also for getting important classifications about various aspects of the
study.
RELIABILITY OF DATA
A fairly good reliability of data/ information can be ascertained from the following,
which has duly been taken into consideration from the following sources:-
LIMITATION OF STUDY
There are some limitations also in conducting this research work, some of the
limitations are as follows:-
• Since the annual accounts of the company for the current year, i.e., 2009-
2010 was under finalization, so the calculation of ratios and financial
performance of the company for the current year couldn’t be done.
• Since for calculation of ratios secondary data were used and the basis to
calculate ratios is historical financial statements. The financial analyst is
more interested in what happens in future, while the ratios indicate what
happens in the past.
• There are many types of ratios, which can be calculated, but information
and data regarding all these ratios were not available, so they were not
calculated.
GENERAL OBJECTIVES
SPECIFIC OBJECTIVES
2. To know how the company establishes goals and objectives at various levels
of the organization and how plans are developed to accomplish these objectives.
Investment decision
The decision related to selection of assets in which, funds will be invested
by a firm. Long term assets –Those assets which yield return over a period of in
future. Short term & current assets – Those assets which in normal course of
business are convertible into cash within a year.
Financial decision making with reference to long term asset is known as capital
budgeting. Financial decision making with reference to current asset & short – term
asset is know as working capital decision.
Capital budgeting is probably the most crucial financial decision for a firm .It relates
to the selection of an asset or investment proposal or course of action whose
benefits are likely to be available in future over the lifetime of the project whether the
assets will be accepted or not will depends upon the relative benefits and return, as
well as the risk associated with it.
Working Capital is concerned with the management of current assets. If a firm
does not have adequate Working Capital, it may become illiquid and consequently
may not have ability to meet its current obligations and thus invite the risk of
bankruptcy. If the current assets are to large, profitability is adversely affected.
WORKING CAPITAL MANAGEMENT
Sometime, it may possible that we have to pay fixed liabilities, at that time we need
working capital which is more than permanent working capital, then this excess
amount will be temporary working capital. In normal working of business, we don’t
need such capital.
In working capital management, we analyze following three points
1. What is the need for working capital?
After study the nature of production, we can estimate the need for working capital. If
company produces products at large scale and continues producing goods, then
company needs high amount of working capital.
2. Profitability policy
under this policy, finance manger will keep low amount of cash in business and try
to invest maximum amount of cash and bank balance. It will sure that profit of
business will increase due to increasing of investment in proper way but risk of
business will also increase because liquidity of business will decrease and it can
create bankruptcy position of business. So, profitability policy should make after
seeing liquidity policy and after this both policies will helpful for proper management
of working capital.
Working capital may be regarded as the life blood of business. Working capital is of
major importance to internal and external analysis because of its close relationship
with the current day-to-day operations of a business. Every business needs funds
for two purposes.
Management of working capital is concerned with the problem that arises in
attempting to manage the current assets, current liabilities. The basic goal of
working capital management is to manage the current assets and current liabilities
of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it
is neither adequate nor excessive as both the situations are bad for any firm. There
should be no shortage of funds and also no working capital should be ideal. Long
term funds are required to create production facilities through purchase of fixed
assets such as plants, machineries, lands, buildings & etc. Short term funds are
required for the purchase of raw materials, payment of wages, and other day-to-day
expenses. . It is other wise known as revolving or circulating capital
It is nothing but the difference between current assets and current liabilities. i.e.
Working Capital = Current Asset – Current Liability.
Businesses use capital for construction, renovation, furniture, software, equipment,
or machinery. It is also commonly used to purchase inventory, or to make payroll.
Capital is also used often by businesses to put a down payment down on a piece of
commercial real estate. Working capital is essential for any business to succeed. It
is becoming increasingly important to have access to more working capital when we
need it.
One of the most important areas of finance to monitor is your company's working capital,
which is the difference between current assets and current liabilities. As a small business
owner, you must constantly be alert to changes in working capital and their implications;
otherwise, you may miss some warning signs that can lead to business failure. The most
important component of working capital is cash, far the most important asset of any business,
particularly a small business. Without it, the business will fail. So it is of paramount
importance for you as the business owner to control all cash transactions.
Positive working capital means that the company is able to pay off its short-term
liabilities. Negative working capital means that a company currently is unable
to meet its short-term liabilities with its current assets (cash, accounts receivable,
inventory).
Also known as "net working capital". If a company's current assets do not exceed its
current liabilities, then it may run into trouble paying back creditors in the short term.
The worst-case scenario is bankruptcy. A declining working capital ratio over a
longer time period could also be a red flag that warrants further analysis. For
example, it could be that the company's sales volumes are decreasing, and as a
result, its accounts receivables number continues to get smaller and smaller.
Working capital also gives investors an idea of the company's underlying operational
efficiency. Money that is tied up in inventory or money that customers still owe to the
company cannot be used to pay off any of the company's obligations. So, if a
company is not operating in the most efficient manner (slow collection), it will show
up as an increase in the working capital. This can be seen by comparing the working
capital from one period to another; slow collection may signal an underlying problem
in the company's operations.
Any change in the working capital will have an effect on a business's cash flows. A
positive change in working capital indicates that the business has paid out cash, for
example in purchasing or converting inventory, paying creditors etc. Hence, an
increase in working capital will have a negative effect on the business's cash
holding. However, a negative change in working capital indicates lower funds to pay
off short term liabilities (current liabilities), which may have bad repercussions to the
future of the company.
g. To provide credit facilities to the customer.
h. To maintain the inventories of the raw material, work-in-progress, stores and
spares and finished stock.
For studying the need of working capital in a business, one has to study the
business under varying circumstances such as a new concern requires a lot of funds
to meet its initial requirements such as promotion and formation etc. These
expenses are called preliminary expenses and are capitalized. The amount needed
for working capital depends upon the size of the company and ambitions of its
promoters. Greater the size of the business unit, generally larger will be the
requirements of the working capital.
The requirement of the working capital goes on increasing with the growth and
expensing of the business till it gains maturity. At maturity the amount of working
capital required is called normal working capital. There are others factors also
influence the need of working capital in a business.
Creditors are a vital part of effective cash management and should be managed
carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function can
create liquidity problems. Consider the following:
Who authorizes purchasing in your company - is it tightly managed or spread
among a number of (junior) people?
Are purchase quantities geared to demand forecasts?
Do you use order quantities which take account of stock-holding and
purchasing costs?
Do you know the cost to the company of carrying stock ?
Do you have alternative sources of supply ? If not, get quotes from major
suppliers and shop around for the best discounts, credit terms, and reduce
dependence on a single supplier.
How many of your suppliers have a returns policy ?
Are you in a position to pass on cost increases quickly through price
increases to your customers?
If a supplier of goods or services lets you down can you charge back the cost
of the delay ?
Can you arrange (with confidence !) to have delivery of supplies staggered or
on a just-in-time basis ?
There is an old adage in business that if you can buy well then you can sell well.
Management of your creditors and suppliers is just as important as the
management of your debtors. It is important to look after your creditors - slow
payment by you may create ill-feeling and can signal that your company is
inefficient (or in trouble!).
Inventory Management
Managing inventory is a juggling act. Excessive stocks can place a heavy burden on
the cash resources of a business. Insufficient stocks can result in lost sales, delays
for customers etc.
The key is to know how quickly your overall stock is moving or, put another way,
how long each item of stock sit on shelves before being sold. Obviously, average
stock-holding periods will be influenced by the nature of the business. For example,
a fresh vegetable shop might turn over its entire stock every few days while a motor
factor would be much slower as it may carry a wide range of rarely-used spare parts
in case somebody needs them.
Nowadays, many large manufacturers operate on a just-in-time (JIT) basis whereby
all the components to be assembled on a particular today, arrive at the factory early
that morning, no earlier - no later. This helps to minimize manufacturing costs as JIT
stocks take up little space, minimize stock-holding and virtually eliminate the risks of
obsolete or damaged stock. Because JIT manufacturers hold stock for a very short
time, they are able to conserve substantial cash. JIT is a good model to strive for as
it embraces all the principles of prudent stock management.
The key issue for a business is to identify the fast and slow stock movers with the
objectives of establishing optimum stock levels for each category and, thereby,
minimize the cash tied up in stocks. Factors to be considered when determining
optimum stock levels include:
What are the projected sales of each product?
How widely available are raw materials, components etc.?
How long does it take for delivery by suppliers?
Can you remove slow movers from your product range without compromising
best sellers?
Remember that stock sitting on shelves for long periods of time ties up money which
is not working for you. For better stock control, try the following:
Review the effectiveness of existing purchasing and inventory systems.
Know the stock turn for all major items of inventory.
Apply tight controls to the significant few items and simplify controls for the
trivial many.
Sell off outdated or slow moving merchandise - it gets more difficult to sell the
longer you keep it.
Consider having part of your product outsourced to another manufacturer
rather than make it yourself.
Review your security procedures to ensure that no stock "is going out the
back door !"
Higher than necessary stock levels tie up cash and cost more in insurance,
accommodation costs and interest charges.
The assessment of working capital is always made for future period while the
financial statement reveals the financial position of a concern at some point of time
in the past. The calculation based on such statements is not workable. Forever the
newly established units may not provide any financial statement of the past. The
working capital is always assessed on the basis of projection for next year. The
projection which is submitted to the banks is critically for the ultimate product,
production capacity & rate of inflation .Therefore it requires careful scrutiny in
different data.
After determining the level of working capital, a firm has to decide how it is to be
financed .The need for working capital materials, work in progress, finished goods &
receivable typically fluctuates during the year .Although long term funds partly
finance current assets and provide the margin money for working capital, such
assets are virtually exclusively supported by short term sources. The main sources
of working capital are: Trade credit, Bank credit, Commercial papers.
The main sources of working capital are:
1. Trade credit
2. Bank credit
3. Commercial paper
TRADE CREDIT
Trade credit refers to the credit that customer gets from supplier of goods in the
normal course of business. The buying firms do not have to pay cash immediately
for the purchase made. This deferred payment is a short term financing called trade
credit. It is a major source of financing.
Particularly small firms are heavily dependent on Trade credit as a source of finance
since they find it difficult to raise funds from banks and other sources in the capital
markets.
Trade credit is mostly an informal arrangement and is granted on an open account
basis. A supplier sends goods to the buyer on credit, which the buyer accepts,and
thus in effects, formally acknowledges it as a debt, he does not sign any legal
instrument. Once the trade links have been established between the buyer and the
seller, they have each other’s mutual confidence and Trade credit becomes a
routine activity which may be periodically reviewed by the supplier. Trade credit
appears as a sundry creditor on the buyer’s balance sheet. Trade credits also take
the form bills payable. When the buyer’s signs a bill a negotiable instrument to
obtain it appears on the buyer’s B/S as bills payable.
Benefits of Trade credit
1. Trade credit is relatively easy to obtain except in case of financially very
unsound firms.
2. Flexibility is another advantage of Trade credit. Trade credit grows with the
growth in firm sales.
3. Trade credit is an informal, spontaneous source of finance.
BANK FINANCE
Banks are the main institutional sources of working capital finance in India .A bank
considers a firm, sales and production plans and desirables levels of current assets
in determining its working capital requirement. The approved by bank for the firm’s
working capital is called credit limit. Credit limit is the maximum funds which a firm
can obtain from the banking system banks may fix separate limits for the ‘peak level’
credit requirements and ‘normal non-peak level’ credit requirements indicating the
periods during which the separate limits will be utilized by the borrower.
Forms of banks finance -
A firm can draw funds in following forms
a) Overdrafts – Under the overdrafts facility, the borrower is allowed to
withdraw funds in excess of the balance in his current account up to a certain
specific limit during a stipulated period. Through overdrawn amount is repayable on
demand, the generally continue for a long period by annual renewals of the limits. It
is a very flexible arrangement from the borrower point of view since he can withdraw
and repay funds whenever he desires within the overall stipulations. Interest is
charge on daily balances on the amount actually withdraw subject to some minimum
changes. The borrower operates the account through cheques.
The banks which have finance, the working capital need of RSMML is
• Bank of Rajasthan
• State bank of India
• Bank of Baroda
• Punjab national bank
• Oriented bank of commerce
The limit sanctioned 13; different banks for working RSMML are as follows-
COMMERCIAL PAPER –
Commercial paper is an important money market instruments in advances countries
like the USA to raise short – term funds in India, reverse bank of India introduced
the Commercial paper scheme in the Indian money market in 1989. Commercial
paper as it is known in advances countries, is a form of unsecured promissory note
issued by firms to raise short – term funds. The Commercial paper market in USA is
a blue chip market where financially sound and higher rated companies are able to
issue Commercial paper. The buyers of Commercial paper include banks, insurance
companies, unit trust and firms with surplus funds to invest for a short period with
minimum of risk.
RSMML has adopted the conservative approach for determining its financial
– mix
INVENTORY MANAGEMENT
The dictionary meaning of inventory is “stock of goods”. Inventory includes –raw
material, work- in- progress, consumables, finished goods& spares. The amount of
investment is sometimes more in inventory than in other assets. About 90% part of
working capital invested in inventories. It is necessary for every management to give
proper attention to inventory management. A proper planning of purchasing,
handling, storing and accounting should form a part of inventory management. The
purpose of inventory management is to keep the stocks in such a way that neither
there is over –stocking nor under-stocking.
Functions of inventory management:-
1. Inventory helps in smooth & efficient running of business.
2. Learn the features & set up inventory management
3. Enter inventory items and kits
4. Enter transactions for inventory items
5. Efficiently use the related tools for counting and updating inventory
Inventory management in RSMML
Company maintains inventory management system at its phosphate and limestone
divisions. It has adopted selective inventory control-ABC analysis .it tends to
measure the significance of each item of inventory in terms of its value.
The high value items are classified as “A item” and would be under
tightest control. “B item” fall in between these two categories and require reasonable
attention of management. “C item” represent relatively least value and would be
under simple control. The ABC analysis concentrated on important items & also
known as control by importance and exception.
RECEIVABLE MANAGEMENT(debtors)
Receivable management is the process of making decisions relating to investment
in trade debtors. Certain investment in receivable is necessary to increase the sales
and the profits of a firm. There is always a risk of bad debts too.
PAYABLE MANAGEMENT(creditors)
Creditors are vital of effective cash management & should be managed carefully to
enhance the cash positions management of creditors is just as important as the
management of debtors .The major prerequisite of payables management are the
finalization of the procurement plan.
It also involve
1. Formulating general and specific policies and norms for payment which has
to be followed while finalizing all procurement costs.
2. Making financial management like L/C s or BCs to exploit benefits of cash
discount immediate delivery.
3. The system should also enable timely review of payable, monitoring delays &
review of policies.
CASH MANAGEMENT
Cash is a life blood of business & its task of manager to manage cash efficiently
keeping in view safety liquidity and profitability.
The firm should involve strategies regarding the following five facts of cash
management.
1. Cash inflows and outflows should be planned to projects surplus or deficit for
each period of the planning period.
2. The flow of cash should be properly managed.
3. The firms should decide about the appropriate level of cash balances.
4. The cost of excess cash and danger of cash deficiency should be matched to
determine the optimum level of cash balances.
5. The surplus cash balances should be properly invested to earn profits. The
firm should decide about the division of such cash balance between deposits,
marketable securities and interoperate lending.
Cash Management in RSMML
RSMML prepares its monthly cash budget on the basis of cash /capital budget
prepares in advance. Every department has to inform their requirements a month
earlier & marketing department has to ensure the collection.
INTERPRETATION:-
Ratio 2:1 is considered ideal.
If current ratio 2 or more means the company has ability to meet the obligation.
If current ratio is less than 2 means company difficulty in meeting its current
obligation.
RSMML has current ratio is more than 2:1 in the all the three year.
2008 and 2008-2009 Current Ratio was high depicting value of current assets very
high than current liabilities, i.e., 2.45 & 2.22 respectively.
The Quick Ratio reveals the relationship between quick assets & current liability.
The ratio is to measures the ability of the firm to meet its short term obligation &
without relying upon the realization of the stock. This ratio establishes a relationship
between quick and liquid assets and Current Liabilities .An assets is liquid if it can
be converted into cash immediately or reasonable soon without a loss of value.
Cash is the most liquid assets .Other assets which are considered to be relatively
liquid and included in Quick Assets are book debts and marketable securities
inventories are considered to be less liquid. Inventories normally require some time
for realizing into cash their value also has a tendency to fluctuate .The quick ratio is
found out by dividing quick assets by current liabilities.
QUICK RATIO
2.35 2.31
2.3 2.27
2.25
2.2 Ratio
RATIOS 2.15 2.11
2.1
2.05
2
2006-2007 2007-2008 2008-2009
YEARS
INTERPRETATION:-
Generally a Quick Ratio 1:1 is considered to be ideal. The Quick Ratio of R.S.M.M.L
has decreased from 2.31 in 2006-2007 to 2.27 in 2006-2007 but it also decreased to
2.11 in the year 2007-2008. Still the liquidity position is good because it is more than
1:1.
40000
35000
30000
AMOUNT
25000
20000 Net working capital
15000
10000
5000
0
2006-2007 2007-2008 2008-2009
YEARS
INTERPRETATION:-
The amount of Working Capital has increased over the three years and is highest in
the year 2008-2009 which is Rs. 36974.08. That is the result of increase in current
assets, though current liabilities has also increased but the proportion of increase in
current assets was greater than current liabilities, the result is increased Working
Capital.
4. INVENTORY TURNOVER RATIO: -
This ratio indicates the relationship between the cost of goods during the year and
average stock kept during that year. This ratio measures the number of times
inventory is turned over, i.e., the efficiency of the firm in selling its product. It
measures the relationship between the cost of goods sold and the inventory level.
INTERPRETATION:-
The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a
business where stock turnover ratio is high, goods. Generally, a high inventory
turnover is indicative of good inventory management. A low inventory turnover
implies excessive inventory levels than warranted by production and sales activities
or a slow moving or obsolete inventory.
R.S.M.M.L Company’s efficiency in turning its inventories is very satisfactory. The
Inventory Turnover Ratio of R.S.M.M.L was 18.50 times in the year 2006-2007
which increased to 27.68 times in the year 2007-2008 and it again increased to
50.64 in the year 2008-2009. It is a good sign for the company.
YEARS
INTERPRETATION:-
The higher the ratio, the better it is, since it indicates that amount from debtors is
being collected more quickly & the more efficient for the management of credit.
The Debtors Turnover Ratio of R.S.M.M.L was 10.11 times in the year 2006-2007
which decreased to 9.12 times in the year 2007-2008 and it increased to 13.02
times in the year 2008-2009. This is a measure of efficient credit management
The Average Collection Period measures the quality of debtors, since it indicates the
speed of their collection. The average number of days for which book remains
outstanding is called the average collection period. Shorter the Average Collection
Period, the better the quality of debtors, as a short collection period implies the
prompt payments by the debtors. Higher the Turnover Ratio and shorter the
Average Collection Period, better the trade credit management and better the
liquidity of debtors.
Days 20 Days
10
0
2006-2007 2007-2008 2008-2009
YEARS
INTERPRETATION:-
R.S.M.M.L is going well with its average collection period of debtors over the three
years. Where, the Average collection Period was 35.60 days in the year 2006-2007,
it has increased to 39.47 days in 2007-2008 and it further decreased to 27.64 days
in the year 2008-2009.
Thus, it shows the shorter collection period, which shows the better quality of
debtors, and it implies the prompt payments by debtors.
YEARS
INTERPRETATION:-
The Working Capital Turnover Ratio for R.S.M.M.L was 1.23 times in the year
2006-2007 which declined to 1.19 times in 2007-2008 and increased to 1.40 times in
the year 2008-2009. Thus, it shows higher investment in the working capital and
lower profits.
SWOT ANALYSIS
A modern tool for systematic analysis that facilities matching the external threats
and opportunities with the internal weakness and strengths of the organization.
SWOT analysis of R.S.M.M.L is done in the following way for the better
understanding of the company’s position:-
STRENGTHS
• The service condition and welfare facilities given to the workmen are
attractive and handsome. The employees are satisfied with the facilities and
services given by the company. The rate of labor or employee turnover is
almost zero and since its inception, no strike or lock- out in the organization.
WEAKNESSES
• The supplies of material by R.S.M.M.L to the parties are not proper. The
supply is not regular which may be due to the non- availability of transport
medium, i.e., railway wagons that often restrict the production process.
OPPORTUNITIES
• In the era of economic liberalization, R.S.M.M.L may expedite the matter for
obtaining ISO- 9000 or 9002 in order to access an extra mileage for their
brand quality.
• Most of the customers have strong faith on the quality of materials offered by
R.S.S.M.L. R.S.M.M.L may convert this faith into business by targeting
potential & occasional buyers and by improving the quality of the present
service.
• The management of R.S.S.M.L may periodically get the first hand information
about the existing products and services offered by R.S.S.M.L. This may
increase the market reputation of the company.
• There are many opportunities for the organization for expansion and
diversification of its activities in India as well as abroad.
THREATS