Preface
Preface
C
Coa
oal
l h
haas
s be
beeen
n aand
nd sh
shaall
ll re
rem
maaiin
n tthe
he pr
priim
me
e so
sour
urcce
e o
of
f
commercial energy in India. It meets nearly 60 % of the total
commercial energy in India. It meets nearly 60 % of the total
commercial energy requirement of our country. Since coal
commercial energy requirement of our country. Since coal
In
India con
dia contr
trib
ibut
uted
ed al
almo
most
st 90 %
90 % of
of the
the coal produce
coal produced
d in
in the
the
country it can be perceived to be the synonym of Indian coal
country it can be perceived to be the synonym of Indian coal
industry. India is currently the third largest coal producing
industry. India is currently the third largest coal producing
country in the world after China & U.S.A. The Coal India
country in the world after China & U.S.A. The Coal India
ha
has
s tto
o pl
play
ay a
a si
sign
gnif
ific
ican
ant
t ro
rolle
e in
in sh
shaapi
ping
ng th
the
e de
dest
stiiny
ny of
of
ind
industri
ustries
es of
of the nation
the nation at
at lar
large.
ge. We
We curr
currentl
ently
y wi
witn
tnes
esss
change
changes that
s that are sweeping economic & social life of
are sweeping economic & social life of our
our
country, as
country, as well
well as,
as, that
that of
of the
the wor
world. Pr
ld. Produ
oducts
cts, serv
, service
icess
and ma
and manufacturin
nufacturing
g goods
goods or no longer l
or no longer limite
imited to any nati
d to any national
onal
boundary but are getting across to countries where they
boundary but are getting across to countries where they
find
find ac
acce
cept
ptan
ance
ce.
. Th
The
e li
libe
bera
rali
liza
zati
tion
on an
and
d th
the
e ec
econ
onom
omic
ic
reform
reforms
s initi
initiated in
ated in our country, in
our country, in real earnest, since the mid
real earnest, since the mid
of 1
of 1991
991,a
,are a
re att
ttem
empt t
pt to bri
o bring In
ng India
dia in t
in to th
o the e
e ecco
on
no
om
miic
c m
maaiin
n
st
stre
ream
am of
of gl
glob
obal
al ma
mark
rket
et.
. P
Peerrffo
orrm
maan
ncce
e ffo
or
r tth
hee
ccom
ompe
pete
tenc
nce,
e, if
if I
I m
may
ay sa
say
y so
so,
, iis
s tthe
he ke
key
y w
wor
ord
d ffor
or aany
ny
com
company
pany or
or cor
corpora
poratio
tion.
n. Und
Undoubt
oubtedl
edly
y the
these
se mov
moves
es eff
effect
ect
our life, as well as our thinking.
our life, as well as our thinking.
History of Coal Industry in India
History of Coal Industry in India
The mining industry in India is next to agriculture in terms
The mining industry in India is next to agriculture in terms
of resource generation and employment opportunity. Coal
of resource generation and employment opportunity. Coal
mining occupies a major position, contributing nearly 60 %
mining occupies a major position, contributing nearly 60 %
of c
of com
omm
meerc
rciiaal en
l eneerrgy requi
gy requiremen
rement
t of
of Indi
India,
a, follo
followed
wed
by
by ir
iron
on-o
-ore
re,
, li
lime
mest
ston
one a
e and
nd ba
baux
uxit
ite.
e.
Coal has traditionally been a vital input to the industrial
Coal has traditionally been a vital input to the industrial
he
heri
rita
tage
ge of Ind
of India nea
ia nearl
rly
y 20
200
0 ye
year
ar ag
ago, in
o, in Ran
Ranigun
igunj
j coal
coal
field,
field, about
about 120
120 miles
miles west
west of
of C
Caallccu
uttttaa.
. C
Co
oaal mi
l min
niin
ng
g
gradually spread to other parts of India as the railway network
gradually spread to other parts of India as the railway network
de
deve
vellop
oped
ed.
. By
By 19
1900
00,
, al
almo
most
st 80
80%
% of
of th
the
e co
coun
untr
try'
y's
s co
coal
al
p
prro
od
du
uccttiio
on
n o
of
f 6
6 mi
mill
llio
ion
n to
tons
ns ca
came
me fr
from
om Jh
Jhar
aria
ia an
and
d
Raniganj
Raniganj co
coaalf
lfiiel
elds
ds.
. Th
The
e pr
priinc
nciipa
pal
l co
cons
nsum
umeer
r w
wer
ere
e th
thee
Ca
Calc
lcut
utta
ta bas
based
ed ind
indust
ustrie
ries
s &
& shi
shippi
pping
ng bunk
bunkers
ers &
& rai
railwa
lways
ys
oper
operati
ating
ng fro
from
m Calc
Calcutta
utta.
. Impo
Imported
rted coal
coal from
from the
the Un
Unit
ited
ed
Kingdom and South Africa was cheaper then the west coal.
Kingdom and South Africa was cheaper then the west coal.
The
imports from distant countries became uncertain. Production
imports from distant countries became uncertain. Production
rose to 22 million tons at the end of the First World War &
rose to 22 million tons at the end of the First World War &
after suffering during the depression, climbed to 26 million
after suffering during the depression, climbed to 26 million
to
tons
ns at
at th
the
e en
end
d of
of Se
Seco
cond
nd Wo
Worl
rld
d Wa
War.
r. Th
Ther
ere
e wa
was
s se
seve
vere
re
shortage of coal during the post war period. On 16
shortage of coal during the post war period. On 16
ththOctobe
October
r in
in
1971, to deal with the declined situation, the government of
1971, to deal with the declined situation, the government of
Ind
India
ia too
took
k ove
over
r the
the ma
manag
nagem
emen
ent
t of
of al
all
l mi
mine
nes
s pr
prod
oduc
uciing
ng
cco
ok
kiin
ng
g cco
oaall,
, &
& aag
gaaiin
n o
on
n 3
30
0
ththJa
Janu
nuar
ary
y 19
1973
73 al
all
l mi
mine
ness
p
prro
od
du
ucciin
ng
g tth
heerrm
maal
l cco
oaall.
. IIn
n 1
19
97
75
5 tth
he
e g
go
ov
veerrn
nm
meen
ntt
cons
consoli
olidat
dated contro
ed control
l ove
over
r the coal
the coal industry
industry by
by transferring
transferring
tth
he
e o
ow
wn
neerrssh
hiip
p &
& m
man
anag
ageeme
ment
nt of
of al
all
l na
nattio
iona
nalliz
izeed
d
coalm
coalmines
ines to
to the
the ne
newl
wly
y es
esta
tabl
blis
ishe
hed
d co
coal
al Ind
India
ia li
limi
mite
ted
d
headqua
headquarter
rter in
in K
Kol
olka
kata
ta Coal In
Coal India pre
dia present
sently cont
ly contribu
ributes
tes
90
90%
% of the tot
of the total coal
al coal pro
produc
ducti
tion
on in
in Ind
India
ia.
. It
It is
is th
thee
larg
largest
est publ
public se
ic sector in terms
ctor in terms of employme
of employment to the
nt to the
tu
tune
ne of
of 63
636,
6,00
000 peo
0 peopl
ple pro
e produ
duci
cing 25
ng 250 mi
0 mill
llio
ion ton
n tons of
s of
coal
coal
per year. It operates through eight subsidiaries.
per year. It operates through eight subsidiaries.
ll..
E
EC
CL-
L-1
197
975: ea
5: easstteerrn
n ccoa
oallffiieelld
d llttd
d,
, ccom
omp
pri
rissiing
ng of th
of thee
eeas
aste
tern
rn di
divi
visi
sion
on of
of CM
CMAL
AL wi
with
th he
heaad
d qu
quar
arte
ter
r at
at
Burdwan.
Burdwan.
2.
2.
B
BCC
CCL-
L-19
1975
75: Bha
: Bhara
rat
t Co
Coki
king Co
ng Coal Lt
al Ltd. Co
d. Comp
mpri
rissin
ing
g of
of
BCCL together with
BCCL together with Sudanid
Sudanidin & Moonidih mi
in & Moonidih mine
nes
s o
of
f
NCDC with head quarter at Dhanbad.
NCDC with head quarter at Dhanbad.
3.
3.
CC
CCL-
L-19
1975
75:
: ce
cent
ntra
ral
l co
coal
alfi
fiel
eld
d lltd
td,
, co
comp
mpri
risi
sing of
ng of th
thee
ce
cent
ntra
ral
l di
divi
visi
sion
on of
of CM
CMAL
AL/
/ NC
NCDC
DC wi
with
th he
head
ad qu
quar
arte
ter
r aatt
Ranchi.
Ranchi.
4.
4.
N
NCL
CL-1
-198
986: n
6: nor
orth
ther
ern co
n coal f
al fie
ield l
ld ltd
td, wi
, with i
th its
ts
registered office at Israeli (M.P).
registered office at Israeli (M.P).
5
5..
WCL
W
CL-1
-197
975:
5:
we
west
steern
rn
coal
co
alfi
fieeld
ld
lt
ltd,
d,
wi
with
th
i
its
ts
registered office at Napery (Maharastra).
registered office at Napery (Maharastra).
6
6..
S
SE
EC
CL
L--1
19
98
86
6:
:
sso
ou
utth
heeaasstteerrn
n
cco
oaallffiieellds
ds
lt
ltd
d,,
comprising of western division of CMAL with head quarter
comprising of western division of CMAL with head quarter
at Nagpur.
at Nagpur.
7
7..
C
CMP
MPD
DIL
IL-1
-19
97
75
5:
: cceen
nttrraal
l m
miin
niin
ng
g pl
plaan
nni
ning
ng &
& d
deesi
sig
gn
n
institute ltd, with head quarter at Ranchi.
institute ltd, with head quarter at Ranchi.
8
8.
.
MC
MCL-
L-19
1992
92:
: M
Mah
ahan
anaadi
di ccoa
oalf
lfie
ield
lds
s lt
ltd,
d, wi
with
th iits
ts
registered office at Sambalpur (Orrisa).
All the
All the share
shares
s of
of above
above-ment
-mentione
ioned
d subsi
subsidiari
diaries
es are held
are held
by the President of India through the holding company
by the President of India through the holding company
o
of
f cco
oaal
l iin
ndu
dussttri
riees
s h
hol
old
ds
s aalll
l tth
he
e ssha
harrees
s of
of aab
bo
ov
vee--mentioned subsidiaries. Coal India currently operates 449
mentioned subsidiaries. Coal India currently operates 449
mines & 15 washeries spread over nine states to produce &
mines & 15 washeries spread over nine states to produce &
ben
benefi
eficen
cent
t coa
coal
l for mee
for meetin
ting
g the demand
the demand of
of the
the consumers
consumers
all over the country. 4 major consuming sector i.e. power,
all over the country. 4 major consuming sector i.e. power,
st
steel
eel,
, rai
railwa
lway
y &
& the
the org
organi
anize
zed
d in
indu
dust
stria
rial
l se
sect
ctor
or uni
units
ts of
of
v
vaarry
yiing
ng si
sizze
e num
number
bering
ing abo
about
ut 200
2000
0 con
consum
sume
e cem
cement
ent..
18%
18% pre
presen
sently consu
tly consume
me Sev
Sevent
enty
y fiv
five
e per
percen
cent
t of
of coa
coal.
l. The
The
balance 7% is consumed by a very large no. of consumers
balance 7% is consumed by a very large no. of consumers
viz brick kilns, domestic consumer etc through coal depots
viz brick kilns, domestic consumer etc through coal depots
& retail shops.
& retail shops.
ORGANISATI
ORGANISATION STRUCTURE ON STRUCTURE OF CILOF CIL
Coal India Coal India 1975 1975 Dankuni Dankuni Coal Coal Complex Complex 0.86 bill tes 0.86 bill tes 5 mines 5 mines
NOTE: NOTE:
[ ] Information () represents the total reserves of
[ ] Information () represents the total reserves of coal incoal in geographical jurisdiction of subsidiary companies. geographical jurisdiction of subsidiary companies. **
** Includes Includes reserves reserves of of IISCO.IISCO. *
* * * * * Includes Includes reserves reserves of of TISCO TISCO & & IISCO.IISCO.
MANAGEMENT STRUCTURE OF COAL INDIA LTD. MANAGEMENT STRUCTURE OF COAL INDIA LTD.
Coal India ltd is governed by a board of directors headed by a full Coal India ltd is governed by a board of directors headed by a full ti
time me chchaiairmrmanan-c-cumum-ma-mananagiging ng didirerectctor or of of ththe e susubsbsididiaiaryry companies & some other part time directors being nominated by the companies & some other part time directors being nominated by the go
govevernrnmement nt of of InIndidia a arare e ththe e memembmberers s of of cocoal al InIndidia a ltltd d boboarard.d. Ini
Initiatialllly, y, thethere re wawas s no no funfunctctionional al didirecrectortors s in in coacoal l IndIndia. ia. TheThe
NEC NEC 1975 1975 Eastern Eastern Coalfields Coalfields ltd 1975 ltd 1975 Bharat Bharat Coking Coal Coking Coal Ltd. 1973 Ltd. 1973 Northarn Northarn Coalfields ltd Coalfields ltd 1975 1975 South South Eastern Eastern Coalfields ltd Coalfields ltd 1973 1973 Central Central Coalfields ltd Coalfields ltd 1975 1975 Central Central Coalfields ltd Coalfields ltd 1975 1975 Central mine Central mine Planning & design Planning & design
institute 1975 institute 1975 Western Western Coalfields ltd Coalfields ltd 1973 1973 (36.63 bill (36.63 bill tes)** 129 tes)** 129 mines mines (19.42 bill (19.42 bill tes)*** 92 tes)*** 92 mines mines (33.45 bill tes)*** (33.45 bill tes)*** 54 mines 54 mines (8.65 bill (8.65 bill tes)*** 64 tes)*** 64 mines mines (10.34 bill (10.34 bill tes)*** 10 tes)*** 10 mines mines (27. 36 bill (27. 36 bill tes)*** 73 tes)*** 73 mines mines (8.65 bill tes)*** (8.65 bill tes)*** 22 mines 22 mines
chairman of coal India ltd was to be assisted by the officer rank of chairman of coal India ltd was to be assisted by the officer rank of adv
adviseiser/gr/geneeneral ral manmanageager r as as depdepartmartmentental al heaheads ds for for deadealinling g witwithh cor
corporporate ate plaplanninning, ng, reseresearcharch, , devdeveloelopmenpment t & & opeoperatiration on etcetc. . thethesese of
officficers ers wewere re nonot t to to hahave ve anany y fufuncnctition on so so fafar r as as ththe e susubsbsididiaiaryry companies were concerned.
companies were concerned. Bu
But t wiwith th ththe e papassssagage e of of titimeme, , coconsnsididererining g ththe e adadmimininiststraratitiveve convenie
conveniences some functional directors post has nces some functional directors post has been created for thebeen created for the coal India ltd board. Presently, there are director (personal industrial coal India ltd board. Presently, there are director (personal industrial relation), director (finance) & director (Technical) & the chairman relation), director (finance) & director (Technical) & the chairman coal India ltd as the whole time directors of the coal India Ltd board. coal India ltd as the whole time directors of the coal India Ltd board.
INTRODUCTI
INTRODUCTION TO ON TO CENTRAL COAL FIELDS LIMITED.CENTRAL COAL FIELDS LIMITED. The central coal fields limited is one of the subsidiaries of coal The central coal fields limited is one of the subsidiaries of coal India limited registered under the company's act in the year 1975. the India limited registered under the company's act in the year 1975. the
mi
minnining g & & exextrtraactctioion n oof f cocoal al iis s enentrtrususteted d to to a a ppubublilic c ssecectotor r organization coal India limited. The company is divided into eight organization coal India limited. The company is divided into eight subsidiaries & central coalfields ltd is one of them.
subsidiaries & central coalfields ltd is one of them.
The company presently known as CCL has a history of more than The company presently known as CCL has a history of more than three decades. Pursuant to the industrial policy resolution of 1956, a three decades. Pursuant to the industrial policy resolution of 1956, a compan
company was y was formed by the name of formed by the name of m/s Hindustam/s Hindustan collieries Pvt.n collieries Pvt. Ltd. on 5
Ltd. on 5thth September 1956. shortly after then on 20September 1956. shortly after then on 20thth September September
19
1956 56 ththe e naname me wawas s chchanangeged d to to ththe e nanatitiononal al cocoal al develodevelopmentpment corporation.
corporation. The The national national coal coal development development cocorprpororatatioion limn limititeded was formed on 1.10.56 with 11 state railway collieries situated in was formed on 1.10.56 with 11 state railway collieries situated in Orissa & Madhya Pradesh.
Orissa & Madhya Pradesh.
Like other industries & organization, the affair of CCL too is not Like other industries & organization, the affair of CCL too is not settled by its owner (govt. of India) rather a professional team of settled by its owner (govt. of India) rather a professional team of management called board of directors appointed by the govt. of management called board of directors appointed by the govt. of India to manage the affair of CCL. The CCL has a unique India to manage the affair of CCL. The CCL has a unique distinct
distinction as to ion as to the character of its mines & the character of its mines & also the composition of also the composition of its total work force. Some of the state collieries are very old at least its total work force. Some of the state collieries are very old at least one of which i.e. Garish has crossed century in the year 1961 .CCL one of which i.e. Garish has crossed century in the year 1961 .CCL wit
with h itits s heahead d ququartarters ers in in RaRanchnchi, i, BihBihar ar is is ththe e susucceccessossor r to to ththee former govt. owned national coal development corporation (NCDC), former govt. owned national coal development corporation (NCDC), CCL operates 54
CCL operates 54 mines having coal rmines having coal reserve of eserve of 33.45 bill33.45 billion toion tones &nes & five coking coal washeries (one more is under construction) in the five coking coal washeries (one more is under construction) in the Chotanagpur
Chotanagpur region, region, but but most most of of the the prprododucuctition (on (8888%) co%) comemess form surface mines.
The company is the major source of medium coking coal in The company is the major source of medium coking coal in Ind
India. ia. The The proproducductivtivity of ity of undundergergrouround nd minmines es & & manmany y of of ththee surface mines is low, but because of high priced coking coal, the surface mines is low, but because of high priced coking coal, the company has been making marginal profits or losses. With the company has been making marginal profits or losses. With the re
rececent nt dederegregululatatioion n of of cocokiking ng cocoal al priprice ce ththe e prprofofititababililitity y of of ththee company is expected to improve.
company is expected to improve.
All the mines & establishment of CCL at present situated in the All the mines & establishment of CCL at present situated in the district of Ranchi, Hazaribagh, Giridih, Bokaro & Palamau. CCL has district of Ranchi, Hazaribagh, Giridih, Bokaro & Palamau. CCL has fifteen areas headed by chief general /manager general manager fifteen areas headed by chief general /manager general manager wi
with th ununififororm m ororgaganinizazatitiononal al sesetutup. p. ThThe e tototatal l mamanpnpowower er in in ththee company as on 31.03.97 was 91,649.
MAIN OBJECTIVES OF CCL
MAIN OBJECTIVES OF CCL
1
1.. (a) To carry on (a) To carry on business obusiness of coal mininf coal mining.g. (b)
(b) AcquisiAcquisition otion of coal mf coal mining.ining.
(c)
(c) To To prprododucuce e or or ototheherwrwisise e enengagage ge gegeneneraralllly y in in ththee
production, production,
sale & disposal of coal &its by -
sale & disposal of coal &its by - product.product. (d)
(d) Mining coaMining coal, manufactul, manufacturing coke & other busring coke & other business.iness. (e)
(e) ManufactManufacturing, trauring, trading & oding & other busther business.iness.
2.
2. ReReororgaganinizazatition on ReRecoconsnstrtrucuctition on of of cocoalalmiminenes s tatakeken n ovover er byby
govt. govt. 3.
3. PolicPolicy formulatioy formulation & n & advisoadvisory functionry function.. 4.
4. To fiaTo fiance replnce replacement acement expenditure.expenditure. 5.
5. To develTo develop techniop technical knowcal know- how.- how. 6.
6. ExploExploratioration & prospn & prospectiecting.ng. 7.
7. To manufTo manufacture & sacture & sell coal aell coal as a patens a patent fuel.t fuel. 8.
8. To carrTo carry y on minion mining & ng & ququararryirying coang coal l & & ototheher r byby- - prprododucuctsts incidental thereto.
incidental thereto. 9.
9. To act as To act as tratraderders s of coal & of coal & cokcoke e &ot&other by- prodher by- product diruct directectly or ly or through agents.
through agents. 10.
10. To manufaTo manufacture cocture coke & other bke & other by- produy- product of coalct of coal..
11.
11. To act as colliery &mine &proprietors coke manufacture in allTo act as colliery &mine &proprietors coke manufacture in all
their respective branches. their respective branches. The
The maimain n proprojecject t objobjecectivtives es are are to to susuppopport rt ththe e marmarketket-o-orierientnteded reform India is undertaking in the coal sector & especially to reform India is undertaking in the coal sector & especially to provide financial & technical support to coal India's efforts to provide financial & technical support to coal India's efforts to make it self commercially viable & self sustaining under pinning make it self commercially viable & self sustaining under pinning India's broad drive to achieve economic growth. The project also India's broad drive to achieve economic growth. The project also ai
aims ms to to inincrcreaease se dodomemeststic ic susupppplilies es of of cocoal al by by finfinanancicingng investment in the most profitable 24 open cast mines of coal India for investment in the most profitable 24 open cast mines of coal India for the power sector & other industries until imports & production form the power sector & other industries until imports & production form private investments can fill the emerging supply gap.
WORKING CAPITAL
WORKING CAPITAL
INTRODUCTION INTRODUCTION
From the very beginning of human evolution everyone wants to From the very beginning of human evolution everyone wants to make his life smooth. With the increase in complexity of life make his life smooth. With the increase in complexity of life every individual is managing all thing cautiously to enjoy their every individual is managing all thing cautiously to enjoy their rights. Only those people will be able to survive who are more rights. Only those people will be able to survive who are more perfect in managing their jobs.
perfect in managing their jobs.
A part from fixed assets, every concern needs a certain amount of A part from fixed assets, every concern needs a certain amount of money to run day-to-day business. Funds are needed to carry out money to run day-to-day business. Funds are needed to carry out business operations such as purchase of raw materiel, payment of business operations such as purchase of raw materiel, payment of wages & other day to run day expenses. In other words working wages & other day to run day expenses. In other words working capital refers to that part of the firm's capital that is required for capital refers to that part of the firm's capital that is required for financing current asset i.e.
financing current asset i.e. -- CCaasshh
-- DDeebbttoorrss
-- InInvevenntotoriries es eettc.c.
There are two concepts of working capital - gross & net working There are two concepts of working capital - gross & net working capital.
capital.
Gross working capital - this refers to firm's investment in current Gross working capital - this refers to firm's investment in current assets. Current assets include assets that can be converted into assets. Current assets include assets that can be converted into cash within an accounting year, in this particular firm it includes cash within an accounting year, in this particular firm it includes sundry debtor, cash & bank balance & work in progress.
sundry debtor, cash & bank balance & work in progress.
The gross concept focuses on: The gross concept focuses on:
(a)
(a) Optimum Optimum investminvestment in ent in current current assets- assets- investminvestment inent in current assets should be just adequate, neither less nor current assets should be just adequate, neither less nor
more, excessive investment will lead to increase in idle more, excessive investment will lead to increase in idle investment i.e. reduced profitability. Inadequate investment i.e. reduced profitability. Inadequate investment will increase the risk.
investment will increase the risk.
(b)
(b) financing of current assets - whenever an increase infinancing of current assets - whenever an increase in
business activity arises there is a need to increase the business activity arises there is a need to increase the working capital fund. And to reduce the loss this has to working capital fund. And to reduce the loss this has to be done quickly. Similarly, if surplus fund arise they be done quickly. Similarly, if surplus fund arise they should not be allowed to remain idle, but should be should not be allowed to remain idle, but should be inv
investested ed in in shoshort-trt-term erm secsecuriuritieties. s. ThuThus s the the finfinancancialial man
managager er shshouould ld hahave ve ththe e knknowowleledgdge e of of sosoururceces s of of working capital funds as well investment opportunities working capital funds as well investment opportunities where idle funds can be temporarily
where idle funds can be temporarily invested.invested. N
Net et woworkrkining g cacapipitatal l - - ththis is rerefefers rs to to ththe e didiffffererenence ce bebetwtweeeenn current assets & expected to mature within the accounting year. current assets & expected to mature within the accounting year. This concept focuses on:
This concept focuses on:
a.
a. LiqLiquiduidity ity pospositiition on of of the the firfirm- m- curcurrenrent t assassets ets shoshould uld bebe
suf
sufficficieniently hightly higher than curreer than current liabint liabilitlitiesies. . A A negnegatiativeve working capital means negative liquidity position & it may working capital means negative liquidity position & it may be unsafe & unsound, excessive liquidity is also bad. It may be unsafe & unsound, excessive liquidity is also bad. It may
arise due to mismanagement of current assets. arise due to mismanagement of current assets.
b.
b. Extent to which working capital needs can be financed byExtent to which working capital needs can be financed by
permanent sources of funds — for every firm there is a fixed permanent sources of funds — for every firm there is a fixed
am
amouount nt of of nenet t woworkrkining g cacapipitatal l whwhicich h is is momore re or or lelessss permanent therefore, a portion of working capital should be permanent therefore, a portion of working capital should be financed with the permanent sources of funds & such as financed with the permanent sources of funds & such as ow
ownener'r's s eqequiuityty, , dedebebentntureure, , lolong ng - - teterm rm dedebt bt preprefefererencncee cap
capitaital l & & retretainained ed earearninning. g. ManManageagemenment t musmust t thethereforeforere decide the extend to which current assets should be financed decide the extend to which current assets should be financed by equity capita
by equity capital l or or borroborrowed capitalwed capital, , hencehence, , both grossboth gross && net working capital concepts are equally important for the net working capital concepts are equally important for the efficient management of
NEED FOR WORKING CAPITAL NEED FOR WORKING CAPITAL Working capit
Working capital is needed to run the day-to-day business activitiesal is needed to run the day-to-day business activities.. Every firm aims at maximizing the wealth of the shareholders. A Every firm aims at maximizing the wealth of the shareholders. A fi
firm rm shshouould ld eaearn rn susuffifficicienent t retretururn n frfrom om itits s opopereratatioion n fofor r ththee fulf
fulfillmillment of ent of its requirits requiremenement, earning a t, earning a steadsteady y amounamount t of of profiprofitt needs successful sales activity. The firm has to invest enough needs successful sales activity. The firm has to invest enough funds in current assets for successful sales activities current assets funds in current assets for successful sales activities current assets ar
are e neneededed ed bebecacaususe e sasaleles s cacannnnot ot be be ttraransnsfoformrmed ed ininto to cacashsh instantaneously.
instantaneously.
DETERMINANTS OF WORKING CAPITAL DETERMINANTS OF WORKING CAPITAL
A large number of factors determine the requirements of A large number of factors determine the requirements of working capital of the firm. The factors have different working capital of the firm. The factors have different requirements. Therefore, all the factors should be requirements. Therefore, all the factors should be con
consisiderdered ed to to dedeterterminmine e ththe e amoamoununt t of of woworkirking ng capcapitaital.l. These factors are as follows:
These factors are as follows: *
* NaNaturture & e & sizsize oe of bf busiusinenessss *
* MaManunufafactcturiuring ng cycyclcle.e. *
* BuBusisineness ss flufluctctuauatitionons.s. *
* PrPrododucuctition pon pololicicy.y. m
m
Firm's credit policy. Firm's credit policy. *
* AvAvaiailalabibilility oty of cref credidit.t. m
m
Growth & expansion activities Growth & expansion activities m
m
Profit margin Profit margin *
* OpOpereratatining eg effifficicienencycy *
* GoGovevernrnmement pnt pololicicyy u
u
Sources of resources Sources of resources
THE TOOLS & TECHNIQUES USED FOR MANAGEMENT OF THE TOOLS & TECHNIQUES USED FOR MANAGEMENT OF WORKING CAPITAL IN CCL
WORKING CAPITAL IN CCL
A. Material budgeting & inventory control: A. Material budgeting & inventory control:
Inventory management is seen as a critical component of Inventory management is seen as a critical component of working capital management. These constitute the most working capital management. These constitute the most important part of C.A. of the majority of companies important part of C.A. of the majority of companies in Ind
in Indiaia. . It is It is vevery essery essentntiaial l to havto have e propropeper r contcontrol rol && man
manageagemenment t of of invinvententoryory. . The The basbasic ic pupurprposose e of of inve
inventorntory y managmanagement ement is is to to ensuensure re avavaiailalabibilitlity y of of materials in sufficient quantity as & when required & materials in sufficient quantity as & when required & also to minimize investment in inventories. Today on an also to minimize investment in inventories. Today on an aavveerraagge e 6600% % oof f tthhe e CC..AA. . aarre e invinvententoriories. es. AnAn u
un dn de re rtta ka ki ni ng g n en eg lg le ce ct it in g n g t ht he e mmaannaaggeemmeennt t oof f iinnvveennttoorriiees s wwiilll l bbe e jjeeooppaarrddiizziinng g iitts s lloonngg--tteerrmm profitability. The reduction in excessive inventories help profitability. The reduction in excessive inventories help tto o ddeevveelloop p a a ffaavvoorraabblle e iimmppaacct t oon n ccoommppaannyy''ss profitability.
profitability.
While preparing material budget, the following factors are taken into While preparing material budget, the following factors are taken into consideration:
consideration: 1.
1. ProProduductctioion targn targetet..
2.
2. Requirement of material to achieve above targetedRequirement of material to achieve above targeted
production based on past
production based on past consumption pattern.consumption pattern. 3.
3. StoStock ock of maf materiterial ial in han hand, nd, ordorders ers due due in.in. 4.
4. BuBuffeffer/sr/safafetety sty stocock reqk requiuiredred.. On
Once ce ththe e ququanantutum m is is asassessessesed, d, twtwo o funfundadamenmentatal l quequestiostionsns normally arise thereafter to maintain steady flow of material normally arise thereafter to maintain steady flow of material for production purpose. These are:
for production purpose. These are: 1.
1. How How mucmuch th to buo buy a y a timtime?e? 2.
2. WheWhen to bn to buy tuy this qhis quanuantittity?y?
In fact, it is the main objective of inventory In fact, it is the main objective of inventory
control to answer the above questions at economic control to answer the above questions at economic
cost. cost.
There are four fundamental factors which governs There are four fundamental factors which governs answer to these
answer to these questions:questions: 1 .Requirements
1 .Requirements
2.Quantity in stock or on order 2.Quantity in stock or on order 3.Lead-time
3.Lead-time 4.0bsolence 4.0bsolence One
One of of the the mosmost t effeffectective ive tectechnihniqueques s for for dedeterterminminatiation on of of quantity is called economic order quantity (E.O.Q).
quantity is called economic order quantity (E.O.Q). The basicThe basic objective is to economize on the total cost of purchase.
objective is to economize on the total cost of purchase. There are two major costs involved in the purchase:
There are two major costs involved in the purchase:
1
1 .P.Pururchchasasining g cocost st or or acacququisisititioion n cocostst. . 2.I2.Invennventorytory carrying cost
carrying cost The E.O.Q. is
The E.O.Q. is that quantithat quantity ty at at whiwhich ch the the pupurchrchasiasing ng coscost t andand inventory carrying cost are equal.
inventory carrying cost are equal.
One of the primary tasks in inventory control is to determine One of the primary tasks in inventory control is to determine st
stocock k lelevevel. l. ThTherere e arare e vavaririouous s lelevevels ls of of ststococksks. . ThThe e momostst important stock levels are:
important stock levels are:
1.Minimum stock level: This represents the minimum quantity 1.Minimum stock level: This represents the minimum quantity of material, which must be maintained in hand at all times. The of material, which must be maintained in hand at all times. The
foll
followiowing ng facfactotors rs are are taktaken en intinto o conconsidsideraeratiotion n for for fixfixing ing thithiss level.
level.
((aa)) LLeeaad d ttiimmee
(b)
(b) RaRate te of of rereququirirememenent-t-ML ML mimininimumum m ststocock k lelevevel l is is nonott
required to maintain if it is
required to maintain if it is for specific job.for specific job. 2.R
2.Re e ordorder er levlevel: It el: It is is the pointhe point t at at whiwhich ch frefresh sh procprocuremurementent action should be initiated.
action should be initiated.
Re-ordering level = Maximum consumption x Re-ordering level = Maximum consumption x
Maximum period taken to get Maximum period taken to get Material once it is initiated. Material once it is initiated.
3.Maximum stock level: It represents the maximum quantity of an item 3.Maximum stock level: It represents the maximum quantity of an item of material, which can be held in
of material, which can be held in Stock at any time.Stock at any time.
M
Maaxxiimmuum m ssttoocck k lleevveell == RRe e - - oorrddeerriinng g lleevveell + Re -
+ Re - ordering quantitordering quantityy
((MMiinniimmuum m ccoonnssuummppttiioon n xx Minimum re- ordering period)
Minimum re- ordering period) 4. Danger level
This means a level at which normal issues of the material are This means a level at which normal issues of the material are stopped & issues are m
stopped & issues are made only under specific instructions.ade only under specific instructions.
Danger
Danger level level = = Average Average consumptioconsumption n X X Maximum Maximum re re --Order period for emergency purchases. Order period for emergency purchases. For
For monmonitoitorinring g & & folfollow low up up actaction ion eveevery ry busbusineiness ss orgaorganiznizatiationon normally adopts the following techniques.
normally adopts the following techniques. 1.
1. PerpPerpetuetual al stostocktcktakiakingng 2.
2. Periodical Periodical physical physical verificativerification of ion of inventorynventory 3.
3. NL aNL and PL nd PL reconcireconciliatioliationn 4.
4. SelectSelective invenive inventory controtory control techniqul technique such as:e such as:
(a) ABC analysis (a) ABC analysis
The small number of high consumption value items are called A The small number of high consumption value items are called A items, the medium consumption value items are B items; the large items, the medium consumption value items are B items; the large numb
number er of of iteitems ms whowhose se annannual consuual consumptmption is ion is ververy y low is Clow is C items.
items.
ABC analysis gives rise to selective inventory control in which ABC analysis gives rise to selective inventory control in which maximum attent
maximum attention can be given to ion can be given to 'A' items, a fair amount to 'A' items, a fair amount to 'B''B' items and routine attention to 'C' items in order to get best return items and routine attention to 'C' items in order to get best return with least effort.
with least effort.
(b) H.M.L Analysis (b) H.M.L Analysis
Under this system, materials are classified with respect to the unit Under this system, materials are classified with respect to the unit pri
price ce i.ei.e. . HigHigh h uniunit t priprice, Medice, Medium um uniunit t priprice ce and low and low uniunit t prpriceice.. Objective of HML analysis is same as ABC analysis.
Objective of HML analysis is same as ABC analysis. (c
(c)) V.EV.E.D .D anaanalyslysisis VE
VED D ststanands ds fofor r ViVitatal, l, EsEssesentntiaial l anand d DeDesisirarablble. e. ThThis is tytype pe of of classification is mostly applicable in case of spare parts.
classification is mostly applicable in case of spare parts.
For V items, a reasonably large quantum of stock is necessary, while For V items, a reasonably large quantum of stock is necessary, while for D items, no stock need to be kept.
for D items, no stock need to be kept. (d
(d)) S.S.D.D.E AnE Analalysysisis
S.D.E stands for Scarce, Difficult to obtain and Easy to obtain S.D.E stands for Scarce, Difficult to obtain and Easy to obtain items. Here, the criterion is the ease of purchase.
items. Here, the criterion is the ease of purchase. (e) G.O.L.F Analysis
(e) G.O.L.F Analysis
GOLF stands for Government, Ordinary, Local and Foreign items. GOLF stands for Government, Ordinary, Local and Foreign items. Here criterion is the source from which the material is obtained.
Here criterion is the source from which the material is obtained. (f)F.S.N Analysis
(f)F.S.N Analysis
FSN stands for fast moving, slow moving and non-moving. Here FSN stands for fast moving, slow moving and non-moving. Here the criterion is the rate of issue from stores.
the criterion is the rate of issue from stores.
(g) S.O.S Analysis (g) S.O.S Analysis
SOS stands for Seasonal and Off-Seasonal nature of materials. SOS stands for Seasonal and Off-Seasonal nature of materials. Here the emphasis is on the
Here the emphasis is on the periodicity of requirements.periodicity of requirements. (h) X.Y.Z Analysis
(h) X.Y.Z Analysis The X items are
The X items are those whosthose whose inventory value inventory values are es are high, whilhigh, while Ze Z it
itemems s arare e ththosose e whwhosose e ininveventntorory y vavalulue e is is lolow. w. ThThis is tytype pe of of ana
analyslysis is is is useuseful ful to to ideidentintify fy iteitems, ms, whiwhich ch are are extextensensiveivelyly stocked. If such items are of high value efforts should be made to stocked. If such items are of high value efforts should be made to reduce them.
reduce them.
In conclusion, there is no simple rule to determine stock levels In conclusion, there is no simple rule to determine stock levels or
or to to dedetetermrminine e ththe e tytype pe of of ststraratetegy gy to to be be ememplployoyed ed fofor r p
procrocureurement ment or or stostockicking. ng. As As sucsuch, h, spespeciacial l tretreatmatmentents s wouwouldld have to be worked out to overcome problems in respect of each have to be worked out to overcome problems in respect of each t y p e .
t y p e . Af
Afteter r dedetetectctioion n of of susurprplulus s nonon-mn-movovining g anand d obobsosolelete te ititemsems,, th
throrougugh h ababovove e tetechchniniquque, e, acactitionons s are are to to be be tatakeken n fofor r ititss liquidation with an aim to minimize idle inventory holding as liquidation with an aim to minimize idle inventory holding as we
well ll as as ininveventntorory y cacarrrryiying ng cocostst. . AcActitionons s tatakeken n fofor r ititss liquidations are:
liquidations are:
(a)
(a) OfOfferferining g to to ototheher r ununitits/s/arearea a anand d to to ototheher r susubsbsididiaiaryry
companies. companies. (b
(b)) DDisisppososaal tl thhrorouugh gh auauctctioion sn salalee
Scrap is also normally disposed off through auction sale for Scrap is also normally disposed off through auction sale for minimizing inventory carrying cost and for earning revenue. minimizing inventory carrying cost and for earning revenue.
(B) Debtors Management in CCL
(B) Debtors Management in CCL
The
The maimain n obobjejectctivive e of of dedebtbtor or manmanagagemeement nt is is to to kekeep ep ththee re
regugulalar r dedebtbtoror's 's babalalancnce e as as mimininimumum m as as popossssibiblele. . SuSundndryry deb
debtor'tor's s come come in in to to exisexistenctence e whewhen n the the cuscustomtomerers s araree not able to pay the coal bills in full amount in time.
not able to pay the coal bills in full amount in time.
In CCL coal sale is done either on credit or cash. Credit In CCL coal sale is done either on credit or cash. Credit sal
sale e is is dodone ne ononly ly to to GoGovtvt. . papartirties. It es. It meameans ns the the debdebtortors s of of CCL consist only of Govt. parties. Govt. parties follow cash CCL consist only of Govt. parties. Govt. parties follow cash and
and credit credit system, system, which which is is acaccocordrdining to the rug to the ruleles of CILs of CIL.. A
Accccoordrdining g tto o tthhiis s tthhe e papaymymenent t hahas s to to be be mamade de by by ththee customer within 24 hrs. of the presentation of the coal bills. customer within 24 hrs. of the presentation of the coal bills.
Sundry debto
Sundry debtors of CCL can be rs of CCL can be dividedivided into three parts: Power d into three parts: Power --This sector is the biggest consumer of coal. It can be divided This sector is the biggest consumer of coal. It can be divided into
into stastate te eleelectrictricity city boaboard rd whiwhich ch ininccluludedes s BiBihhar ar StStatatee El
Eleectctrriciciitty y bboaoardrd, , DDeellhhi i VViiddyyuut t NiNigagam, m, PuPunjnjab ab StStatatee Electricity Board,U.P state electricity board etc.
Electricity Board,U.P state electricity board etc. Other than these are some
Other than these are some other power production unit such asother power production unit such as NTPC etc. who also buy coal in large quantity.
NTPC etc. who also buy coal in large quantity.
Steel - this sector is also one of the main consumers of coal. It Steel - this sector is also one of the main consumers of coal. It can also be
can also be didividvided into ed into twtwo o paparts - rts - stesteel el plaplantnts s owownened d byby SAIL ,BSP ,RSP, BSL etc. and other steel plants like 11SCO. SAIL ,BSP ,RSP, BSL etc. and other steel plants like 11SCO. Others -This includes customer like
Others -This includes customer like
•
• Fertilizer Corporation of India.Fertilizer Corporation of India. •
• Government Cement Plants.Government Cement Plants.
Railways (though its consumption of coal has decreased in Railways (though its consumption of coal has decreased in
•
• recent years.)recent years.) •
STEPS INVOLVED IN MAKING BILLS:
STEPS INVOLVED IN MAKING BILLS:
-1.
1. Linkage committee - The committee decides upon the quantityLinkage committee - The committee decides upon the quantity
of
of cocoal al ththat at is is bebeining g susupppplilied ed fofor r nenext xt pepeririodod. . It It coconsnsisists ts of of representatives of CIL, Railways and customers.
representatives of CIL, Railways and customers. 2.
2. DispDispatch of coatch of coal - The colal - The collierilieries dispes dispatch thatch the coal as pee coal as per link.r link.
3.
3. Issue of coal bill - The bills is issued to the consumer withinIssue of coal bill - The bills is issued to the consumer within
3
3 ddaayys s oof f ddiissppaattcch h oof f ccooaall. . AAnnd d tthhe e ccuussttoommeerrs s oof f ccooaall cu
custostomermers s are are askasked ed to to papay y witwithihin n 48 48 hohours urs of of recreceiveivining g ththee bill.
bill.
Formation of debtors - The amount, which the party is Formation of debtors - The amount, which the party is unable to pay, conies under debt. Debt is of types.
unable to pay, conies under debt. Debt is of types. -- DDiissppuutteedd
-- UUnnddiissppuutteedd..
Disputed - When there is difference in opinion about the quality. Disputed - When there is difference in opinion about the quality. Quantity, penalty overloads or under load charge etc between CCI & Quantity, penalty overloads or under load charge etc between CCI & the customer, the customer withheld the payment unto that extent. the customer, the customer withheld the payment unto that extent. This is disputed debt
This is disputed debt
Undisputed - this is simply the amount the customer is willing to pay Undisputed - this is simply the amount the customer is willing to pay but is unable to do so due to his financial condition.
but is unable to do so due to his financial condition. Efforts taken to decrease the debtors:
Efforts taken to decrease the debtors: -Th
The e unundisdispuputed ted amoamoununt t is is fifirst rst hahandndledled. . TheThere re is is regregionional al sasalesles ma
mananageger r (R(RSMSM) ) of of CICIL L in in eaeach ch mamajojor r cicity ty whwho o cocontntininuouoususlyly pe
persrsuauade de ththe e dedebtbtorors s to to papay y baback ck ththe e amamouountnt. . In In exextrtrememee condition help of ministry is also taken. And even after the case is not condition help of ministry is also taken. And even after the case is not solved at ministry level coal supply is stopped at that station. For the solved at ministry level coal supply is stopped at that station. For the di
dispsputeuted d amoamoununt t meemeetiting ng are are arrarranganged ed betbetweween en CILCIL/CC/CCL L & & thethe cus
custometomer r & & proprobleblem m is tried to is tried to be solvebe solved d throthrough bargugh bargainain. . If If thethe disputes are
disputes are not settled not settled in in the meetings, the meetings, the ministry the ministry inintetervrveneneses.. Th
The e cecentntraral l gogovtvt. . hahas s apappopoininteted d 4 4 umumpipireres s to to sesettttle le ththe e disputdisputeded outstanding. The decis
outstanding. The decision of ion of the umpires the umpires is final is final & bindi& binding ong on bon bothth parties.
(C) Management of Cash
(C) Management of Cash
Cash is an important current asset for the operation of the business. Cash is an important current asset for the operation of the business. Th
The e fifirm rm shshouould ld kekeep ep susufffficicieient nt cacash sh neneititheher r momore re or or leless ss cacashsh sh
shortortagage e wiwill ll didispsputute e ththe e fifirm'rm's s mamanunufafactctururining g opopereratatioion n whwhililee excessive cash will simply remain idle without contributing any thing excessive cash will simply remain idle without contributing any thing towards the firm's profitability. Cash is the money, which the firm can towards the firm's profitability. Cash is the money, which the firm can dis
disburburse se immeimmediadiateltely y witwithout hout any any restrestrictrictionion. . This This inclincludeudes s cashcash,, cur
currencrency, y, cheqcheques ues helheld d by by firfirms ms & & balbalancances es in in its bank its bank accaccounounts.ts. Sources & uses of cash
Sources & uses of cash
The main source of cash in CCL is: The main source of cash in CCL is:
-((aa)) ((ii)) CCaassh h ssaalle e oof f ccooaall ((iiii)) CCrreeddiit t ssaalle e oof f ccooaall ((iiiiii)) SSaalle e oof f wwaasshheerry y ccooaall ((iivv)) MMiiddddlliinng g ccooaal l ssaallee
((vv)) SSaalle e oof f sslluurrrryy//rreejjeeccttss
((bb)) MMiisscceellllaanneeoouus s rreecceeiipptt
((ii)) SSaalle e oof f tteennddeer r ddooccuummeenntt ((iiii)) SSaalle e oof f ssttoorrees s ssccrraappee
((iiiiii PPeennaalltty y / / iinntteerreesst t ffrroomm outsider
outsider
(Contractor/suppliers) (Contractor/suppliers) ((iivv)) IInntteerreesst t ffrroom m eemmppllooyyeeeess..
(c)
(c) ShoShort terrt term loan frm loan from banom banksks (d)
(d) ForeForeign ign loaloann (e
(e)) LoLoan an frofrom Cm CIL.IL. Uses of cash:
Uses of cash: -(i) Salary perks etc. (i) Salary perks etc. (ii) Stores
(ii) Stores (iii) Power (iii) Power (iv) Payment to
(iv) Payment to contractorscontractors (v) Interest to - a) CIL (v) Interest to - a) CIL
b) Banks b) Banks
(vi) Refund of balance to CIL (vii) (vi) Refund of balance to CIL (vii) Statutory payment
Statutory payment
aa)) PP..FF b)
b) SaSaleles Tas Taxx
c)
c) I .TaxI .Tax Managing the cash: Managing the cash:
-1.
1. Cash sales - When the Cash sales - When the customer directly lifts the coal fromcustomer directly lifts the coal from
the augmented area then it is known as road, sale for this the augmented area then it is known as road, sale for this type of sale the customer deposits money at
type of sale the customer deposits money at road sale center road sale center located in Ranchi. Hence for such type of sale the cash is located in Ranchi. Hence for such type of sale the cash is collected in road sale center.
2.
2. Credit sale - the collection of draft/cash from the creditCredit sale - the collection of draft/cash from the credit
parties is deposited at the sale office located in different parties is deposited at the sale office located in different
cities & major localities. Provision has been made to cities & major localities. Provision has been made to transfer this money within 24 hrs. In
transfer this money within 24 hrs. In CCL Calcutta office.CCL Calcutta office.
A part of this money can be used by CCL Calcutta office for uses such A part of this money can be used by CCL Calcutta office for uses such aass
(a)
(a) PaymPayment foent for explor explosivsiveses (b)
(b) Special expSpecial expenditure of CCenditure of CCL, Calcutta offiL, Calcutta officece (c)
(c) Interest Interest payment payment of CIof CIL CalcL Calcuttautta The rest of the money is
The rest of the money is sent in current account of CCL Ranchisent in current account of CCL Ranchi (fund section) from Road, sale center &
(fund section) from Road, sale center & CCL Calcutta office.CCL Calcutta office.
3.The misc. receipt is collected in the area/unit or headquarter. The 3.The misc. receipt is collected in the area/unit or headquarter. The money is used from the place where it is collected. Hence this
money is used from the place where it is collected. Hence this money doesn't move any where.
money doesn't move any where.
Cash budget is routinely prepared here which helps in Cash budget is routinely prepared here which helps in
1 .Estimating cash requirement. 1 .Estimating cash requirement. 2.Planning short time financing. 2.Planning short time financing.
3.Scheduling payments in connection with capital expenditure. 3.Scheduling payments in connection with capital expenditure. 4.Planning purchase of material
4.Planning purchase of material 5.Planning credit policy.
5.Planning credit policy.
The principle method of short term cash, forecasting is the receipts The principle method of short term cash, forecasting is the receipts & payment method. The cash forecasting prepared under this & payment method. The cash forecasting prepared under this method shows the timing & magnitude of the expected cash method shows the timing & magnitude of the expected cash receipts & payment over the forecasted period. It includes all receipts & payment over the forecasted period. It includes all
expected receipts & payments irrespective of how they are expected receipts & payments irrespective of how they are classified in accounts. Normally, the basis for cash budgeting are: classified in accounts. Normally, the basis for cash budgeting are:
-1 .Revenue 1 .Revenue budget budget 2.Capital budget 2.Capital budget 3.Statory dues 3.Statory dues 4.Outstanding 4.Outstanding dues dues
5.Company policy for payment of personal &other advances. 5.Company policy for payment of personal &other advances. 6.Credit & collection policy as well as past trends etc.
6.Credit & collection policy as well as past trends etc.
For monitoring cash budget as well as cash & bank balance, the For monitoring cash budget as well as cash & bank balance, the following tools &techniques are normally adopted:
following tools &techniques are normally adopted:
-1 .Cash flow analysis & reporting - monthly/weekly/daily. 1 .Cash flow analysis & reporting - monthly/weekly/daily. 2.Cash & bank balance reporting - monthly/weekly/daily. 2.Cash & bank balance reporting - monthly/weekly/daily. 3.Periodic physical verification of cash & bank balance. 3.Periodic physical verification of cash & bank balance. 4.Periodic reconciliation of bank statements
4.Periodic reconciliation of bank statements with cashbook.with cashbook. 5.Timely accounting of time - barred cheques.
5.Timely accounting of time - barred cheques. 6. Adequate internal cheque system to avoid the
6. Adequate internal cheque system to avoid the possibility of cashpossibility of cash defalcation. T. Monthly & weekly cash indent along with list of defalcation. T. Monthly & weekly cash indent along with list of pending bills.
OPERATING CYCLE
OPERATING CYCLE
Sm
Smooooth th rurunnnnining g of of a a bubusisineness ss cycyclcle e hahas s seseveveraral l ststagages es frfromom pr
procuocuremremenent t of of raw raw matmaterierials als to to ththeieir r coconvnversersioion n ininto to finfinisishehedd products; inventory stock pilling & creating debtors on credit sale of products; inventory stock pilling & creating debtors on credit sale of such inventory, & liquidating the debts through realization over a such inventory, & liquidating the debts through realization over a period. An ideal business cycle leaves room for including factoring period. An ideal business cycle leaves room for including factoring as a component for converting trade debts into cash & thus speeding as a component for converting trade debts into cash & thus speeding up/shortening the business cycle. The term factoring is related to up/shortening the business cycle. The term factoring is related to realization/liquidation of debts. It may be defined as an agreement realization/liquidation of debts. It may be defined as an agreement between
between a firm a firm (which (which has solhas sold its goods / servd its goods / services on creices on credit & ownsdit & owns debts) & a party (may be an individual or other wise) who is called debts) & a party (may be an individual or other wise) who is called a factor by which the factor buy the debts of receivable invoices a factor by which the factor buy the debts of receivable invoices of
of the the firm firm undunder er cecertartain in teterms & rms & cocondndititioions ns wiwith th ththe e ririghght t toto realize the debts in lieu of some agreed fee & / or commission.
realize the debts in lieu of some agreed fee & / or commission.
The firm has to invest enough funds in current Assets for the The firm has to invest enough funds in current Assets for the success of sales activity. Current Assets are required because success of sales activity. Current Assets are required because sales do not convert into cash instantaneously. There is operating sales do not convert into cash instantaneously. There is operating cycle involved in the conversion of sales into cash.
cycle involved in the conversion of sales into cash.
Cash
Cash
Operating Cycle
Operating Cycle
The operating cycle of a manufacturing company involves The operating cycle of a manufacturing company involves three phases:
three phases: -1.
1. AcquAcquisitisition of resouion of resources such as raw matrces such as raw materiaerial, laboul, labour,r, fuel etc.
fuel etc.
2.
2. Manufacturing of the product, which includes conversionManufacturing of the product, which includes conversion
of raw material in to work - in -progress in to finished of raw material in to work - in -progress in to finished goods.
goods.
3.
3. Sale of the product either for Sale of the product either for cash or on credit. Creditcash or on credit. Credit
sales are converted in to cash. sales are converted in to cash.
The length of operating cycle of a manufacturing company is the sum The length of operating cycle of a manufacturing company is the sum of of::
Raw Material
Raw Material
Receivable
Receivable
Sales
Sales
Work in Progresses
Work in Progresses
Finished Goods
Finished Goods
1
1.. InveInventorntory coy convenversion rsion periperiod &od & 2
2.. Book deBook debts convbts conversiersion perioon period.d. 1. Inventory conversion period: 1. Inventory conversion period:
-The inventory conversion period is the total time needed for The inventory conversion period is the total time needed for producing & selling the product, it includes:
producing & selling the product, it includes: (a)
(a) Raw mateRaw material conrial conversiversion perion period.od. (b)
(b) Work in progrWork in progress conveess conversion perirsion period.od. (c)
(c) FinisFinished goohed good conved conversion persion period.riod. 2.Book debts conversion period: 2.Book debts conversion period:
-The book debts conversion period is the time required to collect The book debts conversion period is the time required to collect outstanding amount from customers.
outstanding amount from customers.
The firm has to negotiated working capital from sources such as The firm has to negotiated working capital from sources such as co
commemmercircial al banbanks. ks. The The negnegotiotiateated d sousource rce of of woworkirking ng capcapitaitall financing is called non-spontaneous sources. If net operating financing is called non-spontaneous sources. If net operating cycle of a firm increases, it means further need for negotiated cycle of a firm increases, it means further need for negotiated working capital. The firm should maintain a sound working working capital. The firm should maintain a sound working capital position. It should have adequate working capital to run its capital position. It should have adequate working capital to run its business operation. Both excessive as well as inadequate working business operation. Both excessive as well as inadequate working capital position are dangerous from the firm's points of view. capital position are dangerous from the firm's points of view. Paucity of working capital not only impairs firm's profitability Paucity of working capital not only impairs firm's profitability but also result in production interruption &inefficiencies.
but also result in production interruption &inefficiencies.
The firm's operating cycle (06) can be determined as inventory The firm's operating cycle (06) can be determined as inventory co
convnversersioion n peperioriod d (IC(ICP) P) plplus us bobook ok dedebtbts s coconvnversersioion n peperioriodd (BDCP)
(BDCP)
OC = ICP +BDCP OC = ICP +BDCP
The inventory conversion period (ICP) is the sum of raw material The inventory conversion period (ICP) is the sum of raw material con
converversiosion n perperiod iod (RM(RMCP) CP) wowork rk in in proprogregress ss conconverversiosion n perperiodiod (WIPCP)& finished goods conversion period (FGCP).
(WIPCP)& finished goods conversion period (FGCP). ICP = RMCP + WIPCP + FGCP The raw
ICP = RMCP + WIPCP + FGCP The raw material conversion period depend on:
material conversion period depend on: (a
(a)) RaRaw w mamateteririal al coconsnsumumptptioion n peper r dadayy (b
Raw material consumption per day is given by total raw material Raw material consumption per day is given by total raw material consumption divided by the number of days in a year (360). The consumption divided by the number of days in a year (360). The raw material conversion period is obtained when raw inventory is raw material conversion period is obtained when raw inventory is divided by raw material consumption per day The following
divided by raw material consumption per day The following formulae can be
formulae can be used to calculate other used to calculate other inventory book debts &inventory book debts & payables.
payables.
1 .RMCP = Raw material inventory / Raw material consumption 1 .RMCP = Raw material inventory / Raw material consumption
360 360 2. WIPCP = Work in process inventory - Cost of production 2. WIPCP = Work in process inventory - Cost of production 360 360 3.BDCP = Book debts - Credit Sales (at cost)
3.BDCP = Book debts - Credit Sales (at cost) 3
36600
BALANCE SHEET OF CENTRAL COALFIELDS BALANCE SHEET OF CENTRAL COALFIELDS LTD.
LTD.
For the year 31st March 1997 - 2002 For the year 31st March 1997 - 2002
1997
1997 19981998 19991999 20002000 20012001 20022002 Sources of funds
Sources of funds Share holder's funds Share holder's funds a. capital
a. capital 94000.0094000.00 94000.0094000.00 94000.0094000.00 94000.0094000.00 94000.0094000.00 94000.0094000.00 b. Res. & surplus
b. Res. & surplus 20142.1920142.19 23181.1623181.16 29387.5029387.50 17491.3117491.31 17347.8217347.82 15795.5015795.50 Loan funds
Loan funds a. secured
