1

A STUDY ON CAPITAL BUDGETING, INVENTORY AND

WORKING CAPITAL MANAGEMENT

OF

USHA MARTIN PRIVATE LIMITED

SUMMER PROJECT REPORT SUBMITTED IN

PARTIAL FULFILLMENT OF BBA BATCH 2015-2018

Submitted By

Name: Saurav Banerjee

University Registration Number: KU1524184

Company mentor: Faculty Mentor:

Name: Mr. Dhanraj Parihar Mrs. Pompi Das Sengupta

Designation: Deputy General Manager Head of the Department

Usha Martin Private Limited Company, Gamharia Jamshedpur

Jain College, Jamshedpur

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CERTIFICATE FROM THE COMPANY

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CERTIFICATE FROM THE GUIDE

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CERTIFICATE FROM MENTOR

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DECLARATION

I Saurav Banerjee a student pursuing graduation in Management (BBA) hereby I declare that the
project report title “A Study on Capital Budgeting, Inventory Management and Working capital
management” is my own work. This project report is submitted in partial fulfillment of the
requirement for the award of BBA from Jain College Jamshedpur for the year 2015-2018.

I also declare that the project is a result of my own report collected through the data, which I got
through the company from primary and secondary sources and has been not submitted to any
other university/institution for any degree or diploma.

Declared

Place: Jamshedpur

Saurav Banerjee
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ACKNOWLEDGEMENT

I gratefully acknowledge the assistance to me by Mr. Dhanraj Parihar (Usha Martin) for having
faith in me by providing an opportunity to be associated with the organization under his kind
guidance and support. I am grateful for his overall support and encouragement.

I am also deeply indebted to (Mrs. Pompi Das Sengupta internal mentor) for the advice and
support in the preparation of this project report. At last but not the least, I thank my parents and
friends whose continuous support made this project successful.
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CONTENTS
SL
NO. CHAPTER NAME PAGE NO.

1. Executive Summary 8-9

2. Introduction 10-13
3. Review Of Literature 14-20
a. Purpose
b. Design
c. Findings
d. Practical implementation
e. Originality/value
f. Background
4. Project objectives 21-26
5. Project methodology used 27-29
a. Meaning of research
b. Financial management analysis
c. Controllable variables
d. The explanatory variables
e. Instrument used
f. Design
6. Data analysis 30-48
a. Working capital analysis
b. Balance sheet method
c. Profit and loss account
d. Debt equity ratio
e. Capital budgeting analysis
f. Project description on capital budgeting
g. Inventory management analysis
7. Findings 49-52
8. Recommendation to the company 53-54
9. References 55
10. List of charts, figures and questionnaire 56-60
11. Conclusion 61
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1. EXECUTIVE SUMMARY

As a part of curriculum, every student studying BBA has to undertake a project on a particular
subject assigned to him/her. Accordingly I have assigned the project work on the study of
working capital management, capital budgeting and inventory management in Usha Martin Pvt.
Ltd. Gamharia Jamshedpur.

The goal of working capital management is to ensure that the firm is able to continue its
Operation and that it have sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses. Working capital is used in Usha Martin private ltd., for the
following purpose:

Raw material, work in progress, finished goods, inventories, sundry debtors, and day to day cash
requirements. The Usha Martin private ltd., keep certain funds which is automatically available
to finance the current assets requirements. The various information regarding "Working Capital
Management" such as classification, determinants, sources have been discussed relating to Usha
Martin private ltd.,

Ratio Analysis has been carried out using Financial Information for last accounting years i.e.
from 2016-2017 Ratios like Working capital Turnover Ratio, Quick Ratio, Current Ratio,
Inventory Turnover Ratio, Debtor Turnover Ratio, Creditors turnover ratio have also been
analyzed. A Statement of Changes in Working Capital has also been analyzed.

Capital budgeting, and investment appraisal, is the planning process used to determine whether
an organization's long term investments such as new machinery, replacement of machinery, new
plants, new products, and research development projects are worth the funding of cash through
the firm's capitalization structure (debt, equity or retained earnings). It is the process of allocating
resources for major capital, or investment, expenditures. One of the primary goals of capital
budgeting investments is to increase the value of the firm to the shareholders.

As I studied on my project of capital budgeting I came across some brief data of Usha Martin
Pvt. Ltd.
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Usha Martin ,a Specialty steel and value added steel company having a gross consolidated sales
of Rs 30,000 Million (US$ 750 Million), is planning to increase its steelmaking capacity to
about a million ton with half of it going for value added steel products in the form of wire ,
strand, cord, wire rope , bright bar and auto components.

The key highlights of the proposed projects are as under:

1. Total capital cost is Rs 21,000 Million

2. Project funding is based on Equity (including internal accruals) to Debt ratio of 1; 0.40
3. Full projects with capacity of 1 million ton steel to be commissioned by financial year
2017-2018.

The Project is expected to have a high development impact:

a) Enabling a mid-level company become more globally competitive

b) Efficiency increases resulting from the backward integration – Beneficiation Plants,

Pelletisation and Sinter low cost production of steel from own iron ore and coal and power
generation from own coal

c) Environmental benefits of using hot waste heat & gases from the DRI and MBF plant for fuel
in the power plant

d) Specialty steel niche products catering to growing automotive market

e) Reducing dependence on liquid fuel by replacing with coal based gases thru Producer gas
plant

f) Attaining global leadership in wire rope business.

Every organization needs inventory for smooth running of its activities. It serves as a link
between production and distribution processes. The investment in inventories constitutes the
most significant part of current assets/working capital in most of the undertakings. Thus, it is
very essential to have proper control and management of inventories. I have gathered the
process of inventory management in Usha Martin step by step.
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2. INTRODUCTION

Usha Martin is amongst the largest wire rope manufacturer in the world and a leading specialty
steel producer in India. The wire rope manufacturing facilities located in India, UK, UAE, and
Thailand produce one of the widest ranges of wire ropes in the world. Long standing usage in
diverse sectors like Oil & Offshore, Mining, Crane, Elevator etc. is a testimony of our expertise
in manufacturing high quality wire rope products.

Our expertise in wire rope dates back to 1961 when we set up our first rope manufacturing unit.
Since then, we have been relentlessly dedicated on stringent controls on quality, at each stage of
manufacturing to produce wire ropes, strands, wire, and steel products for the most demanding
requirements of our customers.

With a philosophy that quality ropes are made from quality steel, we set up specialty steel plant
in 1974. This integrated steel plant uses high quality iron ore and coal from captive mines to
consistently produce high quality steel. Today, at one million tones capacity, it is the largest
specialty steel plant in India in long product segment. The plant produces wire rod for wire
drawing, alloy steel bar and wire rod for forging applications, commercial vehicles, cars, two
wheelers, and engineering industries.

VISION

The company’s vision is “To be the global leader of the wire rope industry and the leading
specialty steel manufacturer in India, by delivering customer delight, adopting modern
technology and ensuring sustainable, inclusive growth for all of its stakeholders”.

This vision is manifested in the fully integrated steel and wire rope business model of the
company.
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HISTORY

The company has a long history of more than 50 years. Since its inception, the company has
been continuously adopting modern technologies in its manufacturing process and expanding its
global presence to ensure close proximity to customer. A glimpse of year wise history is listed
below:
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SWOT ANALYSIS:

Strength:

Business model: The Company is extensively integrated from iron ore and coal block mines to
captive power to the manufacture of steel, wires and wires ropes

Proximity: the company iron ore and coal mines are 160 km and 250 km respectively from
downstream consuming centres, saving logistics costs

Geographic Mix: the company product portfolio comprises rolled products, steel wire rods ,wires
strands ,wire ropes, cords and cables, among others

Product mix: the company enjoys an Indian and global and global presence .Ten manufacturing
units are located within India and three abroad. The company’s customers are pan .India and pan
–global serviced by a large number of dealers, stock points and representative

Certification: The company manufacturing units are ISO 90000-certified.The company was
credited with TERI award and TPM Excellence award in 2006 and 2008.

Customisation: The company enjoyed gearing of 1.02, a sub7% average cost of debt as on 31st
March,2010 and interest cover of 3.94 times for 2009-2010.

Technology: The Company invested in cuttings-edge technologies across its manufacturing’s

units, it deployed an advanced ERP solution for operational support

Social responsibility: The Company social initiative arm an NGO namely Knish Gram Vikas
Kendra (KGVK) earned trust and respect for undertaking activities like education, natural
resources management health trade facilitation, dairy ,farming and livelihood, among others.

Weakness:

1. Machine &tools have become old &obsolete

2. over looked small customer

3. Semi- Automatic Planned

4. High production Cost

5. Demand of elevator ropes has increased of due to global infrastructure development

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Opportunity:

1. Usha Martin Limited develop for measuring breaking load

2. Fishing &developing in the southern coastal cities

3. Mushrooming of apartment in India and Abroad, Usha Marin can increase its profit with the
customers

4. Competition is not much strong in the secondary market

Threat:

1. Low price of the rivals product are a great threat for Usha Marin Limited

2. High Production Cost

3. Local Political Instability

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3. REVIEW OF LITERATURE

PURPOSE
– The purpose of this paper is to review research on working capital management (WCM),
capital budgeting as well as inventory management and to identify gaps in the current body of
knowledge, which justify future research directions. The study under taken on Capital Budgeting
decisions at Usha Martin helps in the evaluation of the capital budgeting decisions already taken
and to be taking in future. The study will cover the different methods used for the Capital
decisions and their viability, their payback or return on the investment. Precautionary motive for
holding inventory is to provide a safeguard when then actual level of activity is differ than
anticipated. This inventory serves when there is an unpredictable change in the demand and
supply forces. This motive influences the decision to increase or decrease the levels of inventory
to take the advantage of price fluctuations.

DESIGN/METHODOLOGY/APPROCH
– Using systematic literature review (SLR) method, the present study reviews articles from
referred journal and international conferences published on working capital management, capital
budgeting as well as inventory management. The data has been gathered through interaction and
discussions with the executives working in the division. Some important information has been
gathered through couple of unstructured interviews of executive. Annual reports and other
magazines published by the company are used for collecting the required information.

FINDINGS
– Detailed content analysis reveals that most of the research work is empirical and focuses
mainly on two aspects, impact of working capital, capital budgeting on profitability of firm and
working capital and capital budgeting practices. Major research work has concluded that WCM
is essential for corporate profitability. The major issues with prior literature are lack of survey-
based approach and lack of systematic theory development study, which opens all new areas for
future research. The future research directions proposed in this paper may help develop a greater
understanding of determinants and practices of WCM.
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PRACTICAL IMPLICATIONS
– Till date, literature on classification of working capital and capital budgeting has been almost
non-existent. This paper reviews a large number of articles on working capital and capital
budgeting and provides a classification scheme in to various categories. Subsequently, various
emerging trends in the field of finance are identified to help researchers specifying gaps in the
literature and direct research efforts.

ORIGNALITY/VALUE
– This paper contains a comprehensive listing of publications on the financial sector and their
classification according to various attributes. The paper will be useful to researchers, finance
professionals and others concerned with working capital as well as capital budgeting to
understand the importance of working capital as well as capital budgeting . To the best of the
authors’ knowledge, no detailed SLR on this topic has previously been published in academic
journals.

BACKGROUND (CAPITAL BUDGETING)

A number of researchers in finance and accounting have examined corporate capital budgeting
practices. Many of these articles survey corporate managers and report the frequency with which
various evaluation methods, such as payback, internal rate of return(IRR), net present value
(NPV), discounted payback, profitability index (PI), or average return on book value are used.
The best known field studies about the practices of corporate finance are Gitman and Forrester’s
(1977) study of Capital Budgeting Techniques Used by Major U.S. Firms, Porwal’s (1976) study
on Capital Budgeting Techniques and Profitability and Graham and Harvey’s (2001) study on
capital budgeting, cost of capital, and capital structure. It is believed that the findings of this
study in the context of India are useful to academia and practitioners in learning how corporate
India operates, developing new theories, and identifying areas where finance theory is not
implemented.

Gitman Lawrence G. and John R. Forrester Jr. (1977) analyzed the responses from
110 firms who replied to their survey of the 600 companies that Forbes reported as having
The greatest stock price growth over the 1971-1979 periods. The survey containing
Questions related to capital budgeting techniques, the division of responsibility for capital
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Budgeting decisions, the most important and most difficult stages of capital budgeting, the
Cut-off rate and the methods used to assess risk. They found that the DCF techniques were
the most popular methods for evaluating projects, especially the IRR. However, many
firms still used the PBP method as a backup or secondary approach. The majority of the
companies that responded to the survey indicated that the Finance Department was
responsible for analyzing capital budgeting projects. Respondents also indicated that
project definition and cash flow estimation was the most difficult and most critical stage
of the capital budgeting process. The majority of the firms had a cost of capital or cut-off
rate between 10 and 15%, and they most often adjusted for risk by increasing the
Minimum acceptable rate of return on capital projects.

Jog and Srivastava (1991) provide direct empirical evidence on the capital budgeting
process based upon a survey of large Canadian corporations. They explored many issues
viz., the use of capital budgeting techniques, cash flow forecasting methods, risk analysis
techniques and methods used to estimate the cost of capital and the cost of equity. His
findings are most firms used multiple capital budgeting methods to assess capital
investments; DCF methods were employed by more than 75% of our respondents to
evaluate projects such as expansion-existing operations, expansion-new operations,
foreign operations and leasing. It appears that the propensity to use DCF techniques
increases with the complexity of the decision of the DCF methods, IRR was used more
frequently than NPV in most cases, of the two rules of thumb, he observed little use of
ARR. Payback is used much more frequently in conjunction with DCF methods.

Richard Pike (1996) has done a longitudinal capital budgeting study based on surveys
conducted between 1975 and 1992 compiled by conducting cross-sectional surveys on the
same firms at approximately five yearly intervals. According to him, over the 17-year
review period, there have been the greatest changes in the areas of risk analysis, NPV
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analysis and post-completion audits. The usage of DCF techniques have increased with
each survey. His other findings are that firm size is still significantly associated with
degree of use for DCF methods but not for payback and the use of ARR is unchanged. It
is suggested that firm size per se may not be the direct causal factor in determining use of
sophisticated methods; size of firm influences the use of computer based capital
budgeting packages which, in turn, influence the use of discounting methods, sensitivity
analysis, and risk analysis techniques. Once size ceases to be associated with use of
computers in capital budgeting it is envisaged that it will also have far less impact on
capital budgeting technique usage rates. He has reported the general increase in so-called
sophisticated capital budgeting techniques to a point where the gap between theory and
practice is trivial, at least for large firms due to three main factors viz., technical,
educational and economic. This paper has sought to provide a more reliable and
comprehensive analysis of how capital budgeting practices in large UK evolved in recent years
and, in so doing, provide a clearer backdrop against which earlier
studies can be interpreted and future studies enacted.

BACKGROUND (WORKING CAPITAL MANAGEMENT)

It deals with all the aspects of working capital of which in depth study has been carried out as
discussed below.

Bhatt V. V. (1972) widely touches upon a method of appraising working capital finance
applications of large manufacturing concerns. It states that similar methods need to be devised
for other sectors such as agriculture, trade etc. The author is of the view that banks while
providing short-term finance, concentrate their attention on adequacy of security and repayment
capacity. On being satisfied with these two criteria they do not generally carry out any detail
appraisal of the working of the concerns.
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Smith Keith V. (1973) believes that Research which concerns shorter range or working capital
working capital decision making would appear to have been less productive. The inability of
financial managers to plan and control properly the current assets and current liabilities of their
respective firms has been the probable cause of business failure in recent years. Current assets
collectively represent the single largest investment for many firms, while current liabilities
account for a major part of total financing in many instances. This paper covers eight distinct
approaches to working capital management. The first three - aggregate guidelines, constraints set
and cost balancing are partial models; two other approaches - probability models and portfolio
theory, emphasize future uncertainty and interdepencies while the remaining three approaches -
mathematical programming, multiple goals and financial simulation have a wider systematic
focus.

Chakraborthy S. K. (1974) tries to distinguish cash working capital v/s balance sheet working
capital. The analysis is based on the following dimensions:
a) Working capital in common parlance b) Operating cycle concept
b) Computation of operating cycle period in all the four cases. The purpose of the analysis is to
demonstrate operating cycle concepts based on published annual reports of the firms.

Chowdhury Anup and Amin Md. Muntasir (2007) examine the working capital management
practice in pharmaceutical companies listed in Dhaka Stock Exchange. Among all the problems
of financial management, the problems of working capital management have been recognized as
the most crucial one. It is because of the fact that working capital always helps a business
concern to gain vitality and life strength.
The objective of the study is to critically evaluate the working capital management practices in
the selected firms of the pharmaceutical industry. To achieve this goal, the study also examines
the policies and practices of cash management and evaluates the principles, procedures and
techniques of inventory management, receivables management and payable management. From
the analysis, the authors conclude that the pharmaceutical firms operated in Bangladesh
efficiently deal with their liquidity preferences and investment criteria. And this is due to the
competitive nature of this industry

Dinesh M. (2008) explicates the concepts of working capital, the different challenges being
faced by the business firms in managing working capital and the strategies to be adopted for its
prudent management. The author concludes with the view that most of the businesses failed not
for want of profit but for lack of cash. The fast growth in production and sales may cause the
business to utilize all of the financial resources seeking growth and making assets such as
inventories, accounts receivable and other assets as more illiquid.
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Dinesh M. (2008) explicates the concepts of working capital, the different challenges being
faced by the business firms in managing working capital and the strategies to be adopted for its
prudent management. The author concludes with the view that most of the businesses failed not
for want of profit but for lack of cash. The fast growth in production and sales may cause the
business to utilize all of the financial resources seeking growth and making assets such as
inventories, accounts receivable and other assets as more illiquid.

BACKGROUND (INVENTORY MANAGEMENT)

The problem of inventory control is one of the most important in organizational management.
As a rule, there is no standard solution – the conditions at each company or firm are unique and
include many different features and limitations. An occurring task of the mathematical models
development and determining the optimal inventory control strategy is related with this problem.
Features of inventory management models are that the resulting optimal solutions can be
implemented in a fast changing situation where, for example, the conditions are changed daily.
There is a need for new and effective methods for modeling systems associated with inventory
management, in the face of uncertainty. Uncertainty exists regarding the control object, as the
process of obtaining the necessary information about the object is not always possible. The
solution of such complex tasks requires the use of systems analysis, development of a systematic
approach to the problem of management in general. Inventory models are distinguished by the
assumptions made about the key variables: demand, the cost structure, physical characteristics of
the system. These assumptions may not suit to the real environment. There is a great deal of
uncertainty and variability the research object is models of inventory control under uncertainty.
The aim of this paper is to get a broad review of more than 30 research papers and classify the
models into groups, identify future research directions.
Stocks (reserves) are created to carry out the normal activities of the company. Proper and timely
determination of the optimal inventory control strategy allows freeing a significant amount of
assets, frozen in the form of stocks, which ultimately increase of resource use. Even though there
are literally millions of different types of products manufactured in our society, there are only
two fundamental decisions that one has to make when controlling inventory:
1. How large should an inventory replenishment order be?
2. When should an inventory replenishment order be placed?
The objectives of inventory management often reduce the problem if it is more profitable
to do quickly but more expensive or slower but cheaper. Such a strategy will be optimal
inventory control, which minimizes the sum of milestones costs associated with the production,
storage and inventory shortage per unit of time or for a specific (including infinite)
Amount of time.
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Management models differ in the nature of the available information on the properties
Of the simulated system. When the value of the model parameters is well-defined, nature of
The corresponding mathematical model is deterministic. If the parameters of the system are
Random values with a known probability, distribution models are stochastic (probabilistic).
If all of the model parameters do not change over time, it is called static, otherwise – dynamic.
Static models are used when receiving a one-time decision about the level of reserves
For a certain period, and dynamic – in the case of sequential decision-making about stock
Levels or to adjust earlier decisions, taking into account the changes taking place. When
Static patterns of change in system parameters cannot be installed, it is necessary to solve the
Problem of inventory management in the face of uncertainty.
In models of inventory management, the following characteristics are taken into account’s the
efficiency.
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4. OBJECTIVES

A) CORE OBJECTIVES:

Our objectives regarding working capital management were

To study and analyze working capital management at Reliance Infrastructure Ltd. which includes

 Inventory management
 Receivable management
 Cash management
The aim is to learn how to manage working capital needs of the organization and to learn the
different ways through which theoretical learning is applied practically in the organization. The
project is aimed to learn and gain knowledge of the day to day working of the organization as to
how does the different decision are taken and on what basis. The project will help in gaining the
knowledge of different steps of raising the short term funds and their effective management so as
to ensure adequate availability of funds. The various analyses will help the management to assess
the efficiency of the working capital management of the company.

The study under taken on Capital Budgeting decisions at Usha Martin helps in the evaluation of
the capital budgeting decisions already taken and to be taken in future. The study will cover the
different methods used for the Capital decisions and their viability, their payback or return on the
investment.

Our objectives regarding capital budgeting of Usha Martin were

 To know the meaning definition and methods of capital budgeting.

 To determine whether acquired capital asset is viable or not.
 To find out the Post Payback Profitability.
 To find out the Accounting Rate of Return on investment.
 To know the Net Present Value.
 To find out the Internal Rate of Return on investment.
 To know the Profitability Index.
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Our objectives regarding Inventory management of Usha Martin were

 To study about the ordering levels for the important components of inventory.
 To understand and measure economic order quantity for the selected raw material
items.
 To analyze its inventory management methods with the help of ABC analysis,
VED analysis etc.
 To evaluate the inventory management practices of SUJANA METAL PRODUCTS
LIMITED.
 To offer suitable suggestions for the improvement of inventory management
practices.

B) Motivational strategies for employees of Usha Martin:

1. Seek buy-in. Involve staff in determining and seeing "the big picture" and the goals needed

to achieve it. Remember, they are closest to the work and often can see things

more clearly. Having employees harness self-direction in pursuit of common goals is far

preferable to forcing people to meet goals they don't understand or share.

2. Encourage contributions. If an employee can regularly contribute ideas. and

suggestions, it makes them feel important and gives meaning to their jobs. Give people

responsibility and they often rise to the challenge. Allow them to unleash their

imagination, ingenuity and creativity and everybody wins.

3. Recognize employees. Rewarding people for achievement is a far more effective than

punishing them for failure. There are plenty of simple but effective ways employers can

recognize hard work, such as emailing an appreciative note. Organize recognition

programs and events to honor accomplishments personally and publicly.

4. Nip negativity in the bud. Do not allow employees to talk down to one al

drag each other through the mud. Likewise, make sure you don't do the same when
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other employees are able to see it happen to a fellow co-worker. That's bad for morale

and destroys motivation.

5. Keep employees informed. When an employee feels he or she is not up to date with

what is occurring in the company or their department, it is a message to the employee

tat says. "You are not important." Keep information flowing to each employee, let

them know what the company is doing and the direction it is taking.

6. Help fulfill career goals. If the employee wants to take on more responsibility or

move into a different department, investigate the possibilities and get back to them with

need to get ahead in their careers will build loyalty and motivation.

7. Maintain workforce satisfaction. One way to generate sustained profits is to build a

work environment that attracts and keeps talented people who want to show up and

perform at a level of excellence. Focus on creating satisfied employees and they will

focus on satisfying you and your customers.

8. Provide training. Being part of a learning culture is an important motivator for an

employee. Training can help fill the gap between lack of skills and better productivity

after training needs are assessed. Appropriate training should be viewed as an

vestment rather than a liability.

9. Give constant feedback. The days of quarterly or annual reviews being the sole form

of feedback are long gone. Employees want to receive constant, specific, and clearly

defined feedback from their supervisors. Positive feedback about accomplishments is

essential to motivate an employee.

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10. Communicate often. Open communication is most employees' # priority. Find out

what interests them and what doesn't. Speaking with an employee frequently shows that

you care about them in more ways than simply wanting them to keep up w

productivity.

Motivation requires a strategy tailored to each worker's needs. These ideas can help you

know what can drive your employees to want to do a better job. It your focus is on the

bottom line and long-term growth of the organization, it's important to focus on your

most important asset.

C) Reward strategies for employees:

1. Align the value of the total reward programs with individual performance, business

performance and work culture

2. Provide a competitive and differentiated total reward package, one reflective of the

internal and external value of work.

3. Ensure the extremely competitiveness of the total reward program, So that the level and

mix of remuneration is positioned against the right comparator groups, at the right

levels

4. Develop reward programs that most cost effectively meet the motivational and

retention needs of employees

5. Ensure employees have buy-in and understand new programs, which in turn. will

increase employee commitment/engagement

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6. Ensure line managers fully understand the programs and can lead in i implementing

the malign people costs with business results.

7. Examine your current remuneration program and gauge the extent that it aligns with

the business strategy, the HR strategy and the reward strategy

8.Understand the economics and business priorities of your organization

9. Understand the employee demographics and potentially different needs of different

employee groups Conduct employee surveys to understand which reward program

feature deliver the most value to them, and look at the messages that your reward

program m is giving around each element and demine the extent that they align with

reward strategy.

From this we then develop base salary plans that are aligned with your business
requirements and reward strategy. We also model outcomes and costs of alternative plan
designs to help you see the bigger picture and explain the potential cost and accounting
implications of our recommended strategy. We will then show you how this compare
to other organizations and offer insights into why different types of plans tend to be
used by different organizations.
Finally we can provide you with the benefit of our experience and expertise in
implementing and communicating the new salary program: many well designed
programs do not provide a return on 1nvestment due to poor communications or.
implementation.
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D. Corporate Social Responsibility

Usha Martin Private Limited as on one of the Key Business Process and is committed to
improving the quality of life of its identified communities located in and around the units of its
operations. It shall strive to achieve this through periodical assessment of the needs of its
communities and the continuous enrichment of the initiatives, designed to facilitate a process
through which its communities shall work as equal partners of social development. Usha Martin
Private Limited shall also strive to provide opportunity to its employees to volunteer their
managerial, technical and specialized skills and services in order to enrich their lives, as well as
to enable the company achieve its stated social responsibility of building strong communities, in
creating a sustainable environment in and around its facilities. USHA MARTIN, KGVK and the
rural Community make Significant Strides towards a Self-Sustained economy every journey of
transformation has its challenges. The people of Jharkhand know this better than most. But with
the able support of KGVK and Usha Martin, they have transformed every challenge into an
opportunity. The last one year has been especially significant for all parties involved. The need
was to consolidate on the gains made in previous years, and also to raise the momentum of
change that was being witnessed across all the eight pillars of Total Village Management
interventions. The amount of effort put in was monumental, and the results are encouraging.
More and more people in the region today have access to livelihood means, and better
healthcare. The education prospects of young children have been boosted by an intensive
teacher-training programme. Resources are being managed better, and alternative energy is not
just an alternative any more. The numbers in the following pages only reveal what we already
knew: Lives are being transformed every moment, and there’s no stopping the will of a
community that’s committed to creating a better future.
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5. METHODOLOGIES ADOPTED

A. Meaning of Research:

Research as “the manipulation of the things, concepts of symbols for the purpose of generation to
extend, correct or verify knowledge, whether that knowledge adds in construction of theory or in
the practice of an art.”

The Research Methodology followed for future work can be primarily classified into two states
name Exploratory and Descriptive study. The stepwise details are as follows:

Stage -1

Exploratory Study: Since we always lack a clear idea of the problem one will meet during the
study, carrying out exploratory study is particularly useful. It helped develop my concept more
clearly, establish priorities and in improve the final research design.

Exploratory study will be carried out by conducting:

 Primary data analysis which includes experiences with Assistant Manager accounts
General Manager Accounts of Usha Martin Private Limited. To gain knowledge about
the nature of financial analysis process followed in the organization.
 Secondary data analysis which included the website of the company and also going
through the various article published in different sources (magazines, books, internet,
newspaper) on small and Medium Scale Enterprises and Training and Development.

Stage -2

Descriptive study: After carrying initial exploratory studies to bring clarity on the subject,
descriptive study will be carried out to know the actual financial analysis method being followed
at Usha Martin Private Limited. The knowledge of the actual financial analysis process is needed
to the process and suggests improvement in the current system to make effective. The tools used
to carry out descriptive study include both monitoring and interrogation.

The research has been conducted at Usha Martin Private Limited, Gamharia, Jamshedpur.
The primary aim of this paper is to investigate the impact of WCM as well as capital budgeting
and inventory management on corporate profitability of Mauritian small manufacturing firms.
28

We extend our study by also analyzing the trends in working capital need of firms and to
examine the possible causes for any significant differences between the industries.

B. FINANCIAL MANAGEMENT ANALYSIS:

The major components of gross working capital include stocks (raw materials, work-in-progress
and finished goods), debtors, cash and bank balances. The composition of working capital
depends on a multiple of factors, such as operating level, level of operational efficiency,
inventory policies, book debt policies, technology used and nature of the industry. While inter-
industry variation is expected to be high, the degree of variation is expected to be low for firms
within the industry.

C. CONTROLABLE VARIABLES:

In order to account for firm's Size and the other variables that may influence profits, sales a
proxy for size (the natural logarithm of sales), the gearing ratio (financial debt/total assets), the
gross working capital turnover ratio (sales/current assets) and the ratio of current assets to total
assets are included as control variables in the regressions. The regressions also include the ratio
of current liabilities to total assets to measure the degree of aggressive financing policy, with a
high ratio being relatively more aggressive.

D. THE EXPLANATORY VARIABLES:

The efficiency ratios, namely accounts receivable, inventory and accounts payable have been
computed. The Cash Conversion Cycle (CCC) is used as a comprehensive measure of working
capital as it shows the time lag between expenditure for the purchases of raw materials and the
collection of sales of finished goods. The longer the cycle, the larger the funds blocked in
working capital. The return on assets is a better measure, it relates the profitability of the
business to the asset base.

E. INSTRUMENT USED:

I made use of a structured non-disguised close- ended and open-ended questionnaire supported
by personal interviews with concerned financial executives for collecting necessary primary data.
I also managed to make two inventory store visit as well as accounts department and sales
department visit along with production unit visit. This report has been made after by analyzing
and a proper research of Usha Martin Private Limited. The data were processed using the
Microsoft Windows Excel. Along with that the mix of appropriate analytical tools and
techniques including statistical tables, simple frequency tables, percentages, arithmetic mean, chi
29

square, correlation and gression analysis etc. are used to analyze the data and address the
research problem.

F. DESIGN:

The scope of my thesis is limited to the data of financial year 2016-2017 0f Usha Martin Private
Limited.
The selection of sample is not without reasons. It is partly to keep the study within manageable
limits. Nevertheless, Usha Martin Private Limited is a sizeable part of the quoted companies in
India. For collecting data from the company the questionnaire was designed by me under the
guidance of the General Manager of the company, and pilot testing of the questionnaire was done
from four of their employees in low divisions. The changes suggested by the companies selected
for pilot testing was incorporated and finally the relevant data were directly collected from the
employees through the questionnaires sent by mail or through personal visit to them.
30

6. DATA ANALYSIS

A. WORKING CAPITAL ANALYSIS

Working capital analysis is used to determine the liquidity and sufficiency of current assets in
comparison to current liabilities. This information is needed to determine whether an
organization needs additional long-term funding for its operations, or whether it should plan to
shift excess cash into longer-term investment vehicles.

It consists of few important steps such as:

STEP 1:

The first part of working capital analysis is to examine the timelines within which current
liabilities are due for payment. This can most easily be discerned by examining an aged accounts
payable report, which divides payables into 30-day time buckets. By revising the format of this
report to show smaller time buckets, it is possible to determine cash needs for much shorter time
intervals. The timing of other obligations, such as accrued liabilities, can then be layered on top
of this analysis to provide a detailed view of exactly when obligations must be paid.

STEP 2:

Next, engage in the same analysis for accounts receivable, using the aged accounts receivable
report, and also with short-term time buckets. The outcome of this analysis will need to be
revised for those customers that have a history of paying late, so that the report reveals a more
accurate assessment of probable incoming cash flows.

STEP 3:

A further step is to examine any investments to see if there are any restrictions on how quickly
they can be sold off and converted into cash. Finally, review the inventory asset in detail to
estimate how long it will be before this asset can be converted into finished goods, sold, and cash
received from customers. It is quite possible that the period required to convert inventory into
cash will be so long that this asset is irrelevant from the perspective of being able to pay for
current liabilities.
31

STEP 4:

The next major activity is to net these analyses together into a modified short-term cash flow
statement, using very brief time periods, such as intervals of every three to five days. If there is a
shortage in the amount of available cash in any time bucket, it will be necessary to either plan for
a delayed payment to a supplier, or to obtain sufficient cash from new debt or equity to offset the
shortfall.

A working capital analysis of this type should be conducted at ongoing, regular intervals.
Working capital management is the determination of future cash requirement of firms so that the
liquidity of financial resources may be maintained. The most difficult problem faced by a
financial manager is to determine the working capital and to solve this problem of future
requirement of current assets and cash flows are made. With the help of these cash flows, future
requirement and availability of cash for current assets are ascertained. For this purpose a working
capital forecast is prepared involving some calculation after taking into the factors affecting
working capital. These calculations are made on cash basis.

B. BALANCE SHEET METHOD:

In this method, estimates of different assets and liabilities are made taking into consideration the
transaction in the ensuing period. Thereafter a balance sheet is treated as a shortage or surplus
cash of that period. If the total asset side is more Working Capital is measure of company
efficiency and operating liquidity. The working capital is usually calculated by subtracting
Current Liabilities from Current Assets. It is important indicator of the firm ability to continue its
normal operations without additional debt obligations.

Suppose

Usha Martin working capital= Current asset-Current liabilities = 10.57 Billions

Suppose

Working capital management of usha martin of year 2017

Working capital=488,894, 000 – 346,519,000=14237500

32

BALANCESHEET OF USHA MARTIN PRIVATE LIMITED AS ON 31st MARCH 2017

(All amounts in Rupees. Lakhs otherwise stated)

PARTICULARS AS ON 31st AS ON 31st Change in

MARCH 2017 MARCH Percentage
2016
ASSETS
Non-Current Assets
a) Property ,Plant, Equipment 492488 523109
b) Capital-in-Progress 12091 12360
c) Investment property 766 890
d) Goodwill on consolidation 5522 5522
e) Other Intangible Assets 4359 1605
f) Intangible Assets Under 2319
Development
g) Equity Accounted Investment 3669 3721
h) Financial Assets
i. Investment 5 5
ii. Loans and advances 133 70
iii. Other financial assets 1913 1848
i) Deferred Tax Assets 704 1425
j) Advance Income Tax Assets 3457 4385
(net)
k) Other Non-Current Assets 10693 7983
5,35,800 5,65,242 (5.20)
Current Assets
a) Inventories 130908 129370
b) Financial assets
i. Trade receivables 68264 61540
ii. Cash and cash equivalents 4289 4822
iii. Other bank balances 806 726
iv. Loans and advances 909 243
v. Other financial assets 416 633
c) Other current assets 25549 26903
2,31,141 224,237 3.07
Assets held for sale 6590 5545
2,37,731 2,29,782 3.49
Total assets 7,73,531 7,95,024 (2.70)

EQUITY AND LIABILITIES

Equity
a) Equity share capital 3054 3054
33

b) Other equity 91438 132288

Equity attributable to equity share 94,492 1,35,242
holders of the company

Non-Controlling Interest 3394 3431

Total Equity 97,886 138,773 (29.4)
Non-current liabilities
a) Financial liabilities
i. Borrowings 285077 299748
ii. Trade Payable 13 13
iii. Other financial liabilities 205 176
b) Other non-current liabilities 1888 18888
c) Provisions 6449 5551
d) Government grants 3041 3151
e) Deferred tax liabilities 1379 2465
2,98,052 3,12,992 (4.77)
Current liabilities
a) Financial liabilities
i. Borrowings 95285 1,03,765
ii. Trade payable 183885 154791
iii. Other financial liabilities 79149 68278
b) Other current liabilities 18385 15245
c) Provision 779 1,070
d) Government grants 110 110
3,77,593 3,43,259 10
Total equity and liabilities 7,73,531 7,95,024 (2.70)

INTREPRETATION

 ASSETS

The companies Non - current assets has been decreased by (5.02%) than the previous years and
in the current assets there has been increase by 3.07%. The total asset of the 2017 was less than
the previous year by (2.70) %

 LIABILITIES

The share capital of the company had no change. The company’s current liabilities had been
positive by 10 % but its Non-current liabilities both has been decreased by (4.77) % hence the
total Equity and Liabilities has been decreased by(2.07) %
34

C. PROFIT AND LOSS ACCOUNT:

Working capital level the consideration of the level investment in current assets should avoid two
danger points excessive and inadequate investment in current assets. Investment in current assets
should be just adequate, not more or less, to the need of the e business firms. Excessive
investment in current assets should be avoided because it impairs the firms’ profitability, as idle
investment earns nothing. On the other hand inadequate amount of working capital can be
threatened solvency of the firms because of its in ability to meet its current obligation. It should
be realized that the working capital need of the firms may be fluctuating with changing business
activity. This may cause excess or shortage of working capital frequently.

As per the business plan and sales forecasting of previous year the company has given the target
to the marketing department for the future projection/forecasting of sales and how much working
capital will be required for the manufacturing process of its products. According to that the
marketing department does the market survey. That survey report they submit to the company.
According to that market survey the company estimate that how much working capital is needed
to the production department for the production of wire and wire rope product.

According to the forecasted figure, which is given by the marketing department, the company
executes that how much working capital is required and how much of raw materials should keep
in hand for the operation of business. According to that we have to make P/L account and
working capital of different department and consolidate it that what are the expenses that
company incur in the production and what types of working capital is required. First of all
company has given the estimated target to the marketing department that these much amount of
products should be produced during the financial year 2017 -18. According to the estimation of
marketing department the production department of the company is functioning that how much
raw materials will be required for the production of these goods and what are the expenses that
the company has to incur for manufacturing of wire, rope, conveyer cord, strands and bright bars.
According to this company manages fund that keeps as inventory, which is needed in production
so that the production process does not stop. The company also keeps watch on holding period,
because if the holding period increases, then company has to incur additional capital and
probably the chance of bad debt increases. At last the most important thing is that to keep cash in
hand for their day to day expenses and forerunning the production process conveniently. After
the management of working capital the company procures the raw materials i.e. used in
production process. Company brings its main raw materials i.e. wire rode from its Jamshedpur
Unit. The company Usha Martin basically produces wire and wire rope.
35

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH 2017

PARTICULARS YEAR ENDED 31st YEAR Change in

MARCH 2017 ENDED 31st Percentage
MARCH
2016
Income
Revenue from operation 425510 450520
Other income 11991 3251
Total income 4,37,501 4,53,771 (3.58)
Expenses
Cost of material consumed 166725 172515
Purchase of stock-in-trade 12495 3435
( Increase )/decrease in inventories of 2735 20068
finished goods, work in progress, stock in
trade and scrap/ by-product
Excise duty on sale of goods 37316 39296
Employee benefits expenses 37397 37331
Finance cost 56424 54663
Depreciation and amortization expense 29998 30798
Other expenses 130449 144174
Adjustment for items capitalized and (549) (396)
departmental orders for own consumption
Total expenses 4,72,990 5,01,884 (5.75)
Profit/Loss before tax (35,489) (48,113) (26.23)
Tax expense
1) Current tax 781 750
2) Excess provision of earlier years (67)
written back
3) Deferred tax (251) (6222)
Total tax expense 463 (5,472) (108.46)
Profit/Loss before share of profit and (35489) (42,641) (16.77)
loss of joint venture
Share of profit/loss of joint venture 196 (194)
Profit/Loss after share of profit/loss of (35756) (42,835) (16.5)
joint venture
Other comprehensive income/loss
Items that will not be subsequently
reclassified to consolidated statement of
profit and loss
Re-measurement gain/loss on defined (110) (134)
benefit plans
Items that will be subsequently reclassified
to consolidated statement of profit or loss
Exchange difference on translation (4848) 2132
36

Total other comprehensive income of the (4958) (1198) (313.9)

year, net taxes
Total comprehensive income of the year (40714) (40,837) (0.3)
Profit/ Loss of the year attributable to:
Equity share holder of the company (35891)
Non-controlling interest 135 (42972)
Other comprehensive income 137
attributable to:
Equity share holder of the company (4958) 1998
Non-controlling interest
Total comprehensive income/loss for the
year attributable to:
Equity share holder of the company (40849) (40,974)
Non-controlling interest 135 137
Earning/loss per equity share (EPS)

INTREPRETATION

 INCOME

The total income of the company was decreased in 2017 than in the year 2016 by (3.58) %

 EXPENDITURE

The total expenses was decreased by (5.75) % in the current years

 PROFIT AND LOSS AFTER TAX AND JOINT VENTURE

THE PROFIT / LOSS after Tax was also decreased by (108.46) % and the income coming out of
the joint venture was decreased by (16.5) %

 INCOME OF THE YEAR

The total income of the year was also decreased by (0.3) % as the company cannot meet its
expenses and there was not enough capital.
37

D. Debt Equity Ratio

Debt to equity ratio is a long term solvency ratio that indicates the soundness of long-term
financial policies of a company. It shows the relation between the portion of assets
financed by creditors and the portion of assets financed by stockholders. As the debt to equity
ratio expresses the relationship between external equity (liabilities) and internal equity
(stockholder’s equity), it is also known as “external-internal equity ratio”.

FORMULA

Debt equity ratio is calculated by dividing total liabilities by stock holder’s equity

Debt equity ratio = Total Liabilities

Stock holders’ equity

E. CAPITAL BUDGTING ANALYSIS:

Capital Budgeting Analysis is a process of evaluating how we invest in capital assets; i.e. assets
that provide cash flow benefits for more than one year.

We are trying to answer the following question:

Will the future benefits of this project be large enough to justify the investment given the risk
involved?

It has been said that how we spend our money today determines what our value will be
tomorrow. Therefore, we will focus much of our attention on present values so that we can
understand how expenditures today influence values in the future. A very popular approach to
looking at present values of projects is discounted cash flows or DCF. However, we will learn
that this approach is too narrow for properly evaluating a project. We will include three stages
within Capital Budgeting Analysis:! Decision Analysis for Knowledge Building! Option Pricing
to Establish Position! Discounted Cash Flow (DCF) for making the Investment Decision.
 38

Financial performance Non-Consolidated

FY Ending ( millions) 31.03.03 31.03.04 31.3.05 31.03.06 31.03.07

Balance Sheet

Assets

Net fixed assets 8980 8980 8930 9545 10970

Investment 1000 1410 1400 1530 1600

Current Assets 5930 6480 8040 6995 8410

Less Current Assets 2560 2880 4590 3980 4875

Net Current Assets 3370 3600 3450 3015 3535

Miscellaneous expenses 120 90 60 40 30

Total Assets 13470 14080 13840 14130 16.134

Liability & Equity

Share Capital 190 190 190 220 240

Equity and Warrants 90 35

Reserves 3970 4090 4320 5605 6935

Total net worth 4160 4280 4510 5915 7210

Secured Loans 7790 7760 7660 6720 7440

Unsecured loans 560 1020 600 160 50

Deferred Tax Liabilities 960 1020 1070 1335 1435

Total liabilities and Equity 13470 14080 13840 14130 16135

Ratios

Debt Equity 2.01 2.05 1.83 1.17 1.04

 39

Current ratio 2.32 2.25 1.75 1.52 1.37

This ratio is calculated to assess the ability of the firm to meet its long term liabilities.
Generally, debt equity ratio of 2:1 is considered safe.

Financial performance Consolidated

FY Endings 31.03.03 31.03.04 31.03.05 31.03.06 31.03.07

(millions)
Balance
Sheet
Assets
Net fixed 10260 10231 10627 11217 11780
assets
CWIP 639 942 458 731 1998
Investment 451 443 445 4 4
Current 7689 8065 9730 9574 11176
Assets
Less Current 3071 3443 5340 5340 5982
assets
Net Current 4619 4622 4278 4234 5194
assets
Miscellaneous 124 88 60 42 30
Expenses
Total Assets 16092 16326 15868 16228 19006
Liability &
Equity
Share Capital 186 186 186 222 240
GDR 89 33
Reserves 3620 3739 4026 5791 7492
Total net 3806 3925 4212 6102 7765
worth
Minority 169 78 107 120
Interest
Secured 10060 10156 9455 8324 9255
Loans
Unsecured 1066 1193 1017 328 375
Loans
Deferred Tax 991 1052 1106 1367 1491
liability
40

Total 16092 16326 15868 16228 19006

Liabilities &
equity

F. PROJECT DESCRIPTION ON CAPITAL BUDGETING:

In an attempt to remain globally cost competitive and attaining global leadership position in wire
rope business, Company has been implementing a series of backward integration (including
setting up Beneficiation Plant, Pelletisation Plant, Sinter Plant, captive power plants, DRI plant)
and value added product capacity expansion thru organic and inorganic route over the last few
years. The company acquired Brunton Shaw UK from Carlco and has set up a green field wire
rope manufacturing plant in Dubai; UAE under a joint venture company named Brunton Wolf
Wire Rope FZCo (BWWR) with majority stake of 60%. To focus on wire products with a view
to increase the share of value added steel products, Company has acquired the third largest wire
manufacturing plant in India from the JCT Ltd having a capacity of about 36,000 TPA of wire
products with good brand name. The company has also started commencing production at its
Greenfield wire rope manufacturing facility at Houston, USA having a capacity of 6,000 TPA.
The company’s full captive requirement is being met with its iron ore mining operations in the
state of Jharkhand to further the backward integration and cost reduction objective. The iron ore
mine has got a reserve of over 80 Million ton sufficient to meet company’s demand of about 50
years with the growth plan earmarked for implementation. Company has also been allocated
coal mine in the state of Jharkhand having proven reserve of about 40 million ton of high grade
coal of “A” & “B” grade coal with less than 20% Ash content and calorific value of over
6,000.Company expect to start its coal mining operations within the last quarter of the current
financial year or beginning of next financial year.

To maximize the mineral advantage as well as attaining the global leadership position in the wire
rope business , company plans to invest Rs. 21,000 Million in two phases for increasing the
specialty steel capacity to a million ton catering to the growing demand of automotive sector and
implementing the cost reduction projects consisting of Beneficiation Plant, Pelletisation Plant,
Sinter Plant, Power Plant , DRI and MBF (to substitute high cost purchased scarp) and increasing
the capacity of value added products, such as Wire Rod, Bars, Wire , Strand , Cord , Bright Bar ,
wire rope etc.. This project (the “Project”), with a cost of Rs 21,000 Million (US$ 525 million),
is for:
41

The Project is expected to have a high development impact:

a) Enabling a mid-level company become more globally competitive

b) Efficiency increases resulting from the backward integration – Beneficiation Plants,

Pelletisation and Sinter low cost production of steel from own iron ore and coal and power
generation from own coal

c) Environmental benefits of using hot waste heat & gases from the DRI and MBF plant for fuel
in the power plant

d) Specialty steel niche products catering to growing automotive market

e) Reducing dependence on liquid fuel by replacing with coal based gases thru Producer gas
plant

f) Attaining global leadership in wire rope business.

h) Mineral linkage of iron ore and coal;

i) Mineral enrichment by beneficiation including Pelletisation Plant and Sinter Plant

j) Steel capacity expansion to a million ton;

k) Metallic’s balancing projects with mineral linkages such as blast furnace (MBF) and DRI
plant; l) Captive power plant to be self-sufficient and use of waste heat and gases from the MBF
and DRI plant;

m) Improving the logistics and material handling facilities to reduce cost.

n) Facilities for manufacturing more value added, high margin, specialized products in wires &
strands, wire ropes, cord and bright bars.

PROJECT COST

Module Capital Cost- Rs

Mi
Mineral-Ore and Coal 830
MBF 1200
DRI 1800
SMS 2750
42

POWER 2210
ROLLING &FINISHING 3250
ORE ENR2300ICHMENT SINTER &PELLET 2300
INFRASTRUCTURE,WATER,LAND& OTHERS 2310
TOTAL STEEL 16650
VALUE ADDITION 2850
TOTAL 19500
IDC/PREOPERATIVE 1500
TOTAL CAPEX 21000

FINANCIAL PLAN

The following table shows the proposed financial plan:

Source (Rs in Cr) Remarks

Equity: i)GDR 110 Raised promoters to contribute Rs335 Cr
ii)Warrants 427 by June 09

Debt Mezzanine Debt 590 Tied up To be Self-funded by the

510 internal accrual of FYI 11 &12
Internal Accruals 463
Total Financing 2100

PROJECT IMPLIMENTATION PLAN

The specialty steel capacity with incremental power and metallic capacity expansion shall be
completed as given in the table below:

Financial Year Capacity

2008-09 650KT
2009-10 1000KT

SALES AND PRODUCTION

Following is the projected sales volume for end products (wire ropes, wires/ strands, Bright Bar
& rolled products). Projected Sales Quantity in 000’ Mt

Particulars 07-08 08-09 09-10 10-11 11-12 12-13

43

Rolled 360 450 550 700 800 800

Wire 102 114 118 123 123 123
Wire Rope 70 74 80 87 88 88
Strand 17 24 30 38 42 50
Bright Bar 18 27 40 48 54 60

Projected Production Quantity in 000’ Mt

Particulars 07-08 08-09 09-10 10-11 11-12

Steel 380 470 575 735 890
Hot Metal 200 200 350 470 600
DRI 90 200 400 400 400
Mined Ore- 0.88 1.35 2.10 2.55 2.560
Mi T
Mined Coal- 0.71 0.50 1.10 1.20 1.20
Mi T
Power Gen- 328 450 610 740 760
Mu

PROJECTED PROFITIBILITY STATEMENT AND BALANCE SHEET:

Projected Profitability – Rs in Million

Particulars 07-08 08-09 09-10 10-11 11-12 12-13

Sales Turnover 20,160 26500 32,320 38,720 42,420 42,460

(Gross)
PBDIT 3,370 5090 7,290 9,350 10,480 10,590
PBT 1,870 3460 4,470 6,070 7,460 7,870
PAT 1,320 2,320 3020 4,080 5,000 5,270

Ratios
PBITDA 19% 22% 22% 27% 28% 28%
Margin
Net Margin 7% 10% 11% 12% 13% 14%
44

Projected Balance Sheet – Rs in Million

Source 07-08 08-09 09-10 10-11 11-12 12-13

Net Worth 8,850 11,730 16,560 20,300 24,960 29,890
Deferred 1,450 1,450 1,740 2,040 2,100 2,130
Tax
Liability
Debt 9,340 11,170 10,900 9,820 8,300 5,020
Total 19,640 24,350 29,200 32,160 35,400 37,040
Source

Application
Net Block 13,420 15,860 20,290 21,880 23,280 21,820
Investment 1,610 1,610 1,610 1,610 1,610 1,610
Net Current 4,610 6,880 7,300 8,670 10,510 13,610
Assets
Total 19,640 24,350 29,190 32,160 35,400 37,040
Application

Ratios
RONW 18.4% 26.3% 25.7% 24.6% 24.6% 21.1%
Debt 1.06 0.95% 0.66% 0.48% 0.33 0.17
Equity
DSCR 1.00 1.39 0.21% 1.54 1.71 1.77

Its operating profit margins are expected to improve from 19% in 2007-08 to about 28% in 2011-
12 consistently due to: (a) significant cost reduction as the Company realizes the benefits of the
proposed backward integration (including Sinter Plant, Pellet Plant, DRI Plant and CPP); and (b)
a shift in the Company's product mix towards more value added, higher margin premium
products and (c) Increase in Capacity.
45

G. INVENTORY MANAGEMENT ANALYSIS:

The items of all inventories are arranged in descending order according to their book value. Then
the summation of consecutive items from the top is done which adds up to 70% of total
inventory costs.

Usha Martin Limited has classified its inventories into 3

categories namely,
(1) Stores and Spare
(2) Production and
(3) Packing

USHA MARTIN USES ABC ANALYSIS SYSTEM FOR INVENTORY MANAGEMENT:

ABC Analysis is generated according to the book value of the items stores is custodian every
items. Breakup of ABC: - A=70%, B=20%, C=10%

Category A- Items whose book value constitutes up to 70% of the total value of the material.

Category B- 20%.

Category C- Remaining 10%.

CATEGORY % OF TOTAL VALUE % OF TOTAL QUANTITY

A 70 - 80 5 – 10

B 20 – 25 20 – 30

C 5 – 10 60 – 70
46

100

90

80

70

60
C
50
B
40 A
30

20

10

0
PERCENTAGE OF TOTAL VALUE PERCENTAGE OF TOTAL QUANTITY

STEPS ACCORDING TO WHICH THE INVENTORIES ARE MANAGED AND

PROCESSED

NOTE: Minimum stock for 1 month should be maintained so that the production do not stops.

 Plant user sends an indent to the purchase department.

Ex: If the plant has an aim of minimum 10 tons of hot metal production per day and so the plant
will require a certain amount of raw material to maintain or to run the production. Iron ore,
coal, lime stone, dolomite, metal scrap, graphite electrode, oxygen and nitrogen gasses, Ferro
alloy, etc. Are required for hot metal production and so the plant head or factory head or user
has to send an indent to the purchase department when needed, to continue the production.

 Purchase department raises a purchase order to the concerned vendor with scheduled
time period.

 Supplier sends the material to the place of production on time as scheduled.

47

 After the material has reached the production unit it has to go through the gate entry
where a GRN (Goods received note) is prepared. Challan number and material
description are mentioned on the GRN.

 After that the material is send to the weighing machine where the actual weight is
measured.

 Followed by, the material is send to the quality check department to check the quality of
the material. Quality is checked as per the required specifications of the material
mentioned earlier.

 If the material is genuine and has no problem in it then it is passed to the main store.

 After that the store management issues the required amount of material to the concerned
indentor for production purpose.

 After the finished product is produced, they are kept in a store or ware house till they are
sold.

If any material that is not correct according to the required specifications then they are
sent back to the concerned vendor.

Steps of return of material:

 The quantity of material that is to be returned to the vendor is weighted on a weighing

machine to know its actual weight.

 Return purchase order is prepared.

48

 Return invoice and excise gate pass is prepared.

 Then the material is send back to the vendor. (Gate exit)

A CATEGORY ITEMS HAS:-

1. HIGH CONSUMPTION VALUE

2. HIGH CONTROL

3. NO SAFETY STOCK

4. MINIMIZATION OF WASTE MATERIAL

5. FREQUENTLY ORDERING WASTLY CONTROL SYSTEM

B CATEGORY ITEM HAS:-

1. MODERATE VALUE

2. MODERATE CONTROL

3. LOW SAFETY STOCK

4. CONTROL OVER WASTE

5. ORDERING 3 TIMES IN A MONTH

6. MONTHLY CONTROL

C CATEGORY ITEM HAS:-

1. LOW CONSUMPTION VALUE

2. LOW CONTROL

3. HIGH SAFETY STOCK

4. ANNUAL REVIEW OF WASTE

5. BULK ORDERING ONCE IN A MONTH

6. QUARTELY CONTROL REPORT

49

7. FINDINGS

The Company is a part of the Usha Martin Group, which was formed in India in the early 1960s
with the establishment of Usha Martin Industries Limited (UMIL), engaged in the manufacture
of steel wires, wire ropes and other related products. The group was promoted by Mr. B. K.
Jhawar, who is the Chairman of the Company. Usha Beltron Limited was incorporated on 21
May, 1986 as a joint venture between Usha Martin Industries Limited, Bihar State Electronics
Development Corporation Limited, AEG Kabel, Germany (now Kabelrhydt and a member of the
Alcatel group) and DEG, Germany, to manufacture Jelly Filled Telephone Cables (JFTC).
Pursuant to the Orders of the Hon'ble High Court of Kolkata and Patna (Ranchi Bench) Usha
Martin Industries Limited merged with Usha Beltron Limited with effect from 15th May, 1998.
Thereafter the registered office was shifted from Tatisilwai, Ranchi, and Bihar to Kolkata in the
State of West Bengal in the year 2000. The name of Usha Beltron Limited was changed to Usha
Martin Limited with effect from 1st May 2003

The major milestones of the Company’s development over the years can be summarized as
under:

2004

 The Company successfully commissioned DRI and WHRB power plant at its Steel
Division in Jamshedpur.

2005

 The Company signs an MOU with Joh.Pengg for manufacturing of the speciality oil
tempered spring steel wire.
 􀂾Takeover of JCT Ltd.’s steel division completed and successfully integrated with Usha
Martin.
 Commences Iron ore mining successfully.
 Railway Siding commenced.
 DRI power plant capacity augmented by further 5 mw by putting up 40 tph char boiler.
50

 Commissioning of 3rd Ladle Furnace at SMS to increase steel capacity to 3, 60,000 mt

p.a.

2006

 The Company acquired a Rolling mill unit at Agra manufacturing TMT Bars
 Land purchased to set up a Bright Bar plant in Chennai

2007

 The Company has gone for a stock split with Equity shares of FV Rs 5/- getting
converted into FV of Rs 1/- each.
 The Company acquired a Rotterdam based distribution company De Ruiter

1. The companies Non - current assets has been decreased by (5.02%) than the previous
years and in the current assets there has been increase by 3.07%. The total asset of the
2017 was less than the previous year by (2.70) %

2. The share capital of the company had no change. The company’s current liabilities had
been positive by 10 % but its Non-current liabilities both has been decreased by (4.77) %
hence the total Equity and Liabilities has been decreased by(2.07) %

3. The total income of the company was decreased in 2017 than in the year 2016 by (3.58)
% ,It shows the fall of income

4. The total expenses were decreased by (5.75) % in the current years. It shows the
company expenditure has been decreasing which is a good sign as on yearly basis it was
not able to meet its expenses

5. THE PROFIT / LOSS after Tax was also decreased by (108.46) % and the income
coming out of the joint venture was decreased by (16.5) %.It means that the company is
not been able to use its resources optimally.

6. The total income of the year was also decreased by (0.3) % as the company cannot meet
its expenses and there was not enough capital.

7 This ratio is calculated to assess the ability of the firm to meet its long term liabilities.

Generally, debt equity ratio of 2:1 is considered safe. If the debt equity ratio is more
51

than that, it shows a rather risky financial position from the long term point of view, as it

indicates that more and more funds invested in the business are provided by long term

lenders. A high debt equity ratio is a danger signal for long term lenders.

The lower this ratio the better it is for long term lenders because they are more secure

in that case .Lower than 2:1 debt equity ratio provides sufficient protection to long term
lenders.

The company has to focus on the reducing cost by reducing the unproductive

Expenses. For that purpose the company has to divide its overheads into sub heads so

The company can know that which expenses are high and how can reduce. As well as

The company should compare its standard cost with actual cost. By doing this practice

The company has been successful in reducing many of the unnecessary expenses.

There has been manpower rationalization i.e. a reduction in duplication of work and

Consequent under utilization of human capacity. The result of this was improved

Efficiency.

Usha Martin Limited is committed to add value to the products it makes, de-bottlenecking its

Capacities with intelligence so that the production cost gets reduced, utilizing the

Resources more efficiently.

The company is focusing on its integrated steel and steel products business with an

Increased focus on exports to neighbouring countries. To improve competitiveness in

The global market, the company has planned to make strategic investment in steel to

Reduce the cost of products by leveraging the availability of raw materials from within

The region. The company is also focusing on an improvement in the realization of

Products like wires, wire ropes, strands and by migrating to high value branded
52

Products.

To meet the challenges of the loss of cable business, the company has embarked on

The strategy to make the use of productive assets for diversification into value added

Products.

FOR IMPROVEMENT OF PERFORMANCE OF THE ORGANIZATION

1. The present system should be more transparent and objective.

2. The role of the reporting officer should be played by the immediate supervisor of appraise,

Who is in direct contact?

3. There should be a midterm appraisal system to monitor the performance of the executive.

4. Performance appraisal system should be made scientific by introducing the marks

Or grades.

5. Executives should be communicated about whatever rating he gets.

6. There should be formal counselling session feedback mechanism not only for

‗Unsatisfactory‘rating but also for other ratings.

7. Performance appraisal system for the workmen should also be introduced. It will prove to be

A motivational tool for delivering the results to the best of their capability.

8. The present appraisal system should be more productivity based not the promotion

• Usha Martin LTD is an organization with fairly structured management hierarchy.

• Training has enhanced the skill, knowledge, attitude and behavior of the employee. The
Human Resources Departmental practices have been designed to give maximum satisfaction to
customer

• This study has also revealed that how the Human Resources Departmental practices are
successfully functioning in Usha Martin Limited giving maximum satisfaction to each and every
customer according to the Human Resources Departmental elements.
53

8. RECOMMENDATION TO THE COMPANY

A well designed and implemented Analysis of Financial Statement is expected to contribute

positively to the creation of a firm’s value. The analyzed in financial statement need and
profitability of firms are examined to identify the causes for any significant difference between
the industries. High investment in inventories and receivables is associated lower profitability.

A firm is required to maintain a balance between liquidity and profitability while conducting its
day to day operations. Liquidity is a precondition to ensure that firms are able to meet its short-
term obligations and its continued flow can be guaranteed from a profitability venture. The
importance of cash as an indicator of continuing financial health should not net surprising in
view of its crucial role within the business. This requires that business must be run both
efficiently and profitability. In the process and assets-
Liabilities mismatch May insolvency on the other hand; too much focus on liquidity will be at
the expense of profitability ABC Analysis

Is suggested as it gives more appropriate and conclusion and also a little change in inventory
management system.
The industry is one very unique in nature and the findings may be applied to similar type of
industries only.

At this stage I strongly fell that the area of production is so vast that the internship may be
conducted again and again focusing on various aspect of the production in order to gain
effectiveness and efficiencies of the career of Management

Product:-

1. Usha Martin Limited product has good demand in market

2. Usha martin product are well tested and inspected by the world class testing authorities
like ABS,IRS,LOYDS

Price:-

1. Overheads are quite high as compare to other companies

2. From customer point of views due to high cost of Usha Martin Limited product it loses
certain prospective customer
3. From geographical point of view Usha Martin Limited plant in Jamshedpur is well
positioned, but there are certain problems like band strikes &lack of infrastructural
facilities
54

Promotion:-

1. Promotions strategy such as participating in trade fairs is not enough to create awareness to
customer
2. After sales service of UML is well appreciated

Packaging:-

1. Usha Martin is at par with current packaging brands

2. The iron rods are used mostly these days. They are well painted to give nice look

Usha Martin ltd has achieved phenomenal success with proper utilization of Inventory
Management. Inventory management is so critical for planning or forecasting for the future
needs and for developing strategic plans to handle the market situations. It needs a top down
approach to structure an effective way of tackling inventory managing problems.

If Usha Martin Ltd is to achieve incremental growth and maximize its market capitalization, it
has to give more emphasis on effective inventory control and use available resources option.
55

9. REFRENCES

ARTICLES & NEWS PAPER

1. Alice C. Lee, John C. Lee, Cheng F. Lee Wrote a book Financial analysis, planning
& forecasting: theory and application 1998, www.econpapers.repec.org.com

2. Ankit Agarwal on January 22, 2010 published a article in Finance Friday on the
Subject ofwww.econpapers.repec.org.com

3. Jeff, Bross: Accounts Receivable Factoring Can Be a Powerful Working Capital

Tool1996, www.articlebase.com

4. Jackie, Johnson: How Accounts Receivable Factoring Can Solve Your Working

Capital Issues 2008, www.articlebase.com

5.Usha Martin ltd,” A JOURNEY TOWARDS BECOMING MILLION TONNE

SPECIALITY STEEL AND ATTAINING GLOBAL LEADERSHIP IN WIRE ROPE
BUSINESS”,2007

BOOKS

1. Dr. B.K Mehta & Anamika Mehta “FINANCIAL MANAGEMENT” AGRA,

SBPD PUBLICATION, 2012
2. Dr. S.P Gupta “FINANCIAL MANAGEMENT”AGRA, SAHITYA PUBLICATION,
2013
56

QUESTIONNAIRE

Q1. What IS the objective of Working Capital Management?

 Efficient use of current assets

 Liquidity and profitability
 Liquidity profitability and efficient use of current assets
 Profitability
 Confer strictly to Government regulation

Q2. What are the different methods of determining working capital requirements?

 Over all budgeting methods

 Cash forecasting
 Any mathematical/statistical methods

Q3. (a) On what basis is the working capital budget prepared ?

 On long term basis
(Say annually for 5 years)
 Only Annual Budget

(b) State the budget period (Budget Cycle)

 Weekly
 Monthly
 Quarterly
 Any others (Please Specify)

(c) If a budget cycle is followed, are the subsequent period budget figures reviewed?
 Yes
 No

Q4. Have you experienced working capital shortage? Yes/No

If yes, does it occur?
 Very frequently
 Occasionally
57

Q5. Have there been situations when your forecasted values deviated from actual requirements
of working capital? Yes/No.

If yes then did the deviations occurred owing to

 Controllable factors
 Uncontrollable factors

Q6. How are the levels of cash determined?

 Day to day requirements

 Minimum cash balance and an optimum cash balance.
 Any other (please specify)

Q7. How does the problem of going in for a cash credit arise?

 Shortage in expected cash flows,

 Inadequate internal resources
 Cash requirements for day to day working capital needs,
 Cash requirements for new projects

Q8. Stale the objectives and policy of inventory management in your organization?

 Avoid losses of sales

 Gain quantity discounts
 Reduce order costs
 Achieve efficient production
 Any other (please specify)

Q9. Do you revise your inventory objectives and policies whenever variations occur? Yes/No

If yes, which of the following factors influence such variations?

 Shifting demand
 Changing cost
 Changing competition
 Changing contribution
58

 Any others (please specify)

Q10. State briefly the method of planning the following components of inventory. (Please
explain briefly the method of determining Economic Order Quantities, Safety, Stocks,
anticipation Stocks etc. It would be helpful if you can kindly attach any printed or cyclostyled
material explaining the method)

i) Raw material (Indigenous)

 Based on input consumption efficiency statistics computed.

 Based on annual order with monthly delivery schedule matching with production.
 Based on production programmed, norms of consumption, cycle of recoupment, and
storage capacity.
 Based on Government guidelines
 Based on annual reviews coupled with inventory level monitoring
 By determining economic order quantities
 Any other (please specify)

ii) Raw material (Foreign)

 Adhoc procurements even through levels are determined, on account of delays in

importation, on availability of shipping space, cargo unloading delays etc.
 Any other (please specify)

iii) Stores and Spares (Indigenous)

 Based on the ordering quantities and safety stocks determined with reference to the
nature of the component/product to be manufactured and the lead time of manufacture.
245
 Based on specific percentage of production cost or manufacturing facilities or according
to previous practice
 Based on past consumption pattern plus ad hoc requirements.
 Based on production
 By determining minimum, maximum stocks and economic order quantities.
59

iv) Stores and Spares (Foreign)

 Planned for specific time requirement

 Based on supply lead time and cycle time of manufacture.
 General practice to get a spare set of spare parts.
 By determining minimum and maximum stocks levels.
 Any other (please specify)

v) Work in process

 Based on process parameters

 Based on usual period of ageing
 Based on customer requirements and production cycle

vi) Finished Goods

 Based on sales planning, subject to constraints of production and storage capacity.

 By determining economic order quantities
 Keeping in view the limiting factor
 Based on customer requirements

Q11. Do you follow any of the following ratios as inventory norms?

 Raw material, work in process, stores and spares and finished goods as % of total
inventory
 Total inventory as % of total current asset investment
 Inventory as % of net working capital
 Inventory as % of fixed asset investment
 Inventory sales ratio
 Any other (please specify)

Q12. What techniques and methods are applied for invenory control in your organisation?

Techniques

 ABC Analysis
 Analysis on the basis of the essentiality, size, shelf life etc.
60

 XYZ Analysis
 Any other (please specify)

Methods

 Annual verification
 Continuous verification
 Automatic Data Handling system (SAP ERP system)
 Any other (please specify)
61

CONCLUSION

Usha Martin ltd has achieved phenomenal success with proper utilization of Inventory
Management. Inventory management is so critical for planning or forecasting for the future
needs and for developing strategic plans to handle the market situations. It needs a top down
approach to structure an effective way of tackling inventory managing problems.

If Usha Martin Ltd is to achieve incremental growth and maximize its market capitalization, it
has to give more emphasis on effective inventory control and use available resources optimally.