A PROJECT REPORT ON Working Capital Management SUBMITTED TO: Sonal saboo Mandowara SUBMITTED BY: Pankaj

ACKNOWLEDGEMENT

First and foremost, I would like to express my gratitude to all those people who helped me in completing my project at Chanderiya Lead Zinc Smelter Ltd at Chittorgarh. My project title is working capital management. I have tried to give credit to all sources from where I have drawn material in this project. Still there may have remained unintended errors .I shall feel obliged if they are brought to my notice. I am grateful to my project guide sonal saboo (Finance),chetan (-finance), at CLZS Ltd for their kind cooperation, support & guidance without which it would not have been possible for me to complete this project work at time. I would like to express my gratitude to our respected professor kaushal kataria for the valuable guidance which helped me throughout the project. I would very much appreciate & sincerely acknowledge readers for improving the quality of this project. Pankaj Mandowara

BOARD OF DIRECTORS . MR.AGNIVESH AGARWAL (chairman of Hindustan Zinc limited) SMT.AJITA BAJPAI PANDE (DIRECTOR). SHRI S.K. MITTAL (DIRECTOR) SHRI A.K. SINGH (DIRECTOR) SHRI NAND KISHOR SHUKLA (DIRECTOR) SHRI ANIL AGARWAL (DIRECTOR) SHRI NAVIN AGARWAL (DIRECTOR) SHRI K.K. KAURA (DIRECTOR) SHRI TARUN JAIN (DIRECTOR) SHRI M.S. MEHTA (CEO & Whole-time Director )

ExecutiveChairman SeniorIndependentDirector Anil Agarwal

Naresh Chandra

ExecutiveDirector Kuldip Kaura | Chief Executive Officer ExecutiveDirector Aman Mehta Non-

OUR GROWTH HISTORY:Driven by the capability of 6,359 employees, Hindustan Zinc Limited is the worlds second largest zinc producer. 1966: - Hindustan zinc limited was incorporated from erstwhile metal Corporation of India on 10 January 1966 1991: -Chanderiya Pyo-metallurgical lead zinc smelter and Rampura Agucha mine began production. 2002: -Acquired by Sterlite industries (India) Limited on 11 April 2002.

2003: -32,000 tonnes of zinc debottlenecking completed at Debari zinc smelter and vizag zinc smelter -Debottlenecking of Rampura Agucha Mine from 1.37million tones per annum to 2.30million tones per annum 2004: -35,000tonnes of zinc debottlenecking completed at Chanderiya Smelter Complex. 2005: -Commissioned 170,000 tonnes per annum of hydrometallurgical zinc smelter (Hydro)at Chanderiya smelter Complex. -Commissioned 2*77MW captive power plant at chanderiya smelter Complex. -Rampura Augucha Mine expansion from 2.30million tones per annum to 3.75million tones per annum. 2006: -Commissioned 50,000 tonnes per annum of Ausmelt Lead smelter at chanderiya smelter complex. -Sindesar Khurd Mine began production with an initial capacity of
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0.3million tones per annum. 2007: -Commissioned 170,000 tonnes per annum of hydrometallurgical zinc smelter (Hydro)ina benchmark time of 20month at chanderiya smelter complex. -Commissioned 38.4MW of wind Energy farms at Gujarat. 2008: -88,000 tonnes per annum zinc debottlenecking completed at chanderiya smelter complex and debari zinc smelter . -Rampura Augcha Mine expension from 3,75million tones per annum to 5.00million tones per annum . -Commissioned additional 68.8MW Wind energy farms making the companys total Wind energy capacity to 107.2MWas on 31March 2008. ENDURING VALUE THROUGH VALUE: ENTERPRENEURSHIP: We foster an entrepreneurial spirit in our business and value the ability to foresee opportunities early in the cycle and act on them swiftly. Whether it is developing growth project or it is debottlenecking the exciting assets we ensure an entrepreneurial spirit in the heart of our employees. GROWTH: We continue to deliver industry-leading growth and generate significant value for our shareholders. Our growth is unique and we are confident that we will continue ton deliver significant growth for shareholder in the future. We are not the only beneficiary of our growth. We see growth as a means to enhance the wealth and prosperity of the society at large. EXCELLENCE: Achieving excellent in all that we do is our way of life. We consistently deliver project ahead of schedule at industry-leading costs of construction and within budget. We are one the lowest cost of zinc producers and our ongoing initiatives should help us to further sharpen our cost performance. Equally important to us is
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achieving excellence in health, safety and environment performance. TRUST: We value and cherish the trust reposed in us by our stakeholders. We recognize that we must responsibly deliver on the promises we make to earn that trust. We constantly strive to meet Stake holder expectations and try to deliver ahead of expectations. We always behave in a manner that is consistent and upholds our value system. Our desire and ability to act in a compentent manner would helps us to further build the trust of our stakeholders. SUSTAINABILITY: We pursue sustainability within the framework of well defined governance structures and employees. Our sustainability team comprise of over 280 full time resources including field workers. With the use of appropriate technology and best in class practice, we always endeavour to minimize the damage to the environment , and we do not miss any opportunity to leave a positive mark. Our growth and business policy hinges around the philosophy of inclusive growth a clear focus on neighborhood communities.

ZINC DEMAND AND MARKET: GLOBAL MARKET: During 2007, global refined zinc consumption rose by 3% to 11.5 million tones, driven mainly by rapid growth of the China and Indian economy and rising
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production of galvanized sheets. There was a also strong zinc demand from Brazil and Russian. where the construction sector has been benefiting from higher government spends on infrastructure faster growth in demand from emerging market more than offset a slowdown in US, Japanese and European zinc demand. Global zinc mine production rose by 6% during 2007 to 11 million tones on the back of increased production in china, Kazakhstan, India and Australia , and starting of new mines in Peru, Bolivia, and Portugal. The largest increased in zinc metal output came from china, where refined zinc production grew by 17% to 3.7 million tones, or one-third of the worlds output. Refined zinc production also increased significantly in Russia, Mexico, Brazil, India. The market for zinc concentrates eased somewhat from the very tight level seen in the previous three year, enabling the smelters to improve capacity utilization and obtain higher TC. In 2008, global zinc consumption is expected to rise by 3.7% to 11.9 million tones, in response to the continuing strong demand arising out of Asia. Usage in china is expected to rise by another 10.4% primarily due to major investment in infrastructure projects. Demand is also expected to increase in India, Japan, the republic of Korea and Russia. In Europe, predicted rise in demand in Belgium, France, Poland, the Russian Federation and Spain will be partially offset by reductions in Germany and Italy, resulting in an overall increase of 0.9%. After falling by 11.85 % in 2007, demand in the US is forecast to rise by 4.8% in 2008. The increase demand of 2008 will be met from higher output of 2008 will be met from higher output of established mines and the opening of new sites. However the the newer mines are not coming into operation as quickly as originally envisaged, the marginal mines are proper in metal content and , hence, carry greater cost per tonne of concentrate. As a result the demand supply of zinc might reach equilibrium sooner than forecasted and zinc prices are also expected to stabilize sooner. World output of refined zinc metal is forecast to rise by 8.3% to 12.1million tones in 2008-thus maintaining a very narrow gap between metal demand and supply. The most significant increases are expected in India and china. Chart C gives the trend in average monthly LME zinc prices. It shows that while prices have come down from $4,405 in December 2006 to $2,511 in march2008, the long term trend is upward.

INDIAN MARKET: ZINC Spurred by industrialization and infrastructure demand, India has the potential to see high growth in zinc consumption. In 2007,India zinc demand rose strongly by 9.5%to 0.47 million tonnes, the increase in zinc demand is led by India fast growing galvanizing sector which accounted for about 70% of the total zinc demand. For 2008-09, the rise in demand of zinc is expected to remain robust driven by realty growth, manufacturing sector and infrastructure. DECLARATION

This is to certify that all the work contained in this research report titled as WORKING CAPITAL MANAGEMENT is genuine work done by me as part of summer training project, Chittorgarh during June-July 2008. Wherever some material is taken from website or other published literature, suitable references are given and sources are acknowledged.

Pankaj Mnadowara PREFACE About three decades ago, the scope of financial management was confined to the raising of funds ,whenever needed & little significance used to be attached to financial decision-making & problem solving. Today, financial managers perform the passive role of scorekeepers of financial data, information & arranging funds, they occupy key positions in top management areas & play a dynamic role
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in solving complex management and financial problems. The main advantage of using cash management is to make the optimum level of cash in the organisation and investing the additional fund into other activities where it needed. And To minimize the amount locked up as cash balances in the company. And To meet the cash disbursement need as per the payment schedule . The cash is uses in the company for the payment of day to day expenses which are occur in the organisation and and to protect the firm against uncertainties characterizing its cash flows. And Cash is the most important factor in financial management. It is also the most important current asset for the operation of the business. Every activity in an enterprise revolves round the cash. While cash serves these functions, it is an idle resource which has an opportunity cost. The liquidity provided by cash holding is at the expense of profits sacrificed foregoing alternative opportunities. Hence, the finance manager should carefully plan and control cash. Cash is also helpful in maintaining the goodwill of the firm in the market. The company can gain the profit to purchases the material from the other firm on credit. And availing the cash discount to paid the payment in cash at the time . and it also help in managing the good relationship with banks.

EXECUTIVE SUMMARY

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 There are two concept of working capital: gross working capital and net working capital. Gross working capital is total of current assets. Net working capital is the difference between current assets and current liabilities. Working capital management is a significant facet of financial management. In the management of working capital, two characteristics of current assets must have borne in mind (I) short life span and (II) swift transformation into other asset forms. The factors influencing working capital needs are (I) nature of business, (II) seasonally of operation, (III) production policy, (IV) market condition and (V) condition of supply. Several strategies are available to the firm for financing its working capital requirement. An important one is based on the matching point. The operating cycle of a firm begins with the acquisition of raw materials and ends with the collection of receivables. If the accounts payable is subtracted from the operating cycle, one get the cash cycle. Information about the operating cycle is helpful in (me) forecasting working capital, and (II) control of working capital. The cash requirement for working capital needs may be estimated with the help of a two-step procedure: (I) Estimate the cash cost of various current assets required by the firm, (II)

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Deduct the spontaneous current liabilities from cash cost of current assets.

CHAPTER 1 COMPANY PROFILE

Hindustan Zinc Limited (HZL) is Indias leading zinc producer. A vertically integrated Mining & Smelting company, HZL, is currently gearing up to becoming a global lowest- cost producer. AS a part of Vedanta resources, a London listed metals and mining major with Aluminum, Copper and Zinc operations in UK, India and Australia, HZL takes advantage of its mineral resources and related core competencies and believes it has growth opportunities for increasing products and improving returns.

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. under the group

It is one of the biggest concern which was of STERILITE. It owns various mines and

earlier own by the government but now it has become a private smelting projects in India. The company produces zinc, lead and other by- products including sulphuric acid, silver and cadmium It has achieved an all time high with a record output of 283698 tones zinc and 889007 tones of record production of zinc concentrate during 2005-06. 1.1:- Hindustan Zinc Limiteds Main Product: Good Ordinary Brand (GOB) zinc Special High Grade (SHG) zinc Lead By- Product: Cadmium Silver Sulphuric acid Copper

1.2:- Vision:14

Be a world-class zinc company, creating value, leveraging mineral resources and related core competencies.

1.3:- Mission:

Be a lowest cost Zinc producer on a global scale, maintaining market leadership Produce One Million Tones/Year of Zinc & lead by 2010 Be innovative, customer oriented and eco-friendly, maximizing stake-holder value

1.4:- Highlights:

Only fully integrated Zinc- lead producer in India Refined Zinc production capacity 411,000 tpa Refined Lead production capacity 85,000tpa Ore treatment capacity 5.85 Mtpa one at Vizag.

Having three lead- Zinc mines, three smelters in Rajasthan & Turnover Rs. 3877Cr with EBITDA of Rs.2418Cr for the FY2006.

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 Market leader with 68% market share of countrys Zinc demand(05-06) Providing employment to over 12,000 people. Stimulating with atmosphere

1.5:- History:Hindustan Zinc Ltd. was created from the erstwhile Metal Corporation of India (MCI) on 10th January 1966 as a Public Sector Undertaking. In April 2002, the Government of India, disinvested its majority stake in HZL, and it became a part of the fast growing Sterlite group. Since then HZL has been growing from strength to strength. HZL produces Zinc, Lead and other by-products including Sulphuric Acid, Silver and Cadmium. HZL achieved an all-time high with a record output of 2, 83,698 tones Zinc and a record production 8,88,007 tones of Zinc concentrate during 2005-06.Today HZL is Indias leading base metal producer. HZL is a vertically integrated Mining & Smelting company, gearing up to: Harnessing mining resources to help India achieve self-sufficiency in Zinc.
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Become a global leader in Zinc. Create value for all entities whether it is Customers, Investors or Employees. Constant innovation, meticulous attention to detail, extensive investments in R&D and technology are the hallmarks of HZL making it a multi-unit and multi-product company.

1.6:- Corporate Philosophy: To uphold a reputation for integrity, honesty, straight forward & just dealing. To be committed to the quality of its products. To be committed to its customers To be innovative in approach & thoughts. To be open, friendly, sincerely & humane in behaviour & attitude. To contribute to the community as a part of our social responsibility. To maintain & improve working environment by eco friendly. Processing To be a market leader

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1.7:-Zinc Products & Its Usages:-

Tab: - 1.1 Zinc Products & Its Usages

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First Use Corrosion Protection(galvanizing, thermal Brass alloys Rolled Zinc Batteries spraying, (copper-zinc plating, zinc rich paintings)

End-Use Building/construction, zinc energy/power, streel furniture, electro agriculture automotive/transport. alloys) Building/construction, and equipments. Building/ construction. Automotive/transport, products. computers medical equipment, construction fittings electrical

aluminums alloys, magnesium automotive

Zinc Compounds

Food

industry,

animal

feed,

fertilizers, pharmaceutical industry, cosmetics industry. Zinc Oxide Paint pigments, ceramic glazes electrostatic copying paper.

1.8:- Mines & Smelting Project of Hindustan Zinc Limited in India

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SMELTERS Hindustan Zinc Ltd. (HZL) operates smelters using the ISP pyrometallurgical (Chanderiya Lead Zinc Smelter), RLE hydrometallurgical (Debari, Vizag and Chanderiya Smelters and Ausmelt (Chanderiya Lead Smelter) process routes. Chanderiya Lead Zinc smelters Commissio 1991 ned Location Capacity 120 km east of Udaipur, Rajasthan, India 105,000 tpa of refined Zinc, 35,000 tpa of refined Lead pyrometallurgical lead zinc smelter. 170,000 tpa of refined Zinc Hydrometallurgical zinc smelter. 50,000 tpa of refined Lead Ausmelt lead smelter. A pyrometallurgical smelter using ISP technology. Main by-products are Sulphuric Acid and Silver A hydrometallurgical smelter using the stateof-the-art RLE technology commissioned in the year 2005-06. Main by-product is Sulphuric Acid. An Ausmelt lead smelter commissioned in February 2006 OHSAS

Details

Certificatio ISO 9001:2000, ISO 14001:1996, 19001:1999 (For Pyro Plant) ns

Coal based 154 MW captive power plant Captive commissioned in 2005. Power Generation
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Debari Zinc smelter Commissio 1969 ned Location Capacity Details 12 km east of Udaipur, Rajasthan, India 90,000 tpa of refined Zinc A hydrometallurgical smelter using RLE technology. Main by-products are Sulphuric Acid and Cadmium. Plant is equipped with 29 MW of captive power generation capacity. ISO 14001:1996, OHSAS

Certificatio ISO 9001:2000, 19001:1999 ns

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1.9 HZL Milestone at a Glance Tab.:- 1.2 HZL Milestone at a Glance

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2005-06 April 2005 March 2005

Chanderiya hydrometallurgical zinc plant begins production. Chanderiya Ausmelt leadplant begins production. Commissioning of 170,000t New Zinc Hydro Smelter at Chanderiya. Commissioning of 154MW captive Power Plant at Chanderiya.

March Expansion of RA Mine & Mill to 3.75 MT 2001-02 Expansion of Vizag Zinc Smelter to 40,000 TPA. 2005 Sterlite acquires additional shares of 18.92% from Govt. of 2003-04 Expansion of Debari Zinc Smelter from 49,000 TPA to 2001-02 India under call option. 59,000 TPA Sterlite acquires 26% and management control in HZL from July Stoppage of Vizag leads smelter. 2002-03 the Government of India in privatization. A further 20% is 1999 bought from market through open offer. 1991-92 Disinvestment of 20% equity share to financial institution. April Disinvestment, Taken over by Sterlite Group Current 2002 shareholding:64.92% 1991-92 Commissioning of Chanderiya Smelter of 70,000 TPA Zinc & 35000 TPA Lead. 2001-02 Stoppage of Maton Rock phosphate Mine. 1990-91 Commissioning of Rampura Agucha Mine of 3000 TPA 2001-02 Stoppage of Sargipuli Lead Mine. 1984-85 Expansion of Debari Smelter to 49,000 TPA Zinc

1978-79 Take over of Agnigundala Mine from HCL 1976-77 Expansion of Tundoo Smelter to 8000 TPA lead 1945 1938 Metal Corporation of India (MCI)
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Mewar Mineral Corporation.

1.10:- Chanderiya Lead Zinc smelter Tab. 1.3 Location of Chanderiya Lead Zinc smelter Commissioned Location Capacity 1991 120 km east of Udaipur, Rajasthan, India 105,000 tpa of refined Zinc, 35,000 tpa of refined Lead Plant. 50,000 tpa of refined Lead Ausmelt Technology Plant. Details A pyrometallurgical smelter using ISP technology. Main by-products are Sulphuric Acid, Silver and Cadmium. A hydrometallurgical smelter using the state-ofthe-art RLE technology commissioned in the year 2005-06. Main by-products are Sulphuric Acid and Cadmium Pyrometallurgy Plant. 170,000 tpa of refined Zinc Hydrometallurgy

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1.11:- Award List Tab: - 1.4 Award List

S.No.

Name Of Award

Year

25

1 2 3 4 5 6 7 8 9 10 11

OHSAS 18001 ISO 14000 ISO 9000 National Safety Award Greentech Safety Awards Greetech Safety EMS Certification(International Award) Safety Award Robert W

1996 1999 2000 2003 2003-04 2004-05 2005-06

2005-06 Campbell 2005-06

Award(International) Business World FICCI SEDF 2006 CSR Commendation Award State level Bhamashah Award 2005

1.12 Board of Directors of Hindustan Zinc Limited

1. 2. 3. 4. 5. 6. 7.

Agnivesh Agarwal, Chairman Shri M.S. Mehta, CEO & Whole-time Director Sujit Gulati, Director Ajita Bajpai Pande, Director A.C. Wadhawan, Director Nand Kishore Shukla, Director Anil Agarwal, Director

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8. 9.

Navin Agarwal, Director Tarun Jain, Director Kaura, Director

10. K.K.

Company Offices of Hindustan Zinc Limited Yashad Bhawan Udaipur - 313004 India Tel. no. 0294- 2529182-84 Exports & Marketing : Solitaire Corporate Park, Business Square C Wing, 2nd Floor, Andheri Kurla Road, Chakala, Andheri (East), MUMBAI 400 093 India Tel 0091-22-56434500 Fax 0091-22-56434640 Email: exportzinc@vedanta.co.in Regional Office: Northern Regional Office Hindustan Zinc Limited Scope Office Complex, Core - 6 II nd Floor, 7, Lodi Road, New Delhi - 110003.

Tel +91 011-24364988/2436726 Fax +91 011-24365421 Email sanjay.khanna@vedanta.co.

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Hindustan Zinc Limited SSAndheri Kurla Road, Chakala, Andheri (East), MUMBAI 400 093 Tel 0091-22-56434500 Fax 0091-22-56434640 Email: Puneet.jagatramka@vedanta.co.in

Southern Regional Office Hindustan Zinc Limited No. 3332, 12th 'A' Main, 6th Cross H.A.L. 2nd Stage, Indira Nagar, Bangalore - 560008.

Tel +91 080- 51152659 / 25205 Fax +91 080-25203003 Email: sundeep.prasanna@vedanta Acid Sales: Yashad Bhawan Udaipur - 313 004 India Tel +91 294- 2529182/ 84 Eastern Regional Office Hindustan Zinc Limited Flat No. 9/10, Chatterjee International Centre, Jawaharlal Nehru Road, Kolkata - 700071.

Tel +91 033-2217763/22262627 Fax +91 033-22262627 Email:mohammed.azmatulla@veda Investor Relation office : Company Secretary Yashad Bhawan Udaipur - 313 004 India Tel +91 294- 2525621 Western Regional Office Hindustan Zinc Limited Solitaire Corporate Park Business Square C Wing, 2nd Floor, Andheri Kurla Road, Chakala, Andheri (East),
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MUMBAI 400 093 Tel Fax Email: 0091-22-56434500 0091-22-56434640 Anuj.lal@vedanta.co.in

CHAPTER - 2 ABOUT WORKING CAPITAL - CONCEPTUAL FRAME WORK 2.1 Introduction

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Working capital could be defined as the portion of assets in current operations. Working capital is also called net current assets. It is the excess of current assets over current liabilities. All organizations have to carry working capital in one form or the other. Efficient management of working capital is more important from the point of view both liquidity and profitability. Poor management of working capital means that funds are unnecessarily tied up in the idle assets hence reducing the liquidity and also the ability to invest in productive assets such as plant and machinery so effecting the profitability. Working Capital Management refers to the management of working capital or the management of current assets. The need of working capital management arises from two considerations : Existence of working capital is imperative in any company. The working capital involves investments of the funds of the company. Working capital = Current Assets Current Liabilities Current assets are those which are convertible in cash or equivalent within a period of one year. Example: cash, debtors, bank, bills receivables etc. Current liabilities are those which can be paid in cash or equivalents within a period of one year.

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Example: creditors, bank overdraft, bills payable etc. The movement of funds from working capital to income and profits and back to working capital is one and the most important characteristics of business. This cyclical operation is concerned with utilization of funds with the hope that they will return an additional amount called income. If the operation of a company are to run smoothly a proper relationship between fixed capital and current capital has to be maintained. 2.2 Importance Of Working Capital

Quick Payment to Suppliers Increase in debt capacity and goodwill Cash Discount

Easy availability of Bank Loan`

Exploitation of favorable Opportunities Meeting Unseen Contingencies Distribution of Adequate Dividends It creates a feeling of security and confidence It increase Fixed Assets Efficiency Increase Production Efficiency 2.3 Sources Of Working Capital

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SOURCES OF WORKING CAPITAL

Long-term Sources

Short-term Sources

Owned Sources

Borrowed Sources

Internal Sources

External

Sources

1. Issue shares. 2. Retained Earnings of Credit

of 1. Debentures

1. Depreciation 1. Trade funds Credit 2. Long-term 2. Provision for 2. Letters Debts Taxation 3. Bank Credit 4. Public Deposits

3. Sale of Fixed 3. Outstanding Assets payments 4.Retiring Current Liabilities below Book-value 5. Reserves 6. Finance Companies 7. Native Moneylenders

5. Advance form Customers

2.4

Factors Influencing Working Capital Requirements

The working capital needs of a firm are influenced by numerous factors. The important ones are

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 Nature of business Seasonality of operation Production policy Market condition Condition of supply

2.4.1 Nature of Business The working capital requirement of a firm is closely related to the nature of its business. A service firm, like electricity undertaking or Transport Corporation, which has a short operating cycle and which sells predominantly on cash basis, has a modest working capital requirement. On the other hand, a manufacturing concern likes a machine tools unit, which has a long requirement.

2.4.2 Seasonality of Operation Firms, which have marked Seasonality in their operation usually, have highly fluctuating working capital requirements. Consider firm manufacturing ceiling fans. The sales of ceiling fans reach a peak during the summer months and drops sharply in the winter period. The working capital need of such a firm is likely to increase considerably in summer months and decrease significantly during the winter period. On the other hand, a firm manufacturing a product like lamps, which have fairly even sales round the year, tends to have stable working capital needs.
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2.4.3 Production Policy A firm marked by pronounced seasonal fluctuation in its sales may pursue a production policy, which may reduce the sharp variations in working capital requirements. For example in ceiling fans industry may maintain a steady production throughout the year rather than intensify the production activity during the peak business season. Such a production policy may dampen the fluctuations in working capital requirements.

2.4.4 Market Conditions The degree of competition prevailing in the market place has important bearing on working capital needs. When competition is keen, a larger inventory of finished goods is required to promptly serve customers who may not be inclined to wait because other manufacturers are ready to meet their needs. Further, generous credit terms may have to be offered to attract customers in a highly competitive market. Thus, working capital needs tend to be high because of greater investment in finished goods inventory and accounts receivable. 2.4.5 Condition of Supply The inventory of raw material, spares and stores depends on the conditions of supply is prompt and adequate; the firm can manage with small inventory. However, if supply unpredictable and scant then the firm, to ensure continuity of production, would have to acquire
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stocks as and scant when they are available and carry larger inventory on an average. A similar policy may have to be followed when the raw material is available only seasonally and production operation operations are carried out round the year.

2.5

Need for the Study

Working capital management is the process of planning and controlling the level and mix of current assets of the firm as well as financing these assets. Specifically, working capital management
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requires financial managers to decide what quantities of cash. Other liquid assets, accounts receivables and inventories the firm will hold at any point in time. In addition, financial managers must decide how their current assets are to be financed. This high degree of divisibility has two important implications for the management so chooses, working capital, first, if the management so chooses, working capital can be acquired piecemeal to meet immediate needs as they arises, which have advantages of reducing the average investment in working capital, thereby minimizing the interest charges, insurance expenses and storage fees necessary to carry the investment The second implication of divisibility, which follows logically from the first, concerns the appropriate methods for financing working capital investment. The fact that working capital only amounts to few months supply means that the working capital cycle running from cash to inventories, inventories to receivables and receivables to cash, is measures in months rather in years. The liquidity of working capital allows the management a corresponding flexibility in its financing decisions. To know, the given level of sales and the relevant cost considerations, what are optimal amounts of cash assets, accounts receivable and inventories that a firm should maintain? What is the most economical way to finance these working capital investments? To produce the best possible returns, firms should keep no unproductive assets and should finance with the cheapest available
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sources of funds. Why? In general, it is often advantageous for the firm to invest in short-term assets and to finance with short-term liabilities

2.6 Flow of Working Capital

Used in Direct Labour & Material Used in Used in Production Process Cash& Marketable Securities External
financing

Accrued fixed operating EXP.

Used in

Fixed Assets

Cash Inventory Cash Account receivable

Return to Capital

Suppliers of Capitals

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Techniques & Analysis of Working Capital (1) Schedule of change in Working Capital (2) Ratio Analysis (3) Fund Flow Analysis (4) Cash flow Statement (5) By preparing Working Capital Budget

CHAPTER 3 RESEARCH METHODOLOGY Research is common parlance to refer to a search for knowledge. We can also define research as Scientific ad systematic search for pertinent information on a specific topic Research is careful investigation or inquiries for new facts in any branch of knowledge. Researches are basically systematic inquiry with customers critical examination with objectives to search new facts or interpret know facts in new light.

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3.1 Objective of Research :The main objective of study is to analyses the working capital management of Hindustan Zinc Limited. Working capital management is very important in modern business. When we analyze and interpret the financial statement analysis of working capital is very useful for short term management of funds. Working involves investment of funds of the company. To items capital. To study the liquidity position of the company. 3.2 Research Design :- Analytical 3.3 Data collection :- Secondary data sources 3.4 Scope of data :- For ratio analysis, Researcher got only seven years data ( 2001-02 to 2007-08) trough companys annual reports. 3.5 Research tools :3.5.1 Ratio Analysis Ratio analysis is indispensable tool for credit appraisal. It has been defined as the relationship between two or more things. make the analysis for of elements in or components of working capital to identify the responsible changes working

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Ratio analysis is a standard for evaluation of the performance of the company and is also an indicator of the financial position. Business ratio is the guiding starts for the management of enterprise. They provide their target and standards. They are helpful to manager in directing them towards most beneficial long term strategies as well as towards affective short term decision making.

Nature of Ratio Analysis In financial analysis a ratio is used as a benchmark for evaluating the financial position and performance of a firm The relationship between two accounting figures, expressed is known as ratio analysis. Ratio helps to summaries the large quantities of financial data to make qualitative judgement about the firms financial performance. The ratio in indicates a quantitative relationship, which can be, in turn used to make a qualitative judgment. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard.

Liquidity Ratio Liquidity refers to a firms ability to meet its current financial obligation As they arise by this ratio. Company comparing the value of current liabilities. The parties interested in the liquidity ratio would be employees, bankers and short term Creditors.
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 -Current ratio Acid test Super Quick ratio

Net Working Capital

This ratio establishes the relationship between net working capital and net sales or cost of goods sold. This ratio is used to assess the efficiency with which the Working Capital is being used in the business. A high Working Capital ratio indicates efficient management of Working Capital or over trading. Working capital = Current Assets Current Liabilities

Current Ratio Current ratio is a measure of the firms short term solvency. It indicates the availability of current assets in rupees for every
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one rupee of current liability. The

ideal ratio is 2:1. And by

comparing both the years the ratio for the current year is more than previous year because of increase in loan and advances than previous year. This ratio shows that the firms creditors are fully secured. Current Ratio = Current Assets Current Liabilities

Acid Test Ratio Acid Test Ratio = expenses) Current Assets (Stock + Prepaid Current Liabilities This ratio is explaining the relationship between liquidity assets and current liabilities. The ratio measures the firms ability to convert its current assets quickly into cash in order to meet its current liability. (Liquid assets include cash in hand, cash at bank, realizable security and bills receivable within a month. Ideal Quick ratio is 1:1 and if it is more it is considered better.) Super Quick Ratio It indicates the ability of a firm to pay its current liabilities within the period of a month. Idle ratio is 0.5:1.This ratio is the most rigorous and conservative test of the firms liquidity position. Super Quick Ratio = Cash + Bank + Marketable Securities Current Liabilities

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Current Assets To Total Assets Ratio This ratio express the relationship between the amount of current assets and the amount of investment in total assets. It helps to assess the importance of current assets of a concern. The idle ratio is 61% of total assets. Current Assets to Total Assets Ratio = Current Assets to Sales Ratio This ratio indicates the efficiency with which working capital turns into sales. The analysis of this ratio over a period of time shows the overall efficiency of working capital management of a firm. Current assets to sales ratio = Current assets Sales Current assets Total assets

3.5.2 Trend analysis :- The trends discussed so far were plotted on arithmetic scales. Trends may also be plotted on semi-logarithmic chart in the form of straight line or a non liner curve. A straight line on the semi-log chart shows the increase of Y values of a time series at a constant rate and is not approaching some paper limit, it usually approximated least by an exponential curve. It should be noted that here we are talking of constant rate and not constant absolute amount. Also semi-logarithmic model is suggested whenever a scatter diagram of the data point of the series on semi-log graph paper indicate a straight line. When it is non-linear curve on the semi-log chart an up

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word curve of the slopes-the steeper the slope, the higher is the rate of increase. The types of tend usually computed by logarithms are:1 Exponential Trend. 2 Growth curves.

CHAPTER - 4 DATA ANALYSIS AND INTERPRETATION 4.1Analytical Tools The data gathered from various departments and the relevant data are taking into consideration and solved to acquire the working capital of the Hindustan Zinc. Tab.:- 4.1Analytical Tools

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Part A: Current Assets Inventories Raw Material & Components Work-in-Process Finished goods Others Trade Debtors Loans & Advances Investment (short-term) Cash & Bank Balances. Part B: Current Liabilities Sundary Creditor Trade Advance Borrowing Commercial Bank Other Provision WORKING CAPITAL = Part A- Part B

4.2Methodology Of The Study

The data of Hindustan Zink Limited for year 2002-2008 used in the study has been taken from secondary sources for e.g. published annual reports of the company. Editing classification of the financial data which are collected from the above mentioned sources, have been done as per the requirement of the study. For assessing the performance of the working capital position, in this study the technique of ratio analysis have been used.

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4.3 Net Working Capital Turnover Ratio Tab.4.3.1:- Statement of Working capital (Rs in crore) Year Curre nt Assets Curre nt Liabili ty Worki ng Capita l Sales 200102 692.88 0 294.54 4 398.33 6 1418.4 07 200203 736.57 4 299.43 2 437.14 2 1608.7 22 3.68 200304 1116.0 0 446.88 7 669.11 3 2079.0 13 3.11 200405 736.8 9 511.7 3 225.1 6 2456. 11 10.91 200506 1309. 38 200607 1480.9 5 200708 2711.6 3

603.1 826.76 898.44 8 706.2 654.19 1813.1 0 9 4326. 9220.4 8736.9 26 5 1 6.13 14.09 4.82

Worki 3.56 ng Capita l T/o Ratio

Chart no. 4.3.1:WORKING CAPITAL TURNOVER RATIO

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Working Capital T/o Ratio 16 14 12 10 8 6 4 2 0 2001-02 2002-03 2003-04 2004-05 2005-06

Working Capital T/o Ratio

2006-07

2007-08

Interpretation: It measures the efficiency with which the working capital is being used by a firm. Higher ratio indicates effective utilization of working capital. Minimum ratio is of 3.11 in the year 2003-04 and the maximum is 14.09 in the year 2006-07. Increase in the ratio during the study period shows that the working capital has been utilized efficiently .The trend line shows upward trend in this ratio; which indicates that company can utilize effectively in near future. working capital

4.4 Current Ratio Chart.4.4.1:- Statement of Current Ratio (Rs in Crore)

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3.5 3 2.5 2 1.5 1 0.5 0 Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Interpretation: It measures the efficiency with which the current liabilities are used by firm. Higher ratio indicates effective utilization of current liabilities. Current ratio of the company increased during the study period. Minimum ratio is of 1.44 in the year 2004-05 and the maximum is 3.02 in the year 2007-08.The standard norms of current ratio (2:1) may vary from industry. If the ratio is less than 1:1 would certainly be undesirable in an industry as at least some safety margin is required to protect the interest of the creditors. HZL has increased ratio in 2007-08is 3.02 which is good .There is increasing trend of the ratio.

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4.5 Acid Test Ratio Tab. 4.5.1 Statement of Acid Test Ratio (Rs in Crore) Year 200102 Current 692.88 Assets 0 Stock+ 442.76 pre-paid 3 exp. Current 294.54 Liability 4 Acid Test Ratio 0.85 200203 736.57 4 306.17 7 299.43 2 1.44 200304 1116.0 0 322.58 2 446.88 7 1.78 200405 736.8 9 334.3 1 511.7 3 0.79 200506 1309.3 8 383.10 603.18 1.54 200607 1480.9 5 499.28 826.76 1.19 200708 2711.63 518.1 898.44 2.44

Chart 4.5.1 ACID TEST RATIO

Acid Test Ratio 3 2.5 2 1.5 1 0.5 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Acid Test Ratio

Interpretation: It refers to the ability of firm to pay its short term obligation. Acid test ratio of the company during the period of study is fluctuating. In 2001-02 the ratio is .085 year 2007-08 the ratio is
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2.44. The standard norms of acid test ratio are (1:1). If in case of the quick ratio 2001-02&2004-05 less than the standard norm the company would find it difficult to pay its current liability. In, 2003, 2006, 2007, 2008years have satisfactory ratio and the company can easily meet all current claims where Companys short term liquidity position is satisfactory for the creditors. The trend is upward; which is signal of healthy financial position. 4.6 Super Quick Ratio Tab.4.6.1:(Rs in Crore) Year Statement 200203 256.91 of 200304 404.61 3 446.88 7 0.905 Super 200405 22.11 Quick 200506 74.03 Ratio 200607 119.7 200708 1362.78

200102 Cash + 53.48 Bank + Marketable security Current 294.54 Liability 4 Super Quick Ratio 0.181

299.43 2 0.857

511.7 3 0.043

603.1 8 0.123

826.7 6 0.145

898.44 1.517

Chart no. 4.6.1 Super Quick Ratio

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Super Q uick R atio 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2001-02 2002-03 2003-04 2004-05 2005-06

Super Q uick R atio

2006-07

2007-08

Interpretation: The ideal ratio is 0.5:1.As per the table we can see that the absolute liquid ratio is not in a satisfactory position. In the year 2002,2005,2006,2007 is0.181, 0.043, 0.123, 0.145which is below the idle ratio. It is clear that the companys cash and bank balance was low in current assets. It means that the policy of the company was to maintain a lower level of cash and bank balance and more utilization of bank resources. In year 2003, 2004, 2008 company maintain higher level of cash and bank balance 4.7 Current Assets to Total Assets Ratio Tab 4.7.1 Statement of Current Assets to Total Assets Ratio (Rs in Crore) Year 200102 Curre 692.8 nt 80 Assets 200203 736.5 74 200304 1116. 00 200405 736.8 9 200506 1309. 38 200607 1480. 95 200708 2711. 63

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Total 1385. Assets 091 C.A. 0.50 to T.A. Ratio

1607. 58 0.46

2627. 195 0.42

3268. 91 0.23

4832. 36 0.27

8754. 84 0.17

13206 .7 0.21

Chart no.4.7.1 Current Assets to Total Assets Ratio

C.A. to T.A. Ratio 0.6 0.5 0.4 0.3 0.2 0.1 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 C.A. to T.A. Ratio

Interpretation: It helps to assess the importance of current assets. From the table it is clear that the proportion of current asset in total asset is decreasing day by day. This indicates that during the period of the study major portion of total investment of the company has not been made for working capital purpose. There has been fluctuation in proportion of current assets to total assets. The trend is downward: indicator of large sized plant.

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4.8 Current Assets to Total Sales Ratio Year 2001-02 2002-03 2003-04 200405 736.89 200506 1309.3 8 4326.2 6 0.303 200607 1480.9 5 9220.4 5 0.161 200708 2711.63 8736.91 0.310

Current 692.880 736.574 1116.00 Assets Sales 1418.40 1608.72 2079.01 2456.1 7 2 3 1 C.A. to 0.488 0.458 0.537 0.300 Sales Ratio Tab.4.8.1:- Statement of Current Assets to Sales Ratio (Rs in Crore) Chart no.4.8.1 Current Assets to Total Sales Ratio
C . to S le R tio .A a s a 0 .6 0 .5 0 .4 0 .3 0 .2 0 .1 0 2 0 -0 01 2 2 0 -0 02 3 2 0 -0 03 4 2 0 -0 04 5 2 0 -0 05 6 2 0 -0 06 7

C . to S le R tio .A a s a

2 0 -0 07 8

Interpretation: It indicates the efficiency with which the gross working capital turns into sales. A lower ratio indicates more efficient

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use of funds. The ratio increased from 0.488 in 2001-02 to 0.310 in the year 2007-08 which is positive from efficiency point of view and it positively affects the gross working capital utilization. It indicates that the working capital is being efficiently managed by the company. The downward trend of this ratio is of good financial perspective.

4.9 Analysis of Liquidity Position Liquidity refers to the ability of the concern to meet its current obligation as and when they become due. If current assets can pay off current liability then the liquidity position will be satisfactory otherwise the companys liquidity position will be unsatisfactory. The liquidity position of Hindustan Zinc Limited has been analyzed through the following table: Tab 4.9.1 Analysis of Liquidity Position Year Current Current Working Asset Liability Capital 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Mean 692.880 736.574 1116.00 736.89 1309.38 1480.95 2711.63 1254.901 294.544 299.432 446.887 511.73 603.18 826.76 898.44 554.424 7
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398.336 437.142 669.113 225.16 706.20 654.19 1813.19 700.4759

Increase / Decrease -378.8 +38.806 +231.971 -443.953 +481.04 -52.01 +1159 -

It is observed from the table that current assets have been increased from 692.880 to 2711.63crore from the year 2001-02 to 2007-2008. It Mean of current assets is 1254.901. It is clear from the table that current liabilities has increased from 294.544 to 898.44 crore from the year 2001-02 to 2007-2008. It Mean of current liabilities is 554.4247 crore. Current Assets & Current Liabilities of the company has increased during the study period. The current assets are more than the current liabilities which shows that the current assets are enough to pay off the current liability which signifies that the liquidity position of the company is satisfactory.

CHAPTER 5 Finding & Conclusions Finding From the point of view of conventional standard of working capital ratio, acid test ratio, super quick ratio, current assets to total assets ratio, current assets to total sales ratio, the short term liquidity position of the company is satisfactory. It means percentage of current assets to total assets is 22%, which shows that the proportion of current assets in the total assets is less and major portion of total investment of the company has not been made for working capital.
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 Proportion of cash and bank balance to current assets is low, which shows that the companys policy is to maintain a low level of cash and bank balance and more utilization of bank resources. Current assets of the company are more than the current liabilities from current asset of the company, which shows that the liquidity position of the company is satisfactory. From the point of view of conventional standard of working capital ratio, acid test ratio, super quick ratio, current assets to total assets ratio, current assets to total sales ratio, the short term liquidity position of the company is satisfactory. CONCLUSIONS From the view point of conventional standard of Net working capital is the short term liquidity is very much satisfactory. Position of debtors, as compare to sales is very less which shows that the major portion of sales is in cash. It should be maintain in future. Current assets of the company are more than the current liabilities which shows that the company can pay off its current liabilities. Firms creditors are fully secured. Firm is committed for providing total customer satisfaction by supplying products meeting regulatory requirement and required quality at the right place.

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 Firm is committed to conserve and protect the environment through continual improvement, involvement and participation of all employees. Total product management for doubling the productivity. CHAPTER 6 Suggestions:6.1 Suggestion to finance manager:1. About working capital turnover ratio:-overall trend about this ratio is good indication but recent trend is downwards so finance manager should manage working capital efficiently for overall betterment. 2. About current ratio: - trend is upward. The manager should try to manage the level as per the industry bench mark. 3. About acid test ratio: - this ratio is tending to high. So finance manager should make provision for maintaining the ratio near about ideal state. 4. 4. About super quick ratio:-chart shows that the ratio is fluctuating very much. In year 2003, 2004 or 2008 company maintaining higher of cash and bank balance.Company should possess only adequate level of cash and make investment of idle cash. 5. About current assets to total assets: - here the trend is downwards.

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6. It means company is trying to make more and more fixed assets or investment. All that position may dangerous if company is investing in fixed assets and is current assets are lower level than company will incur large desperation amount in its future balance sheet. Which will narrow its net profit? 7. And investing in security will affect the companys market value according to money and capital market risk. 8. About current assets to total sales: - company is going on right path. Finance manager should try to maintain this trend.

6.2 Suggestion for top management: - top management should diversify the business area of Hindustan Zinc Limited. They should explore there business in many lead acid batteries, dry sells for, and fertilizer to make more profit from thereon product and by product, It will also be prove helpful to escape from deprecation losses of father. 6.3Suggestion for future researches: -

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1. Future research should be done with more year data to find more precious trend line. 2. Other research tool (viz. correlation, regression) should be also used by future researcher 3. Future researcher should never deviate from his research work in organizational setting.

REFERENCES & BIBLIOGRAPHY

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1.

Prasanna Chandra (1993) Fundamental of Financial Management, Tata McGraw-Hill publishing company Ltd, third edition, pp 18.1-19.13, 21.1-22.17. Bhalla V. K.(2003) Working Capital Management, Anmol Publication, fifth edition, pp. 1-71, 45. Kothari C. R. (2005) RESEARCH METHODOLOGY New age international Ltd, fifth edition pp.1-2, 31, and 95. Journals of Hindustan Zinc Limited Jain , Khandelwal , Pareek (2003) COST ACCOUNTING Book Company, Third edition

2.

3.

4.

5.

Ajmera 6. 7. Tata McGrow-Hill Publishing Company Limited, Third edition.

8.

Hingorani , Ramanathan , Grewal (2003) MANAGEMENT ACCOUNTING Sultan Chand & Sons, Fifth edition Khan , Jain (2004) MANAGEMENT ACCOUNTING

Pillai R.S.N. & Bagavathi, Management Accounting, S.Chand & Company Limited, Eight Edition Pandey, Financial Management, Vikas Publishing House Ltd. Eighth Edition.

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