Working Capital Management Essay
Working Capital Management
Steel comprises one of the most important inputs in all sectors of economy. Economy of any country depends on the strong base of the iron and steel industry. Steel is versatile material with multitude of useful properties, making it indispensable for furthering and achieving continuing growth of the economy-be it construction, manufacturing, infrastructure or consumables. The level of steel consumption has long been regarded as an index of industrialization and economic maturity attained by country. Keeping in view the important of steel, the integrated steel plants with foreign collaborations were set up in the public sector in the post- independence era. Capital is essential for setting up and smooth running of any business. Investments made on fixed assets will yield excess each cash inflows apart from the pay back amount and is spread over a longer period of time. Hence the cash inflows (or) benefits associated are not immediate but are expected in the future.
Cash inflows & outflows occur on a continuous basis in case of current assets. Credit forms an essential feature in the business (credit given to customers 7 credit from liabilities, suppliers). Since there is some time log from the mine of sales & sales realization current assets & current which together constitute the net working capital, supports the business in its normal of operations. This calls for an efficient management of working capital. The policies, procedures and measures taken for managing capital again further importance in an organization like RINL where the working capital requirements runs in crores or rupees. Any mismanagement on the part of authority will not just cause loss but may even impair business operations. It is in this context working capital has gained importance. The growth of any organization depends on the overall performance such as production, marketing, human resource and financial performance of the organization.
The financial performance of the any organization reflects the strength, weakness, opportunities and threads of the organization with respect to profits earned, investments, sales realization, turnover, return on investment, net worth of capital. Efficient management of financial resources and deliberate analysis financial results are pre requisite for success of an enterprise. In that working capital management is one of the major and important areas of financial management. Managing of working capital implies managing of current assets of the company like cash, inventory, accounts receivable, loans an advance, bank balances and current liabilities like sundry creditors interest payments and provision. Rashtriya Ispat Nigam Limited is a multi-product steel-manufacturing unit with varying cycle time for each product. The capital required by each department in a large organization like RINL depends on the product target for that.
Particular year, invites the need for an effective working capital management. Monitoring the duration of the operation cycle is an important aspect of working capital management and control for an Effective management. RINL is now on its turn round path and needs to cut cost and increase its revenue its revenue therefore it must have to keep close check on the day to day expenses and to get a maximum utilization out of it. Some prominent issues should always be taken into account like: The duration of raw material stage depends on the regularity of supply, transactions time, degree of perish ability, price ability, price fluctuations, and economics of bulk purchases. The duration of the work in progress stage depends of Length of the manufacturing cycle, consistency in capacity utilization Different stages and efficient coordination of various inputs. The duration at debtors’ stage depends on the credit period Granted, discount offered for prompt payments and efficiency and rigor of collection efforts.
Thus a detailed study regarding the working capital management in RINL is to be done to consider the effectiveness of working capital management, identify the shortcoming in management and to suggest for improvement in working capital management. “Working Capital is the Life-Blood and Controlling Nerve Center of a business” Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the inter relationship that exists between them .The term current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operations of firm.
The major current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or earning of the concern. The basic current liabilities are account payable, bills payable; bank over draft, and outstanding expenses, the goal of working capital management is to manage the firm’s current assets and liabilities in such way that a satisfactory level of working capital is maintained.