1. CHAPTER I
INTRODUCTION
CENTRAL COALFIELD LIMITED
C.C.L is a subsidiary company of Coal India limited under ministry of coal and mines govt. of
India C.C.L is one of the 8 coal production subsidiaries of coal India limited under ministry of
coal and mines. Company is governed by a board of directors consisting of 5 full time directors
and 6 part time directors. Full time directors are responsible for specific functions of operation,
project & planning, finance and personnel. India is third largest country in the production of coal.
C.C.L means Central Coalfields Limited.
HISTORICAL BACKGROUND
Coal Mining first started in India in the year 1815. The private Railway Companies started
mining activities in the year 1850. The Railway Board Nationalized the coal mining in 1925. The
Railway collieries were transferred to the Coal Board in the year 1944.
In 1774 Warren Hastings initiates commercial coal mining at Raniganj (West Bengal) in 1815-
1820 First Shaft Mine opened at Raniganj 1835 Carr, Tagore & Company takes over the
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2. Raniganj Coal Mines 1843 Bengal Coal Company takes over Raniganj Coal Mines and others; is
first Joint Stock Coal Company in India. Upto 1900 Minimal development; River transportation
used to transport coal to Calcutta ;railway lines at Calcutta leads to expansion of Coal Production
in Early 1900s, Capacity at 6 million tonnes per annum 1955-56 Focus on Coal Industry;
capacity up to 38.4 Million tonnes. In 1956 National Coal Development Corporation (NCDC)
formed to explore and expand coal mining in Public Sector. In 1972 Coking Coal Industry
Nationalized, Bharat Coking Coal Limited formed to manage operations of all Coking Coal
mines in Jharia Coalfield. In 1973 Non-coking coal was nationalized; Coal Mine Authority
Limited set up to manage these mines; NCDC operations bought under the ambit of CMAL. In
1975 Coal India Limited formed as holding Company with 5 subsidiaries viz. Bharat Coking
Coal Limited (BCCL), Central Coalfields Limited (CCL), Western Coalfields Limited
(WCL), Eastern Coalfields Limited (ECL) and Central Mine Planning and Design Institute
Limited (CMPDIL) in 1985.
Northern Coalfields Limited (NCL) and South Eastern Coalfields Limited (SECL) carved
out of CCL and WCL in 1992. Mahanadi Coalfields Limited (MCL) formed out of SECL to
manage the Talcher and IB Valley Coalfields in Orissa. In2007 Coal India & five of its
Subsidiaries, viz, NCL,SECL,MCL,WCL,CCL was accorded coveted "Mini Ratna" Status.
COAL INDIA LIMITED ( Date of incorporation)
Coal India Limited was formed as holding Company with 5 subsidiaries on 21.10.1975 (CIL
holds 100 % shares of its all subsidiaries companies). The company is incorporated under the
Companies Act, 1956 and is wholly owned by the Government of India (GOI). CIL is the single
largest coal producing company in the world and the largest corporate employer with manpower
of 397,138 (as on 1 April 2010). Operating through 81 mining areas CIL, is an apex company
with 7 wholly owned coal producing subsidiaries and 1 mine planning and consultancy company.
CIL‟s mining activities are spread over 8 provincial states of India. Coal India has 477 mines of
which 277 are underground, 165 opencast and 34 mixed mines.
It encompasses the whole gamut of identification of coal reserves, detailed exploration followed
by design and implementation and optimizing operations for coal extraction in its mines. The
producing companies are:-
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3. 1) Eastern Coalfields Limited (ECL), Sanctoria, West Bengal
2) Bharat Coking Coal Limited (BCCL), Dhanbad, Jharkhand
3) Central Coalfields Limited (CCL), Ranchi, Jharkhand
4) South Eastern Coalfields Limited (SECL), Chattisgarh
5) Western Coalfields Limited (WCL), Nagpur, Maharashtra
6) Northern Coalfields Limited (NCL), Singrauli, Madhya Pradesh
7) Mahanadi Coalfields Limtied (MCL), Sambalpur, Orissa;
8) The consultancy company is Central Mine Planning and Design Institute Limited
(CMPDIL),Ranchi,Jharkhand.
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4. STRUCTURE OF CIL
western
coalsfield
limited
Nagpur
south
eastern
coalsfield
Bilaspur
northern
coalsfield ltd
Singrauli
eastern
coalsfield
ltd
COAL Asansol
INDIA
LIMITED
bharat
coking coal
ltd
Dhanbad
central
coalfield ltd
Ranchi
mahanadi
coalfields
ltd
Sambalpur
cmpdi
Ranchi
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5. HIGHLIGHTS OF C.C.L
Central Coalfield Limited has been on the coal map the country as a public sector on
October, 1956, under different names. In the beginning it was known as National Coal
Development Corporation, then Central Division of Coal mines Authority , and finally under its
present nomenclatures at Ranchi, Jharkhand. The Central Coalfield Limited is one of the
subsidiaries of coal India Limited registered under the Company‟s Act 1956 in the year 1975.
The mining and extraction of coal is entrusted to a public sector organization Coal India Limited.
The Company is divided into eight subsidiaries and Central Coalfield Limited is one of them.
The company presently known as CCL has a history of more than three decades. Pursuant to the
Industrial Policy Resolution of 1956, a company was formed by the names of M/S Hindustan
Collieries Private Limited, on 5 September, 1956. The name was changed to the National Coal
Development Corporation. The NCDC was formed on 01.10.1956 with 11 state railway
collieries in Orissa and Madhya Pradesh. Like other industries and organization, the affair of
CCL too is not settled by its owner (Govt. of India). Rather the professional team of management
called Board of Directors (BOD) is appointed by the Govt. of India to manage the affair of CCL.
It consists of chairman – cum-Managing Director, four functional Directors in charge of
operations, personnel, finance and projects & planning. Besides part-time Directors as may be
appointed by the Govt. from time to time. At present CCL have 67 collieries and 7 washeries
under revenue production. Some of the state collieries are very old, at least one of which that in
Giridih has crossed century in the year 1961. It also has seven coal washeries , a coal oven plant ,
besides workshop and handling plants spread over in Hazaribagh ,Palamu , Dhanbad ,Ranchi,
Bokaro , Giridih, and Chatra district.
CCL is the major source of medium coking coal in India. CCL‟s other important
activities are beneficiation of medium coking coal for steel plants through its chain of coal
washeries and manufacture of soft coke for domestic kitchen. Most of the production (88%)
comes from surface mines. The productivity of underground mines and many of the surface
mines is low, but because of high priced of coking coal, the company has been making marginal
profit and losses with the recent deregulation of coking coal price the profitability of the
company is expected to improve. The command area of CCL companies 10 coalfields namely
Giridih, East Bokaro, West Bokaro, piparwar, Ramgarh-kaitha, North Karanpura, South
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6. Karanpura, Auranga, Hutar, Daltongang and Giridih/ Jayanti. Chairman-cum-Managing
Directors is the full time executive of the company. The collieries and washeries have been
grouped into 15 areas each headed by chief General Manager/General Manager. The coal
projects are headed by project officer.
C.C.L (Central Coalfield Limited) is a subsidiary unit of COAL INDIA LIMITED. C.C.L. has
been awarded as the “miniratna” company for its efficient functioning. C.C.L. headquarter is
situated in „Darbhanga house‟ which is in Ranchi near „rajbhawan‟. C.C.L. is a leading provider
of coal in India. C.C.L provides coal to different power sectors and steel sectors in india. C.C.L
has shown profit in three consecutive years and achieved a different platform.
C.C.L. has played a major role in socio-economic growth of Jharkhand region. In 47
years of its existence it has virtually brought out development in many backward areas through
its mining activities, employment opportunities and reaching basic infrastructure to several
remote and inaccessible areas. CCL also strive to help in establishing Coal based industries in
this region and also to make coal as domestic fuel for homes with an objective of improving
forest cover.
CCL INFRASTRUCTURE
1. NUMBER OF MINES –
C.C.L. currently has 63 mines of which 26 are underground and 37 are opencast mines.
2. WASHERIES -
CCL have 4 Coking Coal washeries and 3 Non Coking Coal Washeries.
Coking Coal washeries :- Kathara, Sawang, Rajrappa, Kedla
Non Coking Coal washeries :- Piparwar, Gidi, Kargali
3. WORKSHOPS -
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7. 3-tier workshop infrastructure is in place for the Open cast Coal Mining Projects as
briefed below :-
1. Project / Unit workshop at every project for daily, periodic, scheduled maintenance
requirements, running breakdown maintenance and replacement of spares and sub-
assemblies.
2. 3 Regional Repair Shops at Jarangdih, Tapin North and Dakra for a group of
Mines which cater for overhauling of sub-assemblies of HEMM, System repairs of
equipment and other major repairs beyond the scope of project / unit workshops.
3. A Central Workshop located at Barkakana with full infrastructural facilities to
refurbish equipments of various mines under planned capital repair, repair and
maintenance of major float assemblies like Engines, Transmissions, DC / AC
Motors and Generators of Shovels and Drills, manufacturing of shaft, bushes, gear
cutting, fabrication of steel structures, castings and tyre re-treading.
4. RAILWAY SIDINGS-
28 sidings from which coal is dispatched to various customers located all over India.
5. POWER SUPPLY
DVC is main source of power supply for CCL
There are 10 nos. 33kv/11Kv, 6.6 Kv Sub-stations in CCL (40MVA, 25 MVA, 20 MVA
and 10 MVA capacities).
Total connected demand is 119 MVA from DVC and CCL is also taking power from
BSEB where demand is 11MVA.
Rajrappa, Piparwar, N.K., Kathara, Kargali, Dhori, Hazaribagh and Kuju (through BSEB)
are getting power from DVC.
Average energy consumption is 575 million KWH.
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8. Power cost under control through energy conservation measures ( Capacitors ,
Rationalization of distribution systems etc.)
Adequate power supply availability is ensured for uninterrupted production.
6. ROADS
Approach Road - (Double lane road connecting highway to mine site, serving general
purpose which is of 250 kms length.)
Heavy duty coal transport Road - (Express highway to facilitate coal dispatch to
facilitate plants, rail head and consend. Total it‟s 240 kms in length in which 140 kms is
operational and 100 kms is under-construction.)
Haulage Road - (Road for heavy earth moving machinery for mining purpose.
carriageway width up-to 45 Meters. Total surface HAUL road is of length 100 kms and
inside mine is 225 kms in length
7. MEDICAL
Two central hospitals at Ranchi and Nai Sarai equipped with all modern facilities for
testing, diagnosis and treatment.
Regional Hospitals at Kargali, Dhori, Katahara, Rajhara (Daltonganj), Dakra and Kedla.
Hospitals/dispensaries for immediate medical aid at each Project (Colliery).
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9. VISION AND MISSION OF CCL
Vision of CCL
"Committed to create eco-friendly mining"
Mission Of CCL
"To become a World class, Innovative, Competitive & Profitable
Coal Mining Operation to achieve Customer Satisfaction .
The Mission of CCL is to produce and market the planned quantity of coal and coal
products efficiently and economically with due regard to safety, conservation and quality.
The main thrust of CCL in the present context is to orient its operations towards market
requirements maintaining at the same time financial viability to meet the resource needs.
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10. BUSINESS OBJECTIVE OF CCL
Objectives Of CCL
Coal Mining through efficiently operated mines.
Besides fulfilling coal needs of the customer in terms of quantity, focus on quality, value
addition and beneficiation to the satisfaction of the customers.
Marketing of coal as main product.
Production :-
CCL annual production is about 48Mt. And its target is to achieve 50 Mt, in the FY
2010-11. The business of CCL is to mine Coal and sell it to the customers. The mining methods
adopted for various customer of CCL are as follow:
MINING METHODS
1. Opencast
Generally opencast mine of the company employs operating method with Shovel and
Dumper combination for mining.
In one of the mines namely Piparwar OcP, mobile in pit crushing and conveying
system with a pithead coal
preparation plant has been commissioned.
2. Underground
Underground Mines of the Company employs intermediate technology with
LHD/SDL and conventional
manual method for mining.
TECHNOLOGY
1. Opencast
Shovel-Dumper combination Mobile In pit Crushing & Conveying System
2. Underground
Intermediate technology with Load Haul Dumpers and Side Discharge Loader
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11. PROJECTS:-
The following projects have been taken up by C.C.L:
Magadh open coal.
Ashok expansion open coal.
North urimali open coal.
Karo open coal.
Konar open coal.
Amarpali open coal.
SAFETY ISSUES IN C.C.L :-
Safety of the man-power of C.C.L. comes under the top priorities of management. The work in
mines of C.C.L. is carried out as per the provision laid in the coal mines regulation1957 under
the mines act 1952 as per the permission and guidance of director general of mines safety.
C.C.L. has 3-tire system of safety committee. Unit, area and corporate level to review,
formulate and suggest safety measures for mines and mining processes. In addition to supply
personal protective equipments, free periodicals medical check-up is carried out to each worker
every five years. Safety fortnight is also organized every year and best area and best workmen
are rewarded to keep them aware related to safety issues in mines. There is an Emergency Cell
too in C.C.L. for dealing with emergency cases quickly and efficiently.
MAJOR PROJECTS TAKEN UP BY C.C.L.
Piparwar OCP
Ashoka Expansion OCP
Rajrappa OCP
Urimari OCP
Jharkhand OCP
Magadh OCP
Amrapali OCP
SOME FUTURE PROJECTS
Karo expansion OCP
Konar OCP
N. Urimari OCP
Purnadih OCP
NOTE: OCP – open coal project.
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12. ACHIEVEMENTS OF C.C.L.
YEAR WORKS ACCOMPLISHED
1815 Coal mining started in India.
1850 Private railways coal mining started by Railway board.
1925 First nationalization of of coal mining by railway.
1944 Railways collieries transferred to coal board under coal commissioner.
1956 National Coal Development Corporation Limited-
(N.C.D.C.) formed as the first public sector coal
company under central government with 11 states
railways collieries and annual production of 3.11 million tones.
1959 First coal washery at kargali setup.
1971 Nationalization of non-coking coal mines B.C.C.L formed
1973 Nationalization of non coking coal mines –C.M.A.L
Formed and N.C.D.C become central division of C.M.A.L.
1975 Coal India Limited formed as holding company for
Coal. Entire Coal industry under public sector
Re-organized under CIL‟S central Umbrella NCDC.
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13. YEAR WORKS ACCOMPLISHED
1986 Reorganization of CCL, Singrauli and Talehar area
2005 11 Areas, 69 mines, 07 washeries, 1 central work-
shop, 5 regional workshops 3 of which are ISO-
9001 certified, Central hospital in Gandhi Nagar
is also ISO-9001 Certified.
2006 Recorded highest profit of Rs. 1165 crores in the
history of C.C.L. and for the first time paid Rs.
291.40 crores as dividend.
2007 Registered a profit of Rs. 1020 crores.
2008 Registered a profit of Rs. 1035 crores.
2009 Registered a profit of Rs. 738 crores.
2010 receipt by our company of a composite score of 1.47 and rating as
Excellent.
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14. Administration hierarchy of C.C.L
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15. C.M.D.
MEMBER(B.O.D.)
DIRECTOR
DIRECTOR DIRECTOR
OPERATION/ FINANCE
PERSONNEL
TECHNICAL
MAJOR COLLIERIES OF CCL
1. BARKASAYAL
2. ARGADA
3. NORTH KARANPUARA
4. RAJHARA
5. PIPARWAR
6. RAJRAPPA
7. KUJU
8. HAZARIBAG
9. BOKARO & KARGALI
10. DHORI
11. KATHARA
12. KATHAR
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16. CSR AND CCL
Business and industry have come into existence to promote social growth and social good.
Society and business are interdependent and business must take full account of social
expectations. And CCL strongly believes in social welfare. The company is a Miniratna category
1 Central PSU in the family of Coal India Limited. Once written off as a loss making CPSU the
company has made a spectacular turnaround about 4-5 years ago and has grown to strength.
CCL has played a catalytic role in the socio –economic growth of the Jharkhand region. For the
last 5 decades of its existence, it has virtually brought about a metamorphosis in many backward
areas through its mining activities by creating employment opportunities and reaching basic
infrastructure to many remote and inaccessible areas. Its CSR can be categorized as follow:-
HOUSING FACILITY
Permanent - 59318
Temporary – 6988
Total - 66306
MEDICAL FACILITY
Hospitals – 19
Dispensaries - 67
Beds – 895
Doctors – 340
EDUCATION FACILITY
DAV School fully financed- 7
Kendriya vidyalaya – 3
Privately managed schools- 47
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17. CUSTOMERS
1. POWER SECTOR
1. State Electricity Boards (Uttar Pradesh, Punjab, Haryana and Jharkhand)
2.Delhi Vidyut Board
3. National Thermal Power Corporation (NTPC)
4. Damodar Valley Corporation (DVC)
5. Tenughat Vidyut Nigam Limited (TVNL), etc.
Major customers in power sectors are:
P.S.E.B H.S.E.B N.T.P.C UPRVNL J.S.E.B T.V.N.L D.V.C
2. STEEL SECTOR
1. Steel Authority of India Ltd (SAIL)
2. Indian Iron and Steel Co.
3. Rashtriya Ispat Nigam Limited (RINL), etc.
3. CORE INDUSTRIES
1. Heavy Engineering Corporation (HEC
2 . Kalyanpur Cement Company
3. Association Cement Company (ACC)
4. Lemo Cement Company
5. Bihar Sponge Iron Limited (BSIL)
6. Tata Sponge Iron Limited(TSIL)
7. Indo Ashahi Glass Company (IAGO)
8. Indian Aluminium Company Limited
9. National Fertilizer Limited, etc.
4. NON –CORE INDUSTRIES
1. SSF Manufacturers
2. Sodium Silicate Manufacturers
3. Brick Manufacturers
4. Textile Manufacturers
5. Paper Manufacturers, etc.
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18. SOCIAL SIDE OF BUSINESS
CCL has played a catalytic role in the socio-economic growth of the Jharkhand region. For the
last 5 decades of its existence, it has virtually brought about a metamorphosis in many backward
areas through its mining activity by creating employment opportunities and reaching basic
infrastructure to many remote and inaccessible areas. Mining has turned out to be a main source
of earning for the State Exchequer of Jharkhand.
 Major Contributor to Basic Infrastructure:
 Spend over Rs. 1042 crores on social overhead onwards 1998.
 Constructed over 160 kms. of heavy duty coal transportation roads, 300 kms of
approach road and equal length of colony roads, 6 major bridges on river
Damodar (2 under construction), 59455 permanent houses, 19 hospitals, besides
water supply schemes covering over a population of 5.02 lakhs.
 Grant in aid & infrastructure facilities to 195 educational institutions.
 Building permanent road link “COAL TRUNK ROAD” of about 196 kms length
linking its areas and various districts.
 Major Employer:
 62827 (as on 1.11.2006) directly employed (35% belonging to scheduled caste &
scheduled tribes).
 Sources of indirect employment to over 2, 00, 000 people in loading,
transportation, civil construction, small industries, coke ovens, manufacturing
agencies, ancillaries etc.
 Major Contributor to State Exchequer:
 State central Exchequer have earned over Rs. 2811.56 crores of royalty and other
taxes from CCL‟s mining activities after formation of Jharkhand state. (2000-01
to 2005-06)
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19. Community Development
CCL has been contributing to community development and tribal welfare by augmenting
drinking water facilities, health care, education, rural and link roads, besides promoting trades
for self-employment opportunities in around 500 villages adjacent to its areas of operation.
Community Development Programme was initiated in 1981 and since then it has spent over Rs.
18 crores on these activities.
ENVIRONMENT
Eco-friendly mining techniques concept are being followed to keep our environment safe. CCL
is adopting concurrent reclamation for projects like Piparwar, Ashoka, KDH and Parej East OCP.
In other projects decoaled area is reclaimed through internal dumping and subsequently planted.
Plantation is also being done on external dumps. A green belt is also created around quarry,
CHPs etc. by planting rows of trees to arrest fugitive dust as well as the noise. In addition to this,
regular water spraying on haul roads by mobile water sprinklers are being done to suppress air
pollution. In some of the fields fixed water sprinkles are also provided. Company is providing
domestic gas to our workmen in lieu of coal to avoid air pollution. Not only this, regular
monitoring of ambient air and water, quality of each mines are being carried out to check
environment.
 CCL‟s Coal Consumers
 More than 20 thermal Power stations including those in Jharkhand.
 Five Steel Plants.
 Five Fertilizer Plants.
 20 Cement Plants.
 Around 600 Industrial units Large, Medium and Small Scale.
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20.  Products
 Raw Coal
 Washed Non-Coking Coal
 Washed Medium Coking Coal
 Hard Coke
 Coal Tar
MEANS OF TRANSPORT
The primary mode of transportation is Rail; CCL uses Rail as a medium to transport coal to its
customers. Since its customers are electricity boards, steel companies and other core and none
core industries, and also they are thousands of kilometers away from its mines, so therefore
Railway is the only way to transport coal to its customers.
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21. CHAPTER II
WORKING CAPITAL
Capital required for a business can be classified under two main categories via,
1) Fixed Capital
2) Working Capital
Every business needs funds for two purposes for its establishment and to carry out its day-
to-day operations. Long terms funds are required to create production facilities through purchase
of fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent
that part of firm‟s capital which is blocked on permanent or fixed basis and is called fixed
capital. Funds are also needed for short-term purposes for the purchase of raw material, payment
of wages and other day – to- day expenses etc.
These funds are known as working capital. In simple words, working capital refers to that part of
the firm‟s capital which is required for financing short- term or current assets such as cash,
marketable securities, debtors & inventories. Funds, thus, invested in current assts keep
revolving fast and are being constantly converted in to cash and this cash flows out again in
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22. exchange for other current assets. Hence, it is also known as revolving or circulating capital or
short term capital.
CONCEPT OF WORKING CAPITAL
There are two concepts of working capital:
1. Gross working capital
2. Net working capital
The gross working capital is the capital invested in the total current assets of the enterprises
current assets are those assets which can convert in to cash within a short period normally one
accounting year.
CONSTITUENTS OF CURRENT ASSETS
1) Cash in hand and cash at bank
2) Bills receivables
3) Sundry debtors
4) Short term loans and advances.
5) Inventories of stock as:
a. Raw material
b. Work in process
c. Stores and spares
d. Finished goods
6. Temporary investment of surplus funds.
7. Prepaid expenses
8. Accrued incomes.
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23. 9. Marketable securities.
In a narrow sense, the term working capital refers to the net working. Net working capital is the
excess of current assets over current liability, or, say:
NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.
Net working capital can be positive or negative. When the current assets exceeds the current
liabilities are more than the current assets. Current liabilities are those liabilities, which are
intended to be paid in the ordinary course of business within a short period of normally one
accounting year out of the current assts or the income business.
CONSTITUENTS OF CURRENT LIABILITIES
1. Accrued or outstanding expenses.
2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation , if it does not amt. to app. Of profit.
6. Bills payable.
7. Sundry creditors.
The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital. Both the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working capital for the following
reasons:
1. It enables the enterprise to provide correct amount of working capital at correct time.
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24. 2. Every management is more interested in total current assets with which it has to operate
then the source from where it is made available.
3. It take into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
4. This concept is also useful in determining the rate of return on investments in working
capital. The net working capital concept, however, is also important for following reasons:
· It is qualitative concept, which indicates the firm‟s ability to meet to its operating expenses
and short-term liabilities.
· It indicates the margin of protection available to the short term creditors.
· It is an indicator of the financial soundness of enterprises.
· It suggests the need of financing a part of working capital requirement out of the permanent
sources of funds.
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25. CLASSIFICATION OF WORKING CAPITAL
Kinds of
Working Capital
On the On the
Basis of basis of
Concept time
Gross Working Net Working Variable Fixed
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26. Capital Capital Working working
Capital Capital
Special Seasonal Reserve Regular
Working Working Working Working
Capital Capital Capital Capital
Working capital may be classified in to ways:
o On the basis of concept.
o On the basis of time.
On the basis of concept working capital can be classified as gross working capital and net
working capital. On the basis of time, working capital may be classified as:
Ø Permanent or fixed working capital.
Ø Temporary or variable working capital
PERMANENT OR FIXED WORKING CAPITAL
Permanent or fixed working capital is minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has
to maintain a minimum level of raw material, work- in-process, finished goods and cash balance.
This minimum level of current assts is called permanent or fixed working capital as this part of
working is permanently blocked in current assets. As the business grow the requirements of
working capital also increases due to increase in current assets.
TEMPORARY OR VARIABLE WORKING CAPITAL
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27. Temporary or variable working capital is the amount of working capital which is required to
meet the seasonal demands and some special exigencies. Variable working capital can further be
classified as seasonal working capital and special working capital. The capital required to meet
the seasonal need of the enterprise is called seasonal working capital. Special working capital is
that part of working capital which is required to meet special exigencies such as launching of
extensive marketing for conducting research, etc.
Temporary working capital differs from permanent working capital in the sense that is required
for short periods and cannot be permanently employed gainfully in the business.
IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL
Ø SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining the
solvency of the business by providing uninterrupted of production.
Ø Goodwill: Sufficient amount of working capital enables a firm to make prompt payments
and makes and maintain the goodwill.
Ø Easy loans: Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.
Ø Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on
the purchases and hence reduces cost.
Ø Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw
material and continuous production.
Ø Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads to the
satisfaction of the employees and raises the morale of its employees, increases their efficiency,
reduces wastage and costs and enhances production and profits.
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28. Ø Exploitation Of Favorable Market Conditions: If a firm is having adequate working capital
then it can exploit the favorable market conditions such as purchasing its requirements in bulk
when the prices are lower and holdings its inventories for higher prices.
Ø Ability To Face Crises: A concern can face the situation during the depression.
Ø Quick And Regular Return On Investments: Sufficient working capital enables a concern to
pay quick and regular of dividends to its investors and gains confidence of the investors and can
raise more funds in future.
Ø High Morale: Adequate working capital brings an environment of securities, confidence,
high morale which results in overall efficiency in a business.
EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate amount of working capital to run its business
operations. It should have neither redundant or excess working capital nor inadequate nor
shortages of working capital. Both excess as well as short working capital positions are bad for
any business. However, it is the inadequate working capital which is more dangerous from the
point of view of the firm.
DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL
1. Excessive working capital means ideal funds which earn no profit for the firm and business
cannot earn the required rate of return on its investments.
2. Redundant working capital leads to unnecessary purchasing and accumulation of
inventories.
3. Excessive working capital implies excessive debtors and defective credit policy which
causes higher incidence of bad debts.
4. It may reduce the overall efficiency of the business.
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29. 5. If a firm is having excessive working capital then the relations with banks and other
financial institution may not be maintained.
6. Due to lower rate of return on investments, the values of shares may also fall.
7. The redundant working capital gives rise to speculative transactions
DISADVANTAGES OF INADEQUATE WORKING CAPITAL
Every business needs some amounts of working capital. The need for working capital arises due
to the time gap between production and realization of cash from sales. There is an operating
cycle involved in sales and realization of cash. There are time gaps in purchase of raw material
and production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:
· For the purpose of raw material, components and spares.
· To pay wages and salaries
· To incur day-to-day expenses and overload costs such as office expenses.
· To meet the selling costs as packing, advertising, etc.
· To provide credit facilities to the customer.
· To maintain the inventories of the raw material, work-in-progress, stores and spares and
finished stock.
For studying the need of working capital in a business, one has to study the business under
varying circumstances such as a new concern requires a lot of funds to meet its initial
requirements such as promotion and formation etc. These expenses are called preliminary
expenses and are capitalized. The amount needed for working capital depends upon the size of
the company and ambitions of its promoters. Greater the size of the business unit, generally
larger will be the requirements of the working capital.
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30. The requirement of the working capital goes on increasing with the growth and expensing of the
business till it gains maturity. At maturity the amount of working capital required is called
normal working capital.
There are others factors also influence the need of working capital in a business.
FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS
1. NATURE OF BUSINESS: The requirements of working is very limited in public utility
undertakings such as electricity, water supply and railways because they offer cash sale only and
supply services not products, and no funds are tied up in inventories and receivables. On the
other hand the trading and financial firms requires less investment in fixed assets but have to
invest large amt. of working capital along with fixed investments.
2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of
working capital.
3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating
inventories it will require higher working capital.
4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material and
other supplies have to be carried for a longer in the process with progressive increment of labor
and service costs before the final product is obtained. So working capital is directly proportional
to the length of the manufacturing process.
5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger
working capital than in slack season.
6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one
cycle determines the requirements of working capital. Longer the cycle larger is the requirement
of working capital.
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31. FINISHED
DEBTORS
GOODS
WORK IN
CASH
PROGRESS
RAW
MATERIAL
7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question
of working capital and the velocity or speed with which the sales are affected. A firm having a
high rate of stock turnover will needs lower amt. of working capital as compared to a firm having
a low rate of turnover.
8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product
/ services on cash requires lesser amt. of working capital and vice-versa.
9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for
larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business,
etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are
faced in collection from debtor and the firm may have a large amt. of working capital.
10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large amt.
of working capital.
11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning
capacity than other due to quality of their products, monopoly conditions, etc. Such firms may
generate cash profits from operations and contribute to their working capital. The dividend
policy also affects the requirement of working capital. A firm maintaining a steady high rate of
cash dividend irrespective of its profits needs working capital than the firm that retains larger
part of its profits and does not pay so high rate of cash dividend.
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32. 12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital
requirements. Generally rise in prices leads to increase in working capital.
Others FACTORS: These are:
ü Operating efficiency.
ü Management ability.
ü Irregularities of supply.
ü Import policy.
ü Asset structure.
ü Importance of labor.
ü Banking facilities, etc.
Working capital level changes due to following three basic reasons:-
1. Changes in level of sales or operating expenses- this include long term trend change,
cyclical change in economy and change in seasonality in sales activity.
2. Policy changes- this is initiated by management. The various policies may be
conservative policy, hedging policy and trade off policy.
3. Changes in technology- if a new technological development occur then it shortens the
operating cycle and hence it reduces the working capital requirement.
MANAGEMENT OF WORKING CAPITAL
Management of working capital is concerned with the problem that arises in attempting to
manage the current assets, current liabilities. The basic goal of working capital management is to
manage the current assets and current liabilities of a firm in such a way that a satisfactory level
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33. of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations
are bad for any firm. There should be no shortage of funds and also no working capital should be
ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its
probability, liquidity and structural health of the organization. So working capital management is
three dimensional in nature as
1. It concerned with the formulation of policies with regard to profitability, liquidity and risk.
2. It is concerned with the decision about the composition and level of current assets.
3. It is concerned with the decision about the composition and level of current liabilities.
Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's short term assets
and its short term liabilities. The goal of working capital management is to ensure that the firm is
able to continue its operation and that it has sufficient cash flow to satisfy both maturing short-
term debt and upcoming operational expenses.
For the purpose of working capital management , net working capital can be said to measure the
liquidity of the firm. In other words , the goal of working capital management is to manage the
current assets and liabilities in such a way that an acceptable level of net working capital is
maintained.
Management will use a combination of policies and techniques for the management of working
capital. These policies aim at managing the current assets(generally cash and cash equivalent,
inventories and debtors) and the short term financing, such that cash flows and returns are
acceptable.
 Cash management. Identify the cash balance which allows for the business to meet day
to day expenses, but reduces cash holding costs.
 Inventory management. Identify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials - and minimizes reordering costs -
and hence increases cash flow; see Supply chain management; Just In
Time (JIT); Economic order quantity (EOQ)
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34.  Debtors management. Identify the appropriate credit policy, i.e. credit terms which will
attract customers, such that any impact on cash flows and the cash conversion cycle will
be offset by increased revenue and hence Return on Capital (or vice versa).
 Short term financing. Identify the appropriate source of financing, given the cash
conversion cycle: the inventory is ideally financed by credit granted by the supplier;
however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors
to cash" through "factoring".
Implementing an effective working capital management system is an excellent way for many
companies to improve their earnings.
One of the most important decisions, involved in the management of working capital is how the
current assets will be financed. There are two sources to raise current assets
(i) Short term sources i.e current liabilities
(ii) Long term sources such as share capital, long term borrowing , retained earnings etc.
What proportion of current assets is financed by current liabilities and what proportion by long
term funds is determined by financing mix.
There are three basic approaches to determine an appropriate financing mix
a. Hedging approach also known as matching approach
b. Conservative approach
c. Trade- off between these two.
HEDGING APPROACH
It is a risk reducing investment strategy involving transaction of simultaneous but opposite
nature so that the effect of one is likely to counterbalance the effect of the other. It involves the
matching of maturities of debt with the maturities of financial needs.
For the purpose of financing current asset by this approach the current is classified into two
classes
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35. a. Those which are required in a certain amount for a level of operation and do not vary
with time.
b. Those which fluctuate over time
The hedging approach suggest that long term funds should be used to finance the fixed portion of
current assets while the temporary requirement, that is, the seasonal variation over permanent
requirement should be appropriately financed with short term funds.
With this approach the short term financing requirement (current assets) would be just equal to
short term financing available ( current liabilities).
CONSERVATIVE APPROACH
This approach suggest that estimated requirement of total funds should be met from long term
sources; the use of short term funds should be restricted to only emergency situation or when
there is unexpected outflow of funds.
The two approaches discussed above can be compared on the basis of cost consideration and risk
consideration.
TRADE-OFF APPROACH
The hedging approach is related with high profits as well as high risk while the conservative
approach is related with low profits and low risk. So the trade-off approach strikes a balance
between and provides a financial plan between the two extremes.
The exact trade-off between risk and profitability will differ from case to case depending on risk
perception of the decision maker. One possible trade off could be equal to the average of
minimum and maximum monthly requirements of funds during a given period of time. The level
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36. of requirement may be financed through long term sources and for any additional financial needs
the short term funds may be used.
IMPORTANCE OF WORKING CAPITAL
Working capital is the measurement of the availability of liquid assets a company has to build its
business. Generally, companies that have a lot of working capital will be more successful since
they can expand and improve their operations. Companies without working capital may lack the
funds necessary for growth.
Small businesses often use working capital to pay short-term obligations such as inventory or
advertising but it can also be utilized for long-term projects such as renovations or expansion.
These are elements in the business cycle that can quickly absorb cash. If working capital dips too
low, a business risks running out of cash. Even very profitable businesses can run into trouble if
they lose the ability to meet their short-term obligations. Business financing or small business
loans can be used as a fast cash option to cushion the periods when the flow is not ideal or
readily available.
Cash flow is the businesses life blood and every owner‟s primary task is to help keep it flowing
and to use the cash to generate profits. If a business is operating profitably, then it should, in
theory, generate a cash surplus. If it does not generate a surplus, the business could eventually
run out of cash and expire. The faster a business expands , the more cash it will need for working
capital. Proper management of working capital will generate cash and will help improve profits
and reduce risk.
Working capital represents the funds available with the company for day to day operations.
Working capital finances the cash conversion cycle. Company cannot survive with negative
working capital which represents that the company has no funds for day to day operations.
The importance of working capital can be summarized as follow:-
Adequate amount of working capital provides the following advantage to a business enterprise.
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37. 1. IMMEDIATE PAYMENT TO SUPPLIERS- it ensures regular supply and continuous
production and also develop good repo.
2. BENEFIT OF CASH DISCOUNT- by payment on time firm can avail the advantage of
cash discount which will reduce the cost of production and increase profitability of firm.
3. ADEQUATE DIVIDEND DISTRIBUTION- a firm can declare and distribute ample
dividend when there is sufficient profit and thus can create satisfaction among
shareholders and bring stability in the market value of share.
4. INCREASE IN GOODWILL AND DEBT CAPACITY- promptness to third party in
business creates goodwill and debt capacity of the concerned firm. It enables firm to raise
loan whenever needed without any difficulty.
5. EASY LOANS FROM BANK-A firm having adequate working capital and liquid assets
can arrange loans from banks on easy and favourable terms, as excess current asset over
current liabilities provides a good security for the unsecured loans.
6. EXPLOITATION OF GOOD OPPORTUNITIES- A firm with adequate working capital
can exploit opportunities and can earn profit.
7. MEETING UNFORSSEN CONTINGENCIES- a firm can face small crises, financial
crises due to heavy losses etc.
8. INCREASED EFFICIENCY- Adequate working capital has psychological effect on the
directors and executive of the firm and motivates them to work vigorously.
9. INCREASED IN FIXED ASSETS PRODUCTIVITY- the fate of large scale investment
in fixed assets is often determined by a relatively small amount of current assets.
Essentially working capital is the answer to the question: "How much short term funding do you
need to operate this business?" Short term funding is important because, with long term funding
already in place, the business still needs short term funding to operate. Without the short term
funding, the business will go bankrupt.
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38. CHAPTER III
RESEACH METHODOLOGY
3.1) Introduction
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying now research is done systematically. In that various steps,
those are generally adopted by a researcher in studying his problem along with the logic behind
them. It is important for research to know not only the research method but also know
methodology. ”The procedures by which researcher go about their work of describing,
explaining and predicting phenomenon are called methodology.”
Methods comprise the procedures used for generating, collecting and evaluating data. All this
means that it is necessary for the researcher to design his methodology for his problem as the
same may differ from problem to problem.
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39. Data collection is important step in any project and success of any project will be largely depend
upon now much accurate you will be able to collect and how much time, money and effort will
be required to collect that necessary data, this is also important step.
Data collection plays an important role in research work. Without proper data available for
analysis you cannot do the research work accurately.
3.2) Types of data collection
There are two types of data collection methods available.
1. Primary data collection
2. Secondary data collection
1) Primary data
The primary data is that data which is collected fresh or first hand, and for first time which is
original in nature. Primary data can collect through personal interview, questionnaire etc. to
support the secondary data.
2) Secondary data collection method
The secondary data are those which have already collected and stored. Secondary data easily get
those secondary data from records, journals, annual reports of the company etc. It will save the
time, money and efforts to collect the data. Secondary data also made available through trade
magazines, balance
sheets, books etc.
This project is based on primary data collected through personal interview of head of account
department, head of SQC department and other concerned staff member of finance department.
But primary data collection had limitations such as matter confidential information thus project
is based on secondary information collected through five years annual report of the company,
supported by various books and internet sides. The data collection was aimed at study of working
capital management of the company
Project is based on
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40. 1. Annual report of CCL 2009-10
2.Annual report of CCL 2010-11
3.3) OBJECTIVES OF THE STUDY
Study of the working capital management is important because unless the working capital is
managed effectively, monitored efficiently planed properly and reviewed periodically at regular
intervals to remove bottlenecks if any the company can not earn profits and increase its turnover.
With this primary objective of the study, the following further objectives are framed for a depth
analysis.
1. To study the working capital management of Central Coalfields Ltd.
2. To study the liquidity position through various working capital related ratios.
3. To study the working capital components such as debtors management, cash management,
Inventory position.
4. To estimate the working capital requirement of Central Coalfields Ltd
3.4) SCOPE & LIMITATIONS OF THE STUDY
Scope of the study
The scope of the study is identified after and during the study is conducted. The study of working
capital is based on tools like trend Analysis, Ratio Analysis, working capital leverage, operating
cycle etc. Further the study is based on last3 years Annual Reports of CCL. And even factors like
competitor‟s analysis, industry analysis were not considered while preparing this project.
Limitations of the study
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41. Following limitations were encountered while preparing this project:
1) Limited data:-
This project has completed with annual reports; it just constitutes one part of data collection i.e.
secondary. There were limitations for primary data collection because of confidentiality.
2) Limited period:-
This project is based on five year annual reports. Conclusions and recommendations are based on
such limited data. The trend of last three year may or may not reflect the real working capital
position of the company. Also being a public sectors it was to difficult to get access to various
data.
3) Limited area:-
Also it was difficult to collect the data regarding the competitors and their financial information.
Industry figures were also difficult to get.
CHAPTER IV
WORKING CAPITAL MANAGEMENT IN CCL
In CCL working capital management is done on three indegriants:
1. Cash management
2. Debtors management
3. Inventory management.
CASH MANAGEMENT IN CCL
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42. Efficient cash management processes are pre-requisites to execute payments, collect receivables
and manage liquidity. Managing the channels of collections, payments and accounting
information efficiently becomes imperative with growth in business transaction volumes. This
includes enabling greater connectivity to internal corporate systems, expanding the scope of cash
management services to include “full-cycle” processes (i.e., from purchase order to
reconciliation) via ecommerce, or cash management services targeted at the needs of specific
customer segments.
Cash management is concerned with the managing of: -
Cash flow – Inside the firm and Out of the firm
Cash flow – Within the firm &
Cash balances held by the firm at a point of time by financing deficit or investing surplus
funds.
Cash is money that is easily accessible either in the bank or in the business. Cash on hand or in
the bank is needed to pay suppliers, to pay the rent, and to meet the payroll. Profit is the amount
of money you expect to make if all customers paid on time and if your expenses were spread out
evenly over the time period being measured. However, it is not your day-to-day reality. Cash is
what you must have to keep the doors of your business open. Over time, a company's profits are
of little value if they are not accompanied by positive net cash flow. Cash flow is one of the
component in cash management.
Cash Flow refers to the flow of cash into and out of a business over a period of time. The
outflow of cash is measured by the money you pay every month to salaries, suppliers, and
creditors. The inflows are the cash you receive from customers, lenders, and investors. The basic
objective of cash flow statement is to inform about the cash inflows and cash outflows during the
year.
Positive Cash Flow
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43. If the cash coming into the business is more than the cash going out of the business, the company
has a positive cash flow. A positive cash flow is very good and the only concern here is
managing the excess cash prudently.
Negative Cash Flow
If the cash going out of the business is more than the cash coming into the business, the company
has a negative cash flow. A negative cash flow can be caused by a number of problems that
result in a shortage of cash, such as too much or obsolete inventory, or poor collections on
accounts receivable. If the company doesn't have money in the bank or can't borrow additional
cash at this point, it may be in serious trouble.
Cash
Collection
s
Business Deficit
Operations s
Surplus
Information
Borrow
And control
Cash Invest
Payments
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44. ACCOUNTING STANDARD 3-CASH FLOW STATEMENTS
AS-3 cash flow statements (revised 1997), issued by the council of ICAI, comes into effect in
respect of accounting periods commencing on or after 1-4-1997. This standard supersedes, AS-3
changes in financial position, issued in June 1981. This standard is mandatory in nature in
respect of accounting periods commencing on or after 1-4-2004 for the enterprises which fall in
any one or more of the categories of level I enterprises, at any time during the accounting period.
The enterprises which do not fall in any of the categories of level I, are encouraged, but are not
required, applying this standard.
+
An enterprise should prepare a cash flow statement and should present it for each period for
which financial statements are presented. The cash flow statement should report cash flows
during the period classified by operating, investing and financing activities. An enterprise should
report cash flows from operating activities using either:
a) The direct method, whereby major classes of gross cash receipts and gross cash
payments are disclosed; or
b) The indirect method, whereby net profit or loss is adjusted for the effects of
transactions of a non-cash nature, any deferrals or accruals
of past or future operating cash receipts or payments, and items of income or expense
associated with investing or financing cash flows.
. Hence the preparation of cash flow statement involves the following steps:
1. Computation of net increase or decrease in cash.
2. Calculation of net cash flow provided by operating activities.
3. Calculation of net cash flow from investing activities.
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45. 4. Calculation of net cash flows from financing activities.
5. Preparation of cash flow statement in approved format.
6. Reporting of significant non-cash transactions in a separate schedule to cash flow
statement.
A Cash Flow Statement is typically divided into three components so that you can see and
understand both the internal and external sources and uses of cash.
1. Operating Cash Flow (Internal) Operating cash flow, often referred to as working capital,
is the cash flow generated from internal operations. It is the cash generated from sales of
the product or service of your business. Because it is generated internally, it is under your
control.
2. investing cash flow (internal)Investing cash flow is generated internally from non-
operating activities. This component would include investments in plant and equipment
or other fixed assets, nonrecurring gains or losses, or other sources and uses of cash
outside of normal operations.
3. Financing cash Flow (External)Financing cash flow is the cash to and from external
sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan,
the issuance of stock and the payment of dividend are some of the activities that would be
included in this section of the cash flow statement.
Good cash management means:
Knowing when, where, and how your cash needs will occur,
Knowing what the best sources are for meeting additional cash needs; and,
Being prepared to meet these needs when they occur, by keeping good relationships with
bankers and other creditors.
The starting point for avoiding a cash crisis is to develop a cash flow projection. Smart business
owners know how to develop both short-term (weekly, monthly) cash flow projections to help
them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help them
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46. develop the necessary capital strategy to meet their business needs. They also prepare and use
historical cash flow statements to gain an understanding about where all the money went.
Funds/cash plays a very vital role in every organization so does in CCL. It is important to
meet its day to day requirement of cash. It is directly controlled by the General Manager
of finance in CCL. The fund section is responsible for effective fund/cash management of
entire CCL.
There are many sources of funds from which CCL gets funds according to their
requirement. In CCL cash is mainly realized from sale of coal which is supplied to
various sectors that includes Power sector like
Jharkhand state electricity board (JSEB)
Punjab state electricity board (PSEB)
Haryana state electricity board (HSEB)
Delhi vidhut corporation (DVC)
National thermal power corporation (NTPC)
Steel sector like
Steel authority of India limited (SAIL)
Vizag steel plant etc.
Other sector includes
Defence
Chemical industry etc.
It is discussed earlier that coal is sold in two ways: cash and credit. A major percentage of
total sales of coal are made to government parties on credit basis. Rest is sold to parties
on advance payment basis.
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47. CCL is spread over in different district of Jharkhand there are 13 areas of CCL namely
Agarda
Barkakhana
Cs-cws
Kuju
Hazaribagh
Rajrappa
Giridih
Kothara
Bokaro&kargali
Dhori
North khanpura area
Piprawar
Daltanganj
All the above areas send their requisition for capital & revenue expenditure on week to week
basis to CCL to Ranchi headquarter. The fund section make payment through bank on the basis
of this capital & revenue expenditure report send by 13 different areas i.e. fund are provided to
these areas on the basis of pending bill claims. The capital & revenue expenditure report must be
verified by two authorized person of CCL: -
Area manager of CCL.
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48. Finance manager of CCL.
CCL mainly used cash flow projection and cash budget for cash planning and control.
Cash flow projection is also used to determine for optimum cash balance of CCL.
CCL has not faced any kind of liquidity crunch in past 5 years. This indicates that CCL
maintain a sufficient cash balance. However CCL has working capital demand limit with
SBI along with coal India ltd. (CIL) against hypothecation of current assets. If any
surplus arises in CCL then that is deposited in nationalized banks with varying period of
maturity of fixed deposit. Nationalized bank are decided by the board of directors of
CCL. Selection of bank is done on the basis of their net worth.
CCL follows accounting standard 3 to prepare cash flow which is explained earlier..
METHOD USED BY CCL FOR PREPARING CASH FLOW STATEMENT
CCL used direct method for preparing cash flow statement.But this direct method does mot
folloew proper format. The direct method provides information which may be useful in
estimating the future cash flows and which is not available under indirect method. Therefore,
direct method is considered more appropriate than indirect method. Under the direct method
information about major classes of gross cash receipts and gross cash payments may be obtained
either:
From the accounting records of the enterprise.
By adjusting sales, cost of sales (in the case of financial enterprise interest and similar
income and interest expense and similar charges) and other items in the statement of
Profit & Loss for:
1) Changes during the period in inventories and operating receivables and payables;
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49. 2) Other non-cash items and
3) Other items for which the cash effects are investing or financing cash flows.
CENTRAL COALFIELDS LIMITED, RANCHI
Monthly cash flow statement (Fund)
(RS. In lakhs)
APRIL-12 PROGRESIVE
FUND 2012-2013
Opening Balance 24471.27 24471.27
Receipts
Sales-credit 16595.54 16595.54
Recd from Rd sales 30757.33 30757.33
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50. Income Tax refund 0.00 0.00
Interest 65.20 65.20
COAL BLOCK 0.00 0.00
Rites 10429.27 10429.27
Gratuity Fund 953.88 953.88
Recd from Kolkata 7700.00 7700.00
Total receipts 66501.22 66501.22
OB+Receipts 90972.49 90972.49
PAYMENT
Royalty 685.67 685.67
Royalty adv 0.00 0.00
CMPF/pension 6358.77 6358.77
Corporate Tax 0.00 0.00
FIXED DEPOSIT 0.00 0.00
Wealth Tax 0.00 0.00
Dividend Tax 0.00 0.00
Dividend 0.00 0.00
TDS 5040.59 5040.59
Service Tax 2.19 2.19
Clean energy cess 2203.03 2203.03
Sales Tax 238.09 238.09
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51. J vat 537.10 537.10
Adv sales Tax 0.00 0.00
Adv j VAT 0.00 0.00
Cental excise duty 36.89 36.89
Misc 0.00 0.00
Area remit-revenue 34486.00 34486.00
Area remit-capital 808.00 808.00
Gratuity fund 22591.94 22591.94
Total payments 72988.27 72988.27
Closing balance 17984.22 17984.22
CENTRAL COALFIELDS LIMITED, RANCHI
Monthly cash flow statement (Fund)
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52. PROGRESIVE
April 2012-2013
Opening Balance 24471.27
Cash flow from operating activities
Inflow
Realization from customers 16595.54
Recd from Rd sales 30757.33
Rites 10429.27
Recd from Kolkata 7700.00
Total Add operating balance 65482.14
OB+inflow 89953.41
Outflow
Royalty 685.67
CMPF/pension 6358.77
TDS 5040.59
Service Tax 2.19
Clean energy cess 2203.03
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53. Sales Tax 238.09
J vat 537.10
Cental excise duty 36.89
Area remit-revenue 34486.00
Area remit-capital 808.00
outflow amount 50396.33
B)cash flow from investing activities
increase in interest received 65.20
Increase in gratuatity fund received 953.88
Decrease in gratuatity fund payment 22591.94
B) Total investing activies -21572.86
C)Cash flow from financing activities
Fixed deposit 00.00
c)total financing activities 00.00
Closing balance = (A-B-C) 17984.22
Wor
king
notes :( 89953.41-50396.33) =39557.08
A= 39557.08
B= -21572.86
C= 00.00
Closing balance= 39557.08-21572.86-00.00=17984.22.
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54. Note‟s in crore
Suggestions for improvement
CCL has not faced any kind of liquidity crunch in past five years. This indicates that CCL
maintain a sufficient cash balance. However CCL has WCDL (working capital demand limit)
with SBI along with CIL against hypothecated of current assets.
If any surplus arises in CCL then this surplus fund is deposited with varying period of maturity
of fixed deposit. Listed bank are decided by the board of directors of CCL. They decided any
bank on the basis of net worth of that bank.
There is no bank loan in respect of CCL to fulfil their working capital need. This shows that
CCL has enough cash balance to fulfil its day to day requirement of cash.
CCI has taken a loan from World Bank to fulfil their fixed capital requirement.
However an attempt has been recast…
CCL & AS 3
CCL is also following AS 3, but they follow Both Method (Direct as well as Indirect). As per
the cash flow statement for the month of March 2012, we can see that they are following direct
method and in that they mentioned their gross receipts and gross payment of cash only, and after
studying the Cash Flow Statement for the year ended 2010-12 we can observe that they are
following Direct Method for maintaining their Cash Flow Statement.
In all this we can see for their monthly transactions they maintain Direct method and for
the whole at the end of the year CCL prepare their Cash Flow Statement by Indirect Method.
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55. In CCL there is positive cash inflow since last 5-6 years. So the only concern of CCL is to
manage excess of cash inflow over outflow.
It has been seen that when CCL was having negative cash inflow then it used to balance the
shortage of funds by:-
1. Cost cutting of expenditure.
2. Delay in payment of statutory bills.
3. Short term funding by taking loans from bank.
4. Investment by central coalfield limited (C.C.L)
According to the policy guidelines for the Investment/Deployment of Surplus Funds in
Appropriate Financial Instruments approved by CIL Board, it is clearly mentioned that “The
department of public enterprise has permitted central PSU to invest in public sector mutual fund
only. The Chairman, CIL approved investment in 4 PSU mutual fund houses. ” They are:-
1) SBI
2) UTI
3) CANARA
4) LIC
As these fund houses are registered with and regulated by SEBI and GOI and wherein Govt
financial institution and public sector banks holds individually and collectively more than 50%
of equity shares.
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56. MUTUAL FUNDS investment by C.C.L
Name of fund Scheme
1) SBI SBI Premier Liquid Fund – Super Institutional
(IP) Plan
2) UTI UTI Liquid Fund - Cash Plan - Institutional
3) Canara Robeco Canara Robeco mutual fund super institutional
plan
4) LIC LIC NOMURA Liquid Fund
Each mutual fund is given a basis point of 25 of total investment. If it‟s over 25 point then a
watch of 10 days is there and with a formal procedure the company withdraw the money and
invest in other three funds whichever is giving good report.
Analysis:-
SBI Premier Liquid Fund (SPLF) has been positioned for Institutional investors and large
Corporate Treasuries who desire to invest their short term cash surpluses for periods
ranging from overnight to a few days, while maintaining a high degree of liquidity. The
investments in the scheme would be made only in debt/ money market securities. SBI
Premier Liquid Fund (SPLF) would seek to generate returns with minimal volatility and
provide investors with a high degree of liquidity.
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57. The UTI Liquid Cash Plan is positioned as a low-risk, low-volatility fund which aims at
offering reasonable returns to investors looking to park short-term surpluses. The fund
attaches importance to low credit risk, portfolio diversification and stability of returns.
Same above written benefits are provided by the canara robeco liquid fund and lic
nomura liquid funds.
Mutual fund investment is the safest and guaranteed return fund to be invested. So, the
coal India subsidiaries companies especially Central coalfield limited invest its surplus
money in 4 different mutual fund with a clear diversion of money equal in 4 parts so that
if they found out any loss in any single mutual fund then the money is withdrawn and
reinvested in other three equally or the one giving the larger profit.
All the mutual funds are of governmental type investment on SEBI guidelines.
There are various ways to utilize wisely the excess of cash like investment in mutual funds,
shares etc. but being a public sector unit it can only have a single choice which is fix deposit
according to policies framed by Indian government.
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58. CCL does the fixed deposit by keeping in mind various factors
(i) Quarter end payment of tax
(ii) Requirement of money for advance payment
(iii) Requirement according to forecasted demand
Accordingly the tenure of fixed deposit are decided. Mostly the fixed deposits are for 1 year or
so.
Uniform Deposit Policy for CIL and its Subsidiaries ANNEXURE-A
The salient features of the uniform deposit policy approved by CIL Board in its 235th meeting
held on 25 September 2007 and subsequent amendment in 249th meeting held on 10 April 2009
along with DPE guidelines received after approval of uniform deposit policy are as under:
1. As per existing RBI guidelines, PSUs are allowed to invest in any scheduled bank
incorporated in India having net-worth of Rs.100 crores and above and fulfilling the Capital
Adequacy Ratio (CAR) norm as prescribed by RBI (presently 9%). In order to have manageable
number of banks with sound financials to deal with, it has been decided that only such banks
having networth of Rs.1500 crores and above with CAR exceeding 10% be selected for
placing deposits.
In pursuance to the above, a list of 18 banks was identified initially for placement of deposits by
CIL and its subsidiaries.
Subsequently, IDBI Bank was included in the list taking the number of banks to 19. Further,
during October 2009, with the approval of the competent authority, Central Bank of India has
been disqualified for doing all future business especially placement of fixed deposit by CIL and
its Subsidiary Companies till further order. At present, there are 18 banks, which are eligible
to receive deposit from CIL and its Subsidiary Companies. A list of these banks is placed at
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59. Annexure-1 (Revised as per Balance Sheet of 31.3.2009 of the banks). CIL and its
Subsidiaries shall place deposits with the banks from the said list.
2. The CIL Board, in order to balance the risk and return on the portfolios of CIL and its
subsidiaries, approved that the fixed deposit is to be placed with the banks offering highest rate
of interest within exposure limit of each bank. The methodology of calculating exposure limit is
described in Para-3. In a subsequent development, pursuant to the DPE guidelines, in order to
avoid undesirable competition amongst banks leading to arbitrary hikes in deposit rates, with
adverse consequences for the economy, the practice of inviting competitive bids for bulk
deposits was discontinued. Thus, at present, as per subsequent DPE guidelines, CIL and its
Subsidiaries shall place with banks at prevailing best available card rate subject to
exposure limit of each bank as described in Para-3.
3. Keeping in view the importance of net-worth, which determines the size and strength of banks,
Net-worth (Equity Capital plus Free Reserves) of banks meeting CAR requirements are
considered as criteria for determining the exposure limit of the bank.
Exposure limit of the banks at different range of net-worth for CIL and its each Subsidiary
were decided initially as follows:
Table
However, there shall be no cap on maximum limit for State Bank of India. In a later
development, the maximum exposure limit of individual private bank has been restricted to
10% of total cumulative deposit irrespective of net-worth. Moreover, overall exposure limit
in private banks will be restricted to 25% of the total deposit.
4. In respect of methodology of placement of deposit with the banks, the approvals of the CIL
Board are as under:
i) The subsidiaries should go for selection of one specific branch of a bank at a particular
location from the list of eighteen banks at Annexure-1. It is advised that the subsidiaries as well
as CIL shall go for opening current account at the branches of the banks eligible to accept
deposits. Subsidiaries shall go for placing deposit with the branches nominated by the respective
banks. Such lists have been forwarded by CIL to Subsidiaries from time to time. Further, DPE
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60. in its guidelines dated 15.1.2008 and 11.4.2008 directed that PSEs should place their bulk
deposits with such banks with whom they have regular course of business.
ii) While selecting branches under Annexure-I, subsidiaries should give priority to those
branches which have the facilities of Real Time Gross Settlement (RTGS)/ Core Banking
Solution (CBS).
iii) The subsidiaries may adopt policies for depositing surpluses through its desk offices located
at Kolkata for better connectivity with the financial market besides its Command Areas.
5. In respect of methodology of placing deposits, it is emphasized that CIL and its subsidiaries
shall strictly adhere to theguidelines issued by the Dept. of Public Enterprise, GOI.Range of Net-
worth Maximum exposure limit % of total cumulative deposit Private andNationalized Banks
1500-5000 10% 5001 and 10000 15% 10001 and above 20% guidelines issued by the Dept. of
Public Enterprise, GOI.
6. All the fund managers of CIL and its subsidiaries shall assess investible surplus funds on a
daily basis and ensure that no fund remains idle in the current account. In order to avoid loss of
interest, it is required to maintain CLTD A/c with the bank(s) where funds are lying. If the
CLTD arrangement is not there with a particular bank, the investible funds may be placed in
short-term deposits with the banks for 7-10 days with immediate effect. On maturity of such
short-term deposits placed from time to time,the said amount may be placed with the banks as
per the policy mentioned above subject to the exposure limit of the bank.
7. The Para 4 of OM dated 14.12.1994 issued by DPE, stipulates inter-alia, that decision for
investing short- term surplus funds upto one year maturity is to be taken by a designated group of
Directors from among the functional Directors that should include Chairman and Director
(Finance). Placing funds in CIL and its subsidiaries is a day-to-day operation, which is difficult
to be carried out in the manner suggested in the said guidelines. However, keeping the spirit of
the guideline and in order to ensure complete transparency, a Committee of at least two members
from Finance Division may be constituted comprising HOD of Finance, who shall chair the
proceedings with other member(s) of the rank of CFM (E8). The Committee shall have the
power to approve a deposit proposal put up by the officer(s) in charge of the treasury operations.
In case, treasury operations of the subsidiaries are carried out from Kolkata, such proposal
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61. should, at the first instance be sent by FAX/ Email to the subsidiary (HQs) for approval by the
Committee. Since time is the essence in active treasury operation, such proposals should be
immediately taken up by the committee and decision communicated by FAX/ Email to the
Kolkata office.
8. Based on above suggested methodology, bank card rate for funds available for each case of
deposit is to be obtained from the selected branches of the listed banks. If any nominated branch
of a bank is not in a position to submit the card rate, the same shall be recorded in writing. The
officer(s) in charge of the treasury operation shall initiate a proposal along with the card rates
received from all the selected banks / branches in line with the guidelines detailed above. The
proposal shall suggest placement of fund among banks, which qualify to accept deposits as per
the policy, and thereafter placed before the committee for approval. The proposal shall be acted
upon its approval.
9. There shall be a system in place for submission of monthly report detailing the placements of
funds made during that particular month to the Director (Finance) and to the Chairman/CMD. A
quarterly report shall be furnished to the Board of Directors informing the annualized return on
the deposits placed during the last quarter.
10. All other guidelines contained in the approved Investment Policy of CIL, which have not
been expressly dealt herein as laid down in the Uniform Deposit Policy shall continue.
Debtors Management
The basic objectives of the debtor‟s management are to optimize the return on investment on the
assets. Its main aim is to promote sales and profit until that point is reached where the return on
investment is further funding of debtors is less than the cost of funds raised to finance that
additional credit.
When a firm makes sale of goods and services and does not receive payment, it grants trade
credit and creates Debtors accounts, which would be collected in the future. These represent the
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62. extension of credit on an open A/c by the firm to its customers, as the substantial amount is tied
up in trade debtors, it needs careful analysis and proper management.
 Size of Investment in Debtors:
Investment in debtors A/c is a major part of their assets in most of business enterprises.
Debtors A/c is one of the major components of working capital. The financial executives
should pay due attention to the management of debtors, so that each rupee invested in
debtors may contribute to the net worth of the organization.
 The Basic Problem of Debtors Management:
The basic problem of debtor‟s management is the balancing of profitability & liquidity.
Soft credit terms attract sales and so the longer the time a company allows to pay to its
customers the greater the sales and higher the profits.
The longer the period of credit the greater the risk, the greater the level of debt and
greater the strain on the liquidity of the company.
PAYMENT ACCORDING TO FUEL SUPPLY AGREEMENT
The Purchaser shall make advance payment for a month in three (3)
installments for availing Coal supplies from the Seller – first (1st) installment on the
first (1st) day of the month, second (2nd) installment on the eleventh (11th) day of the
month and the third (3rd) installment on the twenty first (21st) day of the
month. Each of these payment installments shall cover the As Delivered Price of
Coal for the Coal quantities that is one- ninth (1/9th) of the QQ concerned. Further,
each of these installments shall take into account the weighted average of Contract
Prices of Grades based on actual supplies of immediately available previous month.
However, the third (3rd) installment shall also include the adjustment amount with
regard to the actual quantity of Coal delivered and the quality of Coal analysed vis-à-
vis the advance payment made for the previous month.
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63. Quarterly Quantity (QQ)
The Annual Contracted Quantities for the Year shall be divided into
Quarterly Quantities (QQ), expressed in tonnes, as follows:
Ist Quarter (Apr-Jun.) 25% of ACQ
IInd Quarter (Jul-Sep) 22% of ACQ
IIIrd Quarter (Oct-Dec) 25% of ACQ
IVth Quarter (Jan-Mar) 28% of ACQ
The Purchaser shall maintain with the Seller an Irrevocable Revolving Letter of
Credit (IRLC) issued by a bank acceptable to the Seller and in the format
acceptable to the Seller and fully conforming to the conditions for an amount
equivalent to As Delivered Price of Coal for the Coal quantities that is one-ninth (1/9th)
of the QQ concerned. The As Delivered Price of Coal in this context shall take into
account the highest of Contract Prices of Grades. The IRLC shall be maintained
throughout the term of this Agreement. The amount of IRLC shall be suitably changed
whenever there is a change in any component of the As Delivered Price of Coal. In
addition to the IRLC, the Purchaser shall pay advance amount equivalent to seven (7)
days Coal value by way of Demand Draft/ Banker‟s cheque/ Electronic Fund
Transfer (EFT).
All the payments shall be made through Demand Draft / Banker‟s cheque/
Electronic Fund Transfer payable at ([•] to be stated by the Seller). In the event of
non-payment within the aforesaid stipulated period, the Purchaser shall be liable to
pay interest in accordance
Advance payment made by the Purchaser shall be non-interest bearing, and it
shall change in accordance with change in the As Delivered Price of Coal.
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64. ANALYSIS:-
Fuel supply agreement is the newly most advanced tool for the coal India limited
subsidiaries to generate a cash surplus and to also help the companies to avoid the
debtors in the company.
Fuel supply agreement is designed in such a manner that it covers all the legal aspects of
the supplier and the buyer and put them in a mutual bond for the various types and
supply of the coal.
Fuel supply agreement contains all the relevant information about both sides covering
each and every aspect regarding the fuel and the interest of the buyer.
JSEB as the monopoly of the home state electricity generation and distribution company
of Jharkhand is the only company which is not agreed to abide by the rules and
regulation described in fuel supply agreement.
Salient features of the New Coal Distribution Policy (NCDP)
All project developers relating to the power, cement and steel sectors and consuming
more than 4,200 tonnes of coal per annum have to mandatorily enter into fuel supply
agreements (FSA) with the coal supplier (mostly Coal India and its subsidiaries)
versus the earlier system of linkages.
In view of the importance of the defence sector and railways, their total requirement to
be met at notified prices.
100% of the „normative‟ requirements of the power sector consumers with coal
linkages and that of the fertiliser sector consumers to be met through FSAs (since they
operate under a regulated price regime).
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65. For all other consumers with coal requirement of more than 4,200 t per annum, 75% of
their normative requirement of coal to be provided under FSAs.
Non-core sector developers with coal requirements less than 4,200 tonnes per annum
to be given the option of either entering into FSAs or meeting their requirements
through agencies nominated by the state governments. About 8 mmtpa coal to be
made available to meet the requirements of the small and medium sector consumers.
Supply of coal through e-auctions to be made more systematic without the
government‟s involvement in the pricing of auctioned coal.
It is worthwhile to note that despite the introduction of the NCDP in October 2007, FSAs
were not signed until May 2009 due to a disagreement between Coal India and power
producers (mostly NTPC) over the minimum coal supply guarantee threshold (below which
Coal India is liable to pay penalties). Following several discussions among the
stakeholders, it was agreed in May 2009 with the signing of NTPC‟s FSA that Coal India
will guarantee at least 90% of the annual contracted quantity (ACQ) to the power projects
commissioned until Mar 2009 (ACQ is equal to 100% „normative‟ coal requirements and
mostly equivalent to about 90% PLF for the power project)
Debtors Management in CCL
Sales
CCL sale coal to its customer on cash bases: -
CCL sales 100% of its production for cash and rest
CASH SALE: -
CASH DO LIFT
Previously CCL uses both cash and credit sales
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66. CREDIT SALE: -
BILLING
DESPATCH
PAYMENT
As we have seen most of the sales of CCL is on credit basis, therefore debtors management plays
very important role in CCL.
The main objective of debtor management is to keep the regular debtor's balance as minimum as
possible. Sundry debtor's come in to existence when the customers are not able to pay the coal
bills in full amount in time.
In CCL coal sale is done either on credit or cash. Credit sale is done only to Govt. parties. It
means the debtors of CCL consist only of Govt. parties. Govt. parties follow cash and credit
system, which is according to the rules of CIL. According to this the payment has to be made by
the customer within 24 hrs. of the presentation of the coal bills.
Sundry debtors of CCL can be divided into three parts: Power -This sector is the biggest
consumer of coal. It can be divided into state electricity board which includes Bihar State
Electricity board, Delhi Vidyut Nigam, Punjab State Electricity Board, U.P state electricity board
etc.
Other than these are some other power production unit such as
NTPC etc. who also buy coal in large quantity.
Steel - this sector is also one of the main consumers of coal. It can also be divided into two parts
- steel plants owned by SAIL ,BSP ,RSP, BSL etc. and other steel plants like 11SCO.Others -
This includes customer like
•Fertilizer Corporation of India.
•Government Cement Plants.
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