REPORT

ON

WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS

OF

NATIONAL FERTILIZAERS LIMITED

PRESENTED BY:-Aakriti Rohatgi

DATE OF SUBMISSION : AUGUST 01, 2012

NFL'S Core Competence  

NFL, a Schedule A and Mini Ratna Company, is the second largest producers of Nitrogenous Fertilizers in the country with 16.6% share in Urea production during 2005-2006.

THE COMPANY

National Fertilizers Limited was established in August, 1974 to set up two Fuel Oil based plants at Bhatinda (Punjab) and Panipat (Haryana). Both of them were commissioned in 1979. The Nangal Fertilizer plant of Fertilizer Corporation of India (FCI) had been merged with National Fertilizers Limited (NFL) in 1978 on the reorganization of FCI and NFL group of companies. Later NFL executed the country’s 1st inland gas based plant at Vijaipur (in Madhya Pradesh) on HBJ (Hazira-Jagdishpur) gas pipeline. The Vijaipur Project received First Prize for “Excellence in Project Management” from the ministry of Program implementation, Govt. of India. Vijaipur plant had gone in commercial production in July, 1988. Subsequently, expansion undertaken in 1997 for doubling the capacity of Vijaipur unit.

NFL is a multi unit, multi Product Company and is one of the India’s largest producers of Nitrogenous fertilizer with a market share of 16.6%. NFL is a Mini Ratna Category-1 Company and has the distinction of being a profitable public sector undertaking. The company is now operating three fuel oil based Plants located at Nangal, Bhatinda and Panipat and gas based plants at Vijaipur. The company has an installed capacity of 32.31 lakh MT of Nitrogenous fertilizer “UREA” It is an ISO-9001; 2000 and ISO-14001:1996 company.

NFL produces two popular brands of chemical fertilizers, i.e. Kisan Khad (Calcium Ammonium Nitrate-CAN) and Kisan Urea. Besides the fertilizers, it manufactures and markets the industrial products (Liquid Oxygen, Liquid Nitrogen, Liquid Carbon Di-Oxide, Nitric Acid, Methanol, and Argon) and by-products (Sulphar).

Now NFL entered “silver jubilee year” on 23rd August, 1999. NFL operates three oil based plant Three of the Units are strategically located in the high consumption areas of Punjab and Haryana.  The Company has an installed capacity of 32.31 lakh MTs of Urea and has recorded an annual sales turnover of Rs.3, 591 crores during 2005-06.The Company’s strength lies in its sizeable presence, professional marketing and strong distribution network nationwide and a gas based plant. Company

NFL has been signing a Memorandum of Understanding (MOU) with the government of India since 1991-92every year under which the Government undertakes to assist NFL with regard to availability of inputs, obtaining ECA allocations commensurate with the availability of fertilizers from NFL plants etc.  NFL on its part undertakes to adhere to its production and movement plans, achieve its ECA allocation and provide regular feed back to the Administrative department. All the years, after signing the MOU,

Government has rated the performance off the company as “excellent” Company has been performing at high level of capacity utilization over the years.

The company also produces bio-fertilizer at its Indore plant since October 1996.NFL commissioned its 120 Nm3/hr.Argon based plant at Panipat unit in October, 1997. During September 1998 NFL has commissioned the Methanol Augmentation Scheme at Nangal unit. In order to sustain and enhance the company’s growth NFL successfully completed the revamping of UREA plant at Nangal. Commercial production of this plant was declared w.e.f 1st Feb. 2001. The annual installed capacity of Nangal plant has thus increased from 3.30lakh tones of UREA to 4.78 lakh tones. With the re rating of installed capacities of Vijaipur plant and revamping of urea plant at Nangal, the total annual installed capacity of UREA at NFL has reached to 32.31 lakh tones. The company during the year 2005-06 produced 33.44 lakh tones of UREA, thereby achieving a capacity utilization of 103.5%. NFL is the 2nd largest producer of Nitrogenous Fertilizer in the country.

Three Zonal offices at Bhopal, Lucknow and Chandigarh with central control at Delhi co-ordinate the company-marketing network.Kisan Urea NFL’s popular brand is sold over a large marketing territory spanning the length and breadth of the country.  The Company also manufactures and markets Biofertilizers and a wide range of industrial products like Methanol, Nitric Acid, Sulphur, Liquid Oxygen, Liquid Nitrogen etc.  The Company has developed Neem coated Urea which on demonstration has improved the crop yield by 4-5%.  The Company is focusing its thrust to widen the marketing operations of Neem coated Urea.

NFL has been brought in Information Technology for its day to day office use. The company has Satellite Based Communication System installed with the assistance of NIC and its office Complex in NOIDA, Units and Zonal Marketing offices through Local Area Networking (LAN). The company has also launched its Website www.nationalfertilizers.com to make feel its presence at the global level.

Today NFL stands for hope, prosperity & growth. It has succeeded in enthusing its people with sense of dynamism and pride by developing a work culture, where team spirit takes precedence over personal factors.

NFL is already geared up to meet the challenge of the 21st century. NFL over the years has developed a team of dedicated professionals in the areas of production, maintenance, project management, safety and environment control.  These professionals are sought after in the Industry both in India & abroad for their Specialized Services .

NFL is known in the industry for its work culture; value added human resources, safety, environment, concern for ecology and its commitment to social upliftment.  All NFL plants have been certified for ISO-9001(2000) for conforming to international quality standards and International Environmental Standard i.e. ISO-14001. Apart from above NFL has also obtained OHSAS -18001 safety standards for its two parts. With the certification of Corporate Office/Marketing operations under ISO-9001:2000, NFL has become the first Fertilizer Company in the country to have its total business covered under ISO-9001 Certification.

MARKETING REVIEW

Despite of the fact there is tremendous untapped potential and great need for fertilizer use in the sectors like waste land, rain fed agriculture, horticulture etc., present fertilizer use is quite low. Country’s future need of food security and balance diet can be met only by expanding the base and quantum of fertilizer use in addition to use of organic, bio-fertilizers, etc. Demand for fertilizer in non-traditional sector is bound to increase.

The company achieved sales turnover of Rs. 3590.53 crores as compared to Rs. 3474.06 crores for the previous year. In terms of quantity, 33.63 lakh MT of Urea was sold against 34.73 lakh MT sold during the previous year. Company has been making continuous efforts to contain the marketing expenses, especially warehouse handling, rake handling, and inventory carrying cost. Products movements are continuously monitored to achieve the highest level of efficiency.

Outlook and Initiatives for the current year

Agriculture sector will continue to remain important for Indian economy since over 50% of population is actively engaged in agriculture. A second green revolution is needed to transform subsistence farmers to surplus growers. Domestic gas based Urea industry is comparable to the best in the world. The single major factor for wide differences in manufacturing costs of various units is the feed-stock.

Keeping in view the Government of India future policy, Company has been planning switchover of feed-stock from Fuel Oil/LSHS to gas.

Feasibility study has been carried out by licensors for revamp of Panipat Unit for change over of feed-stock from Fuel Oil to RLNG. Based on the reports of the licensors, M/S.PDIL has been lined up for the selection of technology and preparation of the detailed feasibility report. The study made at Panipat would be applicable for Bhatinda and Nangal with modifications. Gas suppliers are being contacted for committing supply of RLNG for Panipat Unit and possibilities are also being explored for committing availability of gas for Nangal and Bhatinda units.

Feasibility report is under preparation for capacity enhancement at Vijaipur-II unit, Vijaipur I unit is implementing energy selling project in Ammonia plant for reducing the energy consumption, project is scheduled to be completed by April 2008. In addition to this Company is also implementing various proposals involving technology absorption to make the pant more efficient Possibilities are being explored to set up joint venture fertilizer plant in the countries where raw material is available in sufficient quantities at economical rates. A core group has been established for the purpose. Company ahs developed value added products i.e. Zincated and Sulphar coated Urea and trial runs are being carried out to ascertain crop yield and their advantages. Once the benefits are established, these value added products would be produced and marketed commercially.

National Fertilizers Limited,Gohana Road,Panipat,Haryana-132106.Email:   nflpanipat@nfl.co.in Fax    : 0180- 2652515Tel.    : 0180- 2652481 to 485, & 0180- 2655570

PANIPAT UNIT

The Panipat Unit of National Fertilizer Ltd. is situated on National Highway No.1 and Delhi- Amritsar railway trunk route. Panipat city is about 90 km. away from Delhi and is covered in the National capital region. Panipat is a historical city, which was the scene of three historical battles. Panipat is also famous for its handloom industry.

The Panipat project was approved by Govt. of India on 10 th

Feb. 1975 for implementation. Prime consultants for design, engineering, erection and commissioning of the plant were m/s Toyo Engineering Corporation of Japan and M/s Engineers India Ltd. Starting from the Zero-date 30.0475, the Feed-in was achieved on 01.09.79 i.e. within 40 months of the Zero-date. The unit went in commercial production from 01.09.79. The total cost of the project was Rs. 221.33 crore (Rs. 2213.3 Million)

Performance of the unit in all the areas has also been widely acknowledged. It has won number of Awards and recognition in the Fields of production, productivity, safety, welfare, innovation, environment protection, skill etc. The unit is also well known for its commitment towards environment protection and social welfare in the Region.

Panipat Unit is considered the show window of the company. The unit being near to the National Capital, it hosts a number of distinguished guests and visitors from within and outside the country.

Environmental Control & Ecological Balance

Panipat Unit is acknowledged for its environmental friendliness. The Unit is fully conscious of its responsibility towards pollution control & environmental protection. Utmost care is taken to ensure that no harmful gasses are discharged to the atmosphere. The dust evolved during prilling of UREA in the prilling tower is scrubbed in the dust chamber by water spray. Unit has a flare stack of 80-M height to release the gasses from production streams and to burn them. A computer based wind

Monitoring system has been installed in one of the monitoring stations located at the center of the laboratory. In order to maintain ecological balance, in and around the factory and township a dense green belt has been provided and about 6.0 lakhs trees have been planted within the factory and township premises.

Employee Welfare

The Company is very conscious of the welfare of its employees at all units. At Panipat unit there is a modern township, which is spread over an area of 100 Acre. There are 900 dwellings in township, which accommodate officers, workmen, and CISF and railway staff. Company gives liberal House Building advance at nominal interest to the employees to construct their own houses. Company has provided a 30 bed hospital in the heart of township. Management provides canteen facilities to its employees in the factory. Management organizes Inter-unit and Inter-Departmental Tournaments for various games, for which a yearly sports calendar is drawn.

Industrial Relations

Industrial Relation at Panipat Unit has always remained peaceful and cordial. At Panipat unit there is only one registered and recognized workers union i.e. NFEU. The union is only affiliated to FWFI (Fertilizers Workers Federation of India) No outsider is the member of the union .The scheme of employee participation in management is operated at unit level. Under this scheme employees are encouraged to suggest improvements in productivity, production, cost of production, import substitution, working conditions etc.

Human Resource Development

The company considers its employees as its greatest assets. It takes care of its training needs of employees. A separate HRD department is established for this purpose.

NFL Panipat unit has always remained conscious towards social upliftment of weaker sections and development of surrounding villages. NFL lays emphasis on total system approach towards maintenance management. Various area of weakness is analyzed and subsequently improved. Increasing use of computers is made to meet the information needs of Maintenance Personnel. Maintenance Departments have been continuously making efforts to improve the reliability,

availability and maintainability of the equipment/systems and also to optimize the cost of maintenance. A systematic approach has been developed and implemented at the Unit.

The Panipat Unit encourages setting up of ancillary units. Presently there are two ancillary units manufacturing Jute bags and other two units manufacturing HDPE bags. Four ancillary units are bottling Carbon dioxide (CO2) in cylinders and are manufacturing dry ice.

National Fertilizers Limited is a quality conscious organization. All the raw materials, chemicals, intermediate products, by-products and finished products are checked for their quality with respect to the standards. Central Laboratory and the laboratories in each plant are equipped with most

Sophisticated instruments and are manned by well qualified staff. Quality of the final product UREA is regularly monitored. It is ensured that the product meets the quality standard laid down in the Fertilizer Control Order. Management is always conscious about the safety of the employees. Safety Department with well qualified and experienced Safety engineers ensures that working conditions are safe, safety procedures are followed and personnel protective equipment are used. Safety Department increases the awareness about safety amongst the employees by way of seminars, exhibitions, slogans, safety competition etc

Public Relations wing of the unit is continuously engaged in “Image Building” by projecting performance highlights through dissemination of information. The company has to maintain vital links with various “Publics” e.g. employees, media, men, specialized institutes who sponsored visitors, District Administrators, farmers, dealers besides hosts of other agencies for inculcating appreciation and understanding about the efforts of the organization.

DIFFERENT PLANTS IN PANIPAT UNIT

Ammonia Plant: The Ammonia plant is based on Fuel oil as feed stock and is designed to produce 900 MT/day ofAmmonia.The Fuel oil is partially oxidized in the Gasification Reactorsat 1350 degree C by Shell Gasification process. The raw gas produced in the reactors mainly consists of H2, CO, CO2 and H2S. The heat generated in the process is recovered in the Waste Heat Boilers to produce high pressure steam at 100 KG/cm2. About 80% of the carbon produced in the Gasification reactors, is recycled along with the feedstock.

Hydrogen Sulphide in the raw gas is removed by absorption in cold Methanol in Desulphurization Section of Rectisol. The carbon monoxide in the desulpharised gas is converted to Carbon dioxide by double stage H.T. Shift Conversion. The CO2 is, later removed from the process gas in the Decarbonation Section of Rectisol Section and both the gasses are recovered by regeneration of Methanol at low pressure. H2S in the form of clause gas is sent to Sulphar Recovery Plant for recovery of Sulphar. The CO2 gas is sent to Urea Plant for synthesizing with Ammonia to manufacture Urea. The process gas from Rectisol Section is sent to Nitrogen Wash Unit to remove the traces of impurities by liquid nitrogen wash. Nitrogen is further added to the process gas (i.e. hydrogen) to obtain a ratio of 3:1 of N2 and H2. This synthesis gas mixture is compressed to 230 kg/cm2 pressure and synthesis of n2 &h2 is carried out in the Haldor Topsoe loop in a radial flow Ammonia converter and Ammonia is produced.

Argon Recovery Plant Atmospheric air contains 0.93% of Argon gas by volume. Till recently this gas had been passing back to the atmosphere without any use, along with purge gases from northern loop of the Ammonia plant. An idea of installing Argon Recovery Plant was mooted to recover the Argon gas for sale to augment NFL’s profit margin.

The plant has the capacity of producing 0.95 million cubic meters/ annum of argon based on 330 stream days. The purity of gas produced is more than 99.999%

Urea Plant Urea plant is designed to produce1550 TPD based on Mitsui Toatsu Total Recycle ‘C’ improved process. The Ammonia and Carbon dioxide, produced in Ammonia plant, are pressurized to about 250 Kg/cm2 pressure. Synthesis takes place in the Urea reactor, where Ammonia and CO2 react at 250 Kg/cm2 pressure and 200 degree C temperature to produce Urea. The reactor outlets products

are then decomposed. The Urea solution, produced in this process, is crystallized in the Vacuum Crystallizer. Crystal slurry is centrifuged to separate crystals, which are, then dried in the Drier and pneumatically conveyed to the top of Prilling tower. Urea crystals are melted in the Melter and the molten Urea is sprayed through Acoustic Granulators from 68 m high prilling tower. Urea in the form of prills is collected at the bottom of the prilling tower on CFD bed, where it is cooled by air. Product Urea then sent to bagging plant and bagged in 50 Kg bags.Sulphur Recovery Plant Sulphur is present in the fuel oil/LSHS, used as feedstock for manufacture of Ammonia. Clause gas rich in Hydrogen Sulphide is obtained in the Rectisol Section of Ammonia plant and is burnt and partially oxidized to SO2 to form elemental Sulphar by condensing, the residual H2S reacts with SO2 to form more sulphar in two catalytic reactors in series. The unconverted waste gas is burnt in the incinerator and heat is recovered in Heat Recovery Exchanger, where low pressure steam is produced. The sulphar recovery plant serves the double purpose i.e. to recover costly Sulphar and to prevent pollution.

Captive Power Plant

The captive power plant has been installed to meet the total power requirement of the plants .Two Turbo Generators of 15 MW each, generate power at 11 KV. The power plant can be run in parallel with the northern grid or in isolation. A boiler of 210 T/hr has been provided to supply steam to the Turbo Generators and meet part of the steam requirement of the process plants. The boiler is designed to operate on coal with support oil or fully on fuel oil.

Off Sites and Utilities

The off Sites & Utilities consists of following facilities: Raw Water Reservoirs & Filtration Plant De mineralized Water Steam Generation Plant Cooling Towers Fuel Oil Handling and Storage Railway Siding

Effluent Treatment Plant

One of the most sophisticated Effluent Treatment plant has been installed in the unit, which meets the latest standards, laid down by the Central Board for the Prevention & Control of Water Pollution. Treatment of liquid effluents is carried out by physical, chemical and biological treatment process.

PLANTS AND CAPACITIES

Ammonia Plant 900MT/DayUrea Plant 1550 Mt/DaySulphar Recovery Plant 26.5MT/dayCaptive Power Plant 1Boiler of 210 MT/hr 2 Turbo Generators of 15 MWH/Hr.eachSteam Generation Plant 3 boilers of 150 MT/Hr.Bagging Plant 4000 MT/dayEffluent Treatment Plant 200 M3/HrRaw Water Plant 2400 M3/HrDM Water Plant 375 M3/Hr

CORPORATE OBJECTIVES OF NFL

NFL is an instrument of society. It has to service the needs of people within the scope of its basic objectives. To achieve this NFL must:

Select capable people and improve their knowledge and skills on organized basis. Motivate and enthuse the employees to achieve higher productivity with team spirit. Lay down integrated objectives, define individual goals and maintain an atmosphere

conductive to achievement of these goals.

The Corporate Objectives of NFL are:

In terms of Memorandum of Association, NFL was set up to manufacture and market chemical fertilizers, other chemicals and by-products as well as to provide the allied services. In order to achieve and maintain the leading position in the production and marketing of fertilizers, the following micro objectives have been intensified:

1. PRODUCTIVITY

To achieve the best possible levels of production and economy in the use of inputs while ensuring safety and proper maintenance of plant and machinery and pollution control. More specifically (a) To strive to raise capacity utilization. (b) To improve upon consumption norms consistently.

2. RESEARCH & DEVELOPMENT

To carry out R&D activities for-(a) Increasing plant availability.(b) Saving use of energy in different forms.(c) Better recovery of saleable by-products,(d) Process improvement/development and(e) Increasing efficiency utilization on a sustained basis in the application of chemical

fertilizers in combination with other agricultural inputs.

3. PROFITABILITY

To mange the assets, men and materials in most effective and efficient manner ensuring (a) reasonable return on investment commensurate with the principles laid down by the Government from time to time, and (b) generation of increasing internal resources.

4. MARKETING & CONSUMER SERVICES

(a) To provide to the farmers high quality products in right time and in adequate quantities and with a package of modern agricultural practices.

(b) To further intensify promotional efforts for increased use of fertilizers and to maximize distribution of Company’s products within the areas covered by the company consistent with Government Policy.

5. ORGANIZATION

To develop and maintain an organizational environment for encouraging individual and group initiative, innovation and productivity and also sustain fair deal and humane approach.

6. GROWTH

(a) To achieve reasonable and consistent growth in the business of manufacture and marketing of fertilizers and chemicals compatible with needs of the market.

(b) To work out diversification/expansions schemes to increase profitability of the Company and meet the changing needs of the customers.

7. OBLIGATIONS TO SOCIETY

(a) To conduct the business of NFL in accordance with ethical and legal standards and to under take socio-economic activities, consistent with Government policies, in order to generate good environment, in which Company operates.

(b) To promote development of ancillary industries.

SWOT ANALYSIS

STRENGTHS:

The company’s strengths lies in its brand loyal customers, its harmonious commitments on human resources, its efficient operations, IR, goodwill it has generated over by the work culture, fulfilling its social commitments. The strengths that drive its achievements are:

The company with an excellent track record and high profits. An early starter- more than 40 years experience in fertilizer industry. Highly motivated and dedicated workers and staff-no industrial relations problem. All plants are situated amidst high fertilizers consumption areas in the states of Punjab,

Haryana and Madhya Pradesh. A well developed and efficient marketing network including private and institutional

marketing arrangements. Bio Fertilizers plants of 100 tonnes capacity per annum at Indore in Madhya Pradesh. Excellent growth prospects with significant additions, modifications and replacements.

WEAKNESSES:

Credit Policy Claim policy

.OPPORTUNITIES:

Marketing of Agricultural inputs/ services under one roof. Setting up of Joint Ventures in India/ Abroad. Deploying existing marketing set-up and marketing channels for allied business product

lines including agricultural inputs. Good demand for Neem-coated Urea. Scope for growth in Bio-fertilizers. Locational advantage as the production unit are located in the main consumption areas. Once the gas is available at Panipat, Nangal and Bhatinda, the company would be able to

produce UREA at competitive price at these three units.

THREATS:

Energy intensive i.e. Fuel Oil/LSHS based plants could become unviable under new fertilizer policy unless feed stock is switched over from Fuel oil/LSHS to NG/R-LNG.

Increasing input costs of feed stock i.e. Fuel Oil/LSHS/Naphtha/NG Single nutrient product base. Uncertainty in the availability & pricing of R-LNG for change over of feed stock at

Panipat, Bhatinda. Slow growth in UREA consumption during last 7-8 years. Globalized competitive scenario in industrial products and reducing trend of import

duties and threat from dumping of low price products.

ORGANISATIONAL SETUP OF

FINANCE & ACCOUNT SECTION AT NFL PANIPAT

Sr. Manager (Finance & Account)

Manager (Finance & Account)

Deputy Manager

Sr. Assistant Manager

Assistant Manager

Sr. Account Officer Manager

Junior Executive & Selection Grade

Supervisor (S.G)

Supervisor

Sr. Assistant

Junior Assistant

ORGANISATIONAL SETUP OF

FINANCE & ACCOUNT SECTION AT NFL PANIPAT

F&A Department is under the overall control of Director (Finance) who is appointed by the Government of India. Director is the full time member of the board of directors of the company. Organization operates through four production units at Naya Nangal, Bhatinda, Panipat, Vijaipur, Central marketing office at New Delhi and corporate office at New Delhi. At Corporate office, F&A Department is headed by Deputy General Manager who reports to Director (Finance). Manager (F&A), Deputy Manager (F&A) & other officers assists him. Deputy General Manager/ Manager Finance heads finance department in the production units at Naya Nangal, Panipat, Vijaipur and Bhatinda, administratively reporting to General Manager of the respective unit. Finance and Accounts department at each unit comprises of various sections. They are:

Purchase Accounts Section Sales Accounts Section Stores Accounts Section Works Accounts Section Cash Accounts Section Establishment Accounts Section/Provident Fund Accounts Section Miscellaneous Accounts Section and Estate Accounts Section Central Account Section Management Reporting & Costing & Budgeting Section Internal Audit Section.

Each of these sections is headed by Deputy Manager/ Assistant Manger/ Accounts Officer/Assistant Account Officer who is supported by officers and staff depending upon work load of the section.

PURCHASE ACCOUNTS SECTION

Purchase Account Section is mainly responsible for-(a) Timely release of payment to suppliers as per terms and conditions of Purchase order.(b) Clearance of provisional liability created by store Accounts section(c) Accounting for the purchase of –- Raw material- Packing material- Furniture- Spares- Stores/consumables etc

System summary

The procurement of all types of plant and machinery, store, spares, consumables and equipments are done through material department. Head of department would estimate their requirement for the purchase of goods in respect of each financial year well in advance and communicate to the Accounts/Material department for inclusion in the annual revenue/ capital budget. Once the budget has been approved, the various officers delegated with powers would be free to indent within the approved budgetary limits. In case of capital items all indents shall be sent to Finance &Accounts department by the indenter to ensure availability of budget before such indents are forwarded to stores/purchase section for procurement. The materials are broadly classified in three categories: (a) Specific Items(ST): Items for specific works plant and machinery, equipment etc.(b) Regular stock items(RST): Items of normal requirement of recurring nature for operation , maintenance and other purposes.(c) Insurance stock items(IST):Items for use as replacement in the event of a possible breakdown.

Indenting

The user department places the indent through stores section for the assessed quantities. Store section will then check the stock position of the indented items and in consultation with the indenter, finalize quantities to be purchased. The indent should specify whether it is for “RST”,”ST”,”IST” or of capital nature. The indent will be prepared in 5 copies and will be distributed among different departments.

Tendering

Tenders are classified into three classes:Open Tenders: Open tenders should be invited in the most open and public manner and, as such tender notices should be advertised in the leading news papers or in Indian trade journalLimited tenders: Direct invitation/ enquiry to all or limited number of suppliers/ manufacturers on the approved list.Single tender: invitation/enquiry to a single party on the approved list

Earnest Money/ Security Deposit

EMD/SD must be insisted upon in respect of items which are critical/ important and will hamper production, such as capital equipment etc. It may be waived off only in respect of simple and non-critical items with the approval of competent authority i.e. General Manager / Executive Director. Specific rates are applicable for EMD.EMD may not be asked for, in case of purchase of proprietary items Security Deposit: From successful Tenderers, 10%of value of the order, after adjusting EMD if already deposited.All the deposits should be made in the favor of concerned unit of NFL in the form of cross Demand Draft payable at (the place of unit)

Earnest money should be refunded to the unsuccessful tenderers on the recommendations of Manager (Materials) immediately after placement of order against the tender. Security deposit of

the parties on whom Purchase orders have been placed, shall however be refunded as per terms and conditions of the Purchase order after consulting the indenting department.

Evaluation of Tenders:

All tenders will be received in sealed cover by post or deposited in a locked and sealed Box which would be kept at conspicuous place. In the presence of two officers one from Purchase wing and the representative of F&A department, the tender will be opened and Read out. Evaluation of tender shall be done on comparative statements by bringing all Tenders at par after adding al elements like duties, taxes, frieghtand deductingDiscounts/rebates if any to indicate the delivered cost. All tenders would then be ranked in Roman figures.

Tender committee

All proposals of purchase exceeding 2.0 laks in value would require scrutiny and Recommendation by tender committee .The scrutiny of tenders will include technical and Financial check of the specifications/samples, rates and other terms & conditions of the tender. Tender committee shall take a note of the Purchase section, F&A and user departments during the course of scrutiny of tenders. On the basis of above scrutiny the tender committee will recommend acceptance of the lowest acceptable tender.

Negotiations

Negotiations shall not be resorted to in case of open/limited tenders. If negotiations are considered necessary to be resorted to, the guidelines of the Central Vigilance Commission should be kept view.

Contracts

The contracts may be of following types: a) Supply Contracts b) Rate Contracts c) Running contracts. Contract is an agreement enforceable by law .For supply of materials, acceptance of terms and conditions of tender/ purchase order and schedule of accepted rate, attached thereto, shall constitute a contract.

Petty Purchases

All purchases up to the value of Rs. 1500 per item shall be considered as petty purchase. These purchases can be affected by Purchase section without calling for tenders and without issuing Purchase orders. After purchase the purchase section shall handover the materials on Local Purchase cum Receipt Voucher in 4 copies...

SALES ACCOUNTS SECTION

The Government under Essential Commodity Act shall control distribution of fertilizer. All the dispatches from the unit are made based on instruction of Dispatch & Coordination (D&C) cell, of the Central Marketing office situated at respective unit by road or rail.

Dispatch by Road

D&C cell receives the order through telephone and interoffice memos from various zonal offices, CMO for dispatch of specified quantities to dealer at specified destinations. Dispatch instructions are prepared by D&C cell stating name and code with CST no. and amount deposited etc. These are forwarded to transport department and sales account section of unit. Supplies are made for the dealer’s godown. The traffic department requisitions trucks from transport union. Bagging department supervises loading of fertilizer bags in trucks. Traffic Department shall prepare a daily Loading Statement /Delivery Challans. Sale accounts section shall file serially all dispatch instructions and delivery challans product wise separately. It shall be ensured that the quantity dispatched as per delivery challan issued by traffic department is not more than quantity indicated in the dispatch instruction issued by D&C cell. For cross checking and future reference sales account section shall record the serial no. of the delivery challan on the dispatch instructions as well as delivery challans. Invoices shall be dispatched to parties, CMO, D&C cell on daily basis.

Dispatch by Rail:-

D&C cell shall prepare rake programs and dispatch to sale account section and traffic department .Traffic department call for rake with Chief Good Clerk (CGC), Indian Railway. On arrival of rake for siding; loading shall be made and forwarding note prepared for each wagon. CGC shall prepare railway receipt. Traffic department shall Check weather freight is as per tariff and shortest route has been taken into consideration. A rates and amount chargeable and loading statement shall be prepared by Traffic Department which is dispatched to D&C cell and Sales account section. Sales account section shall note details in Rake Register and prepare monthly debit advice on the rake disposal statement received from marketing division.

Sale of Industrial Products-

Numbers of Industrial/by-products are obtained during the production of Ammonia/Urea at Panipat .These are Nitrogen, Carbon dioxide, Oxygen, Sulphar, Argon gas and carbon slurry. These are termed and sold as industrial products .D&C cell route sale of all these products. This cell receive demand draft from the purchaser and according to the sales terms Dispatch instruction is issued to Traffic, Production and Sales account section Delivery is authenticated by Officer-in-charge to the purchaser according to the dispatch instructions. The concerned department of the unit deals gate passes and excise duty. Invoices are raised on the basis of Gat pass/Loading statement received by sales account section. Invoices are entered in Sales day book product wise.

Payment of freight-

The company has an agreement with truck transport union for transportation of Urea to various destinations where dealers has been appointed. The recipient authenticates receipt of material on Goods Received Note/Delivery Challan. Transporter will raise bill for freight on the basis of authenticated GTRs

The traffic department would request the sales account section for issuance of MICR check towards Outward freight charges based on the amount claimed in R.R’s by Local Railways Goods clerk after checking that the freight charge is as per tariff and shortest route.

WORKS ACCOUNTING

Works Accounting shall be responsible for payment, receipt and maintenance of accounts in respect of expenditure and income of capital/revenue nature. This section shall be responsible for rendering guidance on financial matters to all engineering departments, scrutiny of estimates of works, checking of comparative statements, evaluation of tenders, passing of contractor’s bills, keeping account of all construction work-in-progress and capitalization of work on completion.

Functions

1. Ensuring that execution of capital schemes is taken up only for which both the adequate budget provision and approved estimate exists and monitoring with reference to progress of expenditure on continuing schemes.

2. Checking of estimates of works for obtaining administrative approval and expenditure sanction of the competent authority.

3. Scrutiny of tenders received, checking of comparative statement, evaluation of commercial conditions of the tenders and concurrence of proposals of engineering department for award of work.

4. Checking of contractor’s bills for work done with reference to entries in measurement books, accounting of expenditure, recoveries to be made from contractor release of payment as per terms of agreement.

5. Maintain accounts of earnest money deposits and security deposits of contractors.6. Maintain record of various bank guarantees, insurance guarantees, and FDR’s

received from contractors, to scrutinize them and keep their validity, release or encash the same as the case may be.

7. Examine proposals for extra items and extra items rates.8. Release payments of various advances to contractors.9. Effect from the contractor’s in respect of supplies of material, water and power,

hire of equipment, income tax, sales tax etc.10. Maintains accounts of works-in-progress and capitalize them on completion.11. Maintain accounts of deposit works undertaken through outside agencies on

behalf of outside parties.12. To examine contractor’s claim.13. Check final bills of the Contractors along with deviation statement, material

consumption statement.14. Furnish monthly, quarterly, and annual returns for demands of funds, monitor

budget provisions and sanctioned estimated cost.15. Check and pay bills of service and maintenance contractor.

CASH AND BANK ACCOUNT SECTION

System Summary

Cash and bank accounting section deals with receipt and disbursement of cash directly and/or through bank. Cash handling is a high risk area, there being greater need to ensure proper authenticity, validity, authorization and control of all cash and bank transactions.

Functions:1. Receive cash, check and demand draft from employees and outside parties against dues to

companies, tender fees, earnest money and refund of advances against receipt voucher from the concerned section.

2. Make payment in cash, check and demand draft to employees and other outside parties on the basis of payments order issued by different sections.

3. Handling of bank deposits, withdrawal and custody of cash.4. Maintenance of cash and bank books.5. Intimate bank name to officers authorized to operate bank accounts and send their

specimen signatures and also cancel specimen signatures of those who cease to hold authority to operate bank accounts.

6. Send report to corporate office, of all remittances made by various area office banks to corporate office.

7. Prepare bank reconciliation statements.8. Keep liaison with bank for the discrepancies found in bank reconciliation and for delay in

remittances to units, CMO and delay in collection and credit for cheques / drafts/postal orders sent to bank for collection.

9. Physically verify the cash on daily basis and also surprise cash check by an officer other than in-charge of cash section on monthly basis

10. Security of cash handling.11. Insure cash in safe and cash in transit.12. Safe custody of all bank guarantees and fixed deposit receipts, and other valuable

documents.13. Maintain Register of valuable documents kept in safe custody.14. Check correctness of amount charged by bank for demand draft, telegraphic transfers,

issuing of bank guarantees.15. Check interest charged by bank on cash credit account and credit for interest allowed by

bank under value dating of remittances.

Time Office Section/ Establishment Account Section/ Provident Fund

Time Office Section

Time Office Section deals with the preparations of attendance records, overtime and leaves records. Proper documentation, authorization, and authenticity of all time office records are under them.

Aims of time office

Used for preparation of payroll. For distribution of labor cost to jobs, process departments or cost centers. Submissions of various statutory returns to Government agencies.

Functions of Time Office:

1. Compilation/validation of Attendance statements based on data received from various departments.

2. Compilation of overtime statements from overtime data received from different departments.

3. Keeping record leaves application, reports and leave ledger.4. Ensuring authorization of following competent authority:

I. Attendance sheet.II. Overtime statements.III. Leave application of all types.

5. Submitting the data promptly to EDP section.6. Obtaining the checklist from EDP section, for every batch of source documents and informs EDP section regarding errors (if any).7. ensuring all the errors have been corrected.8. Feed the attendance data to computer for calculation of Productions incentives.

ESTABLISHMENT ACCOUNT SECTION

This section is responsible for scrutiny, disbursement and accounting of claims of employees in respect of salaries, wages, shift and dust allowances, LTC, encashment of LTC, medical reimbursements, various advances etc. Close cooperation between Time office and establishment A/C section is essential to ensure timely receipts of basic documents related to employee’s claims and their processing. Establishment A/C section is also responsible for recovery of Income Tax deducted at source, depositing the same with Government and submissions of reports and returns thereto.

Functions of Establishment Section:

1. Prepare monthly salary bill of staff and officers and make disbursement.2. Calculate, recover and deposit income tax on salaries, issue IT deductions certificates and

file return to TDS as per Income Tax rules.3. Keep record of unclaimed Salaries.4. Check and pay the overtime wages to staff.5. Submitting the monthly statement of overtime paid information to departmental heads

and General Manager. 6. Remit to outside authorities’ amount recovered from employees on account of insurance premium, EPF, ESI, house rent. 7. Pay bonus, gratuity, and incentives to employees as per rules.8. Check and pay leave encashment, medical claims, local conveyance reimbursement,

traveling allowances, LTC encashment and advance to employees.

9. Calculate and make recovery for above advances and interest wherever applicable.10. Keep sub ledger of advances to employees and prepare schedule of outstanding advances.11. Compilation of employee’s statistics for management and statutory authorities.

PROVIDENT FUND ACCOUNTS SECTION

System Summary

Provident Fund Scheme for the Board of Trustees shall manage the employees constituted in accordance with Provident fund rule of the company .This amount is deposited at NFL trust at Nangal Unit. After 6 months from joining of a regular employee deductions started.Functions of Provident Fund Section:

1. Maintain member wise details of Provident fund balances, contributions and loans.2. Check eligibility of new members and make Family Provident Fund and PF deductions

and ensure that nomination forms have been obtained in all case by personnel department.

3. Examine the applications for the loans taken by members as per rule of the trust and to disburse the loans as per PF rules.

4. Charge the interest on loans taken by members as per PF rules.5. Credit the interest on PF balances as decided by the trust.6. Ensure the recovery of loan installments, interest on loan and crediting interest on

member balances.7. Process the application for transfer Provident Fund to other units and organizations.8. Process the applications for final withdrawal as per rules of the trust.9. Prepare the monthly returns of the members, investment of PF money, employer deposit

Link Insurance etc. for submission to RPFC (Regional Provident Fund Commission)10. Maintenance of proper accounts of all receipts, payments, assets and liabilities of the

Provident Fund as per the requirement of EPF Act and PF rules and compilation of Balance Sheet and Interest Income statement etc. for trust and arranging thereof.

11. Comply with provisions of Section 418 of Companies Act 1956.12. Arrange timely investment of PF money in the prescribed pattern as per instructions

issued by the Government of India from time to time.

Every employee has to deposit 12%of basic salary and DA into PF. From this 6500*8.33%=541.45 are deposited under Pension Scheme (RPFC). This scheme was started from 16th November 1995.

MISCELLANEOUS ACCOUNTS AND ESTATE ACCOUNT SECTION

Miscellaneous and estate accounts section are responsible for processing of miscellaneous payments which are neither against specific purchase order or work order e.g. power bills,CISF payments, entertainment expenses, rent of buildings and recovery of rent for company’s houses etc.

Functions:

1. Quarters are allotted by Personnel & Administration Department or Estate department as per approved rules of allotment. A copy of occupation / vacation report shall be endorsed to F&A department and entered in occupation/vacation register .Miscellaneous and estate section shall intimate EDP section for deduction of rent etc. from salary.

2. Deductions for water shall be made at the flat rate fixed. Monthly deductions towards electrical charges shall be made on the approved provisional rate basis.

3. Imprest shall be given to various departments as per need with the approval of Manager/Head of dept.

4. The guest hose staff will maintain record of all guests in the guest’s house, in a register. The receipts will be deposited with the accounts depts. daily/ weekly basis, depending on the amount collected through Estate/Misc. section, who will verify the correctness of the amount from the guest house register and duplicates of receipts books. All expenses for guest house like washer man’s bill etc. will be paid through Estate/Misc.Section

5. Miscellaneous section makes all the payment of CISF bills and entry shall be made in CISF payment control register.

6. Miscellaneous Account Section is also responsible for miscellaneous types of payments like:

I. Record of all the payment of telephone bills are made by Misc. section to ensure that duplicate payments are not made.

II. The expenditure on entertainment will be authorized within budgetary allocations/ limits fixed for the unit/office/head of department.

III. Contracts for services, such as canteen, horticulture, repairs to typewriters, office furniture, air conditioners etc.

IV. Matters relating to sports and welfare activities.V. Advertisement and publicity, conference and seminars, payments for

journals and periodicals, legal expenses etc.

MANAGEMENT REPORTING SECTION

System Summary

Management reporting Section is responsible for:-1. Timely send various reports to corporate office (Noida).On the basis of which it allocates

the funds to all units and control them.2. Send the necessary information to FICC (Fertilizer Industrial coordination Committee)

for getting subsidy.3. Send the information to other agencies like Ministry of Law Justice & Company Affairs

and BOP (Beauro O Public Enterprises) whenever necessary.4. Reporting for the Auditing purpose. There are two types of Audit

(a) Internal Audit: the auditors, which are authorized by Company itself, or outsiders do it as the case may be.

(b) External Audit: It includes: Statutory Auditors Government Auditors Cost Auditors

Ficc AuditorsManagement Information Systems

There are many reports and presentations prepared for effective administrations and controlling functions at NFL panipat, which flow vertically. These report are prepared and sent regularly, monthly, quarterly, half yearly, and annually as per the schedules. Thus it is the sole purpose of reporting to establish an effective information and controlling system for quick decision making. With an effective MIS, officer can proceed for better decision after reviewing the every aspect of the problem .If there is any delay for decision/ corrective action, then there may be heavy/ huge losses to be suffered by the company specially in case of manufacturing unit like NFL, where production per day matters a lot.

STORES ACCOUNTING SECTION

Store keeping activities play an important role in Material Management function. It has to be released that stores means money and any saving effected in reducing inventory, its carrying cost and obsolesce will contribute in improving the profitability of the company.Functions:

The main function of store section is of receiving, inspection, storing, issuing and take suitable steps for evolving methods and procedures for inventory control. It has to keep in coordination with purchase department as well as finance department with regard to stores accounting, physical stock verification, disposal of scrap and surplus material, lodging of formal claims on the carriers and underwriters etc.

Receipt and inspection of material:

The receipt and inspection wing is responsible for Railway Receipt/ Goods Receipt/ Advance Dispatch Documents. The RR/GR is entered serially in the Goods Inward Register meant for the purpose. All documents relating to the consignment shall bear the GIR no .which will serve the purpose of control of subsequent linking. The work of clearance, unloading and shifting of material from railways/ Transport Companies and Railway siding shall be arranged through material handling contractor. The store wing of material department shall make arrangement for payment of freight. On receipt of Delivery Challan that shall also bear GIR control number, relevant documents including purchase order shall be taken out for preparation of Material Inspection Note cum Store Receipt Voucher. The receipt and inspection section attach the item identification tag to the item. To avoid errors in processing of SRV on the computer, the material code and unit of measurement shall e checked from the issue section of store wing. Inspection note shall be prepared in 6 copies. Store wing shall be responsible for carrying out preliminary checks to determine any shortage or breakage. In case of any discrepancies, section will inform to the insurance section and the package shall be preserved for survey, if necessary as claims procedure & insurance policy. The discrepancies shall be intimated to supplier immediately after inspection, not later than two weeks after receipt of material to store. After the material has been checked and accepted , SRV no. will be allotted by Receipt & Inspection Section and the document shall be released to different departments for further processes.

Maintenance of store:

Care is taken by the store to preserve the various types of materials by using proper preservatives. To facilitate Computer processing and proper accounting all items of stores are allocated 7 digit material code. A control register is maintained for allocating code numbers to stores and spares. Considering the importance of the function new codes shall be allotted by a competent officer in the Material Department. At the beginning of each financial year Material Department obtain a list from the computer center of all the items having no movement for 2 years. Disposal of Scrap shall be carried out by Public Auction or tender system as per procedure after approval by an officer competent to do so as per delegation of powers

Issue of Materials

The materials shall be issued from stores on the strength of store issue Note. This store issue Note contains the name and designation of the officer requisitioning the material. It also contain the Material Code Number, quantity to be issued, cost head and unit of measurement

Insurance of stores: The items damaged in transit and having scrap value shall be separately stored for being returned to Insurance Company and procedures on settlements of claim.]

CENTRAL ACCOUNTS SECTION

Central Accounts Section is responsible for:1. Fixed Assets Accounting2. Inter unit Accounting and Reconciliation3. Coordination with EDP for preparation of daybooks, sub ledger, main ledger, trial

balance, consolidated transaction summaries and party ledgers.4. Preparation of periodical Final Accounts.5. Finalization of Final Accounts and coordination with statutory auditors and Government

Auditors for Audit.6. Submission of Company’s Income Tax Return and all other information required for

assessment of tax by tax authorities.7. Coordination for tax audit of the company.8. Interaction with local income tax and sales tax authorities.9. Accounting systems and procedures.

INTRODUCTION TO THE PROJECT

The term Working Capital is one of the most misunderstood terms in Finance. The number one reason most people look at a balance sheet is to find out a company's working capital (or "current") position.  It reveals more about the financial condition of a business than almost any other calculation.  It tells you what would be left if a company raised all of its short term resources, and used them to pay off its short term liabilities.  The more working capital, the less financial strain a company experiences.  By studying a company's position, you can clearly see if it has the resources necessary to expand internally or if it will have to turn to a bank and take on debt.

Working Capital is the easiest of all the balance sheet calculations.  Here's the formula:

Current Assets - Current Liabilities = Working Capital

One of the main advantages of looking at the working capital position is being able to foresee any financial difficulties that may arise.  Even a business that has billions of dollars in fixed assets will quickly find itself in bankruptcy court if it can't pay its monthly bills.  Under the best circumstances, poor working capital leads to financial pressure on a company, increased borrowing, and late payments to creditor - all of which result in a lower credit rating.  A lower credit rating means banks charge a higher interest rate, which can cost a corporation a lot of money over time.

Companies that have high inventory turns and do business on a cash basis (such as a grocery store) need very little working capital.  These types of businesses raise money every time they open their doors, then turn around and plow that money back into inventory to increase sales.  Since cash is generated so quickly, managements can simply stock pile the proceeds from their daily sales for a short period of time if a financial crisis arises.  Since cash can be raised so quickly, there is no need to have a large amount of working capital available.

A company that makes heavy machinery is a completely different story.  Because these types of businesses are selling expensive items on a long-term payment basis, they can't raise cash as quickly.  Since the inventory on their balance sheet is normally ordered months in advance, it can rarely be sold fast enough to raise money for short-term financial crises (by the time it is sold, it may be too late).  It's easy to see why companies such as this must keep enough working capital on hand to get through any unforeseen difficulties.

Working Capital Management is usually being described as involving the administration of assets namely- cash and marketable securities and inventories and administration of Current Liabilities. Management of Working Capital i.e. Current assets is somewhat similar to that of fixed assets in the sense that in both the cases the firm has to analyze their effects in the profitability and risk. The management of fixed and current assets are different in certain aspects:

Time: In managing fixed assets, time is very important factor. But it plays minor role in managing current assets.

Liquidity: Holding large current assets, strengthens the firms liquidity position but reduces riskiness and over all profitability.

Expected Sale: The level of current assets and fixed assets depends upon expected sale. There is greater degree of flexibility in managing current assets.

Working Capital must be in proportion to fixed assets, so that business may operate smoothly. Working at the inception of the business can result in early financial failure. The capital requirement for plant and equipment can be measured with accuracy but promoters underestimate working capital requirements. So a serious unbalance might develop between production capacity of fixed assets and amount of working capital available to business.

Defining Working Capital

The term working capital refers to the amount of capital which is readily available to an organization. That is, working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities).

Current Assets are resources which are in cash or will soon be converted into cash in "the ordinary course of business".

Current Liabilities are commitments which will soon require cash settlement in "the ordinary course of business".

Thus:

WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

In a department's Statement of Financial Position, these components of working capital are reported under the following headings:

Current Assets

Liquid Assets (cash and bank deposits) Inventory Debtors and Receivables

Current Liabilities

Bank Overdraft Creditors and Payables Other Short Term Liabilities

MEANING OF WORKING CAPITAL MANAGEMENT

Decisions relating to working capital and short term financing are referred to as working

capital management. These involve managing the 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 operations and that it has sufficient cash flow to satisfy both maturing short term

debt and upcoming operational expenses.

NEED FOR WORKING CAPITAL MANAGEMENT

Working capital measures the company’s efficiency and its short term financial health. The

number one reason most people look at a balance sheet is to find out a company's working

capital (or "current") position.  It reveals more about the financial condition of a business than

almost any other calculation.  It tells you what would be left if a company raised all of its short

term resources, and used them to pay off its short term liabilities.  The more working capital, the

less financial strain a company experiences.  By studying a company's position, you can clearly

see if it has the resources necessary to expand internally or if it will have to turn to a bank and

take on debt.

Working capital can be either positive or negative. A positive working capital indicates

that company is healthy enough to pay its short term liabilities whereas a negative working

capital indicates that company’s inability to meet its short term liabilities. Worst case can be that

a company can become bankrupt. Continuous declining in working capital is also alarming and

need a quick look upon the matter. Working capital gives investors an idea of company’s

underlining operational efficiency like slow collection may signal an underlying problem.

Working capital is also need for the purpose of inventory funding. As your company grows

the sales grow also the receivables and marketing expenses also grow so proper working capital

management is required so that at any point of time during the regular operation of the company

enough assets are available to meet the liabilities.

There are different business needs and working capital is used for it like-

Critical to meeting short-term cash needs and liquidity for the firm to survive.

A permanent working capital investment to be able to operate a business with a comfort

margin to meeting short-term liabilities.

Seasonal or cyclical working capital to finance the temporary cash shortfalls due to the

nature of the firm’s normal business cycle.

Working capital needed for fund growth. As a firm grows, it needs to maker greater

investments in inventory, accounts receivable, personnel, etc. to realize increased sales.

"Working capital" to support new market or product development, undertakes R&D to

improve existing products & operations.

ADVANTAGES OF WORKING CAPITAL MANAGEMENT

One of the main advantages of looking at the working capital position is being able to foresee

any financial difficulties that may arise.  Even a business that has billions of dollars in fixed

assets will quickly find itself in bankruptcy court if it can't pay its monthly bills.  Under the best

circumstances, poor working capital leads to financial pressure on a company, increased

borrowing, and late payments to creditor - all of which result in a lower credit rating.  A lower

credit rating means banks charge a higher interest rate, which can cost a corporation a lot of

money over time

ESTIMATING WORKING CAPITAL REQUIREMENTS

For estimating working capital following three techniques are required-

ESTIMATION OF COMPONENTS OF WORKING CAPITAL METHOD

Since working capital is the excess of current assets over current liabilities an assessment

of the working capital requirements can be made by estimating the amounts of different

constituents of working capital like Inventories, Accounts Receivable, Cash, and Accounts

Payable etc.

PERCENT OF SALES METHOD

According to this method, on the basis of past experience between sales and working

capital requirement in future is estimated.

OPERATING CYCLE APPROACHES

According to this approach, the requirement of working capital depends upon the

operating cycle of the business. It begins with the acquisition of Raw Materials and ends with the

collection of the receivables.

Pros and cons of maintaining excess or inadequate working Capital

The firm should maintain sound working capital. It should have adequate working Capital to

own its business operations. Both inadequate and excessive working Capital positions are

dangerous from the firm’s point of view. Excessive Working Capital mean sidle funds, which

earns no profit for the firm. Paucity of Working Capital not only impairs firm’s profitability but

also results in production interruptions and ineffectiveness. A firm’s net Working Capital

position is not only important as an index of liquidity but it is also used as a measure of the

firm’s risk. Risk means chances of the firm’s being enable to meet its obligation on due date.

DISADVANTAGES OF EXCESS WORKING CAPITAL

The company may suffer for having excess working Capital as:

1) Return on investment will be inadequate.

2) The management might not be taking advantage of purchasing on credit.

3) The business of company is not expanding.

4) Money is being blocked in excessive inventories for debtors who have adverse

affects.

5) Management is not maintaining relations with the bank.

6) It results in unnecessary accumulation of inventory and the chances of

mishandling, wastage, theft and losses increases.

Advantages of adequate Working Capital

1) To avoid technical insolvency, inability to pay creditors, wages, expenses to

purchase material etc.

2) To maintain creditworthiness to suppliers, banks and financial institutions.

3) To pay dividend regularly to shareholders and to maintain efficiency of the work

in the company.

Adequate working Capitals prevent decline in efficiency and create goodwill for company.

The company has inadequate working capital then:

a) The firm will unable to attract positive credit opportunities.

b) Fixed Assets can’t be efficiently utilized

c) Operating inefficiency creep in when it becomes difficult to meet day to day

commitment.

d) It stagnate growth. It becomes difficult for the firm to undertake profitable projects due to

non availability of working capital.

DETERMINANTS OF WORKING CAPITAL

There is no set rule or formulae to determine the working capital requirement of the firm. A large

number of Factors, each having a different importance, influence working capital needs of a

firm. . Therefore a thorough analysis of all these

Factors should be made before trying to estimate the amount of Working Capital needed. Some

of the factors can be:-

NATURE OF BUSINESS

Nature of Business is one of the most important factors in determining the Working

Capital requirement of any company. Some companies do need low investment in the fixed

assets and high investment in working capital e.g.- Trading and Financial companies whereas

some companies like public utilities require high investment in fixed assets and low in working

capital.

SIZE OF BUSINESS

Size of any business is also a very important factor in determining the Working Capital of

any company. Size of any business depends upon the operating cycle and working capital is in

direct proportion with the operating cycle of the company. Thus with larger operating cycle large

working capital is needed whereas small working capital will be enough for small operating

cycle.

MANUFACTURING CYCLE

Manufacturing cycle refers to the cycle which starts with the procurement of raw

materials and ends with the production of the finished goods. The larger the manufacturing

cycle will be the more the working capital will be required and vice versa.

FIRM’S CREDIT POLICY

Credit Policy of any company effects the working capital requirement to a great extent.

Every company has to decide upon the credit terms which it will provide to its customers. A

liberal credit policy will need more working capital whereas a stern policy can reduce the

working capital to a great extent. But liberal policy can cause large bad debts whereas stern

policy can reduce sales. So a company has to form credit policy with at most care.

AVAILABILITY OF CREDIT

The terms on which the company is having the availability of credit by its creditors

also affect the working capital requirement of the company. If the company is able to get credit

on liberal terms then the working capital requirement will be low whereas it will be high if the

credit available is on stern basis.

PRICE LEVEL CHANGES

If the price of raw materials increases then more working capital will be required in order to

purchase them. But all the companies will not react with the change in prices in the same way as

the price change will affect different companies differently.

BUSINESS FLUCTIONS

All business experience cyclical and seasonal fluctuations regarding demand and supply

of their goods and services and these fluctuations do have an impact on the Working capital of

the company. During boom period due to increase in the activities there is more requirement of

the working capital whereas during recession low working capital will be required as activities of

the business also slows down.

PRODUCTION POLICY

A firm can select a strategy of constant production, in order to resolve the

working capital problem arising due to seasonal changes in the demand for the firm’s

product. A steady production policy will cause inventories to accumulate during the off

season periods. Thus every company has to cope with different fluctuations as stated above

so a production policy for every company is required. As fluctuations are different with

different companies so a unique production policy is required by each company. For example

At NFL, the production is continuous. But the demand is very limited in a year i.e. during

Rabi season and Khariff season. So company has to maintain a sufficient amount of finished

goods so as to meet the demand of customer during the peak period.

OPERATING EFFICIENCY

Operating Efficiency, i.e. the optimum utilization of resources at

minimum cost will also determine the amount of working capital requirement.

WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire..The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-

progress) and Receivables (debtors owing you money). The main sources of cash are Payables

(your creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables) has two dimensions ........TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales.

If you ....... Then ......

 

Collect receivables (debtors) faster You release cash from the cycle

Collect receivables (debtors) slower Your receivables soak up cash

Get better credit (in terms of duration or amount) from suppliers

You increase your cash resources

Shift inventory (stocks) faster You free up cash← Move inventory (stocks) slower You consume more cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing downs a plug hole, they remove liquidity from the business.

More businesses fail for lack of cash than for want of profit.

The way working capital moves around the business is modeled by the working capital cycle.

This shows the cash coming into the business, what happens to it while the business has it and

then where it goes. A simple working capital cycle may look something like:-

A more versatile Working Capital Cycle is shown below:-

The upper portion of the diagram above shows in a simplified form the

chain of events in a firm. Each of the boxes in the upper part of the diagram can be seen as a tank

through which funds flow. These tanks, which are concerned with day-to-day activities, have

funds constantly flowing into and out of them.

• The chain starts with the firm buying raw materials on credit.

• In due course this stock will be used in production, work will be carried out on the stock, and it

will become part of the firm’s work in progress (WIP)

• Work will continue on the WIP until it eventually emerges as the finished product

• As production progresses, labor costs and overheads will need to be met

• Of course at some stage trade creditors will need to be paid

• When the finished goods are sold on credit, debtors are increased

• They will eventually pay, so that cash will be injected into the firm

Each of the areas – stocks (raw materials, work in progress and finished goods), trade debtors,

cash (positive or negative) and trade creditors – can be viewed as tanks into and from which

funds flow.

Working capital is clearly not the only aspect of a business that affects the amount of cash:

• The business will have to make payments to government for taxation

• Fixed assets will be purchased and sold

• Leaser of fixed assets will be paid their rent

• Shareholders (existing or new) may provide new funds in the form of cash

• Some shares may be redeemed for cash

• Dividends may be paid

• Long-term loan creditors (existing or new) may provide loan finance, loans will need to be

repaid from time to time, and

• Interest obligations will have to be met by the business.

Unlike movements in the working capital items, most of these ‘non-working capital’ cash

transactions are not everyday events. Some of them are annual events (e.g. tax payments, lease

payments, dividends, interest and, possibly, fixed asset purchases and sales). Others (e.g. new

equity and loan finance and redemption of old equity and loan finance) would typically be rarer

events.

APPROACHES TO WORKING CAPITAL MANAGEMENT

The objective of working capital management is to maintain the optimum balance of each of the working capital components. This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned. However, such cash may more appropriately be "invested" in other assets or in reducing other liabilities.

Working capital management takes place on two levels:

Ratio analysis can be used to monitor overall trends in working capital and to identify areas requiring closer management

The individual components of working capital can be effectively managed by using various techniques and strategies.

When considering these techniques and strategies, departments need to recognize that each department has a unique mix of working capital components. The emphasis that needs to be placed on each component varies according to department. For example, some departments have significant inventory levels; others have little if any inventory.

Furthermore, working capital management is not an end in itself. It is an integral part of the department's overall management. The needs of efficient working capital management must be considered in relation to other aspects of the department's financial and non-financial performance.

FINANCIAL RATIO ANALYSIS

INTRODUCTION

Financial ratio analysis calculates and compares various ratios of amounts and balances taken from the financial statements.

The main purposes of working capital ratio analysis are: to indicate working capital management performance; and To assist in identifying areas requiring closer management.

Three key points need to be taken into account when analyzing financial ratios:

The results are based on highly summarized information. Consequently, situations which require control might not be apparent, or situations which do not warrant significant effort might be unnecessarily highlighted;

Different departments face very different situations. Comparisons between them, or with global "ideal" ratio values, can be misleading;

Ratio analysis is somewhat one-sided; favorable results mean little, whereas unfavorable results are usually significant.

However, financial ratio analysis is valuable because it raises questions and indicates directions for more detailed investigation.

The following ratios are of interest to those managing working capital: working capital ratio; liquid interval measure; stock turnover; debtors ratio; Creditors’ ratio.

WORKING CAPITAL RATIO

Current Assets divided by Current Liabilities

The working capital ratio (or current ratio) attempts to measure the level of liquidity, that is, the level of safety provided by the excess of current assets over current liabilities.

The "quick ratio" a derivative, excludes inventories from the current assets, considering only those assets most swiftly realizable. There are also other possible refinements. There is no particular benchmark value or range that can be recommended as suitable for all government departments. However, if a department tracks its own working capital ratio over a period of time, the trends-the way in which the liquidity is changing-will become apparent.

LIQUID INTERVAL MEASURE

Liquid Assets divided by Average Operating Expenses

This is another measure of liquidity. It looks at the number of days that liquid assets (for example, inventory) could service daily operating expenses (including salaries).

STOCK TURNOVER

Cost of Sales divided by Average Stock Level

This ratio applies only to finished goods. It indicates the speed with which inventory is sold-or, to look at it from the other angle, how long inventory items remain on the shelves. It can be used for the inventory balance as a whole, for classes of inventory, or for individual inventory items. The figure produced by the stock turnover ratio is not important in itself, but the trend over time is a good indicator of the validity of changes in inventory policies.

In general, a higher turnover ratio indicates that a lower level of investment is required to serve the department.

Most departments do not hold significant inventories of finished goods, so this ratio will have only limited relevance.

DEBTOR RATIO There is a close relationship between debtors and credit sales to third parties (that is, sales other than to the Crown). If sales increase, debtors will increase, and conversely, if sales decrease debtors will decrease.

The best way to explain this relationship is to express it as the number of days that credit sales are carried on the books:

Credit Sales per Period x Days per periodAverage Debtors

Where trading terms are 30 days net cash, and customers buy from day-to-day during the 30 day period and pay 30 days after a statement is rendered, a collection period of 45 days (the average between 30 and 60 days) would be satisfactory.

If the average collection period extends beyond 60 days, debtors are holding cash that should have flowed into the department. This means that the department is unable to satisfy pressing liabilities or to invest that cash.The debtor ratio does not solve the collection problem, but it acts as an indicator that an adverse trend is developing. Remedial action can then be instigated.

CREDITOR RATIO

This ratio is much the same as the debtor ratio. It expresses the relationship between credit purchases and the liability to creditors. It can be stated as the number of days that credit purchases are carried on the books.

Credit Purchases per Period x Days per periodAverage Creditors

Note that non-credit purchases (such as salaries) and non-cash expenses (such as depreciation) need to be excluded from "credit purchases" and any provisions need to be excluded from "creditors". There is no need to pay creditors before payment is due. The department's objective should be to make effective use of this source of free credit, while maintaining a good relationship with creditors. As with debtors, if a department has been granted credit terms of 30 days net cash, credit purchases should not be carried on the books for more than an average of 45 days. If payment is withheld for 60 days or more it is likely that creditors will become impatient and impose stricter and less convenient trading terms-for example, "cash on delivery".

SPECIFIC STRATEGIES

INVENTORY

Inventory refers to the holding of raw materials. Work-in-progress and finished good held by a firm at any time. Inventory turns over at frequent intervals and thus can be expected to convert in cash rather quickly. The speed with which inventory is turned into cash depends on firm’s business line. As lot of cash is blocked in the inventories so it is essential that inventory cycle should be less so that the flow of working capital is properly maintained.

NEED FOR INVENTORY

Inventory is maintained to widen the latitude in planning and scheduling successive operations.

Inventory of raw materials provide flexibility in purchasing and production. Thus firm can wait for an opportune buying movement without affecting its production schedule and like wise production schedule need not be influenced by immediate purchasing activity. Inventory of work-in-progress provides flexibility in production scheduling so that an efficient schedule and high utilization of capacity may be attained thus reducing delay and idle facilities.

Inventory of finished goods provides flexibility in production program and marketing activities. With proper finished goods inventory marketing department can meet the needs of the customer promptly irrespective on quantity flowing out of the production line. Inventory management is an important aspect of working capital management because inventories themselves do not earn any revenue. Holding either too little or too much inventory incurs costs.

Costs of carrying too much inventory are:

opportunity cost of foregone interest; warehousing costs; damage and pilferage; obsolescence; Insurance.

Costs of carrying too little inventory are:

stockout costs: -   Lost sales;-   delayed service.

ordering costs: -   Freight; -   order administration;-   loss of quantity discounts.

Carrying costs can be minimized by making frequent small orders but this increases ordering costs and the risk of stock-outs. Risk of stock-outs can be reduced by carrying "safety stocks" (at a cost) and re-ordering ahead of time.

The best ordering strategy requires balancing the various cost factors to ensure the department incurs minimum inventory costs. The optimum inventory position is known as the Economic Reorder Quantity (ERQ). There are a number of mathematical models (of varying complexity) for calculating ERQ.

Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc.

The key is to know how quickly your overall stock is moving or, put another way, how long each item of stock sit on shelves before being sold. Obviously, average stock-holding periods will be influenced by the nature of the business. For example, a fresh vegetable

shop might turn over its entire stock every few days while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case somebody needs them.

Nowadays, many large manufacturers operate on a just-in-time (JIT) basis whereby all the components to be assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks take up little space, minimize stock-holding and virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold stock for a very short time, they are able to conserve substantial cash. JIT is a good model to strive for as it embraces all the principles of prudent stock management.The key issue for a business is to identify the fast and slow stock movers with the objectives of establishing optimum stock levels for each category and, thereby, minimize the cash tied up in stocks. Factors to be considered when determining optimum stock levels include:

What are the projected sales of each product? How widely available are raw materials, components etc.? How long does it take for delivery by suppliers? Can you remove slow movers from your product range without compromising best sellers?

MONITORING AND CONTROL OF INVENTORY

ABC Analysis- In this method the inventory is divided into three categories A, B and C. A items are those which constitute the highest percentage of value of all the inventory held but with the least number of items where as C items are just reverse of it constituting the lowest value and highest number of items. B items are average in both the terms. Greater control is needed on A level items because of their value and so higher management takes it care whereas low control is done for the C level items.

FSM Analysis- Here the inventory is dividing into the Fast moving, Slow moving and Non-moving inventory. This is the kind of analysis done at the aggregate level.

Just-in-time Inventory level- It was originally developed by Taichi Okno of Japan. It simply implies that the firm should maintain a minimum level of inventory and rely on suppliers to provide the parts and components just in time to meet its assembly requirements. It is difficult to implement because it involves a significant change in the total production and management system by having a strong and reliable relationship with suppiers which are not remotely located and a reliable transport system.

DEBTORS

Debtors (Accounts Receivable) are customers who have not yet made payment for goods or services which the department has provided.The objective of debtor management is to minimize the time-lapse between completion of sales and receipt of payment. The costs of having debtors are:

opportunity costs (cash is not available for other purposes); Bad debts.

Debtor management includes both pre-sale and debt collection strategies.

Pre-sale strategies include: offering cash discounts for early payment and/or imposing penalties for late payment; agreeing payment terms in advance;

requiring cash before delivery; setting credit limits; setting criteria for obtaining credit; billing as early as possible; Requiring deposits and/or progress payments. Post-sale strategies include: Placing the responsibility for collecting the debt upon the center that made the sale; Identifying long overdue balances and doubtful debts by regular analytical reviews; Having an established procedure for late collections, such as

-   a reminder;-   a letter;-   cancellation of further credit;-   telephone calls;-   use of a collection agency;-   legal action.

Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad debts.

Slow payment has a crippling effect on business; in particular on small businesses who can least afford it. If you don't manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves.

2. Establish clear credit practices as a matter of company policy. 3. Make sure that these practices are clearly understood by staff, suppliers and customers. 4. Be professional when accepting new accounts, and especially larger ones. 5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank

references, industry sources etc. 6. Establish credit limits for each customer... and stick to them. 7. Continuously review these limits when you suspect tough times are coming or if

operating in a volatile sector. 8. Keep very close to your larger customers. 9. Invoice promptly and clearly. 10. Consider charging penalties on overdue accounts. 11. Consider accepting credit /debit cards as a payment option. 12. Monitor your debtor balances and ageing schedules, and don't let any debts get too large

or too old.

Recognize that the longer someone owes you, the greater the chance you will never get paid

Thus it is necessary for any firm to have proper credit variables.

CREDIT POLICY VARIABLES

Credit Standards- Here company decides –What standard should be applied in accepying or rejecting an account for credit graning. Like liberal credit terms do tend to push up sales but incidencs of bad dabts also goes up as well as the collection cost is increased.

Credit Period- It reffers to the length of time customers are allowed to pay for their purchases. Like higher credit period will push sales but more money wil be blocked during the credit period also the bad debts can also go up.

Cash Discount- These are generally offered to the customers so that they make prompt payment. The percentage dicount and the period which it is avialable is reflected in the credit terms. Eg- 2/10 net 30 mean that a discount of 2% is offered if the payment is made by the tenth day otherwise full payment is due by the thirtieth day. This is to reduce the average collection period.

Collection Effort- it aims at timely colletion of the receivables and the procedure followed by the firm in this respect so that money locked in the receivables is quickly released.

CREDIT EVALUATION

Before giving credit to any customer it is important it is important that risk involved in giving credit should be considered. There can be two types of errors –

Type I error- A good customer is misclassified as a poor credit risk.Type II error- A bad customer is misclassified as a good credit risk.

Both the errors are costly. Type I error leads to loss of profit on sales to good customers who are denied credit. Type II error results in bad debt losses on credit sales made to risky customers.

APPROACHES FOR CREDIT EVALUATION

There are same main factors considered while evaluating and classifying the customers. This can be done by adopting various techniques.

Traditional Credit Analysis- The credit should be given toa customer or not is assessed in terms of five C’s- Character, Capacity, Capital, Collateral and Condition. These can be done by studying the financial statements, bank references, experience etc.

Numerical Credit Scoring- This technique is somewhat adhoc in nature as it is based on the weights assigned by the firm which are subjective in nature. Firstly some factors relevents for credit evaluation are identified and weights are assigned to them on their relative importance. Then rating is done on these factors using a suitable rating scale. Then multiply the factor rating with the factor weight to get factor score and add add all scores to get overall customer rating index.

Discriminates Analysis- This technique may be employed to create a better risk index. It

considers some financial ratios of its customers as the basic determinants of creditworthiness. Accordingly it is plotted on a graph with X axis as the customers who

paid their dues while on Y axis are customers who default the payments. The higher the value higher the creditworthiness.

ACCOUNTS PAYABLE / CREDITORS

Creditors (Accounts Payable) are suppliers whose invoices for goods or services have been processed but who have not yet been paid.

There is an old adage in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors - slow payment by you may create ill-feeling and can signal that your company is inefficient (or in trouble!).Remember, a good supplier is someone who will work with you to enhance the future viability and profitability of your company.Organizations often regard the amount owing to creditors as a source of free credit. However, creditor administration systems are expensive and time-consuming to run. The over-riding concern in this area should be to minimize costs with simple procedures.While it is unnecessary to pay accounts before they fall due, it is usually not worthwhile to delay all payments until the latest possible date., Regular weekly or fortnightly payment of all due accounts is the simplest technique for creditor management.

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. So these points can be considered to make any policy for creditors.

Who authorizes purchasing in the firm - is it tightly managed or spread among a number of (junior) people?

Are purchase quantities geared to demand forecasts? Do the firm use order quantities which take account of stock-holding and purchasing

costs? Does the firm know the cost to the company of carrying stock? Does the firm have alternative sources of supply? If not, get quotes from major suppliers

and shop around for the best discounts, credit terms, and reduce dependence on a single supplier.

How many of the firm’s suppliers have a returns policy? Is the firm in a position to pass on cost increases quickly through price increases to your

customers? If a supplier of goods or services lets you down can you charge back the cost of the

delay? Can you arrange to have delivery of supplies staggered or on a just-in-time basis?

CASH AND BANK BALANCES

Introduction

Cash is the most important Current assets for the operation of the business. Cash is the basic input needed to keep the business running on a continuous basis; it is also ultimate output expected to be released by selling of service or product manufactured by the firm. Cash is the medium of exchange to purchase the goods and services and to discharge the liabilities. In business enterprises, it includes cash in hand and readily market securities. Now a day’s liquidity band solvency maintenance has become the main task of financial executives. The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remains idle without contributing any thing towards the firm profitability

NEED FOR CASH The first important thing for any business is to understand that why cash is needed in business. The main reasons are-

Transaction Motive- so some cash is always required as buffer for this purpose. Precautionary Motives- to protect uncertainties related to inflow and outflow of cash Speculative Motives- to tap profit making opportunities arising from the fluctuations in

the market.

So cash can be maintained by- Establish reliable forecasting system. Improve cash collection and cash disbursement. Achieve optimal conservation and utilization of funds.

Facets of Cash management

Cash management is concerned with the managing of: (a) Cash flows into and out of the firm. (b) Cash flows within the firm. (c) Cash balances held by the firm at a point of time by financing deficit or investing surplus cash. It can be represented by cash management cycle. Cash management seeks to accomplish this cycle at a minimum cost. At the same it also seeks to achieve liquidity and control. The aim of cash management is to maintain adequate cash control over cash position to keep the firm sufficiently liquid and o use excess cash in some profitable way. The management of cash is important because it is difficult to predict cash flows accurately, particularly the inflows, there is no perfect coincidence between the inflows and outflows of cash. Cash management is also important because management devote their considerable time in managing it. In recent past number of innovations have been done in cash management techniques In order to resolve the uncertainty about the cash flow predictions and lack of synchronization between receipts and payments, the firm should develop appropriate strategies for cash management. The firm should evolve strategies regarding the following facets of cash management:

Cash planning: cash inflows and outflows should be planned to project cash surplus or deficit for each period of the planning period. Cash budget is prepared for this purpose.

Managing the cash flows the flow of cash should be properly managed. The cash inflows should be accelerated while cash outflows should be decelerated.

Optimum Cash level the firm should decide the appropriate level of cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances.

Investing Surplus Cash the surplus cash balance should be properly invested to earn profits. The firm should decide about the division of such cash balance between

alternative short term investment opportunities such as bank deposits, marketable securities or incorporate lending.

FORECASTING OF CASH REQUIREMENT

Cash should be within the business in proper amount so that it can be neither excess nor scarcity of the cash. For this proper forecasting for the need of the cash is required. It can be done by— Receipt and Payment Method- It can be done by monitoring collections and payments by

the firm and also by looking at the timing and magnitude of expected cash receipts and payments. The collection can be done by prompt billing and expeditious collection of cheque while payments to be made only when due, done on a centralized basis and should match with the receipts during that period.

Also it is necessary that there should be reconciliation of cash and bank balances on a regular basis.

MANAGING SURPLUS FUNDS

If at any point of time there is excess or surplus fund available with the firm then it can adopt the following strategies for maintaining that surplus funds-

Do nothing- thus the opportunity cost will be incurred by the firm. Make ad hoc Investments- here there will be no optimal contribution. Ride the Yield Curve- it is to increase the yield from portfolio of marketable securities by

betting on the interest rate charges. If interest rate decreases then buy long term securities as they appreciate more than short term securities. Whereas if interest rate increases then sell the long term securities.

Develop Guidelines- it is to develop a set of guidelines which reflect view of management towards risk and return and then make investment accordingly.

Utilize Control Limits- here the firm set upper and lower limit of cash which the firm should posses. If cash is on the upper limit then invest it in some marketable securities whereas in lower limit sell some securities to realize cash.

Manage with a Portfolio Perspective- here firm have many efficient portfolios and then select the one optimal one so as to have maximum gains.

Follow a Mechanical Procedure- here firm keeps switching funds between the cash and securities.

Sources of Additional Working CapitalSources of additional working capital include the following:

Existing cash reserves Profits (when you secure it as cash) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Long-term loans

If you have insufficient working capital and try to increase sales, you can easily over-stretch the financial resources of the business. This is called overtrading. Early warning signs include:

Pressure on existing cash Exceptional cash generating activities e.g. offering high discounts for early cash payment Bank overdraft exceeds authorized limit Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing Frequent short-term emergency requests to the bank (to help pay wages, pending receipt of a cheque).

EXISTING SYSTEM OF WORKING CAPITAL AT NFL PANIPAT

At NFL working capital is done at corporate office level, not at the divisional levels. All the units concerned forecast their working capital requirements for the current and ensuing year i.e. at the beginning of each financial year and the same is sent to corporate office to make further action at their end. Other than that, management information system (MIS) was established in NFL in such a way that the working Capital analysis will made in comparison with budgeted figures along with actually for the month and up to the month respectively and the same is sent to the corporate office. The two important sources of Working Capital are:-

1. Trade Credit2. Bank Credit

Through cash credit system working capital requirements are financed. Panipat unit avails cash credit facilities from State Bank Of & Bank of India. The amount of cash credit facility, which was granted to panipat units by bank are

State Bank of India 10000000 Bank of India -5000000

To avail cash credit facility, NFL as a borrower should submit operating results as well as working capital gaps continuously to banks. Company has to submit information’s to the banks in the following forms:

I. Operating statements.II. Financial Follow up Report-IIII. Financial Follow up Report –IIIV. Hypothecation statement

The statement prepared will give estimates and actual. Projected annual figures will facilitates a genuine credit appraisal and quarterly figures, furnished continuously will enable a systematic and regular follow up.Generally, banks lend up money by way of cash credit, as per TANDON Committee recommendations. Some recommendations are:I. The borrower should indicate the likely demand for credit. For this purpose, he

should draw operating plan for the ensuing year and supply them to the banker. This will facilitate planning at the banker level.

II. The bankers will finance only the genuine production needs of the borrower. The borrower should hold/maintain the reasonable level f inventory and receivables.

III. The working needs of borrower can’t be entirely financed by the bankers. The bank will finance only a reasonable amount of it. For the remaining the borrower should depend upon his earn funds.

At unit level, at the beginning of every financial year, management reporting section of Finance Department will prepare the working capital requirement based on past experience and same will be forwarded to corporate office. Moreover actual working capital position at the end of every month will be prepared by MR section and the same is compared with the budgeted figures like for the month/up to the month cumulatively and again send to corporate office. At the beginning of financial year, a fresh set of operational budget are and a

copy of the same are provided to bank and corporate office along with last quarter operational statement.

The major components of Working Capital here are:Current assets:

I. Sundry Debtors.II. InventoriesIII. Loans and AdvancesIV. Cash and Bank Balance.

Current LiabilitiesI. Sundry Creditors.II. Deposit from Contractors & OthersIII. Trade Deposits and Advance.IV. Provisions.

Current assets are those assets which are held by the company for short term for the continuance of its operations. These assets mainly constitute inventories upon which the production work is done to make it a complete product. Customers are included from which the payment is due. Cash and Bank balances are also considered as current assets as they to help for the working of production

Sundry Debtors: Sundry Debtors are the main constituent of Current Assets. But at NFL amount of Debtors are very low as compared to other industries. Here Sundry debtors are categorized into the following:

a) Sundry Debtors (Direct)b) Sundry Debtors (Subsidy)c) Sundry Debtors (Others)

(a) Sundry Debtors (Direct) This is based on the net selling price to dealers, institutional customer’s etc

(b) Sundry Debtors (Subsidy) This is based on the retention price fixed by FICC. Currently the price per tonne of UREA is Rs.16092 which includes Rs. 227 per tonne of freight subsidy. The net selling Price fixed by the Government is 4650 per tonne and the remaining difference has to be recovered from the FICC as subsidy

(c) Sundry Debtors (Others) It includes all other receivables like insurance claims etc.

Debtors are handled here very carefully It is important to get the payment in time since any delay in realization of money from the customers shall push up their working capital requirements. Usually the debtors do pay within the allotted credit period.

II. Loans and Advances This includes part of the cash which a firm usually provides to its suppliers and earns interest from that lend amount. The amount lend is the surplus amount and the firm does not require this

amount of liquidity in near future so the same is lend etc.At NFL, they are again divided into the following:

a) Advances to employees.b) Advances to contractors.

A) Advances to employees Advance to employees are given in the following forms:

Conveyance advance. House Building Advance Other Advances like pay Advances

While estimating the total loans and advances to employees, last to year atual as per the trail balance plus allocation made by corporate office to each unit will be taken and total amount is assessed.

B) Advances to contractorsFor executing various works, works are awarded to certain contractors. During the implementation stage, a certain amount will be released to workers as an advance based on work-in-progress/work done report submitted by the contractor that was countersigned by engineer-in-charge.

Cash and Bank BalanceCash & bank is taken care at a corporate level and not Division wise. Cash is maintained in such a way because the corporate can look in a better way that which Unit faced deficit of monetary requirements so the allotment is made to the concerned one. Also if any Unit has surplus funds then that is to be remitted to the corporate so that it can allocate it according to the requirements. Panipat unit’s total cash requirements will be total cash required to make various payments like payment to IOC, Coal India Ltd. Railways imports etc. At Unit level cash is required to make payments like salary and wages etc.

INVENTORY MANAGEMENT AT NFL

Inventories are the major items of Current Assets. At Panipat Unit, it always stood at 80% of the total current assets. So utmost care is requiring reducing the losses arising due to mishandling, wastage etc. At Unit levels along with other budgets an inventory

annexure is to be prepared based on estimated production determined/ planned by the production department as per the consumption norms fixed by the corporate office. NFL Stores is mainly stocking the following categories of Materials:-a) Raw material such as oil and coal.b) Chemicals.c) Mechanical spare parts.d) Electrical and electronic components.e) Rubber parts.f) Gases.

Care shall be taken by the stores to preserve the various types of materials by using proper preservatives, where necessary. After the receipt of the goods, they are recorded in the Goods Inward Register, There after all the clearance, unloading and shifting of material responsibility is taken care by material handling contractor. Then all the material is inspected and material inspection report is prepared. In case of any discrepancies, suppliers are notified by OSRD form and insurance is claimed. Stores Receipt Voucher is prepared after the acceptance of all the material by store department, on the basis of which freight is paid by the finance and accounts department. The material shall be issued from stores on the strength of Stores Issue Note. The requirement for stores would be broadly classified into: Specific Items (ST), Regular Stock Items (RST), and Insurance Stock Items (IST) On the basis of the requirements as assessed the concerned heads of department will place indents. The store wing should check the stock position, offer substitutes available in stock and finalize the quantities to be purchased in consultations with the indenters where necessary, and then forward the indents to the Purchase wing with their comments.

Power to raise indents:

The officers shall be free to indent within the overall budgetary limits in accordance with the overall policy norms and sub delegation of powers. In case of special items and items of capital nature; the existence of budget provision shall have to be checked from Finance before initiating procurement action.

In case of stores and spares where the consumption doesn’t fluctuate abnormally and where record of past consumption is readily available, the indenting shall be done by the officers in store wing of the material department in consultation with the indenters. However to ensure that no excesses in stock are accumulated or vice versa, the reorder quantity shall be decided with utmost consideration. The following factors shall be kept in view while determining the reordering level and re-order quantity-a) Value of annual consumption.b) Nature of usage i.e. whether the item is critical or not.c) Lead time and source of procurement.d) For non-stock items the indents shall be raised by the consumers depending upon

the actual requirement as and when the same arises.

Procurement Time

Indenting officers shall be expected to familiarize themselves with the Purchase procedure. While stipulating delivery time on the indent, the time required in the placement of order as per purchase procedure and the time required by the Suppliers and carriers in shipping and transportation of material shall be taken into account. The indenting officers shall, therefore plan their requirements well in advance maintaining adequate stock to cover the requirement during lead time. Internal lead time with activity breakup is as under:-i) Receipt, registration and scruting of indent 2 daysii) Floating enquiry as per purchase procedure 7 days.iii) Receipt of offers 21 daysiv) Evaluation of offers & release of purchase order 15days

------------ Total 45 days

External lead time ranges from 2 to 12 months depending upon the nature of items.

Stock Controls and Stock Levels

Head of material department as the chief custodian of stores, shall not only regulate optimum inventories levels but also take steps to ensure elimination of practices resulting in waste and misuse of stores e.g. issue against return of old stores wherever necessary, stamping of items prone to misuse, limited drawls at one time and fixation of quotas based on estimated requirements. Material indent used for the purpose of indenting shall have inbuilt control elements, viz. past consumption, reorder level, safety stock and reorder quantity. It shall not only be necessary to adhere to levels and the supporting principles and concepts, but at the same time its of utmost importance to continuously monitor the same for readjustment immediately after a change has been sensed. The stock levels are fixed on the following basis:- Reorder Level (ROL) It represents the lead time consumption plus the safety stock.-Reorder Quantity (ROQ) it represent the requirement during the lead time.-Safety Stock (SS) Depending upon the criticality of stores, unit value and emergency lead time, the safety stock is determined for each item.

Norms of holding Inventory

1. RAW MATERIAL i) LSHS/fuel Oil 20 days ii) Lime Stone 30 days2 FUEL Coal 30 days3. PACKING MATERIALS i) Urea Bags 30 days ii) Can Bags 30 days4. CHEMICALS i) Imported 9 months ii) Indigenous 2 months5. OIL & LUBRICANTS Indigenous 3 months

6. GENERAL STORES i) Imported 15 months ii) Indigenous 6 months

Inventory Control

Store wing of the material department take suitable steps for evolving methods and procedures aimed at control of inventories. These include:

a) An effective control on indenting so as to avoid increase in inventory holding.b) Analysis of slow moving items and initiating steps to identify excess inventory and

surplus inventory.c) Monitoring of levels and reducing the same whenever possible.d) Identifying more and more items for the purpose of procurement through rate contracts

with staggered deliveries.e) Increasing items on automatic replenishment system so that stocking policy becomes

more sensitive to changes in consumption patterns and improvements in lead time.f) Identifying items which can be held jointly by different units of NFL to reduce the stock

being held.g) Continuous procurement planning to reduce the lead time holding by systematic

scheduling of supplies.h) Segregating insurance spares and reflecting them separately for better appreciation of

inventory holdings.i) Standardization and variety reduction.

Review of inventory for replenishment/ procurement action is carried out as follows:1. High value/ slow moving items are subjected to perpetual review.2. Low value/ fast moving items are subjected to periodic review.

Since centralized computer facilities are available to all the units of NFL, maximum use of the same are made for generating outputs to be utilized for control purposes.ABC analysis of stores are carried out both on consumption basis as well as Stock balance basis with the help of computer so as to have the selective control on procurement and inventory holdings. All “A” category items are maintained by the materials manager and “B” category items by the Dy. managers. The stock cards will be suitably marked with the category of the item and Selective Control is required All the items of spares are classified as either vital, essential or desirable, so that the stocking and reordering decisions can be taken rationally.

Physical Verification: Physical verification of inventories and fixed assets are carried out on perpetual inventory system. The items to be verified are categorized as under-

a) Raw material, packing material, stores and spare partsb) Finished and semi finished goodsc) Fixed assets

CURRENT LIABILITIES

A liability is something which a firm owes to a person or another firm. A company's debts or obligations those are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts. Essentially, these are bills that are due to creditors and suppliers- people or firms who have sold you goods which you have not yet paid for within a short period of time or it may be money borrowed from a financial institution - loans or overdrafts.

At NFL Current Liabilities includes;

(a) Sundry Creditors:

Sundry Creditors include all payables and all provisional liabilities created by various sections of Finance & Accounts Department. Provisional Liabilities are generally created by stores account section. It represents current liabilities towards suppliers from whom the firm has purchased raw material on credit.

(b) Deposit from Contractors:

It includes various deposits like earnest money deposit received from contractors for execution of various works. The deposit depends upon the nature of work, time involved, total cost of work etc. Generally it is 10% which includes security deposits also. A firm for financing its current deposits may raise deposits.

(c) Trade deposits and Advances from Customers:

A firm receives income for the goods or services to be supplied in future. Trade deposits are mainly received from the customers for industrial products like carbon dioxide to whom the contracts of supply are given.

(d) Subsidies received in advance:

Unit is claiming subsidy based on dispatches made during the month gone by one. At the end of financial year, some of the goods dispatched May be going at warehouse. For that subsidy received already is treated as advance subsidy and the same will be treated as current liability till such quantity of UREA actually sold.

(e) Other Current Liabilities:

Expenses created provisionally by establishment, miscellaneous, insurance etc i.e. other than stores account and purchase section.

(f) Gratuity Provision & Provision towards leave encashment:

On the basis of actual valuation.

RATIO ANALYSIS IN RELATION WITH WORKING CAPITAL

Analysis of Working Capital Management at NFL Panipat, Using Accounting Ratios

1. CURRENT RATIO

Current Assets/Current Liabilities

It is also known as Working Capital Ratio. It indicates if a firm has enough short term assets to cover its immediate liabilities and also used to know that how a company will meet its sudden demand to pay its short term creditors. It shows how many times the current assets have covered the current liabilities.

If the ratio is less then one then it indicates negative Working Capital. Also a high working capital is not always good, it indicates that there is too much inventories or the company is not investing their excess cash.

Year 2006-07 2005-06 2004-05Current Assets 4784298053 3859185386 1625688137Current Liabilities 1928579554 1583629812 1249205434Ratio 2.48 2.44 1.30

Chart

Interpretation:-The liquidity position as measured by the current ratio is satisfactory. In 2004-05 it was 1.30 which was not up to mark. In 2005-06 it has increased to 2.44 and now company has maintained the trend with the current ratio of 2.48. The percentage increase in current assets is more than the increase in the current liabilities. The main reasons for high current ratio this year:

a) Inventory is increased as compared to the previous yearb) A debtor has increased due to increase in the subsidy from FICC.

Thus the liquidity position of the firm is very much sound this year

2. QUICK RATIO

Liquid Assets/Current Liabilities

Liquid Assets=Current Assets-Inventories

It is also known as Acid Test Ratio. It indicates whether the firm has enough short term assets to cover its immediate liabilities without selling its inventories. Quick Ratio is far more strenuous than Current Ratio as it does not include inventories in the calculation of ratio.

Companies with ratios of less than 1 cannot pay their current liabilities and should be looked at with extreme caution. Furthermore, if the quick ratio is much lower than the working capital ratio, it means current assets are highly dependent on inventory e.g. - Retail stores.

Year 2006-07 2005-06 2004-05Liquid Assets 3821841480 3014669317 911306481Current Liabilities 1928579554 1583629812 1249205434Quick Ratio 1.98 1.90 0.72

I Chart

InterpretationThe quick ratio is a rigorous measure of firm’s ability to service short term liabilities. Quick ratio of 1:1 is considered satisfactory as the firm can easily met all current claims. In 2004-05 it was less than the standard. In 2005-06 and 2006-07 it has improved. Thus the company’s liquidity position was threatening and now it’s walking on the path of improvement.

3. INVENTORY TURNOVER RATIO

Sales/ Average Stock

This ratio indicates the number of times the inventory is replaced during the year. It indicates whether the stock has been efficiently used or not. It shows the speed with which the stock is rotated into sales The higher the ratio the better it is, since it indicates that stock is selling quickly. A low stock turnover ratio indicates that stock remains lying in the godown. But a very high stock turnover ratio is also not good because it may reflect a very low level inventory and high “stock out cost”

Year 2004-05 2005-06 2006-07Sales 6606152662 7660754191 8109496975Average Stock 767863583 779448862 903486321Ratio 8.6 times 9.8 times 8.9 times

Chart

8

8.5

9

9.5

10

ratio

year

Inventory Turnover Ratio

Ratio 8.6 9.8 8.9

2004-05 2005-06 2006-07

Interpretation

The stock turnover ratio has decreased from the previous year, mainly due to increase in cost of goods sold

4. DEBTORS TURNOVER RATIO

Sales/Average Debtors It shows how quickly debtors are converted into cash. It indicates the speed with which the amounts from debtors are recovered. The higher the ratio the better it is, since it indicates the amount from the debtors is being collected more quickly. But a very high debtor’s turnover ratio is also not good, as it indicates less credit period to the customers i.e. strict credit policy which will affect our sales and low turnover ratio indicates poor collection and liberal credit policy, which increase the chances of bad debts.

Year 2004-05 2005-06 2006-07Sales 6606152662 7660754191 8109496975Average Debtors 784500564 1787528587 3228157017Ratio 8.4times 4.2times 2.5 times

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0

2

4

6

8

10

ratio times

year

Debtors Turnover

Ratio 8.4 4.2 2.5

2004-05 2005-06 2006-07

Interpretation

As calculated in 2004-05 Debtors Turnover Ratio is 8.4 times which has decreased to 4.2 times and further decreased to 2.5 times which shows ineffective debtors management.

5. AVERAGE COLLECTION PERIOD

Days in a year/ Debtors Turnover

Year 2004-05 2005-06 2006-07Days 365 365 365Debtors Turnover 8.4 4.2 2.5ACP 43 days 86 days 146 days Chart

0

50

100

150

ACP in days

year

AVERAGE COLLECTION PERIOD

ACP 43 86 146

2004-05 2005-06 2006-07

Interpretation

This ratio indicates to what extent the debtors have been collected in time. In year 2004-05 it took 43 days to get the debtors converted into cash, which has further increased to 86 days and now 146 days which is very high and indicates excessive blockage of funds with debtors and increase the chances of bad debts.

6. CREDITORS TURNOVER RATIO

Purchases/Average Creditors

This ratio indicates the speed with which the amount is being paid to creditors. The higher the ratio, the better it is, since it indicates that creditors are being paid more quickly which increases the creditworthiness of the firm. But a very high credit turnover ratio is also not good; it means firm has not taken full advantages of credit, and low credit turnover ratio reduces the credit worthiness of the firm.

Year 2004-05 2005-06 2006-07Purchases 5284621236 6471767212 7173419291Average Creditors 681166933 1232653864 1571918888

Ratio 7.7 times 5.2 times 4.5 times

Chart

0

2

4

6

8

ratio (times)

YEAR

Creditors Turnover Ratio

Ratio 7.7 5.2 4.5

2004-05 2005-06 2006-07

Interpretation:

The main reason for the decrease in creditor turnover ratio is increase in the creditors and purchases bcoz of the increases in fuel prices

7. AVERAGE PAYMENT PERIOD

Days in a year/Creditors Turnover

Year 2004-05 2005-06 2006-07Days 365 365 365Creditors Turnover 7.7 5.2 4.5APP 47 70 81

chart

0

20

40

60

80

100

Payment Period (days)

year

APP

APP 47 70 81

2004-05 2005-06 2006-07

8. WORKING CAPITAL TURNOVER RATIO

Net Sales/ Working Capital

This ratio reveals how efficiently working capital has been utilized in making sales . A high working capital ratio shows efficient use of working capital and quick turnover of current assets. A low working capital ratio indicates under utilization of working capital. However a very high working capital ratio is also dangerous, as it is a sign of overtrading

Year 2004-05 2005-06 2006-07Sales 6606152662 7660754191 8109496975Working Capital 376482703 2275555574 2855718499Ratio 17.5 3.3 2.8

Chart

0

5

10

15

20

ratio

year

Working capital Ratio

Ratio 17.5 3.3 2.8

2004-05 2005-06 2006-07

Interpretation

In 2006-07 working capital ratio is very low as compared to the previous years, it indicates an efficient use of working capital. Firm can face financial difficulties. The ratio is low because of the more increase in the cost of goods sold as compared to increase in working capital. Cost of goods sold has increased due to increase in purchase price of fuel.

FINDINGS

After above all the analysis of statements various aspects have come in the picture. These are as follows:

NFL has gained more popularity in comparison to other companies playing in the market.

On study of financial system in NFL I have observed that the system is adequate and commensurate with the size. The system has been designed by delegating adequate powers to each manager/ officer.

The Internal checks have been inbuilt to minimize the mistakes due to collusion of officers/ system. The job of one particular section is being scrutinized by another section through trial balance/ sub ledger and mistakes if any are listed out to rectify the same.

Working Capital management is centralized one-In NFL the working capital is managed at corporate office in New Delhi, not at the unit level.

Capacity utilization level of the over all company shows an upward trend.

The company continuous to enjoy a cordial and harmonious relationship with its employees. The Company encourages its employees for the up gradation of the competence.

On the analysis of various ratios, it is found that liquid position of the company is very sound. Both the current ratio and quick ratio are above the desired rule of thumb.

Regarding management of debtors, Company is using liberal credit policy. Debtors are released at slower rate as compared to previous years. Average collection period is very high which indicates inefficiency and negligence on the part of management.

Company’s inventory turnover ratio is also declining due to increase in the cost of goods sold.

LIMITATIONS OF STUDY

The study was conducted in limited area.

Employees felt unnecessary burden.

The accuracy of ratios is totally depended upon the secondary data that is the annual reports that were available.

The time of study was less.

Scope of study was very wide.

RECOMMENDATIONS

The NFL should create their own niche market by adapting the strategy of “Think Local and Act Regional”

More than 60% of sales realization is received from FICC under the head SUBSIDY.

Subsidy is being given to the fertilizer industry after deducting applicable selling price from the retention price fixed by FICC and the retention price is being fixed by FICC on the basis of information furnished by the manufacturing unit. FICC collect two type of information from the unit’s namely technical and financial data, which are to be supplied by the two different departments. To drive maximum benefits, a separate section of accounts department is to be created by drawing engineers from technical wing and officers from Finance wing.

In order to increase the awareness among farmers, Company must increase its investment on advertisements; Company should reformulate their advertising strategies by focusing more on broadcast media like television and print media like newspapers.

There is a need of accounting through computers completely because it will increase the efficiency and speed of the staff.

To efficiently manage the debtors, the company should use strict credit policy and should make more efforts to realize debtors more quickly

. Inventories should be controlled by utilizing them in the most efficient way. There should

be minimum wastage of the inventory.

As company is in its growing stage and capturing a high market share, company should

be very careful to customers.