CERTIFICATEThis is to certify that Ms. Anisha Khan, student of Masters of Business Administration, have successfully completed the Report project on the topic Working Capital Management.

This report has been submitted in fulfillment of the requirements for the award of the degree of Masters of Business Administration (MBA) from Devi Ahilya Vishwa Vidhyalaya, Indore.

To the best of my knowledge and belief this work has not been submitted by them anywhere else for the award of any degree or diploma without proper citation.

----------------Prof. Vikas Pathak

(H.O.D.)(MBA Department)

Grasim Industries Ltd.SIMS, Indore

ACKNOWLEDGEMENTGratitude is the hardest of emotions to express and often does not find adequate words to convey all that what we feel. I owe gratitude to several people who helped me in my course of project.

I would like to thank Dr. Naresh Singh, who gave me this opportunity to undergo the training at Grasim Industries Ltd and also thankful and obliged to Prof. Vikas Pathak, Who allotted us this project and helped completing it by providing their help wherever needed. I am also highly thankful to Prof. V.S. Gualti who helped me a lot to understanding the whole concept and working of Working Capital Management. I shall be grateful to them because of all the encouragement and support they gave us for completing this project successfullyMy heartiest thanks are due to for providing all facilities during the project. I express my heart felt thanks to Mr.KUNDAN LODHA (Asst Vice President-F&A) for granting me permission to do my training in finance dept. I am also grateful to my project guide Mr. M.P AGRAWAL (Dy. General Manager- Taxation & Insurance) for his generous guidance and full co-operation to me despite of his hectic schedule.I would like to thank Sanghvi Institute of Management and Science, Indore for allowing us to do the marketing research by giving us an opportunity to work in an external organization.Anisha KhanEXECUTIVE SUMMARYBooks are the treasure of knowledge and a theoretical base is pivotal for understanding the realities of practical field. But, at the same time, practical knowledge is crucial for having an insight into the implementation of theory in corporate world.

With the privilege of an opportunity provided to me by Grasim Industries, for the fulfillment of my purpose bridging the gap between theory and practical, I undertook summer training at finance dept. of Staple Fibre Division of Grasim Industries Limited, Nagda. During this training, I conducted a study of project about WORKING CAPITAL MANAGEMENT.

Under the project Working capital management, first of all annual reports of two years was provided to me to analyze it and so that I could get acquainted with the terms relating to the staple fibre business, financial condition depicted by balance sheet, cost sheet and profit and loss account of the co., figure relating to import and export etc. Using the working capital, we then conducted a compare analysis of ratio of five years, and on the basis of these, interpreted the financial position of company.

We also determined the comparative statement, ratio analysis and cash flow analysis for the companyCONTENT

SECTION 1- INTRODUCTION OF THE COMPANY

Aditya Birla Group of company - Profile

Grasim & its Subsidiaries / JVs Grasim history

Products

SFD, Nagda

SECTION 2- INTRODUCTION TO STUDY

SECTION 3- OBJECTIVE OF STUDY

SECTION 4- WCM THEORITICAL PERSPECTIVE

Concepts of working capital

Components of working capital Working capital cycle

Key working capital ratios

Advantages of working capital

SECTION 6- OBSERVATIONS

SECTION 7- ASSESSMENT AND ANAYSIS

SECTION 8- RECOMMENDATIONS

SECTION 9- CONCLUSION

ADITYA BIRLA GROUP A BRIEF PROFILE

An US $28 billion corporation, the Aditya Birla Group is in the league of Fortune 500. It is anchored by an extraordinary force of 100,000 employees, belonging to 25 different nationalities. In India, the Group has been adjudged "The Best Employer in India and among the top 20 in Asia" by the Hewitt-Economic Times and Wall Street Journal Study 2007. Over 50 per cent of its revenues flow from its overseas operations.

The Group operates in 25 countries India, UK, Germany, Hungary, Brazil, Italy, France, Luxembourg, Switzerland, Australia, USA, Canada, Egypt, China, Thailand, Laos, Indonesia, Philippines, Dubai, Singapore, Myanmar, Bangladesh, Vietnam, Malaysia and Korea.

Globally the Aditya Birla Group is:

A metals powerhouse, among the world's most cost-efficient Aluminum and copper producers. Hindalco-Novelis is the largest Aluminum rolling company. It is one of the three biggest producers of primary Aluminum in Asia, with the largest single location copper smelter

No.1 in viscose staple fiber.

The fourth largest producer of insulators.

The fourth largest producer of carbon black.

The 11th largest cement producer globally and second largest in India.

Among the world's top 15 BPO companies and among India's top four.

Among the best energy efficient fertilizer plants.

In India:

A premier branded garments player.

The second largest player in viscose filament yarn.

The second largest in the chlor-alkali sector.

Among the top five mobile telephony companies.

A leading player in life insurance and asset management.

Among the top three supermarket chains in the retail business.Beyond business The Aditya Birla Group is:

Working in 3,700 villages

Reaching out to seven million people annually through the Aditya Birla Centre for Community Initiatives and Rural Development, spearheaded by Mrs. Rajashree Birla

Focusing on: health care, education, sustainable livelihood, infrastructure and espousing social causes Running 41 schools and 18 hospitals.

GRASIM & ITS SUBSIDIARIES / JVSGrasim Industries Ltd.Viscose Staple Fibre, Cement, Sponge Iron, Chemicals, Textiles

Subsidiaries Ultra Tech Cement Ltd.

Dakshin Cement Ltd

Ultra Tech Ceylinco Pvt Ltd.Cement

Grasim Bhiwani Textiles LtdTextiles

Harish Cement Ltd.Cement

Samruddhi Swastik Trading And Investment Ltd.Investment

Sun God Trading And Investment Ltd.Investment

Joint Ventures

Idea Cellular Ltd.Telecom

A V Cell Inc.Pulp

A V Nackawic Inc.Pulp

Birla Jingwei Fibre Co. Ltd.Fibre

Birla Lao Pulp & Plantation Co. Ltd.Plantation & pulp

Associate

Aditya Birla Science & Technology Co. LtdResearch & Development

BOARD OF DIRECTORS

Mr. Kumar Mangalam Birla, Chairman

Mrs. Rajashree Birla

Mr. M. L. Apte

Mr. B. V. Bhargava

Mr. R. C. Bhargava

Mr. Cyril Shroff

Mr. S. G. Subrahmanyan

Mr. Shailendra K. Jain (Whole-time Director)

Mr. D. D. Rathi (Whole-time Director & CFO)

Business Heads

Mr. Shailendra K. Jain, Viscose Staple Fibre

Mr. Saurabh Mishra, Cement

Mr. Ravi Kastia, Sponge iron

Mr. Vikram Rao, Textiles

Mr. K. K. Maheshwari, ChemicalsChief Financial Officer Mr. D. D. Rathi, Whole-time Director & CF

Company Secretary

Mr. Ashok Malu

GRASIMS OVERVIEW

Grasim was incorporated as the Gwalior Rayon Silk Manufacturing and Weaving Co. Ltd on 25th aug.1947 and was established by late shri G.D. BIRLA, grandfather of late shri ADITYA V. BIRLA. In 1986, the company was renamed GRASIM INDUSTRIES LIMITED to reflect the diversified nature of its business. Starting as a textiles manufacturer in 1948, today Grasim's businesses comprise Viscose Staple Fibre (VSF), cement, sponge iron, chemicals and textiles. Its core businesses are VSF and cement, which contribute to over 90 per cent of its revenues and operating profits. It is also the second largest producer of caustic soda (which is used in the production of VSF) in India. Grasim Industries Limited, a flagship company of the Aditya Birla Group, ranks among India's largest private sector companies, with consolidated net turnover crossed US$ 4 billion(Rs.16,974) ,up by 21%,while net profit at Rs.2655 crores reflects an impressive growth of 35%(FY2008) . In cement(grey cement and white cement), Grasim along with its subsidiary Ultra Tech Cement Ltd. has a capacity of 30 million TPA and is a leading cement player in India. In July 2004, Grasim acquired a majority stake and management control in Ultra Tech Cement Limited. One of the largest of its kind in the cement sector, this acquisition catapulted the Aditya Birla Group to the top of the league in India.

Viscose staple fibreThe Aditya Birla Group is the world's largest producer of VSF, commanding a 24 per cent global market share. The company meets India's entire domestic VSF requirements. V.S.F production commences at Nagda (M.P) in 1954 near Ujjain city. It is situated on a 150 acre site and is the largest in the world. The company has its 3 plants located in India at Nagda in M.P as SFD, Kharach in Gujarat as Birla cellulose and Harihar in Karnataka as Grasilene division with a combined installed capacity of 220,775 tones per annum and two plants located abroad at Thailand as TRC and IBR in Indonesia.CementGrasim ventured into cement production in the mid 1980s, setting up its first cement plant at Jawad in Madhya Pradesh and since then it has grown to become cement major. With the acquisition of the L&T cement business, it increased its capacity to 31 million TPA. The constituent of Vikram cement were commissioned in the year 1985, 1987, and 1991.Grasim is Indias third largest cement producer. The brand VIKRAM PREMIUM CEMENT, has established as a brand leader of premium products, capitalizing on its consistent superior quality and a reputation for strength and perfection. The Aditya Birla Group is the 11th largest cement producer in the world and the seventh largest in Asia.

Sponge iron In 1993, Grasim ventured into this segment with the commissioning of a gas-based sponge iron plant at Salav in Alibag, Maharashtra. The plant has a current capacity of 900,000 tones per annum, and is the third largest gas-based sponge iron plant in India. This 100% import substitution project uses the most advanced technology and cost effective process of Dvay Dravo, a division of Davy Mckee corp. of U.S.A. and HYLSA S.A. de C.V of Mexico. It is the largest merchant producer of sponge iron in India.

Chemicals Grasim has India's second largest caustic soda .To achieve a reliable unit and economical supply of rayon grade caustic soda an important raw material in VSF production Grasim set up a caustic soda unit at Nagda in 1972, with an initial capacity of 33,000 TPA.This has since grown to 190,800 TPA.

Sodium SulphateGrasim is also Indias largest producer of sodium sulphite, a by-product of V.S.F manufacture and employee the process of crystallization, which helps in reducing the adhering impurities. This chemical is widely used in paper and pulp, detergent glass and textile industries. Grasim also exports Sodium Sulphate to both developed and developing countries.

TextilesThe Grasim textile division is located 127 kilometers south west of Delhi at Bhiwani, Haryana. This composite textile unit has its own spinning, weaving and processing units under one roof. In order to render services to customer all over the country, the co. has over 1,000 retail outlets through the country. The leading range of fashion fabrics, marketed under the brand name GWALIOR SUITING, GRAVIERA SUITING, ADONIS, SUMO &WALL ST. continue to enjoy an excellent market reputation. The successful introduction of worlds leading suiting brand SCABAL, and the launching of superfine worsted suiting have helped the co. to consolidate its position in the premium segment. Its premium brands, the Grasim and Graviera range of fabrics, have distinctively positioned themselves as 'the power of fashion'.VALUES

Integrity : Honesty in every action

Commitment : Deliver on the promise

Passion : Energized action

Seamlessness : Boundary less in letter and spirit

Speed : One step ahead always

VISION

To be a premium conglomerate with a clear focus at each business level

MISSION

To pursue the creation of value for our customer, shareholders, employees and society at large

BRIEF DESCRIPTION OF THE MANUFACTURING PROCESS Rayon grade pulp is steeped in caustic soda solution and excess lye is drained in slurry presses to obtain a mat of alkali cellulose. After shredding, alkali cellulose is reacted with carbon di sulphide to yield cellulose xanthate. The xanthate so formed is dissolved in dilute caustic soda to give viscose, which is filtered, deaerated and ripened, before extrusion through spinnerets in to a spinning bath containing sulphuric acid and special additives. Cellulose is regenerated in the form of fine filaments. The filaments are cut in to the required staple length, washed, desulphurised, bleached, soft finished and dried to obtain Viscose Staple Fiber, which is then baled in bailing press.

INTRODUCTION

Working capital is the usable excess of your current assets such as purchasable invoices, or sale of future credit card processing receipts.

In the end, youll have the most funding at the most affordable repayment discount. With a strong pool of funding sources, we bypass stringent requirements of traditional bank loans and put you back in control of your business.

Well review your situation and come up with a solution that meets your immediate cash needs. Well also structure a relationship that is set up for the long-term.

No two business financing situations are alike. Thats why our dedicated financial advisors resource a broad range of funding programs to help you get the funding you need, on time, and at an affordable price.Hence while selecting the project for training; I thought it fit to get insight into the management of working capital by a diversified company Grasim and the preparation of CMA data by them.

It would be noteworthy to mention that SFDs working capital limit is presently 73.31 corers and is provided and provided by a consortium of 8 banks with SBI being the main emphasis shall be on probing into the working capital management and preparation of CMA data by Grasim.

PROJECT OBJECTIVE

A consortium of bank finances working capital need of Grasim. Consortium sanctions its financing limits according to reserve bank of India guidelines.Company is required to send is report on working capital needs annually to the consortium.

Consortium analyzes working capital needs of the company on the basis of the report, which is said credit monitoring agreement.

The main objective of the project is to assist in preparing CMA report and make assumptions, other object are:-

1. To practically understand the concept of working capital studied in academic sessions.

2. To study and analyze the working capital requirements of the company.

3. To analyze the soundness of the company with the help of financial management tools.

4. To study the financing of its working capital needs.

5. To study the trends and reasons for deviation.

CONCEPTS OF THE WORKING CAPITALDecisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

Concept of working capital: Gross concept

Net concept Positive Working Capital

Negative Working CapitalGross Working capital

Firms investment in current assets. Current assets, are the assets, Witch can be converted into cash within an accounting year, and include cash, short-term securities, debtors, bills receivables and stock.

Net Working Capital

Current liabilities are those claims of outsiders, which are expected to mature for payment within accounting year and include creditors bills payable and outstanding expenses.

Positive Working CapitalA positive change in working capital indicates that the business has paid out cash, for example in purchasing or converting inventory, paying creditors etc. "Any change in the working capital will have an effect on a business.

Positive working capital means that the company is able to pay off its short-term liabilities.

Negative Working Capital

Any increase in working capital will have a negative effect on the business's cash holding. However, a negative change in working capital indicates lower funds to pay off short term liabilities (current liabilities), which may have bad repercussions to the future of the company."

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.

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.

Sources of Additional Working Capital

Sources 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

Calculation of working capital ManagementWorking Capital = Current Assets Current Liability

YearCurrent AssetsCurrent LiabilitiesWorking Capital

2003-041496.01946.37549.64

2004-051853.931108.93745.00

2005-062026.761273.37753.39

2006-072342.391450.06892.33

2007-082959.082144.38814.70

Interpretation:-

The main objective of Working Capital Management is to ensure Optimum Investment in Current Assets, so as per the datas current assets is always more than current liabilities so if we take working capital as a individual year so position of the company is better, but if we take subsequent year working capital of the company increased upto 2007 and in the current year 2008 the working capital goes down which is not good for the organization.Ratio Analysis

Ratio Analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. Ratio analysis is only a means of better understanding of financial strengths and weaknesses of a firm. Ratio Analysis is one of the best possible techniques available to the management to impart the basic functions like planning and control. Ratio is also calculated for inter firm and intra firm comparison, for budgeting, to estimate the future requirement. It is also helpful in managerial decision making, for financial forecasting and planning, helps in controlling communicating and co-ordination.Types of Ratio:-

a. Liquidity Groupb. Turnover Groupc. Profitability Groupd. Overall Profitability Groupe. Miscellaneous Group

INTERPRETATION AND ANALYSIS a. Liquidity Group

I. Current Ratio:- Current assets

Current liabilitiesYearCurrent AssetsCurrent LiabilitiesRatio

2003-041496.01946.371.58

2004-051853.931108.931.68

2005-062026.761273.371.59

2006-072342.391450.061.61

2007-082959.082144.381.38

Interpretation:-

Current Ratio indicates the backing availability to Current Liabilities in the form of Current Assets. Higher the Current Ratio betters the position of the organization. A Current Ratio is of 2:1 is supposed to be standard and ideal.

In Grasim as the data Current Ratio is decrease in 2008 in comparison to the previous year, which is not good for the organization. It indicate the Current liabilities is more then the current asset.

II. Liquid Ratio:- Liquid Asset Liquid LiabilitiesYearLiquid AssetsCurrent LiabilitiesRatio

2003-041036.55946.371.09

2004-051175.341108.931.05

2005-061276.031273.371.00

2006-071518.251450.061.05

2007-081980.642144.380.92

Interpretation:-Liquid Ratio indicates the backing availability to Liquid Liabilities in the form of Liquid Assets. Higher the Liquid Ratio indicates that there are sufficient assets available to the organization. A Liquid Ratio of 1:1 is supposed to be standard and ideal.

In Grasim as the data Liquid Ratio is decrease in 2008 in comparison to the previous year, which is not good for the organization. It indicate the Liquid liabilities is more then the current asset.b. Turnover Group:-I. Fixed Assets Turnover Ratio:- Net Sales Fixed AssetsYearNet SalesNet Fixed AssetsRatio

2003-0452133195.701.63

2004-0563393194.811.98

2005-0666533298.272.01

2006-0785724582.791.87

2007-08102157049.821.45

Interpretation: -

A high fixed assts turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in fixed assets. Higher the fixed assets turnover ratio better will be the situation.In Grasim industries as the data fixed assets turnover ratio increases in 2005 and in 2006 but after that it decreases over the period of time, which is not good for the organization. It means fixed assets have to utilize by the organization to increase the fixed assets turnover ratio.II. Current Assets Turnover Ratio:- Net Sales Current AssetsYearNet SalesCurrent AssetsRatio

2003-0452131496.013.48

2004-0563391853.933.42

2005-0666532026.763.28

2006-0785722342.393.66

2007-08102152959.083.45

Interpretation:- A high Current assts turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in Current assets. Higher the Current assets turnover ratio better will be the situation.In Grasim current assets turnover ratio decrease up to 2005 suddenly increases in 2006 and again decreases in 2007 which is not good for the organization.

III. Working Capital Turnover Ratio :- Net Sales

Working capitalYearNet SalesWorking CapitalRatio

2003-045213549.649.48

2004-0563397458.51

2005-066653753.398.83

2006-078572892.339.61

2007-0810215814.7012.54

Interpretation:- A high working Capital turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in working capital. Higher the ratio better will be the situation.

In Grasim Working capital turnover ratio was decreases in 2005, but after that it increases over the period, which is very good for the organization.IV. Inventory/ Stock Turnover Ratio:-

Cost of Sales

Average InventoryYearCost of SalesAverage InventoryRatio

2003-043863484.637.97

2004-054583522.018.78

2005-065159750.736.87

2006-076065824.147.36

2007-086898978.447.05

Interpretation:- A higher inventory turnover ratio indicates that maximum sales turnover is achieved with the minimum investment in inventory, so higher inventory turnover ratio is desirable.

In the organization as the data indicate the inventory turnover ratio is decreased as compared to the previous year, these indicate over investment in inventory, improper inventory management.c. Profitability Group :I. Gross Profit Ratio = Gross Profit *100

Sales

YearsGross ProfitSalesRatio (in %)

20041350521325.90

20051646622926.42

20061494665322.46

20072507857229.25

200833171021532.47

Interpretation:-

The gross profit ratio indicates the relation between production cost sales and the efficiency with which the goods are produced or purchased. A high gross profit may indicate that the organization is able to produced or purchase at a relatively lower cost. As such higher gross profit ratio is desirable.The above data shows that the gross profit ratio is keep on increasing though it has been decreased in 2005-06 because of decrease in G.P. due to high purchase of finished goods and other products but it has again improved in 2006-07and 2007-08 reaches to 32.47%.

II. Operating Ratio :-

Operating Ratio = Cost of Sales + Other Operating Expenses *100

Sales

YearsCost of salesOther operating expensesSalesRatio (in %)

20043863825.46521389.94

20054583938.46622988.64

200651591139.59665394.67

200760651505.69857288.32

200868981701.731021584.19

Interpretation:-

Operating ratio indicates the percentage of net sales that is consumed by operating cost. In other words, it measures the cost of operations per rupee of sales. Higher the operating ratio, the less favorable it is. However, 75 to 85%may be considered to be a good ratio.

In Grasim Operating ratio has been continuously declining and reaches to 84.19% in 2008 because cost of sales has been declining and in relation to this sales has increased. The overall position indicates cost consciousness of the management of the concern.

III. Net Profit Ratio :-

Net Profit ratio = Net Operating profit *100

SalesYearsNet Operating ProfitSales Ratio (in %)

2003779.26521314.95

2004885.71622914.22

2005863.21665312.97

20061535.81857217.92

200722331021521.86

Interpretation:-

It establishes a relationship between N.P. and Sales, and indicates the efficiency of the management in manufacturing, selling, and other activities of the firm.

This ratio is very low in 2003 but show a great improvement. It rises from 13.03 in 2006 to 17.85% in 2007 because Selling and distribution expenses increases by 27% and Sales increased by 29% as compared to 21% and 6.6% in 2006.

This ratio increased in 2007 because of increase in Interest and dividend income by 40.38% and because of this net profit ratio increase in 2008 upto 21.86%.d. Miscellaneous group:I. Earning Per Share Earning Per Share = Net Profit after Tax& Preference Dividend

No. of Equity Shares

YearNet ProfitNo. of Equity SharesRatio (in Rs.)

200477926000009168948584.99

200588571000009168948596.59

200686321000009168948594.14

20071536000000091689485167.52

20082233000000091689485243.54

Interpretation:-

Earning per share is a small variation of return on equity capital. The earning per share is a good measure of profitability and it gives a view of earning power of the firm. From the above data it is clear that earning per share has increased from Rs. 84.99 in 2004 to Rs. 243.54 in 2008. This shows that earning power of the company has increased year by year.

Return on Investment

II. Return on Investment = Net profit (after interest and tax)

Shareholders Funds

YearNet ProfitShareholders FundRatio (in %)

2004779.263610.8321.57

2005885.714328.3520.47

2006863.214982.0817.32

20071535.816230.0424.65

20082232.608140.7127.43

Interpretation:-This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. This ratio is of great importance to the present and prospective shareholder as well as the management of the company. This ratio reveals how well the resources of the firm are being used.

This ratio shows a down fall after 2003 and reaches upto 17.32% in 2006 and after that it increases upto 27.43% in 2008. From this an opinion can be formed that the investments in the firm are attractive and investors can get a higher return. Working Capital Advantages:

Over 90% approval rates.

Easy application, minimal requirements.

Get approved in 24 hours.

We fund businesses from $5,000 to $1 million dollars.

Money wired to your bank shortly after approval.

NO application fees or closing costs.

You choose your repayment schedule at an affordable discount.

No financial/tax returns required.

May be tax deductible.

Poor credit no problem.

We'll take 2nd (subordinate) position. Layer our working capital solution over your existing loans.

No collateral.

OBSERVATIONS

The observations and understanding can be summarized as under:

Inventory at GRASIM is divided into following areas:

*Raw material

*Work in progress

*Consumable

*Finished Goods

*Spares

Inventory of all raw materials is consumed on FIFO (First in first out) basis.

Minimum Stock level :

This represents the quantity which must be maintained in hand at all times. If stocks are less than the min level then which will stop due to shortage of material. Following factors are taken in to account while fixing minimum stock level:-1. Lead time- A parching firm requires some times to process the order & time is also required by the supplying firm to execute the order. The time taken in processing the order and then executing is known as lead time.2. Rate of Consumption- It is the average consumption of material in the factory.3. Nature of Material

The nature of material also affects the minimum level.Effective Working Capital ManagementThe company has been continuously reducing its working capital over the last three years. The reduction is mostly attributable to the lower inventory in VSF business. The debtor collection period, which stood at 51 days in 2002, decreased to 32 days in 2004. A marginal increase was seen in creditor payment period from 62 days to 53 days for the same period.

Huge Non operating Cash FlowThis includes income from investing activities. High dividend is received from investments in Mutual Funds and other Strategic Investments. Higher interest income contributed to higher non-operating Cash Flow.

Huge investments through acquisitionsThe investment portfolio comprises 40% of the total assets. The investments of the company increased by 41% from Rs17.9bn FY03 to Rs25.4bn in FY04. The company has been creating the value for money for its shareholders by getting out of business they are not familiar with and investing in the business where their core competency lies. This can be seen by the acquisition of L&Ts cement division and getting out of Indo Gulf and MRPL. They are also willing to sell in AT&T on finding a suitable buyer.

Reduced in Debt LevelsThe Net Long Term Debt decreased to Rs913mn as the company has repaid high cost debentures. Further, the company raised an ECB Loan of Rs2, 332mn(US$50mn).The short-term debts increased to Rs1, 131mn. The company reduced the cost of borrowing from 13% in FY01 to 7% in FY04.

Improvement in PowerGrasim is further setting up a thermal power plant of 12.5MW of its cement division. With these additions, the proportion of its captive power plant will rise to 67% from the existing 61%. This will generate tremendous saving in value terms to the company. Cost of captive thermal generation is nearly half the cost of power purchased off the grid. The company also plans to replace DG Sets with thermal power plants.Cost Control Companys financial strength and reputation gives it a edge over others while negotiating over rates or payment terms. Cost control is taken care of right from placing order till receipt of materials and making payment.Timely PaymentCompany strictly follows the policy of timely payment. All due payments against purchase of stores and spares, raw materials, contractors bill, salary are made on time to avoid extra cost in form of int. or penalty. A Write up on MIS ReportManagement information system report is prepared daily and monthly, report helps management in analysis, decision making and strategy formation. The main objective of this report is calculation of days gain and loss and comparison of it with the target.

ASSESMENT AND ANALYSISComparative Balance sheet

GRASIM INDRUSTRIS LTD, NAGDA

Rs. In crores

Current

Year 2008Rs.In crores

previous Year 2007

Amount

Increase(+)

Decrease(-)Percentage

Increase(+)

Decrease(-)

SOURCES OF FUNDS

Shareholders funds

Share Capital91.6991.69--

Employee stock options out standing4.90-4.90

Reserves and Surplus8044.126138.351905.7731.05

8140.716230.041910.6730.67

Loan funds

Secured Loans2350.40229159425.92

Unsecured Loans851.47660.56190.9128.90

3201.872951.56250.318.48

Deferred Tax Liabilities606.87582.5524.324.17

TOTAL11949.459764.152185.3022.38

APPLICATION OF FUNDS

Fixed assets

Gross Block7588.406770.97817.4312.07

Less: Depreciation3564.893380.53184.365.45

Net Block4023.513390.44633.0718.67

Capital work-in-progress3026.311192.35866.0428.62

7049.824582.792467.0353.83

Fixed asset held for disposal4.1414.33(10.19)(71.10)

Investments4080.794274.70(193.91)(4.54)

Current Assets, Loans and Advances

Interest accrued on investments0.700.70--

Inventories978.44824.14154.3018.72

Sundry debtors711.98576.48135.5023.50

Cash and Bank Balances127.47116.3811.099.53

Loans and Advances1140.49824.14316.3538.38

2959.082342.39616.6926.32

Less:

Current Liabilities and Provisions

Liabilities1604.171266.86337.3126.62

Provisions540.21183.20357.0166.09

2144.381450.06694.3232.38

Net current Assets814.70892.33(77.63)(8.70)

TOTAL11949.459764.152185.3022.38

Interpretation:-

1. The comparative balance sheet of the company reveals that during 2008 there has been an increase in fixed assets of 2467.03crore i.e. 53.83% while long-term liabilities to outsiders have relatively increased by 337.31crore i.e. 26.62%. This fact depicts that the policy of the company is to purchase fixed assets from the long -term sources of finance thereby not affecting the working capital.

2. The current assets have increased by 616.69crore i.e. 26.32%. There has been an increase in inventories amounting to 135.50crore. The current liabilities has increased by 694.32crore i.e. 32.38%. This shows that there is an improvement in the liquidity position of the company.

3. Reserves and Surpluses have increased from 1905.77crore i.e. 31.05% and these is created from profit which mean there is increase in profitability of the company.

4. There is excess of current assets over current liabilities. The working capital is decreased from 814.70 to 814.70crore i.e. 8.70%. The decrease in working capital will mean company need to improvement in current financial position of the business.

5. Shareholders fund has increased by 1910.67crore , loan fund i.e. secured and unsecured loan has increased by 250.31crore and deferred tax liabilities decreased by 4.17% while companies investments has decreased by (193.91)crores, fixed assets by 2467.03crore, current assets by 616.69crore. companies net current assets has decreased by (77.63)i.e. (8.70)%Comparative Income and Expenditure Statement

Rs. In crores

Previous years

Year 2005-06Rs. In croresCurrent years

Year 2006-07Amount

Increase(+)

Decrease(-)Percentage

Increase(+)

Decrease(-)

INCOME

Net Sales6652.618603.591905.9829.32

Interest and Dividend Income67.53113.2745.7467.73

Other Income152.41168.4916.0810.55

Increase / (Decrease) in Stocks (43.48)(16.44)(27.04)62.19

6829.078868.912039.8429.87

EXPENDITURE

Raw Materials consumed1822.692219.32396.6321.76

Manufacturing Expenses1580.341744.33163.9910.38

Purchase of finished and other products240.15321.1681.0133.73

Payments to and provision for employees407.64459.4051.7612.69

Selling, Distribution, Administration and Other expenses 1181.331505.69324.3627.46

Interest103.38111.848.468.18

Depreciation and Amortization291.64317.9126.279.00

5627.176679.651052.4818.70

Profit before Tax &Exceptional Items1201.902189.26987.3682.15

Surplus on pre-payment of sales tax loan4.13-(4.13)(100.00)

Write back of provision for diminution -37.1037.10100.00

Profit before Tax1206.032226.361020.3384.60

Provision for current Tax(369.82)(692.38)(322.56)87.22

Deferred Tax 271.8325.1793.22

Profit after Tax863.211535.81672.677.92

Debenture redemption Reserve No Longer Required8.6238.5629.94347.33

Investment Allowance Reserve No Longer Required0.250.05(0.2)(80.00)

Balance b/f from previous year815.35878.3763.027.73

Profit available for appropriation1687.432452.79765.3645.36

Appropriations:

Interim Dividend-252.10252.10100.00

Proposed Dividend183.35-(183.35)(100.00)

Corporate Dividend Tax25.7135.369.6537.53

General Reserve6001200600100.00

Balance Carried to Balance Sheet878.37965.3386.969.90

1687.432452.79765.3645.36

Basic and diluted earnings per share94.14167.573.3677.93

Interpretation:-

1. The comparative income statement reveals that there has been increase in net sales 1983crore i.e. 29.95% while cost of goods sold has increased by 18.92%.The increase in sales is more than increase in cost of goods sold shows the profitability of the company is increasing.

2. The gross profit has increased by 1013crore i.e. 68.8%. Although operating expenses of the company has increased by 27.46%. The increase in gross profit is sufficient to compensate for the increase in operating expenses.

3. The comparative income statement reveals that Interest and dividend income has increased by 67.73% and other income by 10.55%.So, the main source of income for the company is interest and dividend income.

4. Consumption of raw material of Grasim Industries has increased by 396.63crore i.e. 21.76% and manufacturing expenses increased by 10.38%. Another expenditure item Interest has increased by 8.18% and depreciation by 9%. Purchase of finished goods which is more expensive for the company has increased by 81.01crore i.e. 33.73% and selling and distribution expenses by 324.36crore i.e. 27.69%.

5. There is an increase in net profit after tax amounting to Rs. 672.6crore i.e. 77.92%. It may be concluded that there is a sufficient progress in the company and the overall profitability of the company is good.

Comparative Cash Flow Statement

Rs. In crores

Previous year

Year 2005-06Rs. In crores

Current year

Year 2006-07

Amount

Increase(+)

Decrease(-)Percentage

Increase(+)

Decrease(-)

Cash Flow from Operating Activities

a. Net profit before tax and exceptional item1201.902189.26987.3682.15

Adjustment for:-

Depreciation291.64317.9126.279.01

Interest Expenses103.38111.848.468.18

Interest Income(29.48)(31.84)(2.36)(8.01)

Dividend Income(38.04)(81.43)(43.39)(114.06)

Profit/Loss on sale of Fixed Assets3.99(4.62)(8.61)(215.79)

Profit on sale of Long Term Investment(62.57)(2.70)(59.87)(95.68)

Profit on sale of current Investments(7.27)(49.41)(42.14)(579.64)

b. Operating Profit before working capital changes1463.552449.01985.4667.33

Adjustments for:-

Trade and other receivables116.66(314.56)(431.22)(369.64)

Inventories(72.14)(73.41)(1.27)(1.76)

Assets held for disposal0.97(1.57)(2.54)(261.85)

Trade Payables159.70306.17146.4791.71

c. Cash generated from operations1668.742365.64696.9041.76

Direct taxes paid(380.42)(632.97)(252.56)(66.39)

Net cash from Operating Activities1288.321732.67444.3534.49

Cash Flow from Investing Activities

Purchase of fixed assets(408.80)(1660.72)(1251.92)(306.24)

Sale of fixed assets9.2962.5253.23572.98

Investments/Advances in Joint ventures, subsidiaries & others(119.31)93.82213.13178.63

Interest received29.1132.603.4911.99

Dividend received38.0481.4343.39114.06

Net cash from/(used in) investing activities(881.51)(2131.23)(1249.72)(141.77)

Cash Flow from Financing Activities

Proceeds from borrowings128.251293.611165.3690.08

Repayments of borrowings(181.58)(346.06)(164.48)(90.58)

Interest paid(118.77)(109.39)9.197.73

Dividends paid(145.25)(417.73)(272.48)(187.59)

Corporate dividend tax(20.58)(61.07)(40.49)(196.74)

Net cash from/(used in) financing activities(337.93)359.36687.29206.34

Net increase/(decrease) in cash and cash equivalent68.88(39.20)(108.08)(156.91)

Cash and cash equivalent at beginning of the year86.70155.5868.8879.45

Cash and cash equivalent at end of the year155.58116.38(39.2)(25.19)

Interpretation: The cash flow statement given above reveals that the Cash from operating activities increases by 444.35crore i.e. 34.39%, net profit increases by 987.38 i.e.82.15%, Interest expenses increases by 8.18% while interest income increase by 8.01% and Dividend income by 114.06%. Profit on sale of fixed assets increases by 215.79%, Trade payable increases by 91.71% and Direct tax by 66.39%. Net cash used in Investing activities increases by 1249.72 i.e. 141.77%. As purchase of fixed asset increases by 1251.92crore i.e.306.24% so depreciation also increases by 26.27crore i.e. 9.01%. Sale of fixed assets increases by 572.98% and Dividend received increased by 114.06%. Net cash from Financing activities increases by 687.29crore i.e. 206.34%. Proceeds from borrowing shows a tremendous rise 1165.36crore i.e. 90.08% and repayment of borrowing has also increases by 90.58%. Dividend paid increases by 187.59%. There is net decrease in cash and cash equivalent 108.08crore i.e. 156.91%. Cash and cash equivalent at the beginning of the year increases but 68.88crore the year decreases by 39.2crore i.e. 25.19%.

COMMENTS

Raw material and stores storage period is slightly less in comparison to previous years. The main reason for this is the plant shutdown during the current year due to water shortage to maintain higher level of finished goods inventory, so that sales continue during this period. Company has achieved success in constantly reducing the work in process period as well as in the finished goods inventory goods this represents good management by the company . Usually off the shelve inventory of finished goods but inventory of Staple Fiber increased for utilization during plant shutdown in summers since last few years. Creditors collection period has remained same during the two years which is good for the company but debtors collection period has increased which can be dangerous for the company. This highly needs attention. When we see the overall operating cycle, it has decreased in year under review. This is dew to efficient management by the company people.

RECOMMENDATIONS

Viscose and Grasim have long synonymous. The overbearing presence of Grasim industries Ltd. In staple fiber market long been acknowledged by the textile industry. Structural health of working capital of the company is improving continuously. Based on my analysis and observation, following areas requires attention: Companys raw material storage period can further be reduced as it blocks funds and company has to incur extra carrying cost.

Stores and spares inventory holding time is also which can be controlled through proper planning and vigilance.

Introduction of B-to-B, E-commerce for exchange of documents with suppliers, clients and partners. B-to-B speed up the workflow in the organization. A complete B-to-B transaction almost eliminates the cost involved in proper work and printing as entire procedure is in electronic format. With dew B-to-B Company can considerably in archiving.

In case of Export/Import, EDI (Electronic Data interchange) can be effective tool for transfer of data, invoice and to make payments, till will not only reduce the lead time and inventory holding period, even cost will fall.

Introduction of e-commerce will not only make company competitive but also reduce inventory holding period and extra cost.

CONCLUSION

In order to conclude, it can be said that working capital management is effective only through proper blend of cash management, receivables management, inventory management and payables management. Companys policy regarding management of all these are very clean cut. Company keeps its position secure in case of debtors and creditors. Constant efforts are made and co. achieved success in reducing the inventory level considerably. This also reduced the cost.

Cash flow monitoring is done on daily basis and minimum cash balance is maintained and revenue earning is maximized through proper planning and investment of funds.

Few transactions occur on credit; as a result, debtors are few. Constant monitoring and persuasion with the parties is needed in case of debtors to avoid bad debts. The incidence of bad debts in lower in V.S.F.

Structural health of working capital is improving continuously.

BIBILIOGRAPHY

Books:

1. Pandey, I.M. Financial Management. New Delhi: Vikas Publishing House, 2000.

2. Khan, M.Y. and Jain, P.K. Financial Management. New Delhi: Tata McGraw-Hill.3. Financial Management , symbiosis Study Material (2007-2009)4. Annual Reports of Grasim Industries Ltd.

Websites:

www.grasim.com. , www.adityabirla.com. www.investorworld.com www.cashdirectone.com www.finance.cch.com www.studyfinance.comPAGE 29

_1293692646.xls

_1293692750.xls

_1293694593.xls

_1293692748.xls

_1293692749.xls

_1293692746.xls

_1293692747.xls

_1293692658.xls

_1293692615.xls

_1293692632.xls

_1293692595.xls

_1293692583.xls