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SUMMER TRAINING PROJECT REPORTAt
SHAH PULP AND PAPER MILLS LTD, VAPI(FROM 1ST MAY 2010 TO 10TH JUNE 2010)
SHRI RAJJU SHROFF ROFEL INSTITUTE OF B.B.A PROGRAMME, VAPI
SUBMITTED TO:VEER NARMAD SOUTH GUJARAT UNIVERSITY, SURAT
GUIDED BY:FACULTIES OF B.B.A
SUBMITTED BY:PRIYANKA TANWAR
ARADHANA SINGHVANRAJ SOLANKIVAIBHAV PATEL
SAURABH SINGHDECLARATION
We here declare that this project is entirely done our own research work with the help of employees and website of the company and is not copied from any other sources.
We hereby would also like to declare that all the information provided here are true and authentic and is not provided artificially.
PREFACE
It is a great pleasure to come forward with such a project that has fulfilled the needs of our learning desires and has made us closer to the subject.
In this project we have tried to cover all the major constituents of an ideal project. We do know that, we are still unpolished stones, which are still to be converted onto diamonds but as per the requirements of our sylabbi, we have paid utmost attention to the application part rather than on theoretical part.
We have also tried to avoid any kind of discrepancy of the matter in the project. However, if there be any suggestions for the up gradation from our teachers, we are ready to welcome them.
At the end we co-cordially thank Mr. P. R. Mallaya for their strong guidance and support.
ACKNOWLEDGEMENT
We are very grateful to all those who have co-operated with us in completing our project report. Without them this project report could not been completed as easily as it had.
We are heartily indebted to all the employees of the shah pulp and paper Mills Limited, especially Mr. P. R. Mallaya who is the finance manager of the company. Mr. Mallaya has supported us during the entire training session and provided us all the needed information that can help us in completing the project report. Besides him all the employees of the shah pulp and paper mills Limited co-operated with us and helped us as much they could.
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CONTENTSSr no. Particulars
1. Objectives of the project2. Introduction of the firm & details3. Organizational structure4. No. of departments5. Production department6. Quality control department7. Finance department8. Marketing and sales department9. Human resource department10. Conclusion11. Suggestion12. Annexture
OBJECTIVES OF THE PROJECTTO GAIN THE PRACTICAL KNOWLEDGE.TO LEARN ABOUT THE PROFESSIONAL ATMOSPHERE.TO ADOPT THE PROFESSIONAL BEHAVIOUR.TO LEARN HOW TO INNOVATE YOUR IDEAS AND FULFILL THE MAIN OBJECTIVE OF THE ORGANISATION AND ALSO THE PERSONAL GOALS.TO BECOME A HUMAN ASSET.
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INTRODUCTION OF THE COMPANY
Shah Pulp & Paper Mills Limited is a Public Limited Company first incorporated as a private limited Company in November 1993, vide certificate of incorporation number 11-74945 of 1993 dated 5thNovember, 1993 issued by the Registrar of Companies, Maharashtra. The Company was subsequently converted into a public limited Company vide certificate of change of name dated 15th March, 1995 issued by ROC, Maharashtra. The object of the Company, is to carry on the business of manufacturers and dealers of newsprint. It was to this end the Company set up a 16,500 TPA newsprint plant at G.I.D.C., Vapi.
MISSION OF THE COMPANY
For Achieving Market Leadership in Paper Products.Sourcing World—class Raw Material from Internationally Reputed Manufacturers.To enter the new phase of challenge driven by commissioning of additional capacity.Creating strong R & D department to develop new kind of qualitative paper.To ensure customers success, provide specially designed process by which the customer receives quality products, on time and adequate quantity
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HISTORY OF THE COMPANY
SHAH GROUP is closely held public ltd company. The management of the Company vests with the Board of Directors headed by Shri Amritlal K Shah. Shri Mahendra H Shah, Managing Director, looks after the day-to-day activities of the Company including procurement, production, marketing and finance. He is assisted by other directors as well as by a team of qualified and experienced professionals in key responsibility areas.
The Company is having Associate Concern namely, Shah Paper Mills limited.
Shah pulp and paper mills Limited supplies to all major and leading newspapers in India as newsprint is the major segment of the industry where as substantial demand and supply exist.
Raw material for newsprint is imported from USA, EUROPE and Latin American companies. The Company lead ahead of its competitors.
Plant performanceThe Company initially started this unit with an installed
capacity of 16500 TPA. Subsequently looking to the newsprint demand and supply in the domestic market and to remain competitive with the other newsprint manufacturer, the Company has made investments regularly in the existing plant in due course of business. The Company has borrowed term loans from IDBI, GIIC and SBI time to time for their expansion project to increase the installed capacity of the plant as well as to produce better quality of newsprint.The Company has concentrated on quality and quantity. The Company has increased the installed capacity of the plant from 16500 TPA to 18000 TPA in the year 1998-1999, 19800 TPA in the
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year 1999-2000, 24750 TPA in the year 2000-2001, 26400 TPA in the year 2001-2002 and 29700 TPA in the year 2002-2003 to 2003-04 and 33250 TPA in 2005-06. Currently, the installed capacity of the plant is 36000 TPA.
LOCATION OF OFFICES,BRANCHES AND FACTORIES
REGISTERED OFFICE AND MANUFACTURING CENTER:5202,3rd PHASEGIDC VAPI:396195GUJARAT(INDIA)TEL(0260)2400248.
CORPORATE OFFICE:ANGELINE APARTMENT,B/202,JUNCTION OF OLD POLICE STATION ROAD& SAROJINI ROAD,VILE PARLE(W),MUMBAI:400056E-MAIL:[email protected] [email protected]
LOCATION OF THE PLANT
PLANT ADDRESS:
PLOT NO.97,SILVASSA ROAD,
GIDC,VAPI-396 195
GUJARAT(INDIA)
TELO260)2425858
PLANTS LOCATION IN VAPI HAS FOLLOWING ADVANTAGES:
ON NATIONAL HIGHWAY.
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180 KM FROM MUMBAI.
ADVANCED INFRASTRUCTURE
WATRE FILTERATION PLANT SO WASTE OF WATER IS
CONTROLLED.
ORGANISATIONAL STRUCTURE
OF SHAH PAPER MILLS LTD .
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BOARD OF DIRECTORS
DIRECTORMANAGING DIRECTOR
PRODUCTION MANAGER
SUPERVISORS
LABORATORY INCHARGE
MACHINE OPERATOR
WORKERS
ASSISTANTS
ACCOUNT MANAGER
ACCOUNTS ASSISTANT
COMPUTER OPERATOR
CASHIER
TELEPHONE OPERATOR
PERSONNEL INCHARGE
DESPATCH CLERK
STORES
NO OF DEPARTMENTS
SRNO.
NAMES OF THE DEPARTMENTS.
1. Production department
2. Quality control
3. Finance department
4. Marketing and sales department
5. Human resource department
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PLANS OF PRODUCTION
PRODUCTION PLAN OUT OF SALES PLAN
In SHAH PULP due to tough competition and other factors, they everyday do production planning. General Manager of production department, Quality Control head of SHAH PULP have meeting and also production planning.
MATERIAL REQUIREMENT PLAN AND PURCHASE On the basis of the orders mentioned in the previous point, production department issues raw material from stores.
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For example, if 100kg of a particular raw material is required by production department, stores will give it if it’s available otherwise it would place orders to its supplier of raw material.
ANALYSIS OF PLANT LOCATIONThe main factor affecting plant location is its sequence. Here in SHAH PULP the finished product i.e. paper roll are send for newsprint in the press printing.Sequencing and transportation, these are the major factors affecting location of the plant.
PRODUCTION PROCEDURE
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TYPES AND CLASSES OF MATERIAL HANDLING EQUIPMENTS.
Sorting RM loaded to pulp
mill
Chemicals added Screening
Dying process
Refining
Fan pump
Ready for final process
Wire
Dryer
Rewinder
final product
QC
DISPATCH
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“controlled movement of material from receipt, through storage and production and up to the shipment of finished products is known to be MATERIAL HANDLING” The equipment used for this purpose is called material handling equipments.In SHAH PULP the following materials are used1. CLASSIFICATION ON THE BASIS OF FORM OF MATERAIAL: According to classy there can be three broad categories:
For solid materialso Liftso Conveyer beltso Drum trolleys
For liquid materials o Pipes o Tanks
for gaseous materialso pipe lines
2.CLASSIFICATION ON THE BASIS OF PATH variable path
o drum trolleys fixed path
o pipe lineso conveyero lifts
3.CLASSIFICATION ON THE BASIS OF AUTOMATION Semi automatic handling system
o Conveyer belts o Lifts
Manual systemo Hand carts
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INVENTORY CONTROL SYSTEMSHAH PULP follows a very simple inventory control system process.ABC analysis:-The purpose of ABC analysis for which SHAH PULP follows this analysis is because of the lab test and different types of papers.They sum up the materials rate amount, freight and C.S. and get the value of the material.
STORES DEPARTMENTS MATERIAL RECEIPT AND ISSUE PROCESS
For the stores department the most important document is the G.R.N. i.e. Goods Received Note.It contains the most of the information like,
Supplier’s name Supplier’s challen no. Material received Quantity received Approved quantity L.R. number Vehicle number Time of arrival of material Purchase order dateMATERIAL RECEIPT PROCESSAs the goods enter the company premises G.R.N. is prepared.P.O. i.e. purchase order is compulsory to receive the material. The material entered is kept on weighing machine and verified whether the qty is okay, it is then unloaded in stores.G.M. is informed about the receipt of material.
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MATERIAL ISSUE PROCESSMaterial issue process is simple in SHAH PULP. The plant which needs any material, be it RM , they give a requisition slip to the inventory department. On the basis of the requisition slip inventory department allocates material to the concern department according to REQ.NO i.e. requisition number. As the material is issued on the port as all the material comes through ship.
DOCUMENT RELATED TO RECEIPT AND ISSUE OF MATERIALThe document related are as follows:
Gate register number Store inspection by concerned department. GRN being prepared by stores. GRN being passed by concerned authority.
MAINTENANCE PLANNING SYSTEMMaintenance is well planned in shah pulp. This department consists of main head and workers.It works at three levels. they are as follows:-1.REGULAR MAINTENANCE:-This level consists of maintaining machines at a regular period of time. It includes checking of bearings, belts and other such parts. this activity is done periodically.
2. PREVENTIVE MEASURES:- It is an activity where parts of machines are repaired or replaced before they are actually gets damaged and result into some large and serve losses. For example :- welding of any part before it is damaged completely.3.BREAK DOWN:-If any plant machinery undergoes breakdown, the plant in charge or production head will inform maintenance department through break-down slip. After receiving the slip, maintenance department
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head would send his workers to breakdown area. In the breakdown slip following details are filled:Machine details, timings of breakdown, nature of breakdown.
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QUALITY CONTROL SYSTEMQC is mostly done of three levels. In shah pulp, the quality of the material is checked at RM level, work-in-process level and finished goods level.1.RAW MATERIAL:-For controlling the quality of the material, it starts testing the RMthe company uses for manufacturing its goods. After purchase
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dept. receives the RM ordered previously, it prepares G.R.I.N., Showing amount of goods i.e. RM entered in the company.This is stored in the warehouse making store head aware of the details of the material.The store head prepares format of RM, G.R.I.N. and is forwarded to the QC dept.As QC dept. receives RM, G.R.I.N. it takes a sample of the RM from store for testing purpose.Each RM has to posses certain specifications. The presence and absence of each specification is monitored while QC dept. does testing.The RM used are mixed waste, old news papers, over issued newspapers, magazines. The RM is imported from foreign country like European, Latin and U.S.A.
2.WORK-IN-PROCESS MATERIAL:-In shah pulp everyday, production head, QC head, and unit head have meeting and decide the product to be manufactured for that day. The different types of chemicals are used to remove the printed ink on the paper like hydrogen peroxide, bleaching powder, diesel, washing powder.In QC dept, premix sheet is prepared, which includes :
Number of RM required for the product Name of the RM
This premix sheet is sent to the prod. Dept. and according to the details stated prod. Dept. order’s RM from stores and prod. Starts.As and when required, prod. Dept. sends work-in-process samples to QC dept. for testing. Here also different tests are applied for different goods and its different grades.After testing QC MEMO is prepared where the result of the test are mentioned. It also states if any specifications are missing in the product. If there is any drawback, it is also marked in QC MEMO. This is sent to the prod. Dept. they make the modifications in its manufacturing and do further production.
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3.FINISHED GOODSAfter final product is manufactured, it is also tested by QC dept. in the final product same specification as in semi-finished product are required only few additional mechanical properties are required like:
Tensile strength Cross bracking strength Electrical strength surface Volume strength Shrinkage is detected
After testing these properties in the final product QC dept. verbally informs prod. Dept. about the reliability of the products and get “daily production deposition slip” from the prod. Dept.
This slip specifies the following:- Grade Bags*kgs Total qty Batch no. Remarks
Now finally, when the product is forwarded to the prod. Dept. after being approved and then the final product is forwarded to dispatch dept.And their the final product is packed and dispatched according to sizes and different qty.DOCUMENTS KEPT IN QC DEPT
goods receipt no. goods received inspection report premix sheet QC MEMO Daily production deposition slip Certificate of product conformity
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FINANCIAL POSITION OF THE FIRM ON THE BASIS OF KEY WORKING
CAPITAL RATIOS
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Ratio Formulae Result Interpretation
Stock Turnover(in days)
For imported stock:
Average Stock X 365/Cost of =[(833*+2210*)/2] Goods 5800* X (365) Sold
For indigenous stock:
Average Stock X 365/Cost of =[(644*+223*)/2] Goods 3768* X (365) Sold
*THE AMOUNT GIVEN IS IN LAKH
= 96 days
= 42 days
On average, company turns over the value of its entire stock every 96 and 42 days.
Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days.
Receivables Ratio(in days)
Debtors x 365/Sales =1115* x 365* 7661*
*THE AMOUNT GIVEN IS IN LAKH
= 53 days
It takes company on average 53 days to collect monies due to the company. One or more large or slow debts can drag out the average days. Effective debtor management will minimize the days.
Payables Ratio(in days)
Creditors X 365/Cost of Sales = 1904* X 365 (Or Purchases) 6960*
*THE AMOUNT GIVEN IS IN LAKH
= 100 days
On average, company pays to its suppliers every 100 days. If company negotiates better credit terms this will increase. If company pays earlier, say, to get a discount this will decline. If company simply defers paying its suppliers (without agreement) this will also increase - but company’s reputation, the quality of service and any flexibility provided by its suppliers may suffer.
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Current Ratio
Total Current Assets/Total Current = 4754*Liabilities 2611*
*THE AMOUNT GIVEN IS IN LAKH
= 1.82Times
Current Assets are assets that the company can readily turn in to cash or will do so within 12 months in the course of business. Current Liabilities are amount company is due to pay within the coming 12 months. For example, 1.5 times means that company should be able to lay its hands on Rs1.50 for every Rs1.00 company owe. Less than 1 times e.g. 0.75 means that company could have liquidity problems and be under pressure to generate sufficient cash to meet oncoming demands. But the ratio shows that company is in good position.
Quick Ratio
(Total Current Assets - Inventory)/ = 4754*-2677*Total Current 2611* Liabilities *(THE AMOUNT GIVEN IS IN LAKH)
= 0.79Times
This figure takes account of the fact that it may take time to convert inventory into cash.
Working Capital Ratio
(Inventory + Receivables - Payables)/ Sales =2677*+1115*- 1904* 7661**(THE AMOUNT GIVEN IS IN LAKH)
25 % ofSales
This percentage means that working capital needs are not so high relative to company’s sales.
The following, ratios are important measures of working capital utilization.
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WORKING CAPITAL RATIOS SHOWING LIQUIDITY OF THE FIRM
The Current Ratio:
The current ratio is also known as the working capital ratio and is normally presented as a real ratio. That is, the working capital ratio looks like this:
Current Assets: Current Liabilities = x: y e.g. 1.82: 1
So here is the information to help us work out The Shah pulp and paper mill’s current ratio.
Consolidated Balance Sheet 31 March 2009 31 March 2008 In lakh In lakh
Total Current Assets 4,754 3,115Creditors: 1,904 1,064
Current Ratio For The Shah pulp and paper mill’31 March 2009
Current Assets: Current Liabilities 475,378,554:
261,172,653
1.82: 1
31 March 2008
Current Assets: Current Liabilities 311,525,549:
149,242,328
2.08: 1
We got the ratio 1.82: 1 for the year ended 31 March 2009 was to divide the current assets by the current liabilities and that gives us:
Current assets =
475,378,554 =
1.82Current liabilities
261,172,653
So we automatically know that the ratio is 1.82: 1
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The same with the year before:
Current assets =
311,525,549 =
2.08Current liabilities
149,242,328
So these ratios shows that company’s liquidity position was superior in 2008as compare to 2009.Although in 2008 company’s liquidity position is not bad or we can say its very good because the ratio 1.82:1 shows that the company is able to lay its hands on Rs1.80 for every Rs1.00 company owe. It means that company can generate sufficient cash to meet oncoming demands.
These are the additional information, which help in the analysis.
Current assets 2009In
lakh
2008In
lakhStock 2,677 1,146Debtors due within one year 1,115 1,110Cash at bank and in hand 27 22Loans and advances 695 638Total Current Assets 4,754 3,115Creditors: Amounts falling due within one year
1,904 1,064
Provision for taxation 369 282Other liabilities 338 146
Total liabilities2,611 1,492
Net current assets (liabilities) 2,143 1,623
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The Acid Test Ratio:
The acid test ratio is also known as the liquid or the quick ratio. The idea behind this ratio is that stocks are sometimes a problem because they can be difficult to sell or use. That is, even though a supermarket has thousands of people walking through its doors every day, there are still items on its shelves that don't sell as quickly as the supermarket would like. Similarly, there are some items that will sell very well.
Nevertheless, there are some businesses whose stocks will sell or be used slowly and if those businesses needed to sell some of their stocks to try to cover an emergency, they would be disappointed. Engineering companies can have their materials in stock for as much as 9 months to a year; a greengrocer should have his stocks for no longer than 4 or 5 days - a good greengrocer anyway.
We'll look at the stock turnover ratio in detail later but here's the acid test ratio for The Shah pulp and paper mill.
Acid Test Ratio = (Current Assets - Stocks): Current Liabilities
We can take the figures we need from the current ratio section and then do the calculations. Here are the acid test ratios for the year ended 31 March 2001:
Acid Test Ratio For The Shah pulp and paper mill.
31 March 2009
Current Assets - Stocks: Current Liabilities
4754*-2677*: 2611* 0.79: 1
31 March 2008
Current Assets - Stocks: Current Liabilities
3115*-2145*: 1492* 0.65: 1
NOTE: *THE AMOUNT GIVEN IS IN LAKH
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We need to put the current and acid test ratios side-by-side to help us to understand what is happening to the business:
Comparison
Current
Acid Test
2008 1.82: 1 0.79: 12009 2.07: 1 0.65: 1
The fact that the differences between the current and acid test ratios are too large tells us that the Shah pulp and paper mill stocks are too large. The stocks are worth around Rs. 2,677 lakh in 2009,BUTsince current assets are Rs.4,754 lakh, that's a huge level of stock holdings. But yes the difference between the current ratio and acid test ratio in 2009is lower as compare to 2008,so this is a good indication for the company.
Additionally, the acid test ratio has increased over the two-year period, meaning that the Shah pulp and paper mill has a stronger liquidity position than it had before. Normally that is a good thing.
Bottom of Form
Return on Working Capital:
.
Consolidated Profit and Loss Account
31 March 2009
31 March 2008
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In lakh In lakhProfit before interest and taxation 729 657Total Fixed Assets 4,500 4,200Net current assets (liabilities) 2,143 1,623
ROWC For The Shah pulp and paper mill.
31 March 2009
Profit before Interest and TaxWorking Capital
729*2143*
= 34 %
31 March 2008
Profit before Interest and TaxWorking Capital
657*1623*
= 41%
NOTE: *THE AMOUNT GIVEN IS IN LAKH
These are the additional information, which help in the analysis.
Current assets 2009In
lakh
2008In
lakhStock 2,677 1,146Debtors due within one year 1,115 1,110Cash at bank and in hand 27 22Loans and advances 695 638Total Current Assets 4,754 3,115Creditors: Amounts falling due within one year
1,904 1,064
Provision for taxation 369 282Other liabilities 338 146
Total liabilities2,611 1,492
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Net current assets (liabilities) 2,143 1,623
There has been a decline in ROWC in 2009as compare to 2008.Although this difference is not too large but still company should do check on its working capital and all the expenses.
Return on Capital Employed Ratio:
The Return on Capital Employed ratio (ROCE) tells us how much profit the company earns from the investments the shareholders have made in the company. Think of it this way: if we had a savings account with a bank and we'd been paid, say, Rs.25 interest at the end of a year; and we had saved Rs.500, we could work out the rate of interest we had earned:
Rate of interest =
Interest earned *
100 = 25 * 100 = 1 *
100 =100= 5%Amount saved 500 20 20
So, we have earned 5% interest on our savings.
Imagine now that instead of talking about a savings account, we were talking about a company and the profit for the year and its capital employed had been Rs.25 and Rs.500 respectively then the ROCE for that company would be 5% too.
ROCE =Profit for the Year *
100 =25 *
100 =1 *
100 =100=
5%Equity Shareholders' Funds 500 20 20
We have used the Equity Shareholders' Funds instead of Capital Employed. In fact, they are different names for the same thing! We could call the ratio the Return on Shareholders' Funds (ROSF) just as easily if we wanted, but generations of accountants consider it as ROCE.
In accounting, there can be different definitions of what certain terms mean. The use of the term 'capital employed' can mean different things. It can, for example, include bank loans and overdrafts since these are funds employed within the firm.
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There is the Calculation of ROCE for the Shah pulp and paper mill now; and here are the figures:
The Shah pulp and paper mill
31 March 2009
31 March 2008
In lakh In lakhProfit for the financial period
728.81 654.14
Equity shareholders' funds 2,837.45 2,463.33
For 2009
ROCE =Profit for the Year *
100 =728.81 *
100=25.71%Equity Shareholders'
Funds2837.45
For 2008
ROCE =Profit for the Year *
100 =654.14 *
100=26.55%Equity Shareholders'
Funds2463.33
So the percentage shows that return on capital employed is almost similar for both the year 2008and 2009.
ROCE for the year 2009is almost 26% that’s a good percentage by all standards. This is a good result as it shows that the business is effectively earning around 26% on the (investment) funds that the shareholders have invested in the Shah pulp and paper mill.
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:
Working Capital Management II:
What we are about to study - stock, debtors and creditors control - are all part of working capital management in the same way that a discussion of liquidity was part of working capital management.
We know that working capital is concerned with the ability of a business to be able to pay its way. The three ratios we are concerned with now are concerned with spending and saving money in the right places. Too much stock and we waste money on buying it and keeping it. Too much money loaned to our debtors and it's money we can't use for something else, such as buying machinery, paying our creditors or even investing it. Too much money in the form of creditors and we might have a problem that no one else will give us credit for anything else because they think we can't afford it, and, if we suddenly have a cash problem, we might not be able to pay our creditors.
Working capital management is concerned with the control aspects of the issues.
Stock Turnover: stock control:
In principle, the lower the investment in stocks the better. Apart from buffer stocks that businesses sometimes need in case of shortages of supply and strategic stocks in case of war, sudden changes in demand and so on, modern stock control theory tells us to minimize our investment in stocks.
The formula for this ratio is:
Stock Turnover =
Average Stocks
(Cost of Sales/365)
The Shah pulp and paper mill Consolidated Profit and Loss Account
31 March 2009
31 March 2008
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In lakh In lakhCost of sales 6960 6810Stock 2677 1146
Stock Turnover Ratio for the Shah pulp and paper mill
31 March 2009 2677*6960* / 365
140 days
31 March 2008 1146*6810* / 365
61 days
NOTE: *THE AMOUNT GIVEN IS IN LAKH
Firstly, the result of this calculation is that the answer is instantly in terms of the number of days, on average, that the stocks are held in the business.
Secondly, we use the cost of sales figure because stocks are bought and shown in the profit and loss account and the balance sheet at cost; so we need to compare like with like.
Thirdly, we only have two years' worth of stock information, so we can't use the average stock for both years, as we should do according to the formula.
This ratio has increased from 61 days to 140 days because investment in stock has increased 57% over the two years and that is probably not a good thing. This shows that the company needs 140 days to sell inventory it means that so mush cash is tied up in inventory which is not a good sign for the company because If there's less stock to worry about, lower investment in stocks meaning that the money they used to have tied up in the stock room is now free to spend somewhere else. But now large amount of investment is done in inventory, company should do check upon it.
Debtors' Turnover Ratio:
In the same way that stock control is a vital aspect of working capital management, so too is debtors' control. Many businesses
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need to sell their goods on credit, otherwise they might find it difficult to survive if their competitors provide such credit facilities; this could mean losing customers to the opposition.
Nevertheless, since company does provide credit, it must do so as optimally as possible. It doesn't necessarily mean the best possible, but the best possible under the circumstances.
There are good reasons why the company allows people to pay on credit even though literally it doesn't make sense! If the company allow people time to pay their bills, they are more likely to buy from it than from another business that doesn't give credit.
The length of credit period allowed is also a factor that can help a potential customer decide whether to buy from your company or not: the longer the better, of course.
Why is credit control so important? For the Shah pulp and paper mill total amount owing by debtors was Rs.1115lakh at the end of 31 March 2009,which as a percentage of total assets, is 12.09%. That's a lot of money in absolute terms.
What we need to know, though, is how the company is controlling these debtors. We can do that by looking at their debtors' turnover ratios for the two years, firstly.
The formula for debtors' turnover is:
Debtors' Turnover =
Average Debtors
Credit Sales/365
Shah pulp and paper mill 31 Mar 2009
31 Mar 2008
In lakh In lakhTurnover 7,661 7,372Debtors due within one year
1,115 1,110
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We have to assume, by the way, that all sales are credit sales unless we know which sales are for cash.
The calculations:
Debtors Turnover Ratio for the Shah pulp and paper mill
31 March 2009 1,1157,661 ÷ 365
53 days
31 March 2008 1,1107,372 ÷ 365
56 days
Firstly, the ratio seems to have good by going from 56 to 53 days over the two years; but we can not say that this ratio is good because it means that, on average, the Shah pulp and paper mill debtors are taking one and a half months or we can say two months to pay their accounts.
Creditors' Turnover Ratio:
Creditors are the businesses or people who provide goods and services in credit terms. That is, they allow the company time to pay rather than paying in cash.
Creditors will need to optimize their credit control policies in exactly the same way that the company did when it was assessing its debtors' turnover ratio - after all, if you are my debtor I am your creditor!
Company takes credit but it needs to control how much it should, how often and for how long. There are the calculations for Shah pulp and paper mill:
The formula for this ratio is:
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Creditors' Turnover =
Average Creditors
(Cost of Sales/365)
As with the stock turnover ratio, creditor values relate to the costs of raw materials, goods and services, which is why we use the cost of sales, figure in the denominator.
Shah pulp and paper mill 2009 2008 In
lakhIn
lakhCost of sales 6,960 6,810Creditors: Amounts falling due within one year
1,904 1,064
Creditors Turnover Ratio for the Shah pulp and paper mill
31 March 2009 1,9046,960 ÷ 365
100 days
31 March 2008 1,0646,810 ÷ 365
57 days
We interpret this ratio in exactly the same way as the debtors' turnover ratio. Having found that debtors are taking somewhere between 45 and 60 days to pay their accounts, notice that the business is taking over three months credit for itself in 2009and about two months' credit in 2008.
The ratio has drastically increased by going 57 to 100 over the two years which shows that the company now takes three months to pay its accounts as compare to two months in 2008.Its good but company should take it in mind that with the increasing number of
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Days, Company’s reputation, the quality of service and any flexibility provided by its suppliers may suffer.
CASH BUDGET FOR THE SHAH PULP AND PAPER MILL
Net Cash Inflows
2009 2008 (In lakh) (In lakh) Sales 7,661 7,372
Other incomes 42 24
Total payments 1,904 1,063Net CF 5,799 6,333
Net Cash Inflows:
2009 2008 (In lakh) (In lakh)
Cash at start 27 22
Net CF 5,799 6,333Cumulative Cash 5,826 6,355
CALCULATION OF CASH CONVERSION CYCLE FOR
THE SHAH PULP AND PAPER MILL
Cash conversion cycle = Inventory conversion period (in days) + Debtors’ conversion period (in days) - Creditors’ deferral period (in days)
Where
Inventory conversion period = Raw material conversion period (RMCP) + Work-in-progress conversion period (WIPCP) + Finished goods conversion period (FGCP)
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Raw material conversion period (RMCP) = 1795/(4920/360)= 131 days.
Work-in-progress conversion period (WIPCP)=637/(6424/360)=36 days.
Finished goods conversion period (FGCP)=76.45 /(6565/360)=4 days.
Hence
Inventory conversion period=131+36+4=171 days
Debtors’ conversion period=1115/(7661/360)=52 days.
Creditors’ deferral period=1904/(6960/360)=100 days.
Cash conversion cycle=171+52-100=123 days.
Note: THE ENTIRE AMOUNT GIVEN IS IN LAKHS.
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SALES TURNOVER COMPARATIVE
OF 2008 AND 2009.
YEARSALES TURNOVER
(In crores)
2008 92
2009 82
SALES SCENARIO
YEAR, 1, 2008 YEAR, 2, 2009
SALES TURNOVER, 1,
920000000SALES
TURNOVER, 2, 820000000
0
100000000
200000000
300000000
400000000
500000000
600000000
700000000
800000000
900000000
1000000000
1 2
YEAR
SALE
S YEAR
SALES TURNOVER
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COMPARATIVE BALANCE SHEET OF THE YEAR 2008 AND 2009
PARTICULARS 2009 2008 ABSOLUTE IN PERCENTAGE
SOURCES OF FUNDS
SHARE HOLDERS FUND
(in crores)
(in crores)
Share capital 11 11 0 100
Reserves and surplus 17.38 18.85 (1.47) 7.79
Total 28.38 29.85 (1.47) 4.92
LOAN FUND
Secured loans 16.93 2.29 14.64 639.3
Unsecured loans 12.65 4.69 7.96 169.7
Total 29.58 6.98 22.6 323.7
APPLICATION OF FUND
Gross block 43.96 46.58 (2.62) 5.62
Less: depreciation 15.44 17.53 (2.09) 11.92
Net block 28.52 29.05 (0.53) 1.82
Investments 51.39 50 1.39 2.78
Land 2.76 2.76 0 100
Tax 54.34 11.04 43.3 392.2
Current assets 4.754 3.115 1.639 52.61
Less : current liabilities
2.611 1.492 1.119 75
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Net current assets 2.143 1.623 0.52 32.03
GRAPHICAL REPRESENTATION
OF THE COMPARATIVE BALANCE SHEET
OF THE YEAR 2009 AND 2008
0
100000000
200000000
300000000
400000000
500000000
600000000
700000000
800000000
YEAR LIABILITIES ASSETS
Series1
Series2
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TYPES AND CLASSIFICATION OF PRODUCTS
SHAH PULP & PAPER LTD is a non-marketing organization as they are manufacturer of inters mediate media in the country. They have a dealers network. They export their products to Sri lankans and china.
The company is manufacturing the Newsprint-Medium Grade Paper and the company sells Newsprint directly to Newspapers as well as through dealers. The company is having very good marketing and distribution network all over the India. The company is supplying Newsprint to all the major and leader newspapers in India. The demand of the product is very good and market is very potential. Newsprint is the only major segment of the paper industry where a substantial demand and supply gap exists. The company has never found any difficulty to supply the entire products in the Indian market.
Shah pulp & PAPER LTD. Is leading manufacturer of crafts paper, writing & printing paper & newsprint.
NEWS PRINT IS MAINLY DIVIDED INTO THREE CATEGORIES:
PRIME SUPER DELUX
SPECIAL SUPER DELUX
As we are mainly concerned with newsprint, our focus is to study the newsprint unit of the organization.
CATEGORY OF NEWSPRINT
1.PRIME:- it’s the most used paper category by the local and small print media centers. It’s the lowest in quality, cheaper in price & light shaded. It uses mixed & ONP(old news paper).
2.SUPERDELUX:betterthanthe above category. Its brighter in shade, its price is more than prime. It uses special onip as raw material.
3.SPECIAL SUPER DELUX:- It’s made of the most superior quality. It’s costlier than the above mentioned category. It’s best in every aspect and brightest of all. It also uses special onip as raw material.
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SALES PROCEDURE
SHAH PULP & PAPER LTD. It’s a dealers network organization. They deal directly with their customers. The dealers send indent or orders to the sales department.
The indent consist of the following information:-
Grade Quantity
Rate
Date
Mode of payment
Mode of dispatch
Transporter’s name
Freight, etc.
All this information is entered in the computer system and production according to the indent is manufactured with required qty. if the production is carried out in required rate then invoice is prepared.
An invoice contains invoice no.,party name, mode of payment, mode of dispatch etc.
If the Rate is not valid order is rejected.
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MARKETING CHANNEL
SHAH PULP & PAPER LTD. Deals with consumer products. Therefore, only one marketing channel exists.
DOCUMENTS OF SALES:-
INDENT INVOICE
GATE PASS
FORM 45(SALES TAX)
TAXES APPLICABLE ON SALES
As far as newsprint is concerned they have to pay 0.125% CESS i.e. central excise secondary sess to be paid.
And after the earthquake they have to pay education (cess) on the basic value of 0.125%. Basic value +cess+2% sales tax, if the
MANUFACTURER
DEALERS
CUSTOMER
FINAL CONSUMER
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product is carried to the other states. And if it is within the boundaries of the state than 5% Gujarat state vat is charged. 2% is against the sea form or else 5% tax is to be paid. 0.15% transit insurance is paid.
Freight charges, sales bills, challan no., excise invoice is a must used document in manufacturing industry.turnover of 50 lacs or more than commercial invoice is prepared. It goes with transporters during loading.
PURCHASE PROCEDURE
Purchase procedure is done only from the approved supplier. All suppliers supplying prior to the system effective data are deemed to be evaluated. The type and extend of control applied on the suppliers is based on the suppliers performance and the effect of the supplied product on the quality of final product.
The criteria for the selection of new suppliers are:-
Previous experience Customers’ recommendations.
Data source available on internet.
The inclusion of such supplier’s is based on their clearance of the product being as per raw material sheet and commercial terms as per the requirement by the firm.
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The re-evaluation of the supplier is done on the basis of the quality performance of the supplier. The quality rating is calculated on a monthly basis.
PURCHASING INFORMATION:-
Purchasing information is gives to the suppliers through the purchase order, i.e. P.O. It contains the details such as:
Specifications Price
Quantity
Packing
Delivery date
Mode of transportation
Credit
Quality system requirement. If any
Verification of purchased product.
The QC DEPT. does the verification of the purchased product to ensure that all the requirements are incorporated in the product as per specification in the p.o.
DIFFERENT DOCUMENT OF PURCHASING:
Purchase order Purchase register
Indents
CUSTOMER’S LIST
SR.NO. NAMES
1The Sandesh ltd.
2Divya bhaskar
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3Dainik Bhaskar
4Jagaran group
5Lokmat etc.
6Bombay samachar
SUPPLIER’S LIST OF
SHAH PULP & PAPER LTD.
SR.NO. CATEGORY NAMESINDIGENOUS
RAW MATERIAL
1. Mayur paper mart
2. Paras papers
CHEMICALS
1. Agarwal coal corporation
2. Maheswari builders
3. G.M.D.C
4. Kemoax corporation
5. Nikhil epec chemicals
6. Shah chemicals
STORES &
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SPARES, WIRES & FABRICS.
1. Paper international
2. V.G. recycling group
3. Gautam enterprises
PRICE LIST
PRODUCT
NAMES
PRICES
(PER METRIC TONNE)
Prime 21000 Rs/-
Super deluxe 22500 Rs/-
Special super deluxe 26000 Rs/-
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HUMAN RESOURCE PLANNING
In SHAH PULP & PAPER LTD. Human resource planning is a outcome of four steps.
They are as follows:-
1. Determining job specifications2. Analyzing job responsibility and workload.
3. Forecasting human resource demand & supply.
4. Finalize the no. of personnel required with eligibility.
Thus in this way human resource planning process is completed.
Let us know right now what are the total no of employees working in the firm.
CATEGORY NO. OF EMPLOYEES
Staff 71
workers 185
Contract labours 350
TOTAL 606
RECRUITMENT PROCEDURE
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The recruitment procedure in SHAH PULP & PAPER LTD. Comprises of the following few steps:
Recruitment process starts when the head or manager of the concern dept. reveals that there is a vacancy for a particular job.
When the head reveals a vacancy, the first step in this direction of employing people is requisition of workers for the vacancy arises. This requisition should clearly state the following:
Name and specification of the job. Jorate of pay
Time bounded ness i.e. full time or part time.
Temporary or permanent
Age limit
Sex
Special qualification and skills required.
Thus by preparing such form the company gets the detailed information about kind of employee to be advertised and recruited.
SOURCES OF RECRUITMENT
In SHAH PULP & PAPER LTD. They firstly make a study of the vacancy with regard to its urgency and need and decide whether it should be fulfilled through internal or external source.
1. Internal source:- Internal sources include promoting or transferring a person who is already working with the firm.
2. External source: - The various external sources include:
Advertisement
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Labour contractors
Personal sources
Placement agencies
Gate recruitment
After gathering a pool off employees from the above-mentioned sources they collect their biodata and carry on with their selection process.
SELECTION PROCEDURE
Selection is the process of picking individuals with requisite qualification and competence to fill jobs in the firm.
The selection procedure comprises of the following steps:-
1. General interview2. Application blank
3. Depth interview
4. Medical test
PROMOTION, DEMOTION & INCREMENT POLICIES
PROMOTION AND INCREMENTS
SHAH PULP & PAPER LTD. Promotes an employee in merit basis. Every month they evaluate the performance of the employees by giving targets. The employee fulfilling the target gets appropriate
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promotion. The promotion also depends upon sincerity, regularity and performance.
Same rules are applied for increment purpose.
DEMOTION
In SHAH LTD. If any employee is not able to perform as per management targets, management will not provide any increment or opportunity for future advancement.
INDUCTION & TRAINING
In SHAH LTD. When a new employee is placed, he has to spent three days in each department to understand the overall function and methods of the organization and staff.
Here, qualification and experience of an employee is compared with existing nature of the job and the requirement of training is identified by the department heads and to personal head and training is planned.
After getting trained, three months evaluation is carried out. This is done to check the improvement of work.
The probation time period is 6 months for middle level employees.
METHODS OF TRAINING
Here, on the job methods are being implemented.
They are as follows:-
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WAGES AND SALARY ADMINISTRATION
SHAH industries is a large industry, thus proper administration of wage and salary is important. Here the company follows “punch card system”.
In this system each employee is provided with a particular card and has to punch his or her card as they enter and exit the company premises. It is done at the entrance in the security room.
SEMINARSCONDUCTE
D BY ASSOCIATI
ONS
VESTIBULE TRANING
TRAININGFULFILL
MENT
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There are three types of leaves allowed:
1. P.L.(Privilege leave) :There are 30 P.L. for staff members and 15 for workers.
2. C.L.(Causal leave) :There are 10 paid holidays per year.
3. S.L.(Sick leave) :There are 7 S.L. for each employee.
Against each employees absence he has to submit leave forms. Also, wage and salary distribution is with conformity with government rules.
According to details available from time keepers with the help of the punch card system, initially discussed, wage and salary is calculated as per the working hours of the employees.
Thus company follows TIME WAGE SYSTEM.
They consider overtime offered and leaves taken and based on punch cards information, company prepares salary sheet and wages and salary is distributed among the employees.
On the recommendation of department head in terms of facility or increments is a motivational tool of the firm.
The daily wages paid to a worker irrespective of gender and skills are 106.5 RS/- Per head in SHAH PULP & PAPER LTD.
Therefore, the monthly wages are 3200 RS p.m.
COMPENSATION STRUCTURE
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PARTICULARS PERCENTAGE OF ALLOWANCES
BASIC _
HRA 10%
CONVEYANCE 10%
MEDICAL 5%
PF 12%
ESIF 6.5%
BONUS 8.33%
ESIF stands for employees state insurance fund.
WELFARE ACTIVITIES
The following services are being provided to SHAH LTD. Employees:-
ACCOMODATION FACILITY. SAFETY FACILITY such as gumboots, masks, apron for lab
technicians etc.
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MEDICAL FACILITY as the employees are provided with group medical insurance and yearly medical checkup for all employees is mandatory.
REST ROOMS
PURE & COLD DRINKING WATER.
LUNCHROOM for staff and workers.
ADEQUATE LIGHT AND VENTILATION FACILITY.
UNIFORMS to workers at production area.
These facilities are provided to workers at lower cost than the actual cost.
CONCLUSION
The working capital management of the company is good. Its working capital is:
Current Assets- Current Liabilities
475,378,554- 261,172,654= 214205900
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Which shows that company has good amount of working capital, which can be very useful for the company in meeting its oncoming demands. And it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.
The cash conversion cycle of the company is 123 days, which shows that company’s policy for converting current assets into cash is fine. But it should be somewhat careful about the inventory management because much cash is tied up in inventory. And By holding excessive inventory, the firm is increasing its costs, which reduces its ROE. Moreover, this additional working capital must be financed, so EVA is also lowered.
The cash budget of the company shows that company remains sufficient amount of cash with its hand so that it can be used in the required time.
Debtors turnover ratio of the company is 6.9 and its collection period is 53 days which shows that the company allows longer period of credit to its customer because if the company allow people time to pay their bills, they are more likely to buy from it rather than from another business that doesn't give credit for that much period. The length of credit period allowed is an important factor that can help a potential customer decide whether to buy from that company or not: the longer the better, of course.
Credit policy of the company is satisfactory. The credit provided to the customers is in the form of supplier’s credit (bills of exchange). Management is so concerned about it’s credit policy. But they should do check on their debtors
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and should also be strict about their credit policy otherwise it would lead to bed debts.
Stock turnover ratio of the company is 3.8 for imported stock and 8.7 for indigenous stock and average days to sell its inventory is 96 days and 42 days respectively which indicates that it takes some time to convert inventory into cash and as company has large amount of working capital in the form of inventory it can not use cash anywhere else because if there’s less stock to worry about, lower investment in stocks meaning that the money they used to have tied up in the stock room is now free to spend somewhere else.
Creditors turnover ratio of the company is 3.7 and its payment period is 100 days, which shows that the company pays its account in three months means company has good credit terms with its suppliers.
If company pays earlier, say, to get a discount this will decline. If company simply defers paying its suppliers (without agreement) this will also increase - but company’s reputation, the quality of service and any flexibility provided by its suppliers may suffer.
As for short term financing company uses bank loan for having short-term funds to finance its working capital.
Hence it’s clear that company manages its working capital effectively and is much concerned about it. And the effective
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management of working capital has very much enhanced the financial position of the company.
SUGGESTIONS
The suggestions for SHAH PULP & PAPER LTD are as determined:-
Sanitation facilities for the workers lacks adequacy. Cleanliness is a must for good working conditions.
The workers who come from far off places should be provided canteen facilities if it suits the budget of the company
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The drainage system for the waste water after purification process is not proper, this affects the cleanliness of company premises.
The costs of the firm are on a steady increment which has affected the net profit of the firm 2 times the previous year.
The company must try for better management of HRIS through computerized techniques.
The company must adopt some cost cutting measures in the upcoming year.
ANNEXTURE
All the details in the project are being captured from company’s formal documents and the website of the firm.
The figurative details are from master file of the SHAH PULP & PAPER LTD.
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