Summer Project On Working Capital at IFFCO

WORKING CAPITAL MANAGEMENT
A PROJECT REPORT Submitted by
ANNIE SUKHRAMANI and JYOTI LAKHWANI

[2009-2011]
[09103 and 09049]
To
Director (PGDM)
In the partial fulfillment of the requirement of
Tolani Institute of Management Studies, Adipur
For the award of the degree of
Post Graduate Diploma in Management
Tolani Institute of Management studies

Adipur-370 205
July 2010
TOLANI INSTITUTE OF MANAGEMENT STUDIES

DECLARATION
We hereby declare that the project work entitled “WORKING CAPITAL

MANAGEMENT AT IFFCO-KANDLA” is submitted to Tolani Institute Of
Management Studies, Adipur is record of an original work done by us under the
guidance of “Mr.D.C.MAHESHWARI, DGM (F&A)” and the project work is not
submitted for the award of any other degree/diploma/associate ship/fellowship or
similar award
Signature
(JYOTI and ANNIE)
Date:
Place:

CONTENTS
Description PAGE NO.
Acknowledgement i.
Executive summary ii-iii

1. Introduction
1.1 Introduction to project 1-5
1.2 Introduction to IFFCO-KANDLA 6-18
2.1 Objectives 19
2.2 Methodology 20
3.Analysis and interpretation 21-60
4.Finding and inferences 61-63
5.Recommendation 64
6.Conclusion 72
Bibliography 73

LIST OF TABLES
Sr. No Table title Page No.

1 Cost Of Production Sheet Of All Products 47
2 Statement Of Changes In The Balance Sheet 50

Items
3 Fund Flow Statement For The Year 2009 – 10 51
4 Information System For Working Capital 54

Management.
5 Current Ratio 56
6 Quick Ratio 58
7 Absolute Liquid Ratio 60
8 Debt Equity Ratio 61
9 Proprietary Ratio 63
10 Debtor Turnover Ratio 64
11 Working Capital Turnover Ratio 65
12 Return On Capital Employed 66
13 Return On Share Holders Fund 67

LIST OF FIGURES
Sr.no Figure title Page No.
1 The Working Capital 46
Cycle
2 Current ratio 56
3 Quick ratio 58
4 Absolute liquid ratio 60
5 Debt equity ratio 62
6 Working capital turnover 65
ratio
7 Return on capital 67
employed
8 Return on share holders 68
fund

“ACKNOWLEDGEMENT”
It was a great pleasure working at IFFCO-Kandla. We take this opportunity to extend

our gratitude towards all those persons who have directly or indirectly contributed to
this project.
First of all, we are grateful to Mr. S.K.Singh, Chief Manager (Training), and Mr.
H.H.Chauhan, Sr Manager (Training) who gave us opportunity to undertake this
project at IFFCO-Kandla, and also for his help and tips whenever needed.
We would like to thank Mr. V.J.Mankodi, Joint General Manager- (F&A), for
allowing us to carry out this project study and his guidance and support during
training period and also Mr. Dushyant Chauhan Assistant Manager, Shri V Srinivasan
Manager (A/Cs) and Shri HT Bhambhani Manager (A/Cs)for sharing their ideas with
us.
In addition, of course, how can we forget the guidance and help from our Project
Guide Mr.D.C.MAHESHWARI, DGM (F&A) right from the beginning till the end,
without which we hardly would have been able to complete this report. We thank all
of them for their valuable time, which, in spite of being extremely busy.
We also appreciate the supportive attitude of all the head of departments and the staff
of IFFCO.

EXECUTIVE SUMMARY
Every business needs adequate liquid resources in order to maintain day-to-day

cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay
creditors if it is to keep its workforce and ensure its supplies. Maintaining adequate
working capital is not just important in the short-term, sufficient liquidity must be
maintained in order to ensure the survival of the business in the long-term as well.
Even a profitable business may fail if it does not have adequate cash flow to meet its
liabilities as they fall due. Therefore, when businesses make investment decisions
they must not only consider the financial outlay involved with acquiring the few
machine or the new building, etc, but must also take account of the additional current
assets that are usually involved with any expansion of activity. Increased production
tends to engender a need to hold additional stocks of raw materials and work in
progress. Increase sales usually mean the level of debtors will increase. A general
increase in the firm’s scale of operations tends to imply a need for grater levels of
cash.
By minimizing the amount of funds tied up in current assets, firms are able to reduce
financing costs and\or increase the funds available for expansion. The importance of
efficient Working Capital Management is indisputable. Business viability relies on its
ability to effectively manage receivables, inventory, and payables. By minimizing the
amount of funds tied up in current assets and liabilities back towards their optimal
levels. The definition of working capital is fairly simple; it is the difference between
an organization’s current assets and its current liabilities.
Thus our project concentrates on the important aspects of the Working Capital
Management in the organization life. There are many private as well as government
companies. The company we have selected for our project is the Cooperative Society
which is IFFCO – KANDLA.

Indian Farmers Fertilizers Co-operative limited (IFFCO), today is a leading player in
India’s fertilizer industry and is making substantial contribution to the efforts of Indian
Government to increase food grain production in the country. Indian farmers Fertilizers
Cooperative Limited, popularly known as IFFCO emerged as a pioneer venture on the
horizon of fertilizer production and marketing with the objective of attaining self-
sufficiency in food grain production.

OBJECTIVE OF STUDY
1) To find the working capital situation of the company.

2) To continually improve working capital performance.
3) To know working capital management of company.

INTRODUCTION TO PROJECT
What is WORKING CAPITAL?
In simple words working capital is the excess of current Assets over current liabilities.
Working capital has ordinarily been defined as the excess of current assets over
current liabilities. Working capital is the heart of the business. If it is weak, business
cannot prosper and survives. It is therefore said the fate of large scale investment in
fixed assets is often determined by a relatively small amount of current assets. It is
important to keep adequate working capital with the company.
Cash is the lifeline of company. If this lifeline deteriorates so does the company’s
ability to fund operation, reinvest do meet capital requirements and payment.
Understanding Company’s cash flow health is essential to making investment
decision. A good way to judge a company’s cash flow prospects is to look at its
working capital management. The company must have adequate working capital as
much as needed by the company. It should neither be excessive or nor inadequate.
Excessive working capital causes for idle funds laying with the firm without earning
any profit, where as inadequate working capital shows the company doesn’t have
sufficient funds for financing its daily needs working capital management involves
study of the relationship between firm’s current assets and current liabilities. The goal
of working capital management is to ensure that a firm is able to continue its
operation. And that it has sufficient ability to satisfy both maturing short term debt
and upcoming operational expenses.
The primary objective of working capital management is to

Ensure that sufficient cash is available to
Meet day to day cash flow needs.
Pay wages and salaries when they fall due
Pay creditors to ensure continued supplies of goods and services.

Pay government taxation and provider of capital – dividends and
Ensure the long term survival of the business enterprise.
Need for working capital
The prime objective of the company is to obtain maximum profit thought the
business. The amount of profit largely depends upon the magnitude of sales. However
the sale does not convert into cash instantaneously. There is always a time gap
between sale of goods and receipt of cash. The time gap between the sales and their
actual realization in cash is technically termed as operating cycle. Additional capital
required to have uninterrupted business operations, and the amount will be locked up
in the current assets. Regular availability of adequate working capital is inevitable for
sustained business operations. If the proper fund is not provided for the purpose, the
business operations will be effected. And hence this part of finance is to be managed
well.
Working capital
Current Assets Current Liabilities

Cash Short-term Debt
Marketable Securities Current Portion of Long-
Term Debt
Accounts Receivable Accounts Payable
Inventory Accrued Liabilities
Prepaid Expenses
Current Assets-
1. A balance sheet account that represents the value of all assets that are reasonably
expected to be converted into cash within one year in the normal course of business.

Current assets include cash, accounts receivable, inventory, marketable securities,
prepaid expenses and other liquid assets that can be readily converted into cash.
2. In personal finance, current assets are all assets that a person can readily convert to
cash to pay outstanding debts and cover liabilities without having to sell fixed assets.
In the United Kingdom, current assets are also known as "current accounts".
1. Current assets are important to businesses because they are the assets that are used
to fund day-to-day operations and pay ongoing expenses. Depending on the nature of
the business, current assets can range from barrels of crude oil, to baked goods, to
foreign currency.
2. In personal finance, current assets include cash on hand and in the bank, and
marketable securities that are not tied up in long-term investments. In other words,
current assets are anything of value that is highly liquid.
Current Liabilities-
A company's debts or obligations those are due within one year. Current liabilities
appear on the company's balance sheet and include short term debt, accounts payable,
accrued liabilities and other debts.
Essentially, these are bills that are due to creditors and suppliers within a short period
of time. Normally, companies withdraw or cash current assets in order to pay their
liabilities.
Analysts and creditors will often use the current ratio, (which divides current assets by
liabilities), or the quick ratio, (which divides current assets minus inventories by
current liabilities), to determine whether a company has the ability to pay off its
current liabilities.

A firm is required to maintain a balance between liquidity and profitability while
conducting its day to day operations. Liquidity is a precondition to ensure that firms
are able to meet its short-term obligations and its continued flow can be guaranteed
from a profitable venture. The importance of cash as an indicator of continuing
financial health should not be surprising in view of its crucial role within the business.
This requires that business must be run both efficiently and profitably. In the process,
an asset-liability mismatch may occur which may increase firm’s profitability in the
short run but at a risk of its insolvency. On the other hand, too much focus on
liquidity will be at the expense of profitability. Thus, the manager of a business entity
is in a dilemma of achieving desired tradeoff between liquidity and profitability in
order to maximize the value of a firm.
Working Capital Management (WCM) is of particular importance to the small

business.
With limited access to the long-term capital markets, these firms tend to rely more
heavily on owner financing, trade credit and short-term bank loans to finance their
needed investment in cash, accounts receivable and inventory.
Not all companies are the same.
Some companies are inherently better placed than others. Insurance companies, for
instance, receive premium payments up front before having to make any payments;
however, insurance companies do have unpredictable outflow as claims
Normally, a big retailer like Wal-Mart (NYSE:WMT) has little to worry about when
it comes to accounts receivable: customers pay for goods on the spot. Inventories
represent the biggest problem for retailers; as such, they must perform rigorous
inventory forecasting or they risk being out of business in a short time.

Timing and lumpiness of payments can pose serious troubles. Manufacturing
companies, for example, incur substantial upfront costs for materials and labor before
receiving payment. Much of the time they eat more cash than they generate.
NATURE AND IMPORTANCE OF WORKING CAPITAL-
The working capital meets the short-term financial requirements of a business

enterprise. It is the trading capital, not retained in the business in a particular form for
longer than a year. By minimizing the amount of funds tied up in current assets, firms
are able to reduce financing costs and/of increase the funds available for expansion.
The money invested in it changes form and substance during the normal course of
business operation. The need for maintaining an adequate working capital can hardly
be questioned. Just as circulation of blood in the human body is very necessary
working capital is required to maintain business. If it becomes weak, the business can
hardly prosper and survive.
Working capital starvation is generally credited as a major cause if not the major
cause of small business failure in many developed and developing countries.
The success of a firm depends ultimately, on its ability to generate cash receipts in
excess of disbursements. The cash flow problems of many small businesses are
exacerbated by poor financial management and in particular the lack of planning cash
requirements.

INTRODUCTION OF IFFCO
During mid- sixties the Co-operative sector in India was responsible for distribution
of 70 per cent of fertilizers consumed in the country. This Sector had adequate
infrastructure to distribute fertilizers but had no production facilities of its own and
hence dependent on public/private Sectors for supplies. To overcome this lacuna and
to bridge the demand supply gap in the country, a new cooperative society was
conceived to specifically cater to the requirements of farmers. It was a unique venture
in which the farmers of the country through their own Co-operative Societies created
this new institution to safeguard their interests. The number of co-operative societies
associated with IFFCO has risen from 57 in 1967 to 38,155 at present.
Indian Farmers Fertilizer Co-operative Limited (IFFCO) was registered on

November 3, 1967 as a Multi-unit Co-operative Society. On the enactment of the
Multistate Co-operative Societies act 1984 & 2002, the Society is deemed to be
registered as a Multistate Co-operative Society. The Society is primarily engaged in
production and distribution of fertilizers. The bylaws of the Society provide a broad
frame work for the activities of Indian Farmers Fertilizer Cooperative Limited as a
Co-operative Society.
IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP

plant at Kandla both in the state of Gujarat in 1975. Ammonia - urea complex was set
up at Phulpur in the state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla
was commissioned in 1988.
In 1993, IFFCO had drawn up a major expansion program of all the four
plants under overall aegis of IFFCO VISION 2000. The expansion projects at Aonla,
Kalol, Phulpur and Kandla have been completed on schedule. Thus all the projects
conceived as part of Vision 2000 have been realized without time or cost overruns.
All the production units of IFFCO have established a reputation for excellence and
quality. As part of the new vision, IFFCO has acquired fertilizer unit at Paradeep in
Orissa in September 2005.

IFFCO has made strategic investments in several joint ventures. Godavari Fertilizers
and Chemicals Ltd (GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques
du Senegal (ICS) in Senegal and Oman India Fertilizer Company (OMIFCO) in
Oman are important fertilizer joint ventures. Indo Egyptian Fertilizer Co (IEFC) in
Egypt is under implementation. As part of strategic diversification, IFFCO has
entered into several key sectors. IFFCO-Tokyo General Insurance Ltd (ITGI) is a
foray into general insurance sector. Through ITGI, IFFCO has formulated new
services of benefit to farmers. 'Sankat Haran Bima Yojana' provides free insurance
cover to farmers along with each bag of IFFCO fertilizer purchased. To take the
benefits of emerging concepts like agricultural commodity trading, IFFCO has taken
equity in National Commodity and Derivative Exchange (NCDEX) and National
Collateral Management Services Ltd (NCMSL). IFFCO Chhattisgarh Power Ltd
(ICPL) which is under implementation is yet another foray to move into core area of
power.
The distribution of IFFCO's fertilizer is undertaken through over 37,000 co-

operative societies. The entire activities of Distribution, Sales and Promotion are co-
ordinate by Marketing Central Office (MKCO) at New Delhi assisted by the
Marketing offices in the field. In addition, essential agro-inputs for crop production
are made available to the farmers through a chain of 158 Farmers Service Centre
(FSC). IFFCO has promoted several institutions and organizations to work for the
welfare of farmers, strengthening cooperative movement, improves Indian agriculture.
Indian Farm Forestry Development Cooperative Ltd (IFFDC), Cooperative Rural
Development Trust (CORDET), IFFCO Foundation, Kisan Sewa Trust belongs to this
category. An ambitious project 'ICT Initiatives for Farmers and Cooperatives' is
launched to promote e-culture in rural India. IFFCO obsessively nurtures its relations
with farmers and undertakes a large number of agricultural extension activities for
their benefit every year.
IFFCO, to day, is a leading player in India's fertilizer industry and is making

substantial contribution to the efforts of Indian Government to increase food grain
production in the country.

Units of IFFCO
Kandla
Phulpur
Kalol l
Aonla
Paradeep

INTRODUCTION OF IFFCO-KANDLA
Kandla Unit – Location
State Gujarat, India

State Capital Gandhinagar
District Kachchh
Distance from New Delhi Approx. 1100 kilometers by rail
Distance from Mumbai Approx. 800 kilometers by rail
Nearest Airport Kandla Airport, Near Gandhidham,and Bhuj
Airport 65 KM from Gandhidham.
Railway Station Gandhidham ( 12 Km from plant and 3 Km
from IFFCO's township at Gandhidham)
and Kandla (3 Km from the plant)
Road Adjacent to Kandla Port Trust on National
Highway 8-A , 365 Km. from Ahmedabad
Area under Plant 70.61 Hectares
Area under Township 79.65 Hectares
Temperature ( o C ) 47 (Max.) in summer to 7 (Min.) in winter.
Rainfall (mm) Scarcity
Longitude 70o 13'26" E
Latitude 23o 00'00" N

Address IFFCO, Kandla Unit, Post BoxNo.12,
Gandhidham - 370201, Kandla (Kachchh),
Gujarat, INDIA
IFFCO’s NPK plant is located on the water front adjacent to Kandla Port Trust Oil
Jetty. The plant was built at a cost of about Rs. 30 crores with two streams (called
train A and train B) and with the licensed capacity of 127000 tones of P2O5. This
plant was designed by the M/s Door Oliver-Inc., to produced three grade ok NPK
based on DAP, the plant was commissioned on 26th November, 1974 and its
commercial production started on 1st January, 1975.
With increase in demand for complex fertilizers, the capacity of NPK has been
doubled at a cost of about Rs. 28.6 crores. Two more streams (train C and train D) had
been added with the increased licensed capacity from 127000 MT P2O5 to 260000
MT P2O5 per annum. The new two streams are called Kandla Phase 2 was completed
one month ahead of the projected schedule. This is a rare phenomenon not only in
India but in entire South East Asian region. Kandla Phase 2 commissioned on4th
June, 1981 with the production record for IFFCO. The production of Kandla Phase 2
was started from 6th September, 1981.
IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla phase-II
NPK/DAP project conceptualized the setting up of two additional streams (train E and
train F) for manufacture of the same grades of NPK/DAP fertilizers with an annual
production capacity of 2,10,700 MTPA thus increasing the total capacity from
3,09,000 MTPA of P2O5 to 5,19,700 MTPA of P2O5. The actual cost of the project
was Rs. 205.30 crores against a budgeted cost of Rs. 212.20 crores.
The total annual production of the Kandla unit was 127000 MTPA as on 26 th
November, 1974 with two streams (train A and train B), which was increased by
182000 MTPA as on 6th September, 1981 by starting two more stream (train C and
train D), which was further increase to 210700 MTPA as on 1999 by introducing two

more streams (train E and train F). So currently the total production capacity of the
both plant at Kandla unit is 519700 MTPA. Currently all six streams (train A, B, C,
D, E and F) is working in its full-fledged capacity and giving its optimum output.
In 1974 when the Kandla Unit was started IFFCO was importing its raw material with
help of Kandla Port Trust Oil Jetty and currently Kandla unit has its own Oil Jetty.
Various departments in IFFCO-KANDLA
1) Production
2) Technical
3) Finance and accounts
4) Personnel and Administration
5) Materials
6) Maintenance
7) Systems
Introduction to F&A
Finance is the life blood of business. According to Howard and Upton “Finance is that
administrative function in an organization which relate with the arrangements of cash
and credit so that the organization may have the means to carry out its objectives as
satisfactory as possible.”
Functions of Finance & Accounts Department
Finance & Account Department of Kandla Unit is controlled by Head of Department

i.e. CM (F&A). His main function s to co-ordinate all activities related to Finance and
Accounts and report to Head Office’s Finance & Accounts Department / Finance
Director as well Unit Head. Finance & Accounts Department function various types
of activities as per guidelines issued by Head Office, Purchase Procedure, Service
Rules, Powers of Officers, etc.

Finance Department comprises of
o PAY ROLL SECTION
o RAW MATERIALS
o FIXED ASSETS & INSURANCE
o WORKS BILL SECTION
o PURCHASE BILL SECTION
o BOOKS AND BUDGETS
o FINANCIAL CONCURRENCE
PAY ROLL SECTION:
Pay roll Section takes care of all financial issues of employees in coordination with
Administrative and personal Department. Its function includes management of
Salaries, TA/ DA, Loans and Advances, Misc. payment related to employees, perk
allowance payments, etc.
Here records of each employee are maintained regarding basic pay, leave encashment,
medicals, salary, increments, promotion based perks, etc.

RAW MATERIALS:
1. P2O5- Imported
2. Ammonia- Imported & Indigenous
3. Potash- Imported
4. MAP- Imported
5. Urea- Kalol
6. Filler
Raw material section in F&A Department does the accounting of above

mentioned raw material which includes receipt of raw material when raw material
are purchased, monthly consumption as per the production department and
payment to the suppliers.
MISCELLANEOUS ACCOUNTS:
The miscellaneous jobs can be divided into following categories:
1. passing of bills of miscellaneous nature;

2. Accounting of cash Income and advances for expenses;
3. Miscellaneous recoveries from outside agencies.
Miscellaneous Bills includes rates contracts for service contract for air-
conditioners, water coolers, weighing machines, franking machines,
typewriters, computers, personal computers, calculating machines, knitting of
chairs, etc. Other miscellaneous bills includes telephone rentals, STD calls,
local calls, teleprinters, fax, service bills, advertisement bills, electricity bills,
printing and block making bills, bills of travel agents, bills of canteen
purchases, etc. Annual contacts and hiring of taxi, motors, etc is also included
in this account.

WORKS BILLS
Work Bills Section is entrusted with the task of checking and authentication
of AFP (authorized for payment) received from various departments such as
Civil, Plant, and Township, etc. They have to keep record and maintain
account. They have to verify measurements, Tax provisions like TDS and
other deductions like EMD, security and penalty, etc.
PURCHASE BILLS
In Purchase Bills treatment is given to the bills on purchase of machinery and

tools and spares etc. for accounting requirements and book keeping as well as
record maintenance and tax deductions and authentication of AFP on purchase
of Goods and Services.
FINANCIAL CONCURRENCE
Financial Concurrence deals with crosschecking and green signaling the

requisition for purchases made by various indented departments of the unit.
They check for the availability of Budget and ascertain its necessity and
criticality for regular and smooth operations of the plants and activities of
various departments.
BOOKS AND BUDGET
Books and budget deal with revenue budget compilation, monitoring and
control, reconciliation of inter unit accounts, maintenance of books of
accounts and submission of monthly/ quarterly/ annual reports. COP
processing and attending internal/ statutory/ tax auditors.

PERFORMANCE HIGHLIGHTS OF IFFCO FOR THE YEAR
2009-10
Highest Production of Fertilizers 81.98 lakh MT

(Previous Best71 .68 lakh MT in 2008-09)
Highest Production of Urea 43.24 lakh MT
(Previous best 40.68 lakh MT in 2008-09)
Highest Production of NPK/DAP 38.74 lakh MT
Highest Sales of Fertilizers 118.27 lakh MT
Highest Sales of Urea 63.35 lakh MT
Highest Sales of NPK/DAP 54.92 lakh MT
Profit Before Tax Rs.567.28 crore
(Previous best PBT – 807.09 crore in 2002-03)
Profit After Tax Rs.401.10 crore
(Previous best PAT – 557.2 crore in 2002-03)
Highest Turnover Rs.16809 crore
(Previous best Rs.32933 crore in 2008-09)
Highest Plant Productivity 1608 MT per employee
(Previous best 1669 MT in 2005-06)
Highest Marketing Productivity 7885 MT per employee

(Previous best 7397 MT in 2008-09)
Achievements of IFFCO Kandla Unit.
 Nineteen Safety Awards from National Safety Council - U.S.A.

 Fourteen Safety Awards from the National Safety Council, Bombay,
government of India.
 Twenty-six Safety Awards from Gujarat Safety Council, Baroda.
 Six Fertilizers Association of India (FAI) Awards for the best overall
production performance during the years 1981, 1982, 1996-97, 1997-98, 1998-99
& 2002-03.
 One National Productivity Council (NPC) Best Productivity Award for the
year 1997-98 in the category of Fertilizers Industry - Phosphate Sector presented
in August'00.
 One Safety award from FAI for Excellence in Safety for 1999-2000.
 One Safety award from Directorate General Factory Advice Service & Labor
Institutes, Ministry of Labor, Government of India Runner, National Safety award
– 1999.
 One Labour, Government of India Runner, National Safety award – 1999
DISTRIBUTION NETWORK & MARKETING:
There are four manufacturing plants of fertilizers of IFFCO in India, three

plant’s main product is urea and the plant located at Kandla produces DAP
and NPK fertilizers. The distribution network for urea is surrounding area of
the each plant while distribution network of DAP and NPK is all over India
.from the distribution hierarchy for the NPK and DAP is given below and it is
useful in understanding the marketing process of IFFCO.
Marketing central office (Delhi)

North Zone South Zone Central Zone West Zone East Zone
State offices State offices State offices State offices State offices
Area offices Area offices Area offices Area offices Area offices
Field officer Field officer Field officer Field officer Field officer
Apart from selling fertilizers through network of more than 37000 cooperative
societies, IFFCO has its own 158 farmers service centers (FSCs) spread across
10 states. These FSCs apart from supply of fertilizers, seeds , agrochemicals
etc. under one roof also serve as the contact point for providing technical
knowhow to farmers. Need based promotional programmes such as farmers
meeting, soil test campaigns were organized in villages surrounding FSCs.
Literature relating to crop production, balanced use of fertilizers was
distributed through these FSCs.
VISION AND MISSION

1. VISION
To augment the incremental incomes of farmers by helping them to increase

their crop productivity through balanced use of energy efficient fertilizers,
maintain the environmental health and to make cooperative societies
economically & democratically strong for professionalized services to the
farming community to ensure an empowered rural India.
2. MISSION
• To provide to farmers high quality fertilizer in right time and in adequate

quantity with an objective to increase crop productivity
• To make plants energy efficient and continually review various scheme to
converse energy.
• Commitment to health, safety, environment and forestry development to
enrich the quality of community life.
• Commitment to social responsibility to strong social fabric.
• To institutionalize core value and create a culture of team building,
empowerment and innovation which would help in incremental growth of
employees and enable achievement of strategic objectives.
• Building a value driven organization with an improved and responsive
customer focus. A true commitment to transparency, accountability and
integrity in principle and practice.
• To acquire, assimilate and adopt reliable efficient and cost effective
technology and sourcing raw materials of production of phosphate fertilizers at
economical cost by entering into joint venture outside India.
• To ensure growth in core and non-core sector.
• A true cooperative society committed for fostering cooperative movement in
the
METHODOLOGY

Data collection
Primary data:
1) Informal interview through different officers of IFFCO
2) Through Personal Observation
Secondary data:
1) Annual reports manual 2008-2009, 2009-2010
2) Through Internet
ANALYSIS AND INTERPRETATION:-

DETERMINANTS OF WORKING CAPITAL
Working capital requirements of a concern depends on a number of factors, each of

which should be considered carefully for determining the proper amount of working
capital. It may be however be added that these factors affect differently to the
different units and these keeps varying from time to time. In general, the determinants
of working capital which re common to all organization’s can be summarized as
under:
Nature of business
Need for working capital is highly depends on what type of business, the firm in.
there are trading firms, which needs to invest a lot in stocks, ills receivables, liquid
cash etc. public utilities like railways, electricity, etc., need much less inventories and
cash. Manufacturing concerns stands in between these two extends. Working capital
requirement for manufacturing concerns depends on various factor like the products,
technologies, marketing policies.
IFFCO-KANDLA is a manufacturing organization, because of which it requires lot of

funds to be blocked in raw-materials for the production of fertilizer. The cycle of
operating at IFFCO-KANDLA is quite long thus it needs large amount of working
capital. 95% of total funds are invested in raw-materials.
Manufacturing and Production policies

Production policies of the organization effects working capital requirements very
highly. Seasonal industries, which produces only in specific season requires more
working capital. Some industries which produces round the year but sale mainly done
in some special seasons are also need to keep more working capital.
It follows continuous production policy. The plants are operated 24 hours in different
shifts. Demand factor is not considered here as the fertilizers are sold by its marketing
department. As production continuous for 24 hours, the investment in raw materials
invested is high as interruption in production causes increase in cost of production
because of high set up cost of plant.
Operations:-
As it has policy of continuous production, it does not have to consider seasonal

factors for its working capital requirement. Its working capital does not vary with
season.
Market condition:-
It does not have to depend on market condition as the fertilizer are always considered
essential for agriculture so there is not much competition in this industry. Secondly, it
only manufactures fertilizer while sales are handled by its marketing department.
Availability of Raw-Materials:-
If raw-material is readily available then it need not maintain a large stock of same,
thereby reducing the working capital investment in raw material stock. On the other
hand if raw material is not readily available then a large inventory/stock needs to be
maintained thereby calling for substantial investment in the same raw material are
very important aspect for arriving at working capital requirements at IFFCO-
KANDLA because of two reasons only. 1st it follows continuous production policy so
the raw materials are used in very large quantum and 2nd the raw material like
Ammonia, Potash, Urea, Phosphoric Acid and many others and the most of the raw
material are imported from foreign countries which takes around 3 months as lead
time. Thus it requires a large amount of working capital.
Growth and Expansion:-
Growth and Expansion in the volume of business result in enhancement of working

capital requirement. As business grows and expands, it needs a large amount of
working capital. Normally the need for increased working capital funds precedes
growth in business activities.
IFFCO-KANDLA has grown incredibly since its inception because of high growth it
needs large amount of working capital as the operations are handled at very large
scale. It has expanded its operations through investing in many other important
projects which compel them to invest immensely in working capital.
Price level changes:-
The price level changes in raw material hits very hard to IFFCO-KANDLA as the
major investments are being done in raw materials. Most of the materials are imported
for outside India which involve risk of exchange rate fluctuations thus it needs high
amount of working capital.
Manufacturing cycle:-
It starts with the purchase of raw material and is completed with the production of
finished goods. If the manufacturing cycle involves longer period the need for
working capital would be more. At times business needs to estimate the requirement
of working capital.
Manufacturing cycle affects a lot on working capital requirements at IFFCO-

KANDLA as the cycle takes lot of time to convert raw materials into finished goods,
purchase of raw material takes as long time as 3 months. Therefore, it’s very
necessary for IFFCO-KANDLA sufficient amount of working capital.

WORKING CAPITAL CONCEPTS.
There are two thoughts that are currently accepted about working capital.
They are
Gross working capital concept.
Net working capital concept.
Gross working capital concept
This thought says that total investment in current assets is the working capital of the
company. This concept does not consider current liabilities at all. Reasons given for
the concept.
1) When we consider fixed capital as the amount invested in fixed assets. Then the
amount invested in current assets should be considered as working capital.
2) Current asset whatever might be the sources of acquisition, are used in activities
related to day to day operations and their forms keep on changing. Therefore they
should be considered as working capital.
Net working capital
It is narrow concept of working capital and according to this, current assets minus
current liabilities forms working capital. The excess of current asset over current
liabilities is called as working capital. This concept lays emphasis on qualitative
aspect which indicates the liquidity position of the concern/enterprise. The reasons for
the net working capital method are:

1) THE material thing in the long fun is the surplus of current assets over current
liability
2) Financial health can easily be judged by with this concept particularly from the
view point of creditors and investors.
3) Excess of current assets over current liabilities represents’ the amount which is not
liable to be returned and which can be relied upon to meet any contingency
4) Intercompany comparison of financial position may be correctly done particularly

when both the companies have the same amount of current assets.
If the current assets are higher than current liability it is considered the financial
position of the company is sound. If both current assets and liabilities are equal, the
company has resorted to short term funds for financing the working capital and long
term sources of funds have been used to finance the acquisition of fixed assets.
It doesn’t not indicate the financial soundness for the company. If the current assets
are lesser than current liabilities there is negative working capital which indicates
financial crisis.
Net working capital concept is more reasonable than the gross working capital
concepts. The balance sheet of the company includes group of liabilities such as bank
overdraft, creditors, bills payables, outstanding expenses etc.
If it is not deducted from current assets, the concern may consider itself quite
secured: while the reality is may be that the concern has very little working capital or
has no working capital. Therefore it is reasonable to define working capital as the
excess of current assets over current liabilities

KINDS OF WORKING CAPITAL
Working capital can be put in two categories:
1) Fixed or permanent working capital and

2) Fluctuating or temporary working capital
Fixed or permanent working capital
The volume of investment in current assets and change over a period of time. But
always there is minimum level of current assets that must be kept in order to carry on
the business. This is the irreducible minimum amount needed for maintaining the
operating cycle. It is the investment in current assets, which is permanently locked up
in the business, and therefore known as permanent working capital.
Variable/temporary working capital
It is the volume of working capital which is needed over and above the fixed working
capital in order to meet the unforced market changes and contingencies. In other
words any amount over and about the permanent level of working capital is variable
or fluctuating working capital. This type of working capital is generally financed from
shorter souse of finance such as bank credit because this amount is not permanently
required and is usually paid back during off season or after the contingency.

Sources of working capital
The company can choose to finance its current assets by

Long term sources
Short term sources
A combination of them.
Long term sources of permanent working capital include equity and preference shares,
retained earnings, debentures and other long term debts from public deposits and
financial institution. The long term working capital needs should meet through long
term means of financing. Financing through long term means provides stability,
reduces risk or payment and increases liquidity of the business concern. Various types
of long term sources of working capital are summarized as follow
Issue of shares
It is the primary and most important sources of regular or permanent working capital.
Issuing equity shares as it does not create and burden on the income of the concern.
Nor the concern is obliged to refund capital should preferably raise permanent
working capital.
Retained earnings
Retain earning accumulated profits are a permanent sources of regular working

capital. It is regular and cheapest. It creates not charge on future profits of the
enterprises.
Issue of debentures

It creates a fixed charge on future earnings of the company. Company is obliged to
pay interest management should make wise choice in procuring funds by issue of
debentures.
Long term debt
Company can raise fund from accepting public deposits, debts from financial
institution like banks, corporations etc. the cost is higher than the other financial tools.
Other sources sale of idle fixed assets, securities received from employees and
customers are examples of other sources of finance.
Short term sources of temporary working capital
Temporary working capital is required to meet the day to day business expenditures.
The variable working capital would finance from short term sources of funds. And
only the period needed. It has the benefits of, low cost and establishes closer
relationships with banker.
Some sources of temporary working capital are given below;

Commercial bank
A commercial bank constitutes a significant source for short term or temporary

working capital. This will be in the form of short term loans, cash credit, and
overdraft and though discounting the bills of exchanges.
Public deposits
Most of the companies in recent years depend on this sources to meet their short term
working capital requirements ranging from six month to three years.

Various credits
Trade credit, business credit papers and customer credit are other sources of short
term working capital. Credit from suppliers, advances from customers, bills of
exchanges, promissory notes, etc helps to raise temporary working capital.
Reserves and other funds
Various funds of the company like depreciation fund. Provision for tax and other
provisions kept with the company can be used as temporary working capital.
Issues in working capital
Working capital management refers to the administration of all components of

working capital – cash, marketable securities, debtors, stock and creditors. The
financial manager must determine levels and composition of current assets. He must
see that right source are tapped to finance current assets and that current liability are
paid in time.
There are many aspects of working capital management which make it an important
function of financial manager.
1) TIME: - Working capital management requires much of the financial

manager’s time.
2) INVESTMENT: - Working capital management represents a large portion of

the total investment in assets.

3) CRITICALITY: - Working capital management has great significance for all
firms but it is very critical for small firms.
4) GROWTH; - The need for working capital is directly related to the firm’s
growth.
COMPONENTS OF WORKING CAPITAL MANAGEMENT
1) Receivables management (debtors)
Receivables are direct result of credit sale. Credit sale is resorted to by a firm to
push up its sales, which ultimately results in pushing up the profits earned by a firm.
At the same time, selling goods on credit results in blocking of funds in account
receivable.
Additional funds are, therefore required for the operation needs of the
business, which involves extra cost in terms of interest. Moreover, increase in
receivables also increase chance of bad debts. Thus creation of accounts receivables is
beneficial as well as dangerous. So a firm needs to continuously monitor and control
its receivable to ensure the success of collection efforts.
A firm sells goods on cash and credit is used as a marketing tool credits to its
customers, debtors are expected to be converted into cash over a short period and
therefore are included current asset. The liquidity position of the firm depends on the
quality of debtors to the great extent.
Receivable management at IFFCO-KANDLA is not a big component to be

considered with respect to working capital requirement.

IFFCO-KANDLA is a cost centre only. It does not sales its production directly
in market. It is manufacturing unit which dispatch its whole production to marketing
department. The fertilizers are sold to cooperative society by marketing department
and that sale is recorded in books of head office of IFFCO.
At IFFCO receivables do not have any share in current asset. Current asset shown
in books of IFFCO most of the time represent negative or very low balance as the
main component of current asset is not dealt here. But that does not posses enough
liquidity.
2) Cash management
At IFFCO – KANDLA cash management is an important aspect which is dealt

with maximum care at IFFCO – KANDLA. Cash management does not only involve
management of cash transactions but also of bank transaction.
Here cash and bank aspects of cash management have been discussed separately.
CASH SECTION:-
Cash is the most important asset for any organization but at the same time a least
productive one. At IFFCO – KANDLA very few transactions are made in cash, value
of which is not more than RS 20000
Main cash expense at IFFCO – KANDLA:-
1) Tour advances to its employees

2) Other miscellaneous expense
Main cash receipts at IFFCO – KANDLA:-

1) Employees dues
2) Scrap sale
Documents for any cash transactions:-
1) Cash receipt voucher

2) Cash payment voucher with approval of authorized officer
Other policies regarding cash management:-
1) Insurance has been taken up to Rs.50, 000 to insure its hard cash from its
subsidy company called IFFCO- TOKIO general insurance ltd.
2) IFFCO- Kandla maintains cash balance of Rs.2, 00,000 for everyday

transaction.
3) Petty cash of RS 5000 has been approved to 7 to 8 employees for specified

purposes.
4) Cash book is printed once in a month as the transactions are limited.
5) The cash entries are recorded in FAS that is financial accounting system used
at IFFCO – KANDLA by cashier.
6) Cash allowance of RS 200 is given to cashier for handling cash.
7) The authorized officers verify hard cash with cash balance of regular interval
of 15 days.

Bank section:-
IFFCO – KANDLA is largely dependent on banks as it makes all its transactions

through the bank. IFFCO – KANDLA manages its bank transactions in a very proper
and systematic way. Mainly it deals through its current account with Indian Overseas
Bank. The Head office transfers funds to Indian Overseas Bank Account On the basis
of its requirement. IFFCO – KANDLA has got bank credit of RS 10 crores. All the
transactions which are of routine nature are paid through this bank credit. These
transactions include following:-
Statutory dues
Custom duties
Freight
The above all payments are done through cheques. Regular payments for those
transactions are very essential as the legal implications are involved with some of the
above transaction.
Other policies regarding managing bank transactions:-
1) It has third account with SBI
2) Post and prepaid cheques are not accepted by IFFCO – KANDLA.
3) Demand drafts on local banks are accepted to avoid clearing charges.
4) LC that is letter of credit is also has been provided by bank to IFFCO –

KANDLA.

5) The maximum limit of letter of credit is up to RS 20.6 crores.
6) Bank charges 3.2% interest on bank guarantee.
7) Bank charges 9% interest on the amount spends by IFFCO – KANDLA from

its bank credit limit.
Inventory Management;-
Inventory investment constitutes a major chunk of a company’s current assets holding

next only to debtors. Though over the years the % has come down due to scientific
inventory management by companies and also tightening of bank finance for
inventory, inventory still accounts for quite a few crore of rupees in any company’s
balance sheet. Hence efficient inventory management is vital to get the best mileage
out of every rupee invested in working capital. An inventory consists of:-
1) Raw material and components

2) Work – in – progress
3) Finished goods
4) Stores and spares
Raw material and components:-
The raw material includes potash, urea, ammonia, p2o5, phosphoric acid. These all
raw materials are mainly imported so the decision about how much basic raw material
is to be purchased for the budgeted production is taken at head office level. The
purchased raw material is sent according to their respective budgeted requirement to
all other units.

Consumable Management
At IFFCO – KANDLA the consumable item includes various catalysts require during
the process of making fertilizers, they are LSHS, marinate of potash, filler etc. these
items are purchased based on the budgeted production and are properly stored so that
they don’t affect the quality of fertilizer. The management is always cautious about
the amount to be invested in this part of inventory and they always try to control over
investment in this part of inventory.
Work – in – progress/process:-
At IFFCO – KANDLA all the plants operate for almost more than 320 days in a year
for 24 hours so the work in progress inventory is almost negligible, even if there is
some work in progress they try to convert it into finished goods and then properly
pack it and send the same to the warehouse for dispatch.
Finished goods management:-
After the goods are produced i.e. fertilizer produced is sent to bagging plant for
packing in either gunny bags or (HDFC) plastic bags and then the packed fertilizer is
sent to the warehouse for further distribution to the end users i.e. farmers. IFFCO –
KANDLA supplies its fertilizers material mostly through co-operative channels.
However the co-operative societies have no obligation to purchase from IFFCO –
KANDLA. This necessitates a competitive approach to nurture brand loyalty. The
marketing strategy of IFFCO – KANDLA is designed to ensure timely availability of
reasonably priced quality products right at the door step of the farmers through the
nationwide co-operative network. The fertilizer is distributed through Apex co-
operative marketing federation in many states of the country. Direct supplies to the
village level co-operative societies are also undertaken in some states. In some states
small quantities are provided to other institutional agencies like Agro industries co-
operation in some states. IFFCO – KANDLA NCDC and IFFCO’S farmers service
centers (FSCS) are also used as outlets for retail sale of fertilizer.
Stores and Spares:-
The usual level of inventory varies widely into two categories viz. imported and
indigenous items. The level in case of imported items varies from 18 to 24 months
this is due to the fact that it compromise of both lead time for imported formalities as
well as suppliers lead time to deliver the material at users point. For finding
indigenous goods, we have two sub categories of items:-
A) Non – Stock items: - The non-stock items are tailor mode and hence
their procurement time is long. These items are generally costly and
difficult to stock. Users themselves generally procure these items.
B) Stock items: - Stock items are mostly everyday items are

generally available of the shelf. These items are not very costly. For
non stock indigenous items, we have to keep inventory worth of 9
months whereas for stock items the inventory is to be maintained
worth of 6 months. Two circumstances play a vital role in disturbing
these levels. One is erratic consumption and the other is increase in
lead time of procurement. Stringent import procedures especially in
case of restricted spares banned goods, capital goods and canalized
items forces upward of levels.
Techniques of Inventory Management
IFFCO-KANDLA follows following methods for setting difference level of stock.

1 Reorder level
2 Economic order Quantity.

Inventory valuation system at IFFCO-KANDLA
1) Raw material is valued at lower of weighted average cost or not realizable value.
2) Stores and spares, packaging material and construction material are valued at
weighted average cost. Items of stores and spares which are slow or non moving are
valued at lower of cost or realizable value based on technical estimation.
3) Finished goods and stock in process are valued at lower of cost or not realizable
value damaged goods are identified by the management are valued at their estimate
realizable valued closing stock of finished goods is net of standardization looses.
a) The cost of stock lying at plant is derived taking attributable expressed incurred at
factory in to consideration.
b) Cost of stock lying at plant at warehouse.
c) In respect of manufactured urea covered by group concession scheme at cost of

production after investment of contribution to/subsidy from fertilizer industry
coordination committee.
d) Imported urea at procurement cost plus handling cost changes less remuneration
received from the government of India.
Net realized value
1) For stock of urea lying at plant group concession price fixed by FICE
2) For stock of urea lying at warehouse, selling price fixed by government of
India
3) For fertilizer whose prices have been decontrolled by the government of India
and for imported fertilizer, the price prevalent on the balance sheet date.

4) Stock of seeds and chemicals are valued at lower of weighted average cost
and estimate realizable value.
5) Tools issued are written off over the period of 3 years.
6) Catalyst and resins issued at the time of commissioning the plant and
capitalized.
Payable management at IFFCO
Payable management is one of the most appropriate procedure at IFFCO-KANLA

payable management is dealt by purchasing departments, work bills section as the
payable mainly involve credit purchase of raw material and other contractual
works being undertaken by contractors at IFFCO.
Policies regarding payable at IFFCO:-
1) Different forms of purchase are defined in NIT.
2) Generally IFFCO gets periods of 60 days to meet as obligation with regards to

its creditors and payable.
3) The raw material like urea is exported from foreign country because of which
the investment in inventories is quite high which ultimately leads to high
amount of u/s payable.
Payable are paid by the head office while the liabilities are recorded at IFFCO.
The deferral period of creditors of raw material is as follows.
Phosphoric acid- 50%-15 days

50%-cash payments
Ammonia 15-21 days.

Potash 180 days.
Empty bags 21 days
Local purchase 30 days
The average collection period for creditors at IFFCO is approx 56 days which
represent its proper management of payables.
THE WORKING CAPITAL CYCLE
The working capital cycle starts when stock is purchased on credit from suppliers and
is sold for cash and credit. When cash is received from debtors it is used to pay
suppliers, wages and any other expenses. In general a business will want to minimize
the length of its working capital cycle thereby reducing its exposure to liquidity
problems. Obviously, the longer that a business holds its stock and the longer it takes
for cash to be collected from credit sales, the greater cash flow difficulties and
organization will face.
In managing its working capital a business must therefore consider the following
question. 'If goods are received into stock today, on average how long does it take
before those goods are sold and the cash received and profit realized from that sale?'
The answer will depend upon a number of factors that we will consider later in this
article. For now we will turn our attention to calculating the length of a business's
working capital cycle.
Cash flows in a cycle into, around and out of a business. It is the business's life blood
and every manager's primary task is to help keep it flowing and to use the cash flow to
generate profits. If a business is operating profitably, then it should, in theory,
generate cash surpluses. If it doesn't generate surpluses, the business will eventually
run out of cash and expire. The faster a business expands the more cash it will need
for working capital and investment. The cheapest and best sources of cash exist as
working capital right within business. Good management of working capital will

generate cash will help improve profits and reduce risks. Bear in mind that the cost of
providing credit to customers and holding stocks can represent a substantial
proportion of a firm's total profits.
There are two elements in the business cycle that absorb cash - Inventory (stocks and
work-in-progress) and Receivables (debtors owing you money). The main sources of
cash are Payables (your creditors) and Equity and Loans.
Each component of working capital (namely inventory, receivables and payables) has
two dimensions ........TIME ......... and MONEY. When it comes to managing working
capital - TIME IS MONEY. If money can be moved faster around the cycle (e.g.
collect monies due from debtors more quickly) or reduced the amount of money tied
up (e.g. reduce inventory levels relative to sales), the business will generate more cash
or it will need to borrow less money or have additional free money available to
support additional sales growth or investment. Similarly, negotiating improved terms
with suppliers e.g. get longer credit or an increased credit limit will effectively create
free finance to help fund future sales.

COST OF PRODUCTION SHEET OF ALL PRODUCTS
PARTICULARS AMOUNT (Rs. In Crores)

Consumption of raw material 8714.44
Interest 764.98
Depreciation 457.94
Manufacturing expenses 1309.60
TOTAL 11246.96
Opening stock of w.i.p 42.30
(-) Closing stock of w.i.p 72.89
COST OF PRODUCTION 11216.37
(+)Opening stock of finished goods 449.34
GOODS AVAILABLE FOR SALE 11665.71
(-) Closing stock of finished goods 130.14
COST OF GOODS SOLD 11535.57
Adm. and Distribution expenses NIL
TOTAL 11535.57
Operating cycle at IFFCO
As IFFCO is a cost centre where only production procedure taken place and the
sale is done by its marketing department. So operating cycle at IFFCO doesn’t
involve debtor’s conversion period.

Operating cycle has been calculated and following
1) Raw material conversion period= RM inventory/RM.consumption*360

= 718.66/8714.44*360
= 30 Days
2) Work in progress conversion period =WIP inventory/cost of production*360

= 72.89/11216.37*360
= 2 Days
3) Finished goods conversion period = FG inventory/cost of goods sold *360

= 130.14/11525.57*360
= 4 Days
4) Books debts conversion period=Debtors/ credit sales *360

= 68.08/7247.30*360
= 3 Days
Here at IFFCO – KANDLA the net operating cycle shows –ve result this implies that
IFFCO – KANDLA manages its funds required for converting raw materials into
finished products from its supplier’s credit.
IFFCO – KANDLA manages its payables in a very different way. The creditor’s
deferral period is around 74 days which makes it possible for them to finance its
working capital which is involved in production procedure from its suppliers.
The kind of operating cycle is very beneficial from point of view of finance as the
funds which are being financed from suppliers credit would have led to another
expenditure that is interest. Interest would have been paid on the amount of working

capital required for production. So the operating cycle is dealt in a very different
manner at IFFCO – KANDLA.
Fund flow statement:
Fund flow statement reveals the sources of funds to the company during the period
and as to how they were utilized during the period and as the company during the
same period. It is an important tool to analyze the movement of funds in a business in
a period of a year, 3 year or even 10 years. In each case, sources of funds and their
end use will be depicted for the corresponding periods. It is also called as a source a
uses statement. Fund flow statement. Whereas the income statement represents the net
result of operation for the year, the Fund flow statement is a report of financial
operation of business undertaking. It discloses the result of the financial policies of
the corporate management and hence is of great relevance to the financial analyst and
credit institution. A Fund flow statement is a flow concept and represents net changes
in the financial position of a company between two different balance sheet dates.
Since the published balance sheet normally provides the comparative balance sheet it
becomes easy the fund flow stamen by noting changes in the different balance sheet
items during the period covered by the statement. The Fund flow statement is
prepared with the help of comparative balance sheet and also with the help of profit
and loss statement for the particular year. The net changes in the balance sheet items
between the two balance sheets are calculated and further refinements are affected
with the help of profit and loss account for the year.
In the balance sheet, all the liabilities and owners equity are sources. And all assets
are uses of funds. Hence the following rule of thumb is used to classify the change in
the balance sheet items either as a source or use of funds.
source uses

Increase in liability Increase in asset
Increase in paid up capital Decrease in liability
Increase in Reserves Increase in working capital
Decrease in asset Loss in operation
Decrease in working capital -------------
At this stage, to indicate that impact of profit/loss and few other factors, the following
refinements are to be effected by combining profit/loss account and balance sheet.
STATEMENT OF CHANGES IN THE BALANCE SHEET ITEMS
Particulars 2009- 2008- Differences Sources/use

10 09
Share 426.24 426.28 (0.04) Use
capital
Reserves 3844.2 3532.5 311.67 Source

and surplus 6 9
secured 5032.9 7373.1 (2340.25) Use
loans 3 8
Unsecured 6499.2 5429.6 1069.64 Source
loan 4 0
Fixed 4824.2 4965.8 (141.56) source
asset(net 8 4
block)
Capital; 333 298.98 42.02 Use
WIP
Investments 7531.2 7552.9 21.67 Source
8 5
Inventories 1302.2 1731.3 (429.11) Source
5 6
Sundry 68.8 407.23 (339.15) Source
debtors
Cash and 1075.3 69.63 1005.68 Use
bank 1
Loans and 3376.8 5464.7 (2087.9) Source
advances 7 7
Current 1799.4 2860.1 (1060.78) Use
liabilities 0 8
provisions 392.22 322.71 69.51 Source
Deferred 516.78 542.12 (25.34) Use
tax liability
FUND FLOW STATEMENT FOR THE YEAR 2009 – 10
SOURCES AMOUNT USE AMOUNT

Reserve & 311.67 Share capital 0.04
surplus
Unsecured loan 1069.64 Secured loan 2340.25
Fixed asset 141.56 Capital WIP 42.02
Investment 21.67 Cash bank 1005.68
Inventory 429.11 Current 1060.78
liabilities
Sundry debtors 339.15 Deferred tax 25.34
liability
Loans and 2087.9
advances
provisions 69.51
Total 4474.11 4474.11
MANAGEMENT INFORMATION SYSTEM FOR WORKING

CAPITAL MANAGEMENT
The management information system for working capital helps monitoring not only
the individual components of working capital such as receivables ,payables , raw
material, stores and spares, finished goods etc. but also helps in the review of the
operating cycle and the velocity of overall funds turnover.
The management information system not only helps in the efficient allocation of
resources to different organization of resources to different organization sub system
such as production, marketing, material etc but also elevates their resources-use
efficiency. The cost of working capital as well as procuring through minimizing the
investment in working capital as sound financial health for enterprise as also to
enhance the image of the company with short term financiries as bankers.

Information needs-working capital
Inventory-
- Consumption
- Stocks
- Receipts
- Movements
- Turnover Ratios
- Item Wise
- Category Wise
- Location Wise
- Total -Unit
-Value
Debtors
- Sales
- Collections
- Outstanding
- Age wise position
- Customer wise/ category wise
- Turnover ratios
Cash
- Receipt
- Disbursement
- Balance
- Purchase
- Supplier Wise And Total

Creditors
- Payment
- Dues
All the activities are not the responsibility of one function of the organization material
management department is response for all aspects and activities relating to inventory
management; sales and finance will have to provide adequate timely and controlled
information to all segments of working capital.
Information system for working capital management.
items Statement From stores To Action

Sr.no ABC identified
analysis Significant
item of
inventory
1 Raw Material Cost centre Purchase Procurement
material requirement
And stores Stock Stores Purchase
a and b statement
C item Purchase Stores Purchase Procurement
requisition

2 Work in Stock Production Finance Production
progress statement planning
3 Finished Marketing Marketing Production Ready in

goods requirement stock
awaiting
dispatch
4 Debtors Cash Finance Finance Day to day

forecasting availability
of cash for
payment of
bills etc
5 cost Order Finance Purchase Computer
storage Recorder
stock out And stock
levels
6 Cash Cash Finance Finance Day to day

forecast availability
of cash for
payment of
bills etc
7 Movements Fund flow Finance Board Correct if
of funds statement necessary
plan for
capital
investment
8 Finance Cash Finance Board/MD Arranging
forecast funds

RATIO ANALYSIS
Ratio analysis is one of the techniques of financial analysis where ratios are used as a
yardstick for evaluating the financial condition and performance of a firm. Analysis
and interpretation of various accounting ratios gives a skilled and experienced analyst,
a better understanding of the financial condition and performance of the firm than
what he could have obtained through a perusal of financial statements.
Ratios are relationships expressed in mathematical terms between figures which are
connected with each other in some manner. Obviously, no purpose will be served by
comparing two sets of figures which are not at all connected with other.
This can be expressed as

Times
Percentage
The use of ratios is not confined to financial managers only. There are different
parties interested in the ratio analysis for knowing the financial position of a firm for
different purposes. The supplier of goods on credit, banks, financial institutions,
investors, shareholders and management all make use ratio analysis as a tool in
evaluating the financial position and performance of a firm for granting credit,
providing loans or making investment in the firm. With the use of ratio analysis one
can measure the financial condition of a firm and can point out whether the
performance of a firm is strong, good questionable or poor. The conclusion can also
be drawn as to whether the performance of a firm is improving or deteriorating. Thus
ratios have wide applications and are of immense use today.
A. LIQUIDITY RATIO
1. CURRENT RATIO

Current ratio may be defined as the relationship between current assets
and current liabilities. This ratio is a measure of general liquidity and is more widely
used to make the analysis of a short term financial positions or liquidity of a firm.
A relatively high current ratio is an indication that the firm is liquid and has the ability
to pay its current obligations in time as and when they become due. On the other
hand, a relatively low current ratio represents that the liquidity position of the firm is
not good and the firm shall not be able to pay its current liabilities in time without
facing difficulties.
Current assets
Current ratio =_____________________
Current liabilities
It indicates the availability of current assets in rupees for every one

rupee of current liability. A ratio equal or near to the rule of thumb of 2:I i.e. current
assets double the current liabilities are considered to be satisfactory. The idea of
having doubled the current assets as compare to current liabilities is to provide for
delays and losses in the realization of current assets.
CURRENT RATIO
Years Current assets Current liabilities Current ratio
(in crore) (in crore) (in times)
2005 2604 1104 2.36
2006 4749 1362 3.49
2007 6072 1201 5.06
2008 5776 1372 4.21
2009 7673 3183 2.41
2010 5822 2192 2.66

2. QUICK RATIO OR ACID TEST OR LIQUID RATIO
Quick ratio is a more rigorous test of liquidity than the current ratio.
The term liquidity refers to the ability of a firm ton pay its short term obligations as
and when they become due.
Quick ratio may be defined as the relationship between quick assets

and current or liquid liabilities. An asset is said to be liquid if it can be converted into
cash with in short period without loss of value. Inventories and prepaid expenses are
excluded from the list of liquid assets because they are now expected to9 be converted
to cash immediately without a sufficient loss of value.
Current asset- inventory

Quick or liquid or acid test ratio=_____________________________
Current liabilities

A rule of thumb or as a convention quick ratio of 1:1 is considered
satisfactory. It is general that if quick assets are equal to current liabilities then he
concern may be able to meet its short term obligations.
A firm having a high quick ratio may not have a satisfactory liquidity
position of it has slow paying debtors
QUICK RATIO
Liquid assets Current liabilities Quick ratio

Years
(in lakhs) (in lakhs) (in times)
2005 1673 1105 1.51
2006 3229 1362 2.37
2007 3788 1201 3.15
2008 4199 1372 3.06
2009 5942 3183 1.87
2010 4520 2192 2.06

3. ABSOLUTE LIQUID RATIO OR CASH RATIO
Cash and bank balance

+Short term securities
Absolute liquid ratio =__________________________
Current liabilities
Debtors and bills receivables are generally more liquid than inventories. Yet
there may be doubts regarding their realization into cash immediately or in time.
Hence there is opinion that the absolute liquid ratio should also e calculated together
with current ratio and acid test ratio so as to exclude even receivables from the current
assets and find out the absolute liquid assets.

Absolute liquid assets include cash in hand and at bank and marketable
securities or temporary investments. The acceptable norm for this ratio is 50% i.e.,
rupee one worth absolute liquid assets are considered adequate to pay Rs 2 worth
current liabilities in times as all the creditors are not expected to demand cash at the
same time and then cash may be realized from debtors and investors.
Cash and bank balance

+short term securities
Absolute liquid ratio =____________________________________
Current liabilities
ABSOLUTE LIQUID RATIO
Cash and bank Absolute liquid

Current liabilities
Years balance ratio
(in Crore)
(in Crore) (in times)
2005 199 1104 0.18
2006 98 1361 0.07
2007 331 1201 0.28
2008 243 1372 0.18
2009 70 3183 0.02
2010 1075 2192 0.49
The table shows the absolute liquid ratio which helps to know
whether absolute assets are adequate to pay the current liabilities.
B. TURNOVER RATIO
1. Debtor turnover ratio
A firm sells goods for cash and credit debtors are created in final accounts.
Debtors are expressed to be converted into cash over a short period and they are
included in current assets.
Debtors turnover ratio =Credit sales

Average debtors
DEBTOR TURNOVER RATIO
Sales Debtors turnover

Years Average debtors
(in Crore) ratio
(in Crore)

2005 7397 325 22.76
2006 9943 474 20.98
2007 10330 362 28.54
2008 12163 414 29.38
2009 32933 407 80.91
2010 16809 68 247.20
The above table shows the debtors turnover ratio. The ratio decreased in 2006
because of high debtors. The ratio was increased during 2007 to 2009 due to reduced
debtors.
WORKING CAPITAL TURNOVER-

A company uses working capital (current assets - current liabilities) to fund operations
and purchase inventory. These operations and inventory are then converted into sales
revenue for the company. The working capital turnover ratio is used to analyze the
relationship between the money used to fund operations and the sales generated from
these operations.
What does working capital turnover mean?

A measurement comparing the depletion of working capital to the generation of sales
over a given period. This provides some useful information as to how effectively a
company is using its working capital to generate sales.
Sales Working capital

Years
(in Crore) Working capital turnover
2005 7397 1499 4.93

2006 9943 3388 2.93
2007 10330 4871 2.12
2008 12163 4404 2.76
2009 32933 4490 7.33
2010 16809 3631 4.62
Profitability ratios:
A company should earn profit to survive and grow over long period of time. Basically
profit is difference between revenue and expenses over a period of time as profit is
ultimate output of company. Profitability ratios are calculated to measure the
operating efficiency of the company which helps the creditors and owners to know the
profitability of the firm.

1) Return on capital employed = PROFIT BEFORE TAX *100
FUNDS EMPLOYED
PBT (in Crore) ROCE

Years Funds Employed
2005 471 4370 10.78
2006 482 9049 5.33
2007 251 10661 2.35
2008 381 10998 3.47
2009 442 17304 2.55
2010 567 16319 3.47

2) Return on shareholders’ fund=
Profit after tax / net worth*100
PAT (in Crore) ROSF

Years Net worth
2005 320 3301 9.70
2006 341 3555 9.60
2007 175 3642 4.81
2008 258 3689 6.70
2009 360 3959 9.10
2010 401 4271 3.47

FINDINGS:
After the analysis of the components of current assets & current

liabilities and the trends of working capital, we find that:-
Current assets are increasing more than current liabilities.
Position of Debtors to Current Assets is average. This ratio had increased

from the year 2001-02 to 2003-04 showing a liberal credit policy followed by
the company.
Large part of working capital is involved in maintaining inventory.
Inventory as a component of current assets is high as compared to the other

components.
Increase In working capital borrowings and the dependency of IFFCO on the

subsidy has increased.

SUGGESTIONS
Working capital is one of the most important aspects of operational

efficiency of business .Working Capital plays a very important role in
the functioning of any organization. Both the current assets & current
liabilities are very much influencing factors on the working capital of
an organization.
After the discussion and analysis of the financial position of IFFCO

Ltd.., it is clear that the working capital of IFFCO is in sound position.
Working capital is not measurable by only current assets & current
liabilities but there are some other factors also that have an influence
on the working capital.
In current assets also, there are two most important factors, which are
Debtors and Inventory, which affect working capital. In IFFCO Ltd.
Inventory and Debtors are efficiently managed to strengthen the
position of the organization both in short term and long terms.
After analyzing and interpreting the financial data of INDIAN

FARMERS FERTILIZER COOPERATIVE LIMITED with the help
of Ratio Analysis, the following suggestions were given to the
organization for further betterment & improvement in the working
capital
The present status and levels of current assets is extremely good and therefore it
requires proper maintenance.
The current percentage of inventory is too high which is not good for operational
efficiency and sound working capital and thus, it need to be controlled by
using various inventory management techniques such as JIT of Kanban.
Another alternative would be to have varying stock or inventory levels during
the different seasons or even months and, thereby, altering the production to
suit such needs.

Cash balances have a lower percentage in current assets. This requires some
concern as cash and bank balances are the most liquid of all current assets. To
improve the cash balances IFFCO needs to improve its average collection
period and also it should invest more money in marketable securities.
Some other concepts such as receivable management should be

adopted so that money can be collected more easily and the working
can be smoothening.
Similarly as per THE BUDGET 2008 the government has ask to

increase the production in NPK and the elements like price for
example zinc and the subsidies too given in this sector like 60 thousand
crore’s in the agricultural department. THOUGH IIFCO is always
appreciated for its stake in INDIAN cooperative and it always remain
among the key basic industries for the growth of agriculture.
As agriculture has changed dramatically since the end of world war

two. Food and fiber productivity soared due to new technologies. Now
sustainable agriculture is the need of the day. The essential nutrient
which is required by the plants is nitrogen, phosphorus and potash.
To meet the need of the nutrients essential for plant growth and good
productions use of fertilizer is a must as we know inorganic fertilizer
has its limitation use of organic fertilizer such as FYM composer green
manure etc is most essential for the sustainable agriculture fallowed by
use of inorganic fertilizers and the other agriculture practices and good
product. So IFFCO is always been the major part of the Indian
agricultural and fertilizer industries part and it promises with his work
to enhance the development and has always been given awards for his
contribution to the development of India.
Summary

We have studied about the different items of working capital and how organizations
can improve their management of working capital. We have seen that the ideal level
of working capital is difficult to calculate and will vary from one organization to
another depending upon the industry in which they operate. What is essential is that a
business avoids both the situation of too little or too much working capital.
Too little working capital is known as over-trading, and is common when a business
is starting up or is experiencing a period of rapid growth. As we saw in our William
Miller example, the level of sales might grow very quickly, but inadequate working
capital is available to support this growth. The situation will then arise whereby a
business may be profitable on paper but has insufficient funds available to pay debts
as they become due. In the short term this situation can be solved through a
combination of measures including:
 Obtaining an increased overdraft facility;

 Negotiating a longer credit period with suppliers;
 Encouraging debtors to pay faster.
However, in the long term a business is unlikely to survive without a combination of:
 new capital from shareholders/proprietor;
 better control of working capital;
 The building up of an adequate capital base through retained profits.
Almost as bad is too much working capital or over-capitalization. Poor management

of working capital will result in excessive amounts tied up in current assets. Such a
scenario will lead to a business earning a lower than expected return. It must be
remembered that the shorter an organization’s working capital cycle, the faster cash,
and hence profits, from credit sales will be realized. In order to achieve this
organization must regularly review its working capital, taking action where necessary.
BIBLIOGRAPHY:

Books
Annual Reports of IFFCO Ltd. Of 2008-09, 2009-10
Financial Management: By I.M. Pandey
Agreement Files of IFFCO
Websites
www.iffco.nic.in
www.investopedia.com
www.fert.nic.
www.indian fertilizers .com

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WORKING CAPITAL MANAGEMENT

A PROJECT REPORT Submitted by

ANNIE SUKHRAMANI and JYOTI LAKHWANI

Tolani Institute of Management Studies, Adipur

For the award of the degree of

Post Graduate Diploma in Management

Tolani Institute of Management studies

TOLANI INSTITUTE OF MANAGEMENT STUDIES

We hereby declare that the project work entitled “WORKING CAPITAL

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Description PAGE NO.

Executive summary ii-iii

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Sr. No Table title Page No.

2 Statement Of Changes In The Balance Sheet 50

3 Fund Flow Statement For The Year 2009 – 10 51

4 Information System For Working Capital 54

7 Absolute Liquid Ratio 60

8 Debt Equity Ratio 61

10 Debtor Turnover Ratio 64

11 Working Capital Turnover Ratio 65

12 Return On Capital Employed 66

13 Return On Share Holders Fund 67

TOLANI INSTITUTE OF MANAGEMENT STUDIES

TOLANI INSTITUTE OF MANAGEMENT STUDIES

It was a great pleasure working at IFFCO-Kandla. We take this opportunity to extend

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Every business needs adequate liquid resources in order to maintain day-to-day

TOLANI INSTITUTE OF MANAGEMENT STUDIES

TOLANI INSTITUTE OF MANAGEMENT STUDIES

1) To find the working capital situation of the company.

TOLANI INSTITUTE OF MANAGEMENT STUDIES

The primary objective of working capital management is to

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Need for working capital

Current Assets Current Liabilities

TOLANI INSTITUTE OF MANAGEMENT STUDIES

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Working Capital Management (WCM) is of particular importance to the small

Not all companies are the same.

TOLANI INSTITUTE OF MANAGEMENT STUDIES

NATURE AND IMPORTANCE OF WORKING CAPITAL-

The working capital meets the short-term financial requirements of a business

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Indian Farmers Fertilizer Co-operative Limited (IFFCO) was registered on

IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP

TOLANI INSTITUTE OF MANAGEMENT STUDIES

The distribution of IFFCO's fertilizer is undertaken through over 37,000 co-

IFFCO, to day, is a leading player in India's fertilizer industry and is making

TOLANI INSTITUTE OF MANAGEMENT STUDIES

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Kandla Unit – Location

State Gujarat, India

TOLANI INSTITUTE OF MANAGEMENT STUDIES

TOLANI INSTITUTE OF MANAGEMENT STUDIES

Various departments in IFFCO-KANDLA

Functions of Finance & Accounts Department

Finance & Account Department of Kandla Unit is controlled by Head of Department

TOLANI INSTITUTE OF MANAGEMENT STUDIES

o PAY ROLL SECTION

o FIXED ASSETS & INSURANCE

o WORKS BILL SECTION