JAIPURIA INSTITUTE OF MANAGEMENT

LUCKNOW

PROJECT ON
WORKING CAPITAL MANAGEMENT

SUBMITTED TO

Submitted by Dr. SUSHMA VISHWANANI

SHEENA SAXENA JIML-10-131
SHIKHA KASSODAN JIML-10-133
SHOBHIT SRIVASTAVA JIML-10-138
SUJESH KHARE JIML-10-147
SUJEET YADAV JIML-10-FS-45 Acknowledgment
 The project of operating cycle is done in the partial fulfillment
nd
of 2 trimester of post graduate diploma in management. This project
has been done under the guidance of Dr. SUSHMA VISHWANANI
professor of FINANCIAL MANAGEMENT. We are grateful to her
for her guidance and providing us an opportunity to understand
working capital management and operating cycle.

Objective of the project

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It is crucial for us, all that businesses get a better handle on the whole
working capital cycle, and the drivers behind it. Working capital
management is a key issue for any business'ssurvival and
sustainability. Much more focus needs to be put on educating
companies on theimportance of strong management of working
capital, and that the focus in the good times hasbeen far too much on
profit and debt
"Cash is the lifeblood of business" is an often repeated maxim
amongst financial managers. Working capital management refers to
the management of current or short-term assets and short-term
liabilities. Components of short-term assets include inventories,loans
and advances, debtors, investments and cash and bank balances.
Short-term liabilities include creditors, trade advances, borrowings
and provisions.
The major emphasis of this project is, however, on short-
term assets, since short-term liabilities arise in the context of short-
term assets. It is important that companies minimize risk by prudent
working capital management

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 Contents
Contents......................................................................................................................................4
References................................................................................................................................27

INTRODUCTION

Fertilizer can be described as any substance, organic or

inorganic, natural or artificial, which supplies one or more of the
chemical elements required for plant growth. According to experts
sixteen elements are identified as essential elements for plant growth,
of which nine are needed in larger quantities and seven elements are
required in smaller quantities.

Future Trends

 India's demand for fertilizers in 2007-08 was 26 MM tons,

which went up to 29 MM tons in 2008-09 against a supply of 20 MM
tons in 2008-2009.
 The demand for fertilizers in 2011-12 is forecasted to be around
35.5 MM tons.
 More fertilizer projects are in the pipeline.
 Gujarat is expected to play a leading role in fertilizer
production.

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 Indian companies have penetrated the overseas market,
signaling a new phase for the industry.

WORKING CAPITAL

Working capital typically means the firm’s holding of current or short-

term assets such as cash, receivables, inventory and
marketable securities. These items are also referred to as
circulating capital. Corporate executives devote a considerable
amount of attention to the management of working capital.

Working capital definition

Working Capital refers to that part of the firm’s capital, which is

required for financing short-term or current assets such a cash
marketable securities, debtors and inventories. Funds thus,
invested in current assets keep revolving fast and are constantly
converted into cash and this cash flow out again in exchange for
other current assets. Working Capital is also known as revolving
or circulating capital or short-term capital. Company’s operating
cycle typically consists of three primary activities:

 Purchasing resources,

 Producing the product and

 Distributing (selling) the product.

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Objective of working capital management:

 Working capital objective is to keep adequate level of short

term assets.
 It converts an asset from non productive to productive one and
vice-versa.
 To establishes the relationship between current assets and
current liabilities.

Operating and cash cycle

The average time between the purchasing or acquiring inventory

and cash proceeds from its sales. The time that elapses between the
purchases of raw materials and the collection of cash for sales is
referred to as the operating cycle, whereas the time length between the
payment of raw materials purchases and the collection of cash for
sales is referred to as the cash cycle.
The operat.ing cycle is the sum of the inventory period and the
accounts receivable period, where as the cash cycle is equal to the
operating cycle less the accounts payable.

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”OPERATING CYCLE”

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 ARIES AGRO LTD.f
Company was founded by Dr. T. B. Mirchandani and Mrs. Bala
Mirchandani in 1969. The company is into the business of
manufacturing of micronutrients and other nutritional products for
plants and animals. It started its activity by manufacturing a small
range of mineral feed additives for animals & birds and then
diversified into mineral additives for the agriculture use. The products
were immediately accepted by the consumers and slowly it became
the brand leader in the field of mineral nutrition with a range of
products including mineral premixes, milk boosters, protein
concentrates, vitamin premixes, anti-coccidian and anti-bacterial feed
additives.
In 1975, the company diversified into nutrients for plant. It had
in-house expertise in the area of mineral nutrition and thereby decided
to concentrate on the same. It conducted research on compounds that
could deliver mineral nutrients to plants more efficiently. The research
zeroed in on "Metal Chelates". The product had to be manufactured in
accordance with the locally available ingredients and expertise which
posed a challenge for the Company.
Through in-house R&D efforts, Company branched out into
Agrochemicals in 1975 with the introduction of Chelated Micro-
nutrients. They pioneered the concept of Chelates in India with the
introduction of "Agromin", a micronutrient fertilizer in the year 1975,
followed by "Chelamin" in 1976. Agromin (chelated micronutrients)
and Chelamin (chelated zinc) are the company's flagship brands. They
are the one of the leading manufacturer and seller of Chelates in the
Country.

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Financial information for year 2006, 2007 &2008

YEARS 2006 200 2008

7
Particulars

SALES 59.36 74.05 103.38

CREDITORS 9.75 11.68 16.67
PURCHASE 9.20 16.98 30.99
RECEIVABLE 20.61 27.55 57.04
INVENTORY 9.20 16.92 30.99

COGS 1.48 12.91 11.62

ARP 146.04 205.62 208.13
IHP 3176.75 528.57 1260.15
APP 419.28 300.53 238.48

Operating 3322.79 734.18 1468.28

cycle
Cash Cycle 2903.51 433.65 1229.80

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Analysis

In 2007 operating cycle was short it means that there were fast
cash inflow but the operating cycle of 2006 was longest period were it
can interpreted that late cash inflow was there due to which there is
increase in working capital requirement In 2008 operating cycle got
high due to increase in account receivable and inventory holding
period increases.
The inventory holding period in 2008 was high which
increases firms holding cost of inventory. In 2008 the longer cash
conversion cycle indicates that the greater the amount of investment
tied up in low return assets, the higher costs and lower profits and
increases the risk and the firm had liquidity problem.
So, it can concluded that 2007 was the best year where the
operating cycle was low and it has the lowest cash cycle where APP
is medium and ARP compare to 2008 is low which indicate that the
firm is able to convert receivables into cash indicates that fast cash
inflow in a firm.

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 Aimco Pestisides LTD.

Aimco Pesticides Limited (Aimco) is a leading company in the

field of Agrochemical manufacturing, formulation and marketing
since the last 45 years and is a major player in Insecticides,Fungicides
and Herbicides , in India & across the world, having 5% of domestic
market share with a large dealer and distributor network. Aimco’s In-
house R & D facilities at Lote-Parshuram are recognized by DST
[Department of Science and Technology], Govt. of India, since 1996.
Aimco is a Government recognized Export House. It was
promoted by Mr. Pradeep P. Dave. UK. Aimco is a manufacturer of
various technical grade pesticides, some of the key products being
Chlorpyrifos [ Ethyl & Methyl], Temephos, Cypermethrin,
Permethrin, Hexaconazole, Glyphosate, Triclopyr & Fluroxypyr and
a vast range of pesticide formulations, viz liquids, wettable powders,
dusting powders , suspension concentrates and dry flowables

Aimco’s products are marketed under the brand

name“AIMCO’’. Aimco is one of the leaders in Chlorpyrifos,
Triclopyr & its formulations The Company has set-up a fully
automatic liquid formulation plant having capacity of 2 million litres
per annum. The capacity utilisation is dependent on the product mix
adopted during the year. Due to the backward integration, the
Company has an edge over other manufacturers by being able to
supply a wide range of pesticide formulations to the farmers.

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Financial information for year 2006, 2007 &2008

YEAR 200 200 200

S 6 7 8
Particulars
SALES 15.68 18.24 24.58
CREDITORS 0.02 2.16 1.55
PURCHASE 1.81 2.73 2.94
RECEIVABLE 5.30 5.42 5.41
INVENTORY 1.81 2.73 2.94

COGS 0.89 2.52 3.44

ACP 123.06 106.87 63.63
IHP 918.20 405.00 281.51
APP 216.79 244.61 178.16

Operating cycle 1041.26 511.87 345.15

Cash Cycle 824.47 267.26 166.99

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29
Analysis

In 2008 operating cycle was short it means that there were

fast cash inflow but the operating cycle of 2006 was longest period
were it can interpreted that late cash inflow was there due to which
there is increase in working capital requirement. In 2007 operating
cycle was of 511.875 which shows account receivable and inventory
holding period was comparatively higher from 2008.
The inventory holding period in 2006 was high which
increases firms holding cost of inventory, the longer cash conversion
cycle indicates that the greater the amount of investment tied up in
low return assets, the higher costs and lower profits and increases the
risk and the firm had liquidity problem.
So, it can concluded that 2008 was the best year where the
operating cycle was low and it has the lowest cash cycle where APP
is medium and ARP compare to 2007 is low which indicate that the
firm is able to convert receivables into cash indicates that fast cash
inflow in a firm.

Basant Agro Tech India ltd.

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 Basant Agro Tech (I) Ltd, a leading agribusiness company
committed to sustainable agriculture through innovative research and
technology. Company believes in delivering better food for a better
world through outstanding crop solutions, and has been working
relentlessly to improve the farmers' plight through extensive R & D
and rendering quality seeds, fertilizers and services to meet the
changing requirements of a farming community..
Basant Agro Tech (I) Ltd is engaged in Manufacturing,
Marketing & Distribution of NPK mixed fertilizer, Single super
phosphate, Secondary nutrient & quality seed under "KRISHI
SANJIVANI" brand name. Company is also engaged in the business
of green power generation, through its wind mills.
At Basant Agro Tech (I) Ltd, use of genetics to leapfrog in to
the future and innovation to usher in prosperity. While continuing
with traditional breeding principals, the company have over the years
successfully adopted latest technological innovations to fast track our
crop research. Keeping pace with the fast changing future marketing
scenario, Basant Agro Tech (I) Ltd., has ventured in the field of
Biotech research to develop transgenic crop for resistance to biotic
and abiotic factors. The company entered into strategic alliance with
some of the leading and very best technology innovation companies
like Mahyco Monsanto Biotech, for value added biotech traits.

Financial information for year 2006, 2007 &2008

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 YEARS 2006 2007 2008
Particulars
SALES 23.94 18.73 18.20
EXPENSES 26.02 19.27 16.08
CREDITORS: 2.42 2.64 24.00
RAW 1.68 2.42 2.04
MATERIALS

FINISHED 2.39 3.10 5.72

GOODS
RECEIVABLE 2.68 2.90 3.85
S

COGS 12.69 4.4 27.65

IHP 136.02 1733.31 343.00
ACP 220.70 76.70 75.06
APP 220.70 628.77 86.58

Operating cycle 356.72 1810.01 418.06

Cash cycle 136.02 1181.24 331.48

Analysis

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 In 2006 operating cycle was short it means that there were fast
cash inflow but the operating cycle of 2007 was longest period were it
can interpreted that late cash inflow was there due to which there is
increase in working capital requirement In 2008 operating cycle
decreased due to decrease in account receivable and inventory holding
period increases.The inventory holding period in 2007 was high which
increases firms holding cost of inventory.
So, it can concluded that 2007 was the best year where the
operating cycle is low. APP is lowest and ARP compare to is low
which indicate that the firm is able to convert receivables into cash
indicates that fast cash inflow in a firm.

Bharat Fertiliser Industries. Ltd.

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 Bharat Fertilizer Industries Limited is an India-based company.
The Company is engaged in the manufacturing of single super
phosphate (powder and granulated), sulphuric acid and alum (liquid and
solid) at its plant situated at Kharvalli Village, Tal. Wada. District
Thane.

The Company operates in two segments: fertilizer and chemicals

and construction. The Company has undertaken real estate development
activity at Majiwada. Its subsidiaries include Yogi Investments Pvt. Ltd,
Vijal Shipping Pvt Ltd., WadaAgro Chemicals Pvt. Ltd., Wada Bottling
Industries Pvt. Ltd., Patel Combi-Therm (India) Pvt. Ltd., Chavi Impex
Pvt. Ltd. and Wada Alums and Acids Pvt Ltd.

Financial information for year 2006, 2007 &2008

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 YE 2006 2007 2008
ARS
Particulars
SALES 68.11 92.41 109.37
EXPENSES 64.84 89.57 109.58

CREDITORS 7.81 7.75 7.62

RAW 8.66 9.87 16.34
MATERIALS
FINISHED 5.48 5.72 10.44
GOODS
RECEIVABLE 15.98 20.52 18.86
S
INVENTORIES 14.14 15.59 26.78

COGS 0.21 0.08 0.95

IHP 4474.28 20992.5 2656.42
ARP 756 251.68 427.32
ACP 968.57 2542.50 348.63

Operating cycle 5230.28 21244.18 3083.74

Cash Cycle 4261.71 18701.68 2735.11

Analysis

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 In 2008 operating cycle was short which shows that there were
fast cash inflow but the operating cycle of 2007 was of longest period
were, it can interpreted that late cash inflow was there due to which
there was an increase in working capital requirement. In 2008
operating cycle again got low due to decrease in account receivable
and inventory holding period.
The inventory holding period in 2007 was high which
increases firms holding cost of inventory. In 2007 the longer cash
conversion cycle indicates that the greater the amount of investment
tied up in low return assets, the higher costs and lower profits and
increases the risk and the firm had liquidity problem.
So, it can concluded that 2008 was the best year where the
operating cycle was low and it has the lowest cash cycle where APP
is medium and ARP compare to 2007 is low which indicate that the
firm is able to convert receivables into cash indicates that fast cash
inflow in a firm.

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 Asian Fertilizers Ltd

Asian Fertilizers (ASIANFR), incorporated in 1986, is engaged in the

manufacture of single super phosphate fertilizer, both in powder and
granulated form, and sulfuric acid.

The company has its manufacturing unit located in the

Gorakhpur district of Uttar Pradesh with annual installed capacities of
66,000 MT single super phosphate powder, 66,000 MT granulated
single super phosphate, and 33,000 MT sulfuric acid. It has a purchase
agreement with Shriram Fertilizers & Chemicals, a division of DCM
Shriram Consolidated. It has been suspended from the BSE on
account of non compliance with listing agreement clauses.

The registered office is located at 47/81, Hatia, Kanpur-208001, Uttar

Pradesh.

Financial information for year 2006, 2007 &2008

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 YEARS 2006 2007 2008
Particulars
SALES 2.00 4.52 1.31
EXPENSES 2.14 4.91 6.52
CREDITORS 00.59 00.54 00.59
RAW 00.83 02.64 2.96
MATERIALS
FINISHED 00.84 00.09 00.03
GOODS
RECEIVABLE 15.98 20.52 18.86
S
INVENTORIES 01.88 03.34 5.99

COGS 02.62 07.72 1.95

IHP 658.85 206.11 730.15
ACP 41.95 65.15 60.62
APP 368.24 67.15 170.76

Operating 700.8 271.26 790.77

cycle
Cash Cycle 332.56 204.11 620.01

Analysis

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 In the year 2006 and 2008, operating cycle and cash cycle of
Asian Fertilizers Ltd. was quite high in comparison to year 2007. In
the year 2007, the operating cycle was 271.26 days which reflects
sound management of working capital. Whereas in year 2006 and
2008, it was 700.80 days and 790.77 days that denotes that capital is
occupied when the commercial entity is expecting its clients to make
payments.
Company is facing long inventory holding period in the year
2006 and 2008. That means it is holding inventory for long time. Also
inventory holding period has increased in the year 2008 which shows
company has blocked a lot of cash in inventory. It further implies that
company is not able to sell its goods at faster rate. So it needs to take
action in that respect may be by reducing its selling price. But this can
be because company is facing difficulty in procuring raw material
because of increase in the cost of raw material.
So it can be concluded that 2007 was the best year for Asian
Fertilizers Ltd. As its operating cycle period and cash cycle period
both were low.

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Comparison between the companies
Year 2008
Company Aries Basant Aimco Bharat Asian
Agro Agrotech Pesticide Fertilizer fertilizers
Particulars
ltd. ltd. s ltd. s ltd. ltd.
COGS 11.62 27.65 3.44 0.95 1.95
IHP 208.13 343 63.63 2656.42 730.15
APP 1260.15 86.68 281.51 427.32 170.76
ACP 238.48 75.06 178.16 348.63 60.62
Operating 1468.28 418.06 345.15 3083.74 790.77
cycle
Cash cycle 1229.80 331.48 166.99 2735.11 620.01

After analyzing the above data, we can say that AMICO

Pesticides Ltd. has the best operating cycle period and cash cycle
period, which suggests effective management of working capital
required in the company. Whereas on the other hand, Bharat
Fertilizers Ltd. has the longest operating cycle period and cash
cycle period, which shows company’s inefficiency in handling the
working capital requirement of company.
The above comparison of all company can also be seen in the
graph on next page.

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GRAPHICAL PRESENTATION OF YEAR 2008
OF COMPANIES:

3500

3000

2500
COGS
2000 IHP
APP
1500 ACP
OC
CC
1000

500

0
ARIES BASANT AIMCO BHARAT ASIAN

It is seen from the chart that AMICO Pesticides Ltd has smallest
operating cycle period and cash cycle period in comparison to all
other companies.

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Formulas used In Calculation

 COGS ( Cost Of Goods Sold) = Net Inventory(Opening –

Closing) + Purchases

 IHP (Inventory Holding Period) = 360

ITR

 ITR ( Inventory Turnover Ratio) = COGS

Avg. Inventory

 ACP (Avg. Collection Period) = 360 * Avg. Debtors

Credit Sales

 APP (Avg. Payment Period) = 360 * Avg. Purchases

Credit Purchases

 Operating Cycle = IHP + ACP

 Cash cycle = Operating Cycle – APP

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 References

 Data from proasis

 Annual Reports

 Company websites
 www.google.com
 www.business-beacon.com

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