Title of SIP: Receivables’ management & Fixed asset valuation

Name of Organization: Ceratizit India Pvt. Ltd.

Name: Arnab Gangopadhyay

Enrollment Number: 09BS0002872

Brief Description of the Organization:

The name of the organization where I am undertaking the project is ‘CERATIZIT

INDIA PRIVATE LIMITED’. The company is basically a merger company of ‘CERA
METAL’ of India and ‘PLANSETIZIT’ of Austria. The Headquarter of the
organization is at Luxembourg.

The company is basically a manufacturing company and it manufactures Hard

Material and Tool. Moreover, the company has a pioneering spirit and deep
understanding of powder metallurgy. The company organizes intensive research
and development activities, taking into account precise requirements and
working process of the customer. The performance is achieved mainly through
flexible thinking and continuous dialogue with the business partners.

The Tool Division of the company mainly includes Cutting Materials, Coating
Inserts, Tooling Systems and Machining Solutions.

In India, the head Office of Ceratizit is in Kolkata. However the company has sales
office all over India. The company performs its sales operation of its products all
over India under the supervision of several engineers. These engineers deal with
different firms where the products are sold and make sure collect the payment
positively.

The head office in Kolkata has a huge workshop where the production engineers
under the supervision of production managers take an active part in the process
of manufacturing the different hard materials which have been discussed above.
The production department has several units like the coating plant, the sintering
plant, the Hydrogen plant, the generator room, the press tools section, the powder
section. Over here the assembly line manufacturing takes place where different
parts are assembled and finally the final products are formed.

Objective & Background of study:

Overview of the project:

1) Receivable Management: Overview of Direct Customers’ Ledger and

dealers’ ledger. Posting of collections, adjustment of collections with
individual bills through ERP. Issue of debit notes and credit notes to direct
customers and dealers. Overview of channel financing schemes. Debtors,
ageing report preparation through ERP. Month-wise circulation of bill-
wise outstanding list to sales engineers and necessary follow-ups for
collections.

2) Fixed Asset Valuation: Overview of fixed asset register. Physical

verification of fixed asset. Review of life-cycle of individual fixed asset and
calculation of impairment loss. Valuation of fixed asset based on the
remaining life of the asset.

Objective of the study:

 To have a clear hands-on experience of receivables management and

fixed asset valuation.
 To understand how effectively and efficiently debtors are being
managed in the organization to generate cash as required for the
purpose of financing in fixed assets and to fulfil working capital
requirements, thus completing the working capital cycle.
 To understand the valuation of fixed assets after calculating the
necessary depreciation.
  To bridge the gap between theoretical study and the real life working
procedure in the organization and to get accustomed with the
working process in the organization.
 To enhance the analytical capability as a thorough analysis is
required in the process of organizing the project.

Methodology followed:

1) Overview of customers’ and dealers’ ledger through ERP: The report about
each and every customer or debtor is called the debtor ageing report which
is automatically updated in the ERP system. So study is being conducted to
find the way the debtors’ ledger are being maintained and are tracked on a
particular date of a particular month.

2) Necessary accounting entries are passed: Adjustments with the deposit slips
to see whether or not the right cash discount figure has been deducted
seeing the difference between the deposit date and the invoice date and it
follows the guidelines of the discounting procedure. After these bills are
adjusted these bills are uploaded in the data loader of Oracle and
automatically have seen that the ledger accounts of the particular customer
get updated. Performance of Bank Reconciliation Statement. Performed BR
(Bank Receipt) in ERP which is also a process of adjustment with deposit
slips to make a balance of the amount paid by the customer against the
amount outstanding in his account.

3) Overview of Fixed Asset Registers: In the job of physical verification,

verification is done by checking the identification number in the register
with the number given on each of the fixed asset.
 4) Calculation depreciation of fixed asset by applying fixed methodology: In
the organization, the depreciation pattern that is followed is the Straight
Line method of depreciation. The rate of depreciation as has been observed
is different for different sections of fixed asset which I have calculated and
is shown in the project. In this portion firstly I have considered the
historical cost of the asset, which is given as Gross Block for that asset, its
date of purchase and its rate of depreciation as decided by the
management. Next I have calculated the depreciation on that particular for
that financial year as the rate is given per annum basis. Next I had to check
the accumulated depreciation till date on the asset considering its date of
purchase and finally adding the two depreciation figure the net
depreciation is calculated. Next subtracting from the gross block of the
fixed asset the net block of the fixed asset value is obtained.

Observation: The receivables’ portion is the organization is controlled very

well as controlling of debtors form a significant part in generating cash which is
regarded as the financial health in an organization. I have seen how debtors are
being controlled in the organization with necessary follow-ups which is highly
required for timely payment of outstanding amount. The software system which I
have worked with is ERP which is really important software these days which has
simplified the job of effective control by presenting necessary data as required at
any point of time. Now talking about the sales and marketing division, CERATIZIT
employs efficient engineers as it has sales office in different parts of the nation. .
After having compared the turnover from the balance sheet, it can be observed
that the turnover has increased a lot rather it has more than doubled from 2004-
05 to 2007-08 though there has been a bit setback in 2008-09 considering the
recessionary phase when the demand for product has been drastically reduced
due to tight liquid situation in the market. Now CERATIZIT makes credit sales. So
although the turnover is increasing the debtors is also increasing. But the
effective system of debtors control in CERATIZIT has helped it a lot in getting cash
in time from its debtors. After analyzing the ageing of debtors it can be observed
that the debtors in 0-3 month’s shares almost 75% and debtors above 12 months
have reduced a lot. This shows the effective debtors control management as
outstanding amount for a longer period actually blocs the money which has re-
investable value. The inventory turnover ratio has also improved a lot from 3.38
in 2004-05 to 5.30 in 2007-08, which shows inventory has been effectively
utilized in generating sales.

Conclusion: For a manufacturing firm like CERATIZIT, typically there is a huge

investment in current assets although a significant portion of investment in fixed
assets is also required. Typically the organization does not resort to external
working capital financing. So the amount it generates is mainly from the
receivables the management of which is considered significant. The debtors form
an important part in the balance sheet of the organization and with increase in
sales there is also increase in debtors as sales are made on credit. The system of
monitoring the status of debtors is done through ERP which has helped a lot in
giving information about the status of debtors as on a particular date.

Recommendation: In a manufacturing organization as working capital is

highly required as without enough working capital in hand the
manufacturing process takes a hit and also the sales. But CERATIZIT PVT LTD
does not resort to external working capital financing. It mainly depends on the
cash generated by the receivables to finance its working capital requirement.
So if receivables don’t pay their dues in time the working capital takes a hit. So
it can be recommended to try and finance the working capital by taking resort
to Bank Credit, Inventory Loans, Accounts Receivable Financing, Spontaneous
financing. Moreover, the organization can take recourse to hedging approach
which would enable it to get input materials from different parts of the world
where it is cheaper accordingly thus reduce the input cost as excessive input
cost can harm the profitability and moreover in a competitive environment as
today it cannot raise much price which may give its competitors a great
advantage. Thus reducing input cost as much can help in increasing
profitability.