A project report on GNFC

Working capital

Submitted by: Mayuri jadav 44 Minaxi solanki 25 Priti sinha 34

INTRODUCTION
Gujarat Narmada Valley Fertilizers Company Ltd. (GNFC), is a joint sector enterprise promoted by the Government of Gujarat and the Gujarat State Fertilizer Company Ltd.(GSFC). It was set up in Bharuch, Gujarat in 1976. Located at Bharuch in an extremely prosperous industrial belt, GNFC draws on the resources of the natural wealth of the land as well as the industrially rich reserves of the area.

GNFC started its manufacturing and marketing operations by setting up in 1982, one of the world's largest single-stream ammonia-urea fertilizer complexes. Over the next few years, GNFC successfully commissioned different projects - in fields as diverse as chemicals, fertilizers and electronics.

Since inception, GNFC has worked towards an extensive growth as a corporation. A growth which respects the environment and springs from the progressive vision of GNFC.

GNFC today has extended its profile much beyond fertilizers through a process of horizontal integration. Chemicals/Petrochemicals, Energy Sector, Electronics/Telecommunications and

Information Technology form ambitious and challenging additions to its corporate portfolio. GNFC has an enterprising, strategic view towards expansion and diversification.

VISION STATEMENT
To be a technology driven, environmentally responsible Joint Sector Company manufacturing Fertilizers, Commodity and Specialty Chemicals maintaining highest standards of operational excellence and innovation for creating sustainable value for all stakeholders

MISSION STATEMENT
We shall -

be the leading provider of Chemicals and Agricultural inputs through adoption of State of the Art
Technologies and Business Processes;

have a firm commitment to quality, environment, health and safety; enrich human resources and promote teamwork, innovativeness and integrity; Achieve sustainable economic growth based on corporate excellence driven by ethical business
practices, professionalism, dynamism and social responsibility.

ACHIEVEMENTS
Set up the world's largest single stream, fuel oil based Ammonia - Urea plant All fertilizers under the brand name of Narmada, along with extensive support activities, have been well accepted by the country's farmer community. India's largest producer of Formic Acid, Acetic acid and Methanol. India's only manufacturer of Glacial Acetic Acid through the cutting-edge Methanol route. The only manufacturer of Toluene Di-isocyanate in South East Asia. Record capacity utilizations in all plants, defying the vintage through ingeniously innovative maintenance measures. Development of the first indigenous, eco-friendly technology for H2S removal, CATSOL, a much awarded product of the Company's R&D labs.

1. Calculation of Gross Working Capital

Gross Working Capital = Current Assets Rs. In Lac Sources of funds Current assets
Inventories Sundry debtors Cash and bank balance Interest accrued Govt. of India Fertilizer Bonds Loan and advances Gross working capital 38,846.52 60,527.55 13,047.91 141.48 0.00 28,465.60 1,41,029.06 38,599.79 38,968.35 15,141.34 447.65 0.00 27,240.05 1,20,397.18 43,075.71 28,871.65 5,541.39 0.00 24,424.34 21,725.62 1,23,638.71 40,503.38 1,668.11 32,339.02 0.00 0.00 25,385.93 99,896.44

2006-07

2007-08

2008-09

2009-10

From the last 4 years data, we found that 2009-10 it decreases the value of gross working capital is highest in the year 2006-07 i.e. 1, 41,029.06 but in the year 2009-10, it is 99,896.44 which show that GNFC made lower investment in current assets and thereby was incapable to meet its current liabilities satisfactorily.

2. Calculation of Net Working Capital

Net Working Capital = Current Asset Current liabilities Rs. In Lac Sources of funds
Current assets Inventories Sundry debtors Cash and bank balance Interest accrued Govt. of India Fertilizer Bonds Loan and advances (A) Total Current Assets Current liabilities Liabilities Provisions (B)Total Current Liabilities Net Working Capital (A B) 38,846.52 60,527.55 13,047.91 141.48 0.00 28,465.60 38,599.79 38,968.35 15,141.34 447.65 0.00 27,240.05 43,075.71 28,871.65 5,541.39 0.00 24,424.34 21,725.62 40,503.38 1,668.11 32,339.02 0.00 0.00 25,385.93 99,896.44 28,147.07 14,158.65 42,305.72 57,590.72

2006-07

2007-08

2008-09

2009-10

1,41,029.06 1,20,397.18 1,23,638.71 44,245.09 9,723.65 53,968.74 87,060.32 35,272.20 13,594.99 48,867.19 71,529.99 23,759.99 13,176.61 36,936.60 86,702.11

Net Working Capital can be positive or negative. For GNFC, it is highest in the year 2006-07 i.e. 87,060.32 which decrease in 2009-10 by 57,590.72. So it shows negative sign thereby indicating that GNFC was unable to meet its current obligations since its current liabilities exceed current assets.

WORKING CAPITAL POSITION

1. Net Working Capital Ratio: Net Working Capital Ratio = Net Working Capital Total Assets

Rs. In Lac Particulars

Net Working Capital

2006-07
87,060.32

2007-08
71,529.99

2008-09
86,702.11

2009-10
57,590.72

Total Assets Net Working Capital Ratio

2,54,536.78 0.34

2,53,341.22 0.28

2,88,554.64 0.30

3,19,811.9 0.18

Working capital is a measure of the margin of protection for current creditors. It reflects the ability to finance current operations. Relating the level of sales arising from operations to the underlying working capital measures how efficiently working capital is employed. A low ratio may indicate an inefficient use of working capital while a very high ratio often signifies overtrading - a vulnerable position for creditors. As shown in the calculation, net working capital is lowest in 2009-10 compare to all previous years. That means company has less working capital and it is not able to meet its current obligation. So we can say that the last year working capital position is not good. 2. Investment in inventories: Rs. In Lac Particulars
Stores & Spares Raw Material Work in Process Finished Goods Total Inventories

2006-07
19,342.98 5,269.92 580.18 13,653.44 38,846.52

2007-08
19,966.31 5,774.87 3,447.03 9,411.58 38,599.79

2008-09
23,447.60 6,406.32 1,968.82 11,252.97 43,075.71

2009-10
26,867.56 10,133.78 252.00 3250.04 40,503.38

we can say that the total investment in inventories is decreased year by year except 2008-09, but in 2009-10 it is decreased again which showing lower investment in inventory indicating less blocking of current capital.

CALCULATION OF OPERATING CYCLE OF GNFC

1. Inventory Conversion Period The inventory conversion is the sum of raw material conversion period, work in process and finished goods conversion period: Raw material conversion period is the time period between receiving the raw material and sending them for production. It is the period of stocking the raw materials for usage. Work-in-progress conversion period is the time period when the raw materials are received for production and the time for their dispatch.

 Finished goods conversion period is the time of storage of finished goods in the warehouse until they are sold. ICP = RMCP + WIPCP + FGCP

I) Raw Material Conversion Period (RMCP) RMCP = Average raw material inventory Raw material consumption per day

Raw material consumption per day = Raw material consumption / 360 Average raw material inventory = (opening stock of RM + closing stock of RM)/2

RMCP FOR FOUR YEARS: Particulars

Average raw material inventory Raw material consumption per day RMCP (in days)

2006-07
5274.77 292.01 18

2007-08
5522.39 341.99 16

2008-09
6090.59 343.35 18

2009-10
8270.05 346.56 24

II) Work in Process Conversion Period (WIPCP) WIPCP = Average work in process inventory Cost of production per day Average work in process inventory = (Opening WIP + Closing WIP) / 2 Cost of production per day = (Raw material consumed + Power, fuel and other utilities + Stores chemicals + Opening WIP Closing WIP) / 360

WIPCP FOR FOUR YEARS: Particulars

Average work in process inventory Cost of production per day WIPCP (in days)

2006-07
1,793.74 382.39 5

2007-08
2,013.61 439.89 5

2008-09
2,707.93 463.35 6

2009-10
1,110.41 459.17 2

III) Finished Goods Conversion Period (FGCP) FGCP = Average Finished goods inventory Cost of goods sold per day

FGCP FOR LAST FOUR YEARS: Particulars

Average Finished goods inventory Cost of goods sold per day FGCP (in days)

2006-07
8,795.65 685.36 15

2007-08
11,532.51 854.79 13

2008-09
10,322.28 752.38 14

2009-10
7,251.51 692.47 10

ICP FOR LAST FOUR YEARS: Particulars

Raw Material Conversion Period Work in Process Conversion Period Finished Goods Conversion Period Inventory Conversion Period(in days)

2006-07
18 5 15 38

2007-08
16 5 13 34

2008-09
18 6 14 38

2009-10
24 2 10 36

The inventory conversion period is the time required to obtain materials for a product, manufacture it, and sell it. From the above chart, we can see that GNFC is better in last year in converting the inventory into finished goods. But raw material conversion period need to be improved.

2. Debtors Conversion Period (DCP): Debtors Conversion Period = Debtors * 360 Credit Sales

Particulars
Debtors Credit Sales per day DCP(in days)

2006-07
60,527.55 760.91 80

2007-08
38,968.35 953.86 41

2008-09
28,871.65 811.13 36

2009-10
1,668.11 726.24 2

The debtors conversion period represents the length of time required to collect the receipts. It can be called process of cash inflow.

sales

From the above calculation, the conversion periods are fluctuating. It was highest in 2006-07 i.e. 80 days which affects adversely to the firm. In 2009-10, it decreases from 80 days to 2 days which is fair & good for GNFC.

3. Gross Operating Cycle (GOC): Gross Operating Cycle = Inventory conversion period + Debtors conversion period Particulars
Inventory Conversion period(in days) Debtors conversion period(in days) GOC(in days)

2006-07
38 80 118

2007-08
34 41 75

2008-09
38 36 74

2009-10
36 2 38

The gross operating cycle of a firm is equal to the length of the inventories and receivables conversion periods.From the above calculation, we can say that gross operating cycle is highest in 2006-07 i.e. 118 days because of high collection period. However in 2009-10, it is decreased to 38 days because of low collection period and low conversion period which is a good sign.

4. Payable Deferred Payment (PDP): Payable Deferred Payment = Creditors * 360 Credit Purchase Credit Purchase = Raw material consumed + power, fuel and other utilities + stores And chemicals + packing material + purchase of good for sale + Closing stock of raw material + closing stock of stores and spares(Opening stock of RM + Opening stock of stores and spares)/360

Particulars
Creditors Credit Purchase per day PDP(in days)

2006-07
39,389.51 511.99 77

2007-08
30,174.94 645.36 47

2008-09
17,018.55 569.10 30

2009-10
22,752.84 501.87 45

Payable deferred payment is the time that lapse between the dates of various resources received on credit and the date when payment is made The days are lowest in the year 2008-09 i.e. 30 days & in the year 2009-10, it is increased to 45 days which shows liberal collection policy of creditors towards company.

5. Net Operating Cycle (NOC): Net Operating Cycle = Gross Operating Cycle Payable Deferred Period Particulars Gross Operating Cycle Payable Deferred Period Net Operating Cycle (in days) 2006-07 118 77 41 2007-08 75 47 28 2008-09 74 30 44 2009-10 38 45 (7)

The difference between gross operating cycle and payable deferred period is known as net operating cycle. The net operating cycle is 44 days in 2008-09. However in 2009-10, the cycle days are again reduced to a noticeable level which was a good sign showing better management of funds by the firm.

FINDINGS
The value of gross working capital is highest in the year 2006-07 i.e. 1, 41,029.06 but in the year 2009-10 it is 99,896.44 which show that GNFC made lower investment in current assets. Net working capital of GNFC was better in 2008-09 in comparison to 2007-08 but has decreased in 2009-10 showing incapability of company to meet its current requirements. Net working capital position of GNFC has deteriorated from 2008-09 to 2009-10 thereby indicating poor working capital management. Inventory conversion period for GNFC is better in last year in converting the inventory into finished goods. But raw material conversion period need to be improved. Payable deferred periods are lowest in the year 2008-09 i.e. 30 days & in the year 2009-10, it is increased to 45 days which shows liberal collection policy of creditors towards company. Gross operating cycle is highest in 2006-07 i.e. 118 days because of high collection period. However in 2009-10, it is decreased to 38 days because of low collection period and low conversion period which is a good sign. The net operating cycle is 44 days in 2008-09. However in 2009-10, the cycle days are again reduced to a noticeable level which was a good sign showing better management of funds by the firm.

BALANCESHEET
PARTICULARS SOURCE OF FUNDS: SH.HOLDERS FUNDS: Share capital Res & surplus Loan funds: Secured loans Unsecured loans Deferred Tax: Deferred tax liab Less: deferred tax, assets Total Application funds: Fixed Assets: Gross block Less: dept. Net block Capital W.I.P Investment: Current Assets, Loans & Adv. Interest Accrued On Investments Inventories Sundry debtors Cash & bank balances Loan & advance Less: current liabilities & provision Current liabilities Provision Net current 31.3.2010 31.3.2009 31.3.2008

(Rs. In Lacks)
31.3.2007 31.3.2006

15541.88 192363.00 207904.88 29000.53 26505.00 55505.53 25526.32 2479.09 23047.23 286457.64

15543.74 185867.88 201411.62 10284.95 25305.00 35589.95 26305.75 2850.22 23455.53 260457.10

15543.74 169026.13 184569.87 31046.38 305.00 31351.38 23598.65 2002.18 21569.47 237517.72

15543.74 141518.60 157062.34 34836.37 322.11 35158.48 24033.56 836.07 23197.49 215418.31

14647.62 103080.80 117728.42 26761.36 475.17 27236.53 18765.00 759.49 18005.51 162970.46

308424.97 191489.85 116935.12 102980.34 219915.46 8951.46

302799.58 179851.06 122948.52 41967.41 164915.93 33263.4

275053.07 168030.19 107022.88 25921.16 132944.04 33043.69

267728.77 157096.07 110632.68 2875.04 113507.72 14850.27

213788.79 128679.18 85109.61 4862.82 89972.43 21820.27

0.00 40503.38 1668.11 32339.02 25385.93 99896.44

0.00 43075.71 28871.65 5541.39 21725.62 123638.71

447.65 38599.79 38968.35 15141.34 27240.05 120397.18

141.48 38846.52 60527.55 13047.91 28465.60 141029.06

141.48 26957.87 43012.40 5501.95 12663.63 88277.38

28147.07 14158.65 42305.72 57590.72

23759.99 13176.61 36936.60 62277.77

35272.20 13594.99 48897.19 71529.99

44245.09 9723.65 53968.74 87060.32

26295.87 10902.56 37198.43 51078.95

assets Miscellaneous Expenditure: VRS compensation Premium on repayment

98.81 98.81

Total

286457.64

260457.10

237517.72

215418.31

162970.46

PROFIT & LOSS A/Cs

Particulars INCOME: Sales & ser Less: excise duty Sales (net) Other income EXPENDITURE: Purchase Manufacturing exp Stock of finished goods & stock in process 2009-10 271277.75 9833.12 261444.63 8628.26 270072.89 6264.59 177580.75 9719.75 2008-09 306228.02 14222.41 292005.61 6534.06 298539.67 30641.17 181360.00 (360.18) 2007-08 365344.17 21952.96 343391.21 4916.63 348323.66 63665.56 177770.92 1375.01

(Rs. In Lacks)
2006-07 297666.61 21739.87 273926.74 3534.35 277459.43 40212.52 148964.90 (5077.09) 2005-06 228133.38 13375.67 214757.71 7995.62 223280.72 24667.72 116146.61 (342.26)

Marketing, adm & other exp. Personal exp. Interest (net) Depreciation Prior period adj. Research & development exp. RPOFIT BEFORE TAX Less: provision for current tax Add: provision for deferred tax Less: provision for PBT Add: provision for taxation PROFIT AFTER TAX Add: bal from previous year Add: P & L A/C Amount available for appropriation APPROPRIATION General reserved Proposed dividend Tax On Dividend Balance Carried to Balance Sheet

20606.90 19682.71 2338.20 11695.92 195.39 248084.21 21988.68 10013.24 (408.30) 0.00 0.00 12383.74 49164.41 61548.15

14544.48 22131.15 2692.18 11972.57 263169.22 35370.45 10527.66 1859.06 232.00 0.00 22751.73 52322.23 75073.96

17751.56 19016.67 70.77 11051.70 290702.19 57621.47 20797.27 (681.93) 222.10 4.27 37288.30 47761.80 85050.10

15313.18 16886.56 1263.66 10957.02 228520.75 48938.68 17444.74 564.88 192.25 780.08 32646.65 35977.83 6678.86 75489.67

12870.76 13305.02 3624.00 8859.43 (6.06) 178625.22 44655.50 15968.00 1167.00 382.20 29472.30 33603.86 63076.16

10000.00 5051.11 838.93 45658.11

20000.00 5051.11 858.44 49164.41

25000.00 6605.30 1125.57 52322.23

20000.00 6605.30 1122.57 47761.80

20000.00 6225.24 873.09 35977.83

61548.15

75073.96

85050.10

75489.67

63076.16