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TABLE OF CONTENTS

Executive Summary Objectives of the Study Methodology of the Study Limitations of the Study IFFCO – The Organization Chapter 1 Working Capital Management Data Analysis Findings Conclusion and Suggestions Chapter 2 Cash Management Cash Management at IFFCO Observations Conclusion Suggestions References Appendix

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EXECUTIVE SUMMARY
Indian Farmers Fertiliser Co-operative Limited (IFFCO) is a Multistate Co-operative Society. It was a unique venture in which the farmers of the country through their own Cooperative Societies created this new institution to safeguard their interests. IFFCO manufactures Urea and NPK/ DAP fertilizers and sells them to the co-operative societies. The project is Working Capital Management of IFFCO. The objectives of the project are:  To analyse the working capital and working capital management policies at IFFCO  To analyse the cash management practices at IFFCO The study is mainly based on the secondary data which refers to that form of information that has already been collected and is available. The analysis of working capital is based on ratio analysis to monitor overall trends in working capital and to identify areas requiring closer management. 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. From the analysis of the components of working capital, it was found that the organization is utilizing its funds properly, the inventory is managed efficiently and the organization is able to get sufficient short term financing. It is clear that the working capital of IFFCO is in sound position. The suggestions can be made in the management of inventory by implementation of JIT or Kanban and management of liquid assets including the subsidy provided by the government. The Cash Management System at IFFCO is very sound and efficient. It has enabled the organization to manage its funds in a proper manner resulting in better utilization and availability of funds in cash deficit periods. IFFCO has a tie up with banks such as IOB, HSBC Bank, ICICI Bank that are providing IFFCO with facilities such as cash management services, personalized financial MIS to enable IFFCO to accelerate the collection and payment of funds, debit sweep option, Anywhere banking facility, etc. The suggestion that can be given to the organization is the implementation of RTGS (Real Time Gross Settlement) and NEFT (National Electronic Fund Transfer) facilities which will improve the cash transfer at IFFCO.

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OBJECTIVES OF THE STUDY
 To analyse the Working Capital and Working Capital Management policies at IFFCO  To understand Working Capital Management of the organization  To analyze Liquidity position of the organization  To find out the Profitability and operating efficiency of the organization  To understand the importance of Working Capital Management  To analyze the short term financing patterns, which affect the working capital of the organization  To study the factors that affects the Working Capital Management at IFFCO  To analyze the data and information of the previous years to know the actual position of funds, investments and liabilities of the organization  To identify some broad policy measures to improve the working capital position of the organization  To estimate the working capital requirements of the organization in the near future

 To analyse the Cash Management Practices at IFFCO  To understand the cash management process followed at the organization  To study the factors both intrinsic and extrinsic that influences the cash management at the organization  To study and analyze the changes being brought about the existing cash management system  To study the salient features, methodology and advantages of the new cash management system being implemented at the organization  To suggest some recommendations to the organizations for the improvement of the cash management practices and the new cash management MIS

Interaction with the various employees of the marketing accounts department has also been a major source of information. LIMITATIONS OF THE STUDY The following are the limitations of this summer project training:  The study is limited to five financial years i..  The data used in this study has been taken from the Financial Statements & their related schedules of IFFCO Ltd.4 METHODOLOGY OF THE STUDY The basic type of research used to prepare this report is Descriptive. published reports and data of IFFCO and the annual reports of the company.  The scope and area of the study was limited to corporate office of IFFCO. New Delhi as per the requirement.e.  Some of the information that was essential for this study cannot however be given in this report due to their confidential nature. . No primary data has been used as a part of this study. The study is mainly based on the secondary data which refers to that form of information that has already been collected and is available. New Delhi only. The analysis of working capital is based on ratio analysis to monitor overall trends in working capital and to identify areas requiring closer management. These include some internal sources within the company and externally these sources include books and periodicals. from 2008-2009.

The expansion projects at Aonla.urea unit at Aonla was commissioned in 1988. The ammonia . On the enactment of the Multistate Cooperative Societies act 1984 & 2002. Thus all the projects conceived as part of Vision 2000 have been realised without time or cost overruns. All the production units of IFFCO have established a reputation for excellence and quality.urea complex was set up at Phulpur in the state of Uttar Pradesh in 1981. 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 byelaws of the Society provide a broad frame work for the activities of IFFCO as a Cooperative Society. Another Ammonia .5 IFFCO – THE ORGANIZATION Indian Farmers Fertiliser Co-operative Limited (IFFCO) was registered on November 3. As a result of . Phulpur and Kandla have been completed on schedule. As part of the new vision. The numbers of co-operative societies associated with IFFCO have risen from 57 in 1967 to 38. IFFCO has acquired fertiliser unit at Paradeep in Orissa in September 2008. A new growth path has been chalked out to realise newer dreams and greater heights through Vision 2010 which is presently under implementation. IFFCO commissioned an Ammonia . IFFCO had drawn up a major expansion programme of all the four plants under overall aegis of IFFCO VISION 2000. 155 at present.urea complex at Kalol and the NPK/DAP plant at Kandla both in the state of Gujarat in 1975. Kalol. In 1993. 1967 as a Multi-unit Co-operative Society. the Society is deemed to be registered as a Multistate Cooperative Society.

safety.          A true Cooperative Society committed for fostering cooperative movement in the country. Commitment to social responsibilities for a strong social fabric. accountability and integrity in principle and practice. A true commitment to transparency. IFFCO's annual capacity has been increased to 3.71 million tonnes of P2O5. high quality agricultural inputs and services in an environmentally sustainable manner and to undertake other activities to improve their welfare. efficient and cost effective technologies. To institutionalise core values and create a culture of team building. Building a value driven organisation with an improved and responsive customer focus. Commitment to health. assimilate and adopt reliable."  To provide to farmers high quality fertilizers in right time and in adequate quantities with an objective to increase crop productivity. openness and mutual concern to make working a stimulating and challenging experience for stake holders. . Sourcing raw materials for production of phosphatic fertilisers at economical cost by entering into Joint Ventures outside India. MISSION IFFCO's mission is "to enable Indian farmers to prosper through timely supply of reliable. Foster a culture of trust.6 these expansion projects and acquisition.69 million tonnes of Urea and NPK/DAP equivalent to 1. To acquire. empowerment and innovation which would help in incremental growth of employees and enable achievement of strategic objectives. environment and forestry development to enrich the quality of community life. To ensure growth in core and non-core sectors. To make plants energy efficient and continually review various schemes to conserve energy.

Activities being actively pursued through the strategy are:  Phosphoric Acid plant  Foray into Power Sector to set up a 500 MW power project  Ammonia Plant for supplies to Kandla Unit  IFFCO Kisan Bazar  IFFCO Bank  Multi Commodity Exchange  Acquisition of Fertilizer Plants  Nellore Fertilizer Project  Agri business The Approach To achieve their mission. 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. seizing opportunities for generating and building upon past success. focussing on strategic strengths. A high powered committee has been constituted to steer the organisation through this Road Map. Vision 2010 Encouraged by the success of Vision 2000.7 IFFCO is emerging as a dynamic organisation. IFFCO as a cooperative society. enhancing earnings to maximise the shareholders' value. The activities envisaged to be covered are exhaustively defined in IFFCO’s Bye-laws. IFFCO has charted on a new course of action to realise a fresh set of dreams. undertakes several activities covering a broad spectrum of areas to promote welfare of member cooperatives and farmers.

13 68. O.26 28.urea complex) P. Uttar Pradesh . IFFCO Township.68 NPK / DAP 32.68 lakh MT of Urea and 31.84 31 TOTAL 70. O. Gujarat .87 39. District Allahabad.4% of country’s total nitrogenous fertiliser production and 27% of total phosphatic fertiliser production in the same period.00 lakh MT NPK/DAP. Paul Pothen Nagar.754142 Production and Sales During the year 2012-13 IFFCO produced 71.212404  Aonla Unit (Ammonia . consisting of 40.Urea unit) P. O. Orissa . P. District Jagatsinghpur. commitment to quality is insurmountable and harnessing of mother earths' bounty to drive hunger away from India in an ecologically sustainable manner is the prime mission. Ghiyanagar.370201  Phulpur Unit (Ammonia . Paradeep. Bareilly. O. It contributes 21.68 Lakh (7. O.63 40. Kasturinagar.382423  Kandla Unit (NPK/DAP plant) P. Gujarat . District Gandhinagar. Kandla (Kachchh).47 71.8 The Commitment The thirst for ever improving the services to farmers and member co-operatives is insatiable.168 million) MT (Metric Tonnes) of fertiliser material. PRODUCTION (in LAKH MT) YEAR 2010-11 2011-12 2012-13 UREA 37.68 .243403  Paradeep Unit (NPK/DAP and Phosphoric Acid Fertiliser unit) Village Musadia. Kandla. Gandhidham.Urea complex) P. Plants owned by IFFCO  Kalol Unit (Ammonia . Uttar Pradesh .

80 2011-12 Production (Lakh MT) 5.45 Capacity Utilization (percent) 100.24 2012-13 52.69 86.00 .10 2010-11 2011-12 2012-13 PLANT WISE PRODUCTION Unit 2012-13 Production (Lakh MT) UREA Kalol 5.29 53.9 2010-11 2011-12 2012-13 Material UREA NPK/ DAP TOTAL SALES OF FERTILIZER MATERIAL (in Lakh MT) 2010-11 2011-12 58.58 93.60 Capacity Utilization (percent) 102.69 54.89 38.41 33.95 112.

7 122 5 4085.9 2309.4 75.4 10900.2 Private 6030.5 2010-11 12290.30 All India Capacity.87 10.8 95.50 85.10 66.5 N Production 2973.20 6.2 10900.47 114.30 114.18 40.4 5480.30 97.68 120. 6 Production NP/NPKs SSP Total 191.7 405.30 74.3 405.3 3417.3 .10 Phulpur –I Phulpur – II Aonla – I Aonla – II SUB TOTAL UREA NPK / DAP Kandla Paradeep SUB TOTAL NPK / DAP TOTAL PRODUCTION 6.3 Total 13045.2 4959.1 1712.6 4202.06 31.4 11332.20 114.5 2011-12 12290.3 4829.89 39.6 3714.18 8.9 93. 8 6184.5 2009-10 12288.00 71.5 5459.6 5736.63 20.11.2 95.7 386.30 68. 4 Sector Capacit y Public 3591.2013) (production: 2012-13 April-March) (Figures in '000 tonne nutrient) P2O5 Capacity NP/NPKs SSP Total 386.10 117.4 4038.30 106.40 107.1 1903.90 101. Production and Capacity Utilization of Fertilizer Industry Year N P2O5 Capacity Capacity Capacit Capacit Production Utilization Production Utilization y y (%) (%) 2008-09 12208 11304.68 17.6 78.9 2860.63 8.6 3011.9 3417.76 9.30 9.66 28.4 3133.9 94.3 64.5 Sector Wise Capacity and Production of N and P2O5 (capacity: As on 1.4 10902. 1 1712.40 83.8 122 5 916.7 191.4 11524.80 110.40 89.94 13.2 5874. 4 916.2 5892.40 9.7 2012-13 12290.3 4440 78.24 8.3 58.3 Cooperative 3423.84 68.50 45.9 95.00 71.

9 15 26336.11 Capacity and Investment in the Fertilizer Industry Year / Period Capacity During the Period (in '000 tonnes) N P2O5 62 39 12229 5427 -21 1 12208 5428 52 243 12260 5671 30 204 12290 5875 17 12290 5892 755 293 13045 Investments During the Period ( in Rs.9 350 35 7824. effective.9 55 7824. Integration of chemical.2011) 2011-2012 (as on 1.9 350 470 7824. The range of nitrogen fixed per ha/year varies from crop to crop. Bio-fertilisers are low cost.6 2009-10 11752.9 55 26391.9 Total 10 25933. Crore ) 2007-2008 (as on 1.1 20100 2012-13 24455 24400 . it is 80 .5 4231.5 4231.11. environmental friendly and renewable source of plant nutrients to supplement fertilisers.9 385 26321.5 14230. The bacterial organisms present in the bio-fertiliser either fix atmospheric nitrogen or solubilise insoluble forms of soil phosphate.9 BIO – FERTILISERS Bio-fertilisers are capable of fixing atmospheric nitrogen when suitable crops are inoculated with them.5 4231.4 11357.5 14335.9 3 25936.5 4231. All India Production and Dispatches of Bio Fertilizers ( in tonnes) Year Production Dispatches 2008-09 10479 10427.11.2010) 2010-2011 (as on 1.9 3 7474.11.11. 60 .5 14265.2013) Sectors Public Cooperative Private 10 7474. organic and biological sources of plant nutrients and their management is necessary for maintaining soil health for sustainable agriculture.5 14227.80 kg for soybean and 50 .60 kg for groundnut.55 kg for moongbean.2009) 2009-2010 (as on 1.9 15 7824.2008) 2008-2009 (as on 1.6 2010-11 15871 15745 2011-12 20111. 50 .9 820 27211.85 kg for cow pea.5 4231.11.5 14805. 6185 5 4581.5 14280.11.2012) 2012-2013 (as on 1.

P.12 PRICES OF IFFCO'S FERTILISERS (Applicable only within India) UREA N-46% M.  Industries Chimiques Du Senegal (ICS) The Society holds 18. the new Board has been reconstituted and the IFFCO Consortium has taken over the management control of ICS. JOINT VENTURES OF IFFCO  Indian Potash Limited (IPL) The Society holds an investment of Rs. 2. IPL is primarily engaged in trading of imported Potassic and NonPotassic Fertilisers. The Government of Senegal and IFFCO signed an Agreement on 16th July.  Indo Egyptian Fertilisers Company. 2012.68 Crore (2012-13) in Indian Potash Limited (IPL) with equity share holding of 34 per cent in the paid up equity share capital of IPL. IEFC was . 2011 and Amendment on 14th January. where ever applicable.R. which manufactures Phosphoric Acid for exports and Phosphatic Fertilisers for domestic consumption. 4830 7197 NPK 10-26-26 12-32-16 7637 20:20:00 6295 DAP 18-46-0 9350 MOP K-60% 4455 Local Taxes Extra. namely ‘Indo Egyptian Fertilisers Company SAE’ (IEFC) along with El Nasr Mining Company of Egypt to set up a Phosphoric Acid plant with a capacity of 1500 tonnes P2O5 per day. ICS has the capacity to produce 660000 MT of Phosphoric Acid (as P2O5) per year. for the debt restructuring and recapitalisation of ICS. Post restructuring and recapitalisation. SAE (IEFC) The Society promoted a joint venture in Egypt.54 per cent equity (2012-13) in ICS.

while JPMC holds 48 per cent equity. IFFCO holds 52 per cent equity.  Jordan India Fertilizer Company (JIFCO) IFFCO and Jordan Phosphate Mines Company (JPMC). Jordan have formed a Limited Liability Joint Venture Company. Egypt holding 24 per cent equity.  Aria Chemicals (Orissa) Limited Aria Chemicals (Orissa) Ltd. 20 with shareholding of IFFCO and its affiliates at 76 percent and El Nasr Mining Co. This Company will set up an Aluminium Fluoride facility at Paradeep. is a joint venture between IFFCO and Aria Chemicals Private Limited.13 incorporated in Egypt as a Joint Stock Company on 15 th November. namely Jordan India Fertilizer Company (JIFCO) on 6th March. ITGI had launched products like.52 lakh tonne Urea and 2. the Society and its associates hold 74 percent equity and Tokio Marine Asia holds 26 percent. In this company. 329. Out of total equity capital of Rs. which has an installed capacity of 16. 2008. 2008 in Amman. Jordan under the ‘Free Zone’ system to set up a phosphoric acid plant of capacity 1500 tonnes per day P2O5 at Eshidiya in Jordan. 247 Crore in ITGI. OMIFCO commenced commercial production at its plant at Sur (Oman) with effect from 14th July.5 lakh tonne surplus Ammonia. ‘Mausam Bima Yojna’ and ‘Kisan Suvidha Bima Yojna’ to cater to the insurance requirements of the farmers. Sector Diversification of IFFCO  IFFCO-TOKIO General Insurance Company Limited (ITGI) IFFCO TOKIO General Insurance Company Limited (ITGI) was formed as a Joint Venture Company in the year 2000 for underwriting general insurance business in India. Chennai wherein IFFCO holds 40 percent equity in this project.08 Crore (2012-13) to acquire 25 percent equity in OMIFCO. During the year ITGI has launched various micro insurance policies like ‘Janta Bima .  Oman India Fertiliser Company (OMIFCO) Oman India Fertiliser Company (OMIFCO) is a Joint Venture Company in Oman in which the Society has invested an amount of Rs. ‘Barish Bima Yojna’.

Collateral Management services. ‘Janswasthya Bima Yojna’ and ‘Mahila Suraksha Bima Yojna’ to provide protection to the farmers and their families and also poorer sections for their household goods. The Society will hold 74 per cent equity in ICPL. The Society holds 13. NCMSL is engaged in providing various risk management services related to commodities like Storage and Preservation services. the Society made an investment of Rs. (NCDEX) The Society holds 12 percent equity in the Paid-up Share Capital (Rs. 2 energy and 3 polymers and 1 environment (carbon credit). Procurement services. personal accident and health. (FPEI).56 per cent of the paid up equity capital in NCMSL. 4. NCDEX is a demutualised. 10 Crore in the National Commodity and Derivative Exchange Limited (NCDEX).  Freeplay Energy India Pvt. 42 agricultural commodities.  IFFCO Chhattisgarh Power limited (ICPL) The Society has diversified into the Power Sector by incorporating a Joint Venture Company namely ‘IFFCO Chhattisgarh Power Limited’ (ICPL) with Chhattisgarh State Electricity Board (CSEB) to set up a 1320 MW coal-based Mega Power Plant in District Surguja of Chhattisgarh. NCDEX offers contracts in 56 commodities. which is engaged in the field of non-conventional energy products and devices suitable for . Ltd.14 Yojna’.  National Collateral Management Services Ltd. on-line national level commodity exchange providing a trading platform for futures trading in commodities in the country and offers its market participants opportunity at price discovery and price risk hedging.  National Commodity and Derivatives Exchange Ltd. (NCMSL) Along with other reputed institutions. 2 bullion. During the year 2012-13. 6 metals. Quality Testing and Certification services and Information services. Currently. Ltd. that is. 30 Crore) and the entire preference capital of Rs.83 Crore to acquire 30 percent shareholding in Freeplay Energy India Pvt. ‘Jansuraksha Bima Yojna’. IFFCO co-promoted National Collateral Management Services Limited (NCMSL) in the year 2004.

animal husbandry. The Society has been floated under contribution agreement signed between IFFCO and India . High participation of women is an important feature of the IFFDC. ORGANIZATIONS PROMOTED BY IFFCO IFFCO has promoted several institutions and organisations to work for the welfare of farmers. both monetary as well as in kind.  IFFCO Kisan Sewa Trust (IKST) Objective: A Relief Trust for the Welfare of the Victims of Natural Calamities Kisan Sewa Trust Fund was created out of contributions from: IFFCO Employees of IFFCO Cooperative Societies and others TOTAL Rs 100 million Rs 10 million Rs 90 million Rs 200 million IFFCO had always been in the forefront of activities for the rescue of victims of natural calamities. strengthening cooperative movement.  Indian Farm Forestry Development Cooperative (IFFDC) Indian Farm Forestry Development Cooperative.  Cooperative Rural Development Trust (CORDET) IFFCO promoted Cooperative Rural Development Trust (CORDET) in the year 1979 to provide education and training to farmers on various aspects of crop production. that is. farm machinery etc. . a multi-state cooperative society promoted by IFFCO. ‘IFFCO Kisan Sanchar Ltd’. Rajasthan & Madhya Pradesh. Development of Primary Farm Forestry Cooperative Societies (PFFCS) is an important activity undertaken towards afforestation of waste lands. These products are being marketed to co-operative societies through Society’s another subsidiary company.Canada Environment Facility (ICEF). improve Indian agriculture. has been implementing afforestation projects in Uttar Pradesh. are made by IFFCO along with separate contributions by the employees. Every year significant contributions.15 rural India. horticulture. The utility of these products has been greatly appreciated by the rural farmers.

The highlight of IKSL’s services in the rural telecom domain continues to be Valued Added Services (VAS) extended to the subscribers. IFFCO obsessively nurtures its relations with farmers and undertakes a large number of agricultural extension activities for their benefit every year. IFFCO. At IFFCO. Five free voice messages of immediate relevance to people living in rural areas. 2007 with the objective to use the information technology to empower farmers in rural areas and to strengthen the cooperative network in the country. SUBSIDIARIES OF IFFCO .16  IFFCO Kisan Sanchar Limited (IKSL) IFFCO Kisan Sanchar Limited was incorporated in April. commitment to quality is insurmountable and harnessing of mother earths' bounty to drive hunger away from India in an ecologically sustainable manner is the prime mission. essential agro-inputs for crop production are made available to the farmers through a chain of 158 Farmers Service Centre (FSC). the thirst for ever improving the services to farmers and member co-operatives is insatiable. An ambitious project 'ICT Initiatives for Farmers and Cooperatives' is launched to promote e-culture in rural India. is a leading player in India's fertiliser industry and is making substantial contribution to the efforts of Indian Government to increase food grain production in the country. The entire activities of Distribution. a Help Line with experts to provide information inputs to the farmers and several other innovative activities for subscribers constitute a major source of knowledge transfer. All that IFFCO cherishes in exchange is an everlasting smile on the face of Indian Farmer who forms the moving spirit behind this mission. IFFCO is also behind several other companies with the sole intention of benefitting farmers. In addition. Sales and Promotion are co-ordinated by Marketing Central Office (MKCO) at New Delhi assisted by the Marketing offices in the field. to day. The distribution of IFFCO's fertiliser is undertaken through over 38155 co-operative societies.

2007 as IFFCO’s wholly owned subsidiary company for inter-alia undertaking business in agri-inputs and consumer goods for the benefit of farmers/cooperatives. Business and Financial Review of Subsidiaries and Associates Even in the year of global economic meltdown.57 on 31st FINANCIAL PERFORMANCE As per its tradition.17  Kisan International Trading FZE (KIT) Kisan International Trading FZE (KIT) was set up as a wholly owned subsidiary of the Society in Dubai in April 2008. The organization have stepped up investments in related businesses through various Joint Ventures and Associate Companies in order to strengthen themselves further by looking at new opportunities that are unfolding and create value addition in the core fertiliser sector. the Global Economic Meltdown and . KIT has become a leading international trading organisation. testifying to the robustness of its Corporate Strategy of creating multiple drivers of growth in spite of constraints in the availability of raw materials.13 20.57 Crore on 31st March 2008 as per the following break-up: (Rs. the total investments were Rs.00 2012 750.44 770. 914 Crore in comparison to Rs.27 25. In Crore) As March 2013 Investment in Jt. IFFCO Kisan Bazar Ltd. the business portfolio has been steadily growing in tandem with the high growth aspirations. (IKBL) was incorporated on 26th February. Revenue Growth and Resource Utilisation.73 914.770. On 31st March 2009. which handles the import and export of various fertilisers and fertiliser Raw Materials and Intermediates.  IFFCO Kisan Bazar Ltd. the Society has again exhibited an impressive financial performance in all its major parameters. Ventures/Subsidiaries Investment in Business Associates Total 888. namely.

Investing and Financing activities as reflected in the Cash Flow Statement is summarised in the following table: (Rs.58 lakh MT fertiliser during 2012-13. The Society’s endeavour has been to achieve the highest levels of transparency. democratic and professional practices in Corporate Governance since its inception. the sales volume of fertiliser material increased by 20 per cent to 112.18 inordinate delays in receipt of large subsidy amounts from the Government of India. the major increase in the sales turnover was on account of substantial increase in the commodity prices. sales volume and improvement in operating efficiencies. This was possible due to higher production.933 Crore. The performance is even more satisfying when viewed in the light of the challenging business environment of the fertiliser industry. The activities of the Society have been conducted within the provisions of the Multi State Cooperative Societies Act/Rules and . In Crore) 2012-13 Cash provided by operating activities Cash Used in Investing activities Cash provided by financing activities Decrease in cash and cash equivalents 1560 (6578) 4844 (174) 2011-12 1072 (970) (190) (88) CORPORATE GOVERNANCE The Society has consistently followed transparent. The Society achieved the highest ever sales turnover of Rs 32. as against 93. This represents an increase of 170 per cent over the previous year. While. We have carved out a strong ‘Cooperative Identity’ and are making sincere efforts to uphold the ‘Cooperative Values’ by cherishing ‘Cooperative Principles’.24 lakh MT in the previous year. SOURCES AND USES OF FUNDS The Cash Flow from Operating. accountability and full disclosure to its shareholders in a bid to uphold the spirit of Cooperative Principles and Cooperative Values by following the charter as lay down by International Cooperative Alliance (ICA).

This rating indicates that the capability of the Society with respect to wealth creation for all its stakeholders. 400 crore Bonds Programme of IFFCO CRISIL has assigned the rating on IFFCO’s Long Term Borrowing Programme to AA/Stable.  Rating for the Rs. while adopting sound corporate governance practices. is high.100 Crore Commercial Paper Programme. FINANCIAL RATINGS The Society’s excellent credit ratings with bankers and rating agencies allows access to short term funds including foreign currency borrowings at competitive rates.  FITCH Ratings  Rating for the Rs. A separate detailed report on Corporate Governance is given along with the Annual Report. This rating indicates that the degree of safety with regard to timely payment of interest and principal on the instrument is Very Strong. This rating indicates that the degree of safety with regard to timely payment of interest and principal on the instrument is Very Strong. The outlook on the Long Term Rating is “Stable”. The rating indicates high degree of safety with regard to timely payment of interest and principal on the instrument.19 IFFCO Bye-laws.  Rating for Long Term Borrowing Programme of IFFCO FITCH Ratings assigned National Long .Term Rating of ‘AA+ (Ind)’ to the Long Term Debt Programme of IFFCO. 100 crore Commercial Paper Programmes of IFFCO FITCH Ratings has assigned a National Short Term Rating of ‘F1+ (Ind)’to IFFCO’s Rs. 100 crore Commercial Paper Programme of IFFCO CRISIL has assigned a “P1+ (pronounced “P One Plus”) rating to IFFCO’s Rs. This rating indicates high degree of safety with regard to timely payment of interest and principal on the instrument. Ratings assigned by different Rating Agencies to the Society were as under:  CRISIL Ratings  Rating for Governance and Value Creation (GVC) Practices of IFFCO CRISIL has. assigned a “GVC Level 2” rating to IFFCO. . 100 crore Commercial Paper Programme.  Rating for the Rs.

 CARE AA’ (Double A) rating to External Commercial Borrowings and other existing long term borrowings having tenure of over one year. Basis of Preparation of Financial Statements The Financial Statements are prepared on accrual basis of accounting under the historical cost convention in accordance with the generally accepted accounting principles in India.20  CARE Ratings  PR 1+ (P One Plus) rating to IFFCO’s Working Capital facilities/Short Term Loans having tenure of up to one year. Value Added can provide a useful measure in gauging performance and activity of the company. Value Added Value Added is the wealth which an enterprise has been able to create through the collective effort of capital. In economic terms. management and employees. value added is the market price of the output of an enterprise less the price of the goods and services acquired by transfer. the Accounting Standards issued by the Institute of Chartered . Figure: Allocation of Value Added SIGNIFICANT ACCOUNTING POLICIES 1.

Difference between the actual results and estimates are recognized in the period in which the results materialise. 2002. Cost comprises of the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. 3. other than temporary.21 Accountants of India and the relevant provisions of Multi State Co-operative Societies Act. Fixed Assets (i).e. which is attributable to the construction of the project. is provided in the books of account. Assets retired from active use and held for disposal are shown separately under Fixed Assets at lower of net book value and estimated realisable value. . Such assets are stated at cost less accumulated amortisation. Impairment of Assets At each balance sheet date an assessment is made whether any indication exists that an asset has been impaired. 6. the indirect expenditure incurred during construction period up to the date of the commencement of commercial production. 5. in conformity with the generally accepted accounting principles. an impairment loss i. the amount by which the carrying amount of an asset exceeds its recoverable amount. 4. Intangible Assets An intangible asset is recognised where it is probable that the future economic benefits attributable to the asset will flow to the Society and the cost of the asset can be measured reliably. 7. in the value of the investments. Use of Estimates The preparation of financial statements. is capitalised on proportionate basis. Investments i) Long Term Investments are carried at cost. Fixed Assets are stated at historical cost less accumulated depreciation. Expenditure incurred during Construction Period In respect of new/major expansion of units. If any such indication exists. 2. require estimates and assumptions to be made that affect the reported amount of assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Provision for diminution in the value of such investments is made to recognise a decline. (ii).

depreciation is provided on a pro-rata basis from the date of commencement of commercial production. in the case of capitalisation of project. Contingent Liabilities and Contingent Assets . 8.1956 except for fixed assets taken over at Paradeep Unit which are depreciated based on useful life of such assets. Provisions. (d) Machinery Spares which can be used only in connection with an item of Plant & Machinery and its use is expected to be irregular. are fully depreciated over the remaining useful life of the related asset. (c) Railway wagons under "Own Your Wagon Scheme" are depreciated over a period of ten years. (h) Intangible assets are amortised over their estimated useful lives but not exceeding ten years when the asset is available for use.which are fully depreciated in the year of acquisition. is amortised over the period of lease. (ii) In respect of assets acquired after 31st March.XIV of Companies Act. 1961 and rules framed there under. However.5000/. 1990 at the rates prescribed under Income tax Act.22 ii) Current Investments are valued at lower of cost and fair value determined on an individual investment basis. (b) Assets are depreciated to the extent of 95% of the original cost except assets individually costing up to Rs. (g) Additions to assets are depreciated for the full year irrespective of the date of addition and no depreciation is provided on assets sold/ discarded during the year.1990 at the rates based on schedule XIV to the Companies Act. Depreciation / Amortisation (a) Depreciation on Fixed Assets is provided on Straight Line Method as follows: (i) In respect of assets acquired up to 31st March. other than those acquired under perpetual lease basis. (f) Leasehold Buildings are fully depreciated over the period of lease in case period of lease is less than the useful life derived from the rates as per Schedule. (e) Premium paid for acquisition of leasehold land. 9.

ii) Possible obligation.50000/. .000/each is treated as Income/ Expenditure for the current year.23 (a) Provisions are recognised for liabilities that can be measured by using a substantial degree of estimation. 12. unless the probability of outflow in settlement is remote. Lease rentals paid for such leases are recognised as an expense on straight line basis over the term of lease. Operating Leases Assets acquired on leases wherein a significant portion of the risks and rewards of ownership are retained by the lessors are classified as operating leases.00. (b) Contingent liability is disclosed in case of : i) Present obligation arising from a past event when it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation. 10. (d) Contingent assets are neither recognised nor disclosed in the financial statements.2. Pre-Paid Expenses Expenditure up to Rs. A probable outflow of resources embodying economic benefits is expected to settle the obligation. Prior Period Income / Expenditure Income/Expenditure items relating to prior period(s) not exceeding Rs.in each case except Insurance Premium is accounted for in the year in which the same is incurred. (c) Reimbursement expected in respect of expenditure required to settle a provision is recognised only when it is virtually certain that the reimbursement will be received. if: i) ii) The Company has a present obligation as a result of a past event. 11. and iii) The amount of the obligation can be reliably estimated.

24 CHAPTER 1 .

25 Working Capital Management WORKING CAPITAL MANAGEMENT Working Capital Management is the interaction between current assets and current liabilities. or will be turned into cash within one year without undergoing a diminution in value and without disrupting the operation of the firm. This involves managing the relationship between a firm's short-term assets and its short-term liabilities. The current assets refer to those assets. . The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. Decisions relating to working capital and short term financing are referred to as Working Capital Management. The management of working capital involves managing of:  Accounts receivable (current asset)  Inventory (current assets). which in ordinary course of business can be. The major thrust is on managing the current assets because a current liability arises in context of current assets.

and  Cash (current asset) The management of current assets is similar to that of fixed assets in the sense that in both cases the firm analyses their effects on its return and risk. However. In examining the management of current assets. In the management of fixed assets. Large holdings of current assets especially cash strengthen times liquidity (and reduces riskiness) but also reduces overall profitability. 3. answers will be sou ght to the following questions:  What is the need to invest funds in the current assets?  How much funds should be invested in each type of current assets?  What should be the proportion of long term and short term funds to finance current assets?  What appropriate sources of funds should be there to finance current assets? A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. To be sure. but it is only the current assets. the management of fixed and current assets differs in THREE ways: 1. discounting and compounding aspects of time element play a significant role in capital budgeting and a minor one in the management of current assets. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. However this relationship is not as close and direct as it is in the case of Working Capital Management. time is very important consequently. Working Capital Management is a significant part of financial management. .  Investment in current assets and the level of current liabilities have to be geared quickly to changes in sales. which can be adjusted with sales fluctuations in short runs. The levels of fixed as well as current assets depend upon the “expected sales”. Its importance arises from two reasons:  Investment in current represents assets a substantial portion of total management.26  Accounts payable (current liability). fixed assets investment and long term financing are also responsive to variations in sales. 2.

Precisely it is not possible to find out which long term sources has been used to finance current assets. analysis of working capital trends provides a base to judge whether the practice and prevailing policy of the management with regards to the working capital is good enough or an improvement is to be made in managing the working capital funds. . but it can be examined as to what proportion of current assets has been financed by long term funds. Normally the excess of current assets over current liabilities should be financed by long-term sources.One of the most important task of financial manager is to select an assortment of appropriate sources of finance for the current assets. Not only that.27 Hence in this study an attempt has been made to analyze the size and composition of working capital and whether such an investment has increased or declined over a period of time. In working capital analysis the direction of change over a period of time is of crucial importance. Therefore. Financial manager now a day is responsible for shaping the fortunes of the enterprise. and is involved in the most vital decision of the allocation of capital. an attempt has been made in this regard. There is a need to have a broader and farsighted outlook and must ensure that the funds of the enterprise are utilized in the most efficient manner .

furniture. etc. When the firms do so their profitability will improve and less are tied up in the idle current assets. Capital required for business can be classified under two main categories: 1) Fixed Capital 2) Working Capital Fixed Capital Long term funds are required to create production facilities through purchase of fixed assets such as plant & machinery. TYPES OF CAPITAL Every business needs funds for two purposes for its establishment to carry out its day-to-day operations.28 Hence in this study. payment of wages and other day-to-day expenses. but their solvency will be threatened. etc. Net working Capital Gross Working Capital Gross working capital refers to the firm’s investment in current assets. buildings. In addition. an attempt is made to study the association of profitability with the working capital ratios. The items comprising of current assets are:  Cash . an attempt is made about the trends of the working capital management of selected enterprise. Working Capital Funds are also needed for short-term purpose for the purchase of raw materials. Hence. These funds are known as Working Capital. There are two concepts of working capital: 1. Current assets are the assets which can be converted into cash within an accounting year or within an operating cycle. investments in these assets represents that part of firm’s capital. an effort has been made in this project report to make an in-depth study of IFFCO in respect of its performance and its working capital management. which is blocked on a permanent or fixed basis and is called fixed capital. land. With this view. to have higher profitability the firms may sacrifice solvency and maintained a relatively low of current assets. Gross working Capital 2.

A negative net working capital occurs when current liabilities are in excess of current assets. WORKING CAPITAL = CURRENT ASSETS .CURRENT LIABILITIES An increase in working capital indicates that the business has either increased current assets (that is received cash. If current assets are less than current liabilities. . also called a working capital deficit.29  Marketable securities  Accounts receivable  Notes or bills receivable  Prepaid expenses  Merchandise inventory  Manufacturing inventory Net Working Capital Net Working Capital refers to the difference between the current assets and current liabilities. or other current assets) or has decreased current liabilities. A positive net working capital will arise when current assets exceed current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year or the operating cycle of the business. The items comprising of current liabilities are:  Accounts Payable  Acceptance  Promissory Notes Payable  Accrued Liabilities  Estimated Liabilities or Provisions  Bank Overdraft  Contingent Liabilities Net working capital can be positive or negative. an entity has a working capital deficiency.

Depending upon the changes in production and sales. Temporary working capital differs from Permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in the business. the need for working capital. Permanent or Fixed working capital is the minimum level of current asset. work-in-progress. finished goods and cash balance. Both kinds of working capital – permanent and temporary – are necessary to facilitate production and sale through the operating cycle. Temporary or Variable Working Capital Variable working capital is the extra working capital needed to support the changing production and sales activities of the firm. But the firm to meet liquidity requirements that will last only temporarily creates a temporary working capital. Variable working capital can be further classified as seasonal working capital and special working capital. the requirements of permanent working capital also increase due to the increases in current assets. It is permanent in the same way as the firms fixed assets are. For example: every firm has to maintain a minimum level of raw material. over and above permanent working capital will fluctuate. Worki ng Temporary .30 Types of Working Capital Working Capital can be further divided into two types namely: 1) Permanent or fixed working capital 2) Variable or temporary working capital Permanent or Fixed working capital There is always a minimum level of current assets which is continuously required by a firm to carry on its business operations. The capital required to meet the seasonal needs of the enterprise is called seasonal working capital. Special working capital is that part which is required to meet the special exigencies such as launching of extensive marketing campaigns for conducting research etc. Most of the enterprises have to provide additional working capital to meet the seasonal and special needs. As the business grows.

 Ratio analysis can be used to identify working capital areas.e.31 Working Capital Capital (in Rs.  Short term financing: Identify the appropriate source of financing. but reduces cash holding costs. such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa). given the cash conversion cycle: the inventory is ideally financed by credit granted .) Permanent Working Capital Time Good Management of Working Capital  Good management of working capital is part of good financial management.and minimizes reordering costs . optimum use will help to generate maximum returns. Effective use of working capital will contribute to the operational efficiency of a department. which require closer management. credit terms which will attract customers.and hence increases cash flow  Debtor management: Identify the appropriate credit policy.  Inventory management: Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials .  The areas of working capital management are as follows:  Cash management: Identify the cash balance which allows for the business to meet day to day expenses. Various techniques and strategies are available for managing specific working capital items. i.

This approach imparts greater PROFITABILITY to the company. This approach imparts greater LIQUIDITY to the company. thus leaving more amounts of funds for investment in more profitable ventures. it may be necessary to utilize a bank loan (or overdraft). however. which strikes a balance between the two approaches.  Based on this the companies can follow any of the two approaches or even a combination of both.e. The quantum of investment in current assets has to be made in such a manner that it not only meets the needs of the forecasted sales but also provides a built in cushion in form of safety stocks to meet unforeseen contingencies.  Choosing the pattern of financing  The management of financing the chosen level of current assets once again takes into consideration the attitude of management towards risk. An ideal policy would be the moderate policy.  The other approach is the Aggressive Approach in which the firm goes for fewer investments in current assets. Profitability  The basic objective of working capital is to provide adequate support for the smooth functioning of the normal business operations of the company. However the following are the factors generally influencing the working capital requirements:  Nature or character of business . A company opting for high investment in current assets follows the Conservative Approach i. or to "convert debtors to cash" through "factoring". It is not possible to rank them because all such factors are of different importance and the influence of individual factors changes for a firm over time. DETERMINANTS OF WORKING CAPITAL The working capital requirements of a concern depend upon a large number of factors.32 by the supplier. OBJECTIVES OF WORKING CAPITAL MANAGEMENT  Liquidity vs. subjected to lower degree of risk.

33 The working capital requirements of a firm basically depend upon the nature of the business. Public undertakings like electricity, water supply, and railways need very limited working capital because they offer cash sales only and supply services. Trading and financial firms require less investment in fixed assets but have to invest large amounts in current assets, as they need large amount of working capital. The manufacturing undertakings also require sizable working capital along with fixed investments.  Size of business The working capital requirements of a concern are directly influenced by the size of the business. Greater the size of a business unit, generally larger will be the requirements of working capital.  Manufacturing process In manufacturing business, the requirements of working capital increase in direct proportion to length of manufacturing process. Larger the process period of manufacture, larger is the amount of working capital required. The longer the manufacturing time, the raw material and other supplies have to be carried far a longer period in the process with progressive increment of labor and service costs the finished product is finally obtained.

34  Seasonal variations In certain industries raw material is not available throughout the year. They have to buy raw materials in bulk during the season to ensure the uninterrupted flow and process them during the entire year. A huge amount is thus blocked in the form of material inventories during such seasons, which gives rise to more working capital requirements.  Rate of stock turnover There is a high degree of inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having low rate of turnover.  Firm’s credit policy A concern that purchases its requirements on credit and sells its products/services on cash requires lesser amount of working capital. On the other hand the concern buying its requirements for cash and allowing credit to its customers shall need larger amount of working capital.

ADVANTAGES OF ADEQUATE WORKING CAPITAL
The main advantages of maintaining adequate amount of working capital are as follows:  Solvency of the business Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production.  Goodwill Sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill.  Quick and regular return on investments Every investor wants a quick and regular return on his investments. Sufficiency of working capital enables a concern to pay quick and regular dividends to its investors, as there may not be much pressure to plough back profits. This gains the confidence of its investors and creates a favorable market to raise additional funds in the future.

35  Ability to face crises Adequate working capital enables a concern to face business crises in emergencies such as depression because during such periods, generally, there is much pressure on working capital.  Regular payments of salaries, wages and other day-to-day commitments A company which has ample working capital can make regular payments of salaries, wages and other day-to-day commitments which raise the morale of its employees, increases their efficiency, reduces wastages and costs and enhances production and profits.  Easy loans A concern having adequate working capital, high solvency and good credit standing can arrange loans from the banks and others on easy and favorable terms.  Regular supply of raw materials Sufficient working capital ensures regular supply of raw materials and continuous production.

BALANCED WORKING CAPITAL
Every business concern should have adequate working capital to run its business operations. It should have neither redundant for excess working capital nor inadequate or shortage of working capital. Both Excess, as well as short Working capital positions is bad for any business. Disadvantages of Redundant or Excessive Working Capital  Excessive working capital means idle funds, which earn no profit for the business, and hence the business cannot earn proper rate of return on investments.  When there is a redundant working capital, it may lead to unnecessary purchasing and accumulation of inventories causing more changes of theft, losses and waste.  Excessive working capital implies excessive debtors and defective credit policy, which may cause higher incidents of bad debts.  When there is excessive working capital, relations with the bank and other financial institutions may not be maintained.  It may result into overall inefficiency in the organization and also due to low rate of return on investments the value of shares may also falls.

can pay its short-term liabilities in time. Financial manager should pay special attention to the management of current assets on a continuing basis. There are many aspects of working capital management which make it an important function of the financial manager:  Time Working capital management requires much of the financial manager’s time. it will lose its reputation and shall not be able to get good credits facilities. It is necessary for a financial manager to manage working capital in the best possible way to get the maximum benefit. which has inadequate working capital. increase costs and reduces the profits if the business.  Growth The need for working capital is directly related to the firm’s growth.  Critically working Capital management has great significance for all firms but it is very critical for small firms. He must see that right sources are tapped to finance current assets.  The firm cannot pay day-to-day expenses of its operations and creates inefficiencies. ISSUES IN WORKING CAPITAL The financial manager must determine levels and composition of current assets. etc.  It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid funds. Thus. .  It cannot buy its requirements in bulk and cannot avail of discounts. and also the rate of return on investments also falls with the falls with the shortage of working capital. Actions should be taken to curtail unnecessary investment in current assets. and that current liabilities are paid in time.  Investment Working Capital represents a large portion of the total investment in assets.36 Dangers of Inadequate Working Capital  A concern.  It becomes difficult for the firm to exploit favorable market conditions and undertake profitable projects due to lack of working capital.

Depending on the mix of short-term and long-term financing.  Short-term financing The short-term financing is obtained for a period less than one year.37 There is a direct relationship between a firm’s growth and its working capital needs. public deposits. The real choice of financing current assets. Short-term finances include working capital funds from banks. Trade (suppliers) credit and outstanding expenses are examples of spontaneous financing. Three types of financing may be distinguished:  Long-term financing The sources of long-term financing include ordinary share capital.  Spontaneous financing Spontaneous financing refers to the automatic sources of short-term funds arising in the normal course of business. Policies for Financing Current Assets A firm can adopt different financing policies vis-à-vis current assets. debentures. The financial manager should be aware of such needs and finance them quickly. long-term borrowings from financial institutions and reserve and surplus (retained earnings). These needs become very frequent and fast when sales grow continuously. is between the long-term and short-term sources of finances. the firm needs to invest more in inventories and debtors. commercial paper. once the spontaneous sources of financing have been fully utilized. It is arranged in advance from banks and other suppliers of short-term finance in the money market. There is no explicit cost of spontaneous financing. A firm is expected to utilize these sources of finances to the fullest extent. factoring of receivable etc. Continuous growth in sales may also require additional investment in fixed assets. The finance manager should pay particular attention to levels of current assets and the financing of current assets. the approach followed by a company may be referred to as:  Matching approach  Conservative approach  Aggressive approach . preference share capital. As sales grow.

others have little if any inventory. For example. However. These key points are as follows: . such cash may more appropriately be "invested" in other assets or in reducing other liabilities. thereby maximizing the interest earned. departments need to recognize that each department has a unique mix of working capital components. The emphasis that needs to be placed on each component varies according to department. Furthermore. This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible. and  To assist in identifying areas requiring closer management Three key points need to be taken into account when analyzing financial ratios. It is an integral part of the department's overall management. The main purposes of Working Capital Ratio Analysis are:  To indicate working capital management performance.38 Approaches to Working Capital Management The objective of working capital management is to maintain the optimum balance of each of the working capital components. Working Capital Management takes place on two levels:  Ratio analysis can be used to monitor overall trends in working capital and to identify areas requiring closer management  The individual components of working capital can be effectively managed by using various techniques and strategies When considering these techniques and strategies. some departments have significant inventory levels. working capital management is not an end in itself. The needs of efficient working capital management must be considered in relation to other aspects of the department's financial and non-financial performance.

which do not warrant significant effort. or situations. which require control.  Ratio analysis is somewhat one-sided. loose tools. chemical catalysts. Comparisons between them. situations. Sources of Cash The various sources of cash that provide the money to fund the working capital include the following:  Existing cash reserves  Payables (credit from suppliers)  New equity or loans from shareholders  Bank overdrafts or lines of credit  Long term loans  Profit or net income Inventory Management Inventories constitute the most significant part of current assets.39  The results are based on highly summarized information. Consequently. might not be apparent. favourable results mean little. whereas unfavourable results are usually significant. might be unnecessarily highlighted. or with global “ideal” ratio values. The various forms of inventory in a fertilizer manufacturing company are: • • • • Raw Materials are those basic inputs that are converted into the finished products through the process of manufacturing. Stores & Spares. Inventories are stock of the product. financial ratio analysis is valuable because it raises questions and indicates directions for more detailed investigation. Work-In-Progress inventories are semi-manufactured products.  Different departments face very different situations. can be misleading. packing & Construction materials . However. a company is manufacturing for sale and components to make that product. Finished Goods inventories are completely manufactured products.

. To avoid both overstocking & under stocking of inventory To eliminate duplicate stock orders. spares & finished goods.40 OBJECTIVES OF INVENTORY MANAGEMENT The problems faced by an organization in the context of inventory management are:       To maintain a large size of inventory for efficient and smooth production & sales To maintain minimum investment in inventories to maximize profitability To ensure continuous supply of materials. This is possible with the help of a centralized To design proper organization for inventory management operation purchasing system.

pilferage.  Consider the idea of outsourcing the manufacturing of the product to another manufacturer. The optimum level of inventory will lie between two danger points of excessive & inadequate inventories.?  How long does it take for delivery by the suppliers?  Can one remove the slow movers from one’s product range without compromising on the best. following measures can be adopted:  Review the effectiveness of existing purchasing & inventory systems. The objective of Inventory Management is to determine & maintain the optimum level of inventory investment.  Apply tight controls to the significant few items & supply control for the remaining.41 Both Excessive & Inadequate Inventories are not desirable. wastage & damages. . Factors to be considered when determining the optimum stock levels include:  What are the projected sales of each product?  How widely available are each component. The key issue for a business is to identify the fast and slow stock movers with the objective of establishing optimum stock levels for each category and thereby minimize the cash tied up in the stocks.  Know the stock turnover for all major items of inventory.  Sell off outdated or slow moving merchandise. Insufficient stocks can result in lost sales. raw materials. etc.  Review security procedures to minimize losses through deterioration. Average stock holding periods are influenced by the nature of the business. The key is to know how quickly the stocks are moving or how long each item of stock sits on shelves before being sold. Excessive stocks can place a heavy burden on the cash resources of a business.sellers? For better stock control. delays for customers etc.

However. They are usually created because of trade credit that is given to the customers of the business. Objectives of Receivable Management The objective of Receivable Management is to promote sales & profits until that point is reached where the returns that the company gets from funding receivables is less than the cost that the company has to incur in order to fund these receivables . The interval between the date of sale & the date of payment has to be financed out of the working capital. which should be carefully analyzed.42  To facilitate furnishing of data for short-term & long-term planning & control of inventory Receivable Management Accounts Receivable refers to the amount owed by the debtors to the business.  Administrative Costs  Collecting Costs  Defaulting Costs . to maintain these receivables the company has to incur certain costs such as:  Additional fund requirements for the company – When a firm maintains receivables. trade debtors represent investment. to buy raw materials & to run the day-to-day activities of the business. To maintain a proper flow of funds in the business in order to make timely payments to the creditors. some of its resources remain blocked in them so to finance the activities during that time gap the firm requires funds. Thus. it is essential that the debtors make their payments on time. These receivables have three characteristics:  It involves an element of risk.  It is based on economic value  It implies futurity.

Cash Management refers to management of cash balance and the bank balance and also short term deposits. Cash Management is concerned with the managing of:  Cash flows into and out of the firm. The term cash may be used in two different ways: .  Cash flows within the firm  Cash balances held by the firm at a point of time for financing deficits or investing Surplus cash. All these variables underlying a company’s credit policy influence the volume of sales and hence the profits of the company. any incentive in the form of cash discount offered. Receivable management invested or to whom money can be given.43 The size of receivables or investment in Receivable Management is determined by the firm’s credit policy & level of sales. Receivable management involves the careful consideration of the following aspects:  Forming the credit policy  Executing the credit policy  Formulating & executing the collection policy The Credit Policy is the policy followed by the company with respect to the credit standards adopted. Its efficient management is crucial to the solvency of the business because cash is the focal point of the fund flows in a business. it will have to close down. and also the period over which the discount can be utilized by the customers & the collection effort made by the company. If a business has no cash and no way of getting any cash. the most liquid asset and also referred to as the life blood of a business enterprise and is of vital importance to the daily operations of the business firms. is the process of making the decision of selection of trade debtors in which the funds could be Cash Management Cash.

pure cash or generally accepted cash equivalents. and  To minimize the idle cash held by the firm The risk return trade-off of any firm can be reduced to two prime objectives for the firm’s Cash Management System: 1) Meeting the Cash Outflows: This will help the firm in avoiding the chance to default in meeting financial obligations otherwise the goodwill of the firm is adversely affected. drafts. it covers cash.e. Also this will further help in availing the opportunities of getting cash discounts by making early or prompt payments and meeting unexpected cash outflows without much problem. Objectives of Cash Management The cash management strategies are generally built around two goals:  To provide cash needed to meet the obligations. demand deposits held by the firm i. cash equivalents and those assets which are immediately convertible to cash. For cash management purposes.44 1) It may include currency. the term cash is used in this broader sense i. 2) In a broader sense. it also includes near cash assets such as marketable securities and short term deposits with banks.e. cheques. 2) Minimizing the Cash Balance .

While analyzing the loans & advances position of IFFCO the following ratios have to be calculated for better understanding i. When we talk about the working capital management it is necessary to consider Loans & Advances. Purchases Inventory Period Credit Sales Collection . into cash.45 Loans and Advances Loans and Advances are one of the important factors of working capital. labour. after the conversion of resources into inventories. Credit sales create account receivable for collection.  Sale of the product either for cash or on credit.  Loans and advances to Current Assets ratio  Loans and advances to Working capital ratio Operating Cycle Operating Cycle is the times duration required to convert sales.e. In current assets loans and advances play a significant role. power and fuel etc. as they are a major component of Current assets and along with the equity of the company for a source of generating cash in the organization. The operating cycle of a manufacturing company involves three phases:  Acquisition of resources such as raw material.  Manufacture of the product which includes conversion of raw material into workin-progress into finished goods.

46 Accounts Receivable Period Accounts Payable Period Payments Cash Conversion Cycle Operating Cycle The operating cycles are of two types: 1. Net Operating Cycle or Cash Conversion Cycle Gross Operating Cycle Gross operating cycle is a tool which measures the total number of days from the day the purchases are made or the stock arrives to the day all the collections are made. Gross Operating Cycle 2. Gross Operating Cycle is given as follows: Operating cycle (OC) Cash Conversion Cycle The cash conversion cycle (also referred to as CCC or the net operating cycle) is the analytical tool of choice for determining the investment quality of two critical assets inventory and accounts receivable. A fast turnover rate of these assets is what creates real liquidity and is a positive indication of the quality and the efficient management of inventory and receivables. The cash conversion cycle is comprised of three standard. trade receivables and trade payables. The CCC tells us the time (number of days) it takes to convert these two important assets into cash. so-called activity ratios relating to the turnover of inventory.Days Payable Outstanding (DPO) = Days Inventory Outstanding(DIO) + Days Sales Outstanding(DSO) . So the sooner the cash is received from the consumers the better is for the company as they get cash for further production. CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) . These components of the CCC can be expressed as a number of times per year or as a number of days. Cash is said to be blocked till the collections have been collected.

47 The cash conversion cycle (CCC) measures how fast a company can convert cash on hand into even more cash on hand. smaller is better. Companies normally let inventories build up when they are introducing a new product in the market or ahead of a busy sales period. However. so this number is going to be positive. The CCC does this by following the cash as it is first converted into inventory and accounts payable (AP). If the number of days is high.inventory is held for less time and less money is tied up in inventory. The components of CCC are calculated as follows:  Days Inventory Outstanding (DIO) This addresses the question of how many days it takes to sell the entire inventory. it could mean problems ahead. While cash-only sales have a DSO of zero. and then back into cash. that’s not necessarily a bad thing. money is freed up for things like research and development. that could mean that sales are poor and inventories are piling up in warehouses. the more efficient a company . Getting money right away is preferable to waiting for it . the smaller number of days. the lower this number is the better for the company. = The company may be letting customers stretch their credit in order to recognize greater top-line sales and that can spell trouble later on especially if customers face a cash crunch.especially Days Sales . the increase could mean that unsold goods will simply collecting dust in the stockroom. people do use credit extended by the company. marketing or even share buybacks and dividend payments. if you don’t foresee an obvious pickup in demand coming. Again. The smaller this number is the better. Generally. Days Inventory = Average Inventory Outstanding (DIO) Cost of Goods sold (COGS) / 365 Broadly. If inventory days are increasing.  Days Sales Outstanding (DSO) This looks at the number of days needed to collect on sales and involves Accounts Receivables. through sales and accounts receivable (AR). Average Accounts Receivable Net Sales / 365 Outstanding (DSO) If a company's collection period is growing longer. Instead.

Days Payable Outstanding (DPO) = Average Accounts Payable Cost of Goods sold (COGS) / 365 Key Ratios The ratios can be divided into following categories according to financial activity or functions to be evaluated:  Ratios related to Inventory Management  Ratios related to Receivables Management  Ratios related to Cash Management  Profitability Ratios Ratios related to Inventory Management 1. maximizing its investment potential. the company holds onto cash longer. best of all. therefore. dividends and growth opportunities. Inventory to Current Assets Ratio 4. a longer DPO is better. The quicker a company gets its customers to make payments. Inventory Turnover Ratio 2. Inventory to Working Capital Ratio 3. merchandise and equipment. the sooner it has cash to pay for salaries.48 since some of what is owed may never get paid. Inventory to Sales Ratio . loans and. If this can be maximized.  Days Payables Outstanding (DPO) This involves the company's payment of its own bills or Accounts Payables.

If a company has too much Working Capital invested in Inventory. Inventory to = Inventory Working Capital X 100 . Inventory Turnover Ratio = Cost of Goods sold (COGS) Average Inventory 2. the inventory turnover will be higher. Inventory to Working Capital ratio The inventory to working capital ratio measures how well the company is able to generate cash using working capital at its current inventory level. fluctuation in business activities. Conversely. they may have difficulty having enough Working Capital to make payments on Short-Term Liabilities and Accounts Payable. showing the company may be having operational problems. Importance of Inventory to Working Capital An increasing Inventory to Working Capital ratio is generally a negative sign. Inventory Turnover Ratio The inventory turnover measures that how well the company can manage to sell its inventory. This could cause lost profits due to customer orders that had to wait until inventory arrived. Inventory is an important part of working because of its direct impact on the profits of the organization.49 1. This is a great ratio to be used with several others to really pick apart the inner workings of a company. Another way of saying is how efficiently the company turns inventory into sales. if the company cannot sell its inventory well. obsolescence & other unpredictable factors that determine the market conditions. then the inventory turnover will be low. working capital should be sufficient to provide a cover for the possible losses in inventory value. The value of inventory is susceptible to changing price levels. This ratio shows the relationship between investments made in inventory & the total net investment in working capital. Importance of Inventory Turnover If the company can quickly sell its inventory. variation in consumer demand. Therefore. then the company may be keeping too little inventory. One has to watch this figure closely – if the inventory ratio climbs too high. The purpose is to ensure the blocking of only required minimum funds in inventory.

Inventory to Current Assets Ratio Ratio Inventory is one of the largest components of the current assets. less than 50 % of current assets are treated as average position of inventory. This ratio is essential as inventories are the most illiquid of all current assets as sometimes it becomes difficult to convert inventory ( raw materials. On the other hand. The position of inventory indicates operational efficiency of organization. and can sometimes indicate larger financial problems the company may be facing. Importance of inventory to current assets An increasing inventory to current assets ratio is a negative sign.50 Working Capital 3. Inventory to Current Assets Ratio = Inventory Current Assets X 100 4. Importance of Inventory to Sales An increasing Inventory to Sales ratio is generally a negative sign. Normally. This indicates poor operational efficiency of the organization. It is also important to compare this ratio among several companies to gauge how well each one performs. Inventory to Sales Ratio The Inventory to Sales ratio measures the percentage of inventory the company currently has on hand to support the current amount of sales. The inventory to current assets ratio measures how much percentage of current assets is formed by the inventories. Viewing this ratio over several periods reveals the important aspect of the company's ability to manage inventory while attempting to increase sales. Also it shows that the funds invested in current assets to meet obligations on a short notice are actually illiquid to some extent & it may be difficult to convert them into cash immediately. Inventory to = Inventory X 100 . and to compare their ratios to industry averages. It means that more & more percentage of current assets is being constituted by the inventories. it indicates higher operational efficiency of the organization. if the position of inventory is lower in current assets. showing the company may be having trouble keeping inventory down and/or Net Sales have slowed. workin-progress and finished products ) into cash on a short notice.

Accounts Receivable is the amount that customers owe the company. Average collection period 3. Debtors turnover ratio 2. This is also a measure of how well the company collects sales on credit from its customers. Debtors Turnover Ratio This ratio is also known as Accounts Receivable Turnover Ratio. Debt to Equity Ratio 1. The Accounts Receivable Turnover measures the number of times Accounts Receivables were collected during the year. A possible negative aspect to an increasing Accounts Receivable Turnover is that the company may be too strict in its credit policies and missing out on potential sales. Debtor Turnover Ratio = Net Sales Average Accounts Receivable . just as Average Collection Period measures this in days. Debtors to working capital ratio 5. Debtors to current assets ratio 4. Importance of Accounts Receivable Turnover A high or increasing Accounts Receivable Turnover is usually a positive sign – showing the company is successfully executing its credit policies and quickly turning its Accounts Receivables into cash.51 Sales Sales Ratio Ratios related to Receivable Management 1.

It also can be used as a gauge of how loose or tight the company maintains its credit policies. Debtors are one of the largest components of current assets. but could also result in an increase in sales revenue that cannot be recovered. if debtors are very heavy on respect of other current assets. Average Collection Period The Average Collection Period measures the average number of days it takes for the company to collect revenue from its credit sales. it indicates proper realization of debtors. This could be an indicator that the company's customers are in trouble. Average Collection Period = 360 Debtor Turnover Ratio 3. as shown in the Allowance for Doubtful Accounts. which could spell trouble ahead. Debtors to Current Assets Ratio Debtor to current assets ratio indicates the position of debtors in total current assets. meaning that they may have been extending credit to companies where they normally would not have. If debtors are average or less than average. This ratio is calculated by debtors with current assets. Importance of Average Collection Period This ratio reflects how easily the company can collect on its customers. it indicates poor recovery of the company. The company will usually state its credit policies in its financial statement. This could temporarily boost sales. Debtors to Current Assets Ratio = Debtors Current Assets X 100 . so the Average Collection Period can be easily gauged as to whether or not it is indicating positive or negative information. On the other hand. A particular thing to watch out for is if the Average Collection Period is rising over time. The Average Daily Sales is the Net Sales divided by 365 days in the year. This could also indicate the company has loosened its credit policies with customers.52 2.

Working capital turnover ratio 6. If debtors are lower as compared to working capital. the amount of debtor is very large in that condition. Cash to current assets ratio 4. Debt to Equity Ratio = Debt Equity Importance of Debt to Equity Ratio The ratio shows the extent to which debt financing has been used in the business.53 4. Ratios Related to Cash Management 1. it indicates proper and smooth utilization of working capital. A low debt-equity ratio implies a greater claim of owners than capital. Sales to working capital ratio . Working capital is directly related with the position of debtors. Debtors to Working Capital Ratio Debtor to working capital ratio is one of the important ratios for analysis of working capital management. Debt to Equity Ratio Debt to Equity ratio describes the lenders contribution for each rupee of the owners’ contribution. Debtors to Working Capital Ratio = Debtors Working Capital X 100 5. Liquid ratio or Acid-test ratio 3. Sales to current assets ratio 5. A high ratio means that claims of creditors are greater than those of owners. A high level of debt introduces inflexibility in the firm’s operations due to the increasing interference and pressure from creditors. working capital blocked and operational efficiency is directly affected. Working capital ratio or current ratio 2. The ratio is directly computed by dividing total debt by equity or net worth. But on the other hand.

Cash and Marketable Securities comprising the majority of the Current Assets would definitely be favorable. you would hope the company whose financial performance you are analyzing could meet to pay its Current Liabilities if it were to liquidate all its Current Assets. the level of safety provided by the excess of current assets over current liabilities. which are part of the Current Assets. would the company you are analyzing truly be able to meet its financial obligations is it in fact had to sell its Current Assets? The Current Ratio rising over time will be favorable. Inventory and Accounts Receivable. It is also important to know what assets make up most of the Current Assets. This would translate to a Current Ratio of 1:1 .the point where the Current Assets equal the Current Liabilities. The current ratio compares all the Current Assets of a company to all the Current Liabilities.54 1. Current Ratio = Current Assets Current Liabilities . What this ratio basically tells us is if the company had to sell all its readily available assets. Knowing this. would it be able to pay off its immediate debt? Importance of Working capital ratio or current ratio At a minimum. cannot always be counted on as easily transferred to cash. As with all the other performance ratios. Working Capital Ratio or Current Ratio The working capital ratio (or current ratio) attempts to measure the level of liquidity. the Current Ratio value depends on the industry in which the company is operating. that is.

such as inventory. Liquid Ratio or Acid-Test Ratio or Quick Ratio Liquid ratio is also known as Acid-test ratio or Quick ratio. Liquid ratio is a more vigorous test of liquidity than current ratio. Companies with steadily rising Inventories may look good with the Current Ratio. The term “liquidity” refers to the ability of the firm to pay its short term obligations as & when they become due. showing the company's liquid assets represent a larger portion of its Total Current Assets.e. Importance of Liquid Ratio If a company one is analyzing looks good while testing it against the Current Ratio. An asset is said to be liquid if it can be converted into cash within a short span of period without loss of value. Cash to Current Asset Ratio = Cash Current Assets X 100 . Quick Ratio = Current Assets – Inventories Current Liabilities 3. So. into cash. (current assets – inventories) & current liabilities. Cash to Current Assets Ratio This ratio basically measures what percentage of the current assets is formed by the cash component. It also indicates the company may be better able to convert its non-liquid assets.55 2. quick ratio may be referred to as the relationship between quick assets i. but will have a deteriorating effect on the Quick Ratio. which are not easily converted into cash within a short span of time. then the Quick Ratio should be your next test to apply. Current assets include inventories and prepaid expenses. since we subtract the Inventory out. Importance of Cash to Current Assets Ratio High or increasing Cash to Current Assets ratio is generally a positive sign. The Quick Ratio rising over time is favorable. This is a more stringent measure of liquidity as it considers the most liquid current asset.

Working Capital Turnover Ratio = Sales Average Working Capital . decreasing the amount of inventory and resultantly the Current Assets. plotting both of these ratios together to see their differences would be wise. showing the company is better able to generate sales from its Working Capital. as the amount of Current Assets varies widely among companies and industries. We chose to interchange the usual components of Working Capital (Total Current Assets .56 4.Total Current Liabilities) with an alternate method (shown above). Note that another ratio exists. With two similar ratios using slightly different methods to compute Working Capital. This ratio is most valid in industries where companies hold the majority of their own inventories in-house. or it has been able to reduce its Working Capital while being able to maintain its sales. Sales to Current Assets Ratio The Sales to Current Assets ratio measures how well a company is making use of its assets in generating sales. indicating the company may have slowed production. Working Capital Turnover Ratio The Working Capital Turnover ratio measures the company's Net Sales from the Working Capital generated. Importance of Working Capital Turnover A high or increasing Working Capital Turnover is usually a positive sign. Either the company has been able to gain more Net Sales with the same or smaller amount of Working Capital. the Sales to Working Capital Ratio also measures Net Sales to Working Capital. as opposed to having their customers hold their inventory for them. Decreasing Sales to Current Assets ratio is generally a negative sign. Sales to Current Asset Ratio = Sales Current Assets 5. Efforts to streamline the operations of the company will often show favorably in this ratio. Importance of Sales to Current Assets The Sales to Current Assets ratio is best measured over several periods compared to industry averages.

Return on Capital Employed (ROCE) 4. and slowing payment to vendors and suppliers in an effort to hold on to its cash. indicating the company is more able to use its working capital to generate sales. Working Capital represents the major items typically closely tied to sales. Importance of Sales to Working Capital An increasing Sale to Working Capital ratio is usually a positive sign. because the company is earning more money on less investment. Working Capital Turnover Ratio = Sales Average Working Capital Profitability Ratios 1. Return on Assets (ROA) 2. Return on Equity (ROE) 3. Sales to Working Capital Ratio The Sales to Working Capital ratio measures how well the company's cash is being used to generate sales. increasing inventory levels to reduce order fulfillment cycle times. The higher the ROA number. the better. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. Net Profit Margin 1. and each item will directly affect this ratio. Return on Assets (ROA) ROA is an indicator of how profitable a company is relative to its total assets. this ratio is much more effectively used over a number of periods. ROA tells how efficient management is at using its assets to generate earnings. Although measuring the performance of a company for just one period reveals how well it is using its cash for that single period. This ratio can help uncover questionable management decisions such as relaxing credit requirements to potential customers to increase sales. Return on Assets (ROA) = Profit After Tax Average Total Assets 2. Return on Equity (ROE) .57 6.

Return on Capital Employed (ROCE) ROCE is used to prove the value the business gains from its assets and liabilities. It measures the rate of return on the ownership interest of the common stock owners. ROE shows how well a company uses investment funds to generate earnings growth. It basically can be used to show how much a business is gaining for its assets. administering and selling the products. a business which owns lots of land but has little profit will have a smaller ROCE to a business which owns little land but makes the same profit. or how much it is losing for its liabilities. Return on Equity (ROE) = Profit After Tax Average Equity 3.58 The return on equity is net profit after taxes divided by average equity. It measures a firm's efficiency at generating profits from every unit of shareholders' equity. . Return on Capital Employed (ROCE) = Profit Before Tax Average Capital Employed 4. This ratio is the overall measure of the firm’s ability to turn each rupee sales into net profit. Net Profit Margin Net Profit Margin ratio is measured by dividing profit after tax by sales: Net Profit Margin = Profit After Tax Sales Importance of Net Profit Margin Net profit margin ratio establishes a relationship between net profit and sales and indicates management’s efficiency in manufacturing.

it will have to close down. the firm should develop appropriate strategies for cash management.59 Appendix B: Cash Management Cash. . The firm should evolve strategies regarding the following four facets of Cash Management:  Cash Budgeting/ forecasting: Cash inflows and Cash Outflows should be planned to protect cash surplus or deficit for each period of planning.  Cash flows within the firm  Cash balances held by the firm at a point of time for financing deficits or investing Surplus cash. Cash Management refers to management of cash balance and the bank balance and also short term deposits. Cash Budget should be prepared for this purpose. and  To minimize the idle cash held by the firm In order to resolve the uncertainty about cash flow prediction and the lack of synchronization between cash receipts and payments. Its efficient management is crucial to the solvency of the business because cash is the focal point of the fund flows in a business. If a business has no cash and no way of getting any cash. A Cash Management System is essential for a company for the following two reasons:  Uncertainty of cash flows  Lack of synchronization of inflows and outflows Cash Management is concerned with the managing of:  Cash flows into and out of the firm. Goals of Cash Management The Cash Management Strategies are generally built around Two Goals:  To provide cash needed to meet the obligations. the most liquid asset and also referred to as the life blood of a business enterprise and is of vital importance to the daily operations of the business firms.

60  Manage the Cash Flows: The flow of cash should be managed properly. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances. The cash inflows should be accelerated. decelerating the cash outflows. . while. Managing of cash is done through:  Organized collection management  Proper disbursement management  Optimum Cash Level: The firm should decide about the optimum level of cash balances. as far as possible.

In other words.61  Investment of Surplus Cash: The surplus cash balances should be properly invested to earn profits. The firm should decide about the division of such cash balance between bank deposits. when cash payments exceeds the cash receipts. taxes. Transaction Motive Business firms as well as individuals keep cash because they require it for meeting demand for cash flow arising out of day-to-day transactions. a firm may invest its funds in marketable securities. The Transaction Motive mainly refers to holding cash to meet anticipated payments whose timing is not perfectly matched with cash receipts. wages & salaries.e. 1. For transaction purpose. i. dividends. etc. Motives for Holding Cash There are four primary motives for holding cash. marketable securities and inter-corporate lending. For those periods. The need to hold cash would not arise if there were perfect synchronization between cash payments and cash receipts. enough cash is received when the payment has to be made. The firm needs cash primarily to make payments for purchases. Precautionary Motive . 2. the firm should maintain some cash balance to be able to make required payments. the necessity of keeping minimum cash balance to meet payment obligations arising out of expected transactions is known as Transaction Motive for holding cash. other operating expenses.

The precautionary balance may be kept in the form of cash or marketable securities. However. not many firms engage their funds in speculative motives to a great extent. a firm holds for transaction and precautionary depends upon:  The expected cash inflows and cash outflows based on the cash budget and forecasts. then they can give a lot of profits. the amount of cash.e. Marketable securities play an important role here. Degree of Predictability of its cash flows  The degree of deviation between the expected and actual cash flows  Efficient planning and control of cash  The firm’s ability to borrow at short notice in the event of any emergency  The willingness and the capacity of the firm to take risk of running short of cash 3. Stronger the ability of the firm to borrow at short notice less is the need for precautionary balance. The amount of cash set aside for precautionary reasons may not earn anything. The Speculative Motive provides affirm with sufficient liquidity to take advantage of unexpected profitable opportunities that may suddenly appear (And just as suddenly disappear if not capitalize immediately). . the primary motives to hold cash and marketable securities are: Transaction Motive and Precautionary Motive. The Precautionary motive for holding cash depends on the predictability of cash flows. Speculative Motive The firm’s desire to keep some cash balance to capitalize an opportunity of making an unexpected profit is known as Speculative Motive for holding cash. but if these funds are invested in high liquid marketable securities. The necessity of keeping cash balance to meet any unforeseen situation or unpredictable obligation is known as Precautionary motive for holding cash. Hence. The amount of precautionary cash is also influenced by the firm’s ability to borrow at short notice when the need arises.62 A firm should maintain larger cash balance that required for day-to-day transactions in order to avoid any unforeseen situation arising because of insufficient cash. Thus. encompassing long and short range cash needs of the firm i.

which will have a bearing on determining the cash balance required by a firm. its cash inflows may not exactly match the cash outflows. Area Office (AO) and State Office (SO).  Cash Inflows and Cash Outflows  Cost of Cash Balance  Other Consideration: There may be several subjective considerations such as uncertainties of a particular trade. Extrinsic factors influencing the cash management  Management Information System (MIS) of the banks: They provide full details of the payments received. The details provided by them contain information of the payment of the Field Representative (FR). Factors affecting the Cash Needs Intrinsic factors influencing the cash management  Cash Cycle: The term cash cycle refers to the length of the time between the payment for the purchase of raw materials and the receipts of the sales revenue. He has to manipulate and synchronize the two for the advantage of the firm by investing excess cash if any as well as arranging funds to cover the deficiency. So banks are bound by the agreement by which they pay interest for any delay on their part.63 Cash Management. The report is made such that it can be used by the Marketing Central office (Mkco). . thus.  Innovative Schemes: Banks generates various new schemes time to time which changes the cash flow of the organization. there is a loss of investment over that income. if there any.  Interest Lost: If any payment gets delayed even by one day. deals with optimization of cash as an asset and for this purpose the financial manager has to take various decisions from time to time. staff required for cash management etc. He has to deal as the cash flows in the direction of the firm. Even if a firm is highly profitable. State Office.. Area Office and Field Representative for verification of payments received and to find out any discrepancies.

03 1225.64  Bank Charges: Banks arrange their representatives for pick up of demand drafts from the Field Representatives. which vary depending on the banks. Crores) Year 2008-09 2009-10 2010-11 2011-12 2012-13 Average Inventory 976.09 11336.473 62.155 19.75 DIO (number of days) 52. Area Offices and State Offices and deposit them in the banks.170 .317 48. DATA ANALYSIS OPERATING CYCLES 1.52 1654. Days Inventory Outstanding (DIO) Days Inventory Outstanding (DIO) = Average Inventory Cost of Goods sold (COGS) / 365 (in Rs. For this service they charges transportation cost and transaction cost.48 9578.48 9166.79 1930.57 1901.801 72.23 COGS 6809.77 31496.

65

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2009-10

2010-11

2011-12

2012-13

Analysis
The smaller the number of days of inventory outstanding, the more efficient a company is. IFFCO day inventory outstanding is around 19 days for the year 2012-13 which is very good. Inventory is held for less time and less money is tied up in inventory. Instead, money is freed up for things like research and development, marketing or even share buybacks and dividend payments. The DIO had always been showing a decreasing trend apart from the period of 2010-11 in which inventory was build up due to the purchase of Paradeep plant. 2. Days Sales Outstanding

Days Sales Outstanding (DSO)

=

Average Accounts Receivable Net Sales / 365

Year 2008-09 2009-10 2010-11 2011-12 2012-13

Avg. A/c Receivables (in crores) 397.025 399.495 418.04 387.72 410.495

Net Sales (in Crores) 7396.87 9942.93 10330.11 12162.82 32933.30

DSO (number of days) 19.591 14.665 14.771 11.635 4.550

66

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2009-10

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2011-12

2012-13

Analysis
Days Sales Outstanding (DSO) looks at the number of days needed to collect on sales and involves Accounts Receivables. While cash-only sales have a DSO of zero, people do use credit extended by the company, so this number is going to be positive. Most of sales of IFFCO are on cash basis and sales to large institutions only are on credit basis. The DSO for the year 2012-13 is 4.550, which is very good for the company. The DSO is showing a decreasing trend meaning that the days to collect on sales are decreasing every year. 3. Days Payable Outstanding Days Payable Outstanding (DPO) = Average Accounts Payable Cost of Goods sold (COGS) / 365 (in Rs. Crores) Year 2008-09 2009-10 2010-11 2011-12 2012-13 Average Accounts Payable 728.425 934.165 913.425 833.87 1664.225 COGS 6809.48 9166.48 9578.09 11336.77 31496.75 DPO (number of days) 39.045 37.198 34.809 26.847 19.286

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2012-13

Analysis
This involves the company's payment of its own bills or Accounts Payables. If this can be maximized, the company holds onto cash longer, maximizing its investment potential. The DPO of IFFCO is around 19 days for the year 2012-13. It is also observed that DPO is decreasing every year. From the data provided, it is found out that IFFCO had sufficient funds to make payments of its own bills and make investments in various activities.

4. Gross Operating Cycle Gross Operating cycle (GOC) = DIO + DSO

Year 2008-09 2009-10 2010-11 2011-12 2012-13

DIO 52.317 48.801 72.473 62.155 19.170

DSO 19.591 14.665 14.771 11.635 4.550

(in Days) GOC 71.908 63.466 87.244 73.791 23.720

So the sooner the cash is received from the consumers the better is for the company as they get cash for further production.591 14. 5.473 DSO 19. Cash Conversion Cycle (CCC) Cash Conversion Cycle (CCC) = DIO + DSO - DPO Year 2008-09 2009-10 2010-11 DIO 52.198 34. This is very good for the company as a fast turnover rate of these assets is what creates real liquidity and is a positive indication of the quality and the efficient management of inventory and receivables.801 72.68 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis Gross operating cycle is a tool which measures the total number of days from the day the purchases are made or the stock arrives to the day all the collections are made.771 DPO 39.435 .809 (in Days) CCC 32.317 48. IFFCO gross operating cycle is around 24 days.269 52.665 14.863 26.045 37. Cash is said to be blocked till the collections have been collected.

434 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The cash conversion cycle (CCC) measures how fast a company can convert cash on hand into even more cash on hand. The CCC does this by following the cash as it is first converted into inventory and accounts payable (AP).550 26. Inventory Turnover Ratio Inventory Turnover Ratio = Cost of Goods sold (COGS) Average Inventory (in Rs.036 5.69 2011-12 2012-13 62.170 11.4 days in the year 2012-13. This means that the company is able to generate the cash within this period after making it payments of its own bills. Crores) Year 2008-09 2009-10 2010-11 2011-12 COGS 6809.09 11336. and then back into cash.943 4. Ratios related to Inventory Management 1.847 19.479 5.286 46.48 9578. Since it is very low. through sales and accounts receivable (AR).872 .977 7.79 1930.57 1901. it is good for the company.77 Average Inventory 976.635 4.155 19.48 9166.52 Inventory Turnover Ratio 6. IFFCO CCC is of around 4.03 1225.

17 Inventory to Working Capital Ratio 62.70 2012-13 31496.50 1519. There had been a decrease in the inventory turnover ratio from 7.39 4880. the turnover is always increasing.862 46. Inventory to Working Capital Ratio Inventory to Working Capital Ratio = Inventory Working Capital X 100 Year 2008-09 2009-10 2010-11 2011-12 Inventory (in Crores) 931. 2.036 in 2010-11.05 4404.040 times in a year and is in good position.64 2283. During this period. During all other period.809 .23 19. It means that that the company is turning its inventory of finished goods into sales 19.040 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The inventory turnover ratio at IFFCO is 19.040 in 2012-13 .14 3387.136 44.75 1654.94 1577.802 35.479 in 201210 to 5. there was a large amount of inventory in the company because of the purchase of the Paradeep production plant.10 Working Capital (in Crores) 1499.

98 6081.306 22.98 4748.10 1731.28 5775. Inventory to working capital ratio for IFFCO has been decreasing consistently with increasing very marginally in the year 2011-12 and in 2012-13.999 37.74 7672. If a company has too much working capital invested in inventory. they may have difficulty having enough working capital to make payments on short term liabilities and accounts payable.71 2012-13 1731.36 Current Assets (in Crores) 2603.94 1577.559 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The Inventory to Working Capital Ratio measures how well the company is able to generate cash using working capital at its current inventory level.50 1519. showing the company may be having operational problems. An increasing inventory to working capital ratio is generally a negative sign.564 . Inventory to Current Assets Ratio Inventory to Current Assets Ratio = Inventory Current Assets X 100 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Inventory (in Crores) 931.772 31.36 4490.99 Inventory to Current Assets Ratio 35.10 38.557 27.64 2283. 3.

87 9942. Also it shows that the funds invested in current assets to meet obligations on a short notice are actually illiquid to some extent and it may be difficult to convert them into cash immediately.967 5. This indicates poor operational efficiency of the organization.94 1577. Normally.50 1519. Inventory to Sales Ratio Inventory to Sales Ratio = Inventory Sales X 100 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Inventory (in Crores) 931.82 32933.64 2283. less than 50 % of current assets are treated as average position of inventory.593 15.11 12162. the ratio was never been above 38%.10 1731. which indicates a GOOD inventory position for IFFCO and. 4.72 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The Inventory to Current Assets Ratio measures that how much percentage of current assets is formed by the inventories.257 . IFFCO has shown a decrease in this ratio over the past years.30 Inventory to Sales Ratio 12.284 22. It means that more & more percentage of current assets is being constituted by the inventories. An increasing inventory to current assets ratio is a negative sign.110 12.36 Sales (in Crores) 7396.93 10330.

A/c Receivables (in Crores) 397.04 387. showing the company may be having trouble keeping inventory down and/or Net Sales have slowed. As per the data of IFFCO. Debtors turnover ratio Debtor Turnover Ratio = Net Sales Average Accounts Receivable Year 2008-09 2009-10 2010-11 2011-12 Net Sales (in Crores) 7396.72 Debtor Turnover Ratio 18.711 31.93 10330.73 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The Inventory to Sales Ratio measures the percentage of inventory the company currently has on hand to support the current amount of sales.82 Avg.11 12162.631 24.370 .03 399. which is a POSITIVE sign indicating good movement of inventory.888 24. RATIOS RELATED TO RECEIVABLE MANAGEMENT 1. and can sometimes indicate larger financial problems the company may be facing.50 418. An increasing Inventory to Sales ratio is generally a negative sign.87 9942. this ratio had increased initially till the year 2010-11but is falling down consistently after that time.

74 2012-13 32933.50 418.711 31.30 = 360 Debtor Turnover Ratio Debtor Turnover Ratio 18.323 14.50 .227 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis This ratio is also known as Accounts Receivable Turnover Ratio and measures the number of times Accounts Receivables were collected during the year. Average collection period Average Collection Period Sales (in Crores) 7396.82 32933.888 24.465 14.476 4.87 9942.631 24. This is also a measure of how well the company collects sales on credit from its customers.569 11.93 10330.50 80.72 410.11 12162.227 times in a year.30 410.370 80. IFFCO have a high and increasing Accounts Receivable Turnover which is a Positive Sign. The company is able to turnover its debtors 80.227 Average Collection Period 19. 2.03 399.04 387.487 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Average Debtors (in Crores) 397.

28 5775. 3.164 5. The Average Collection Period for IFFCO was around 4. and functions as a cooperative.68 413. This is extremely good considering the fact that IFFCO is a fertilizer company. It measures the quantity of debtors.947 7.98 4748.5 days in 2012-13.465 9.990 5.40 361.307 .76 407. Debtors to current assets ratio Debtors to Current Assets Ratio = Debtors Current Assets X 100 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Debtors (in Crores) 324.75 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The Average Collection Period represents the average number of days for which a firm takes to collect accounts receivables. The maximum collection period during this five year period is around 17 days in the year 2009-10 and is decreasing since then.59 474.99 Debtors to Current Assets Ratio 12.74 7672.98 6081.23 Current Assets (in Crores) 2603.

Debtors to working capital ratio Debtors to Working Capital Ratio = Debtors Working Capital X 100 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Debtors (in Crores) 324. the Debtors to Current Assets Ratio for IFFCO decreased from 2008-09 to 2009-10 and then increased in the year 2011-12 and then decreasing onwards. On the other hand. This ratio is calculated by debtors with current assets.411 9.39 4880.40 361.76 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis Debtors to Current Assets Ratio indicates the position of debtors in total current assets.14 3387. 4.395 9.005 7. The decrease is a healthy sign showing proper realization of debts in 2012-13.17 4490.10 Debtors to Working Capital Ratio 21. If debtors are average or less than average.05 4404.59 474. As Per the table.652 14.68 413.76 407.070 .23 Working Capital (in Crores) 1499. if debtors are very heavy in respect of other current assets. it indicates poor recovery of the company. it indicates proper realization of debtors.

12 6775.66 3958.64 12802. Debt to Equity Ratio Debt to Equity Ratio Debt (in Crores) 647.416 1.09 5035.837 3.39 6486.78 = Debt Total Equity Equity (in Crores) 3301.77 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis Working capital is directly related with the position of debtors. Working capital blocked and operational efficiency is directly affected.87 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Debt to Equity Ratio 0.196 1.84 3688.234 . From the data. But on the other hand. it can be seen that this ratio for IFFCO has been decreasing which is good for the company. There was a increment in the year 2011-12 due to increase in the debtors but again it continued to decrease. the amount of debtor is very large in that condition.38 3641. If debtors are lower as compared to Working Capital.15 3555. 5.781 1. then it indicates proper and smooth utilization of working capital.

At IFFCO. it increased to 3. Working capital ratio or current ratio Current Ratio = Current Assets Current Liabilities Year 2008-09 Current Assets (in Crores) 2603. this ratio is increasing every year. RATIOS RELATED TO CASH MANAGEMENT 1. In the year 2012-13.837 in the year 2011-12 because of the major increase in the short term loans from the banks.78 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The ratio shows the extent to which debt financing has been used in the business.357 . A high ratio means that claims of creditors are greater than those of owners.84 Current Ratio 2. A high level of debt introduces inflexibility in the firm’s operations due to the increasing interference and pressure from creditors.98 Current Liabilities (in Crores) 1104. It means that increase in debt of the company is more than the increase in the equity.234 from 1. A low debt-equity ratio implies a greater claim of owners than capital.

89 3.99 1361.411 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis Working Capital Ratio is used to analyze the short term solvency of the company.94 Quick Assets (in Crores) 1672. Higher the ratio.34 Current Liabilities (in Crores) 1104.063 4. 2.372 3.28 5775.28 Inventories (in Crores) 931.514 2.48 3229.161 . Liquid ratio or Acid-test ratio or Quick ratio Quick Ratio = Current Assets .211 2. Usually a ratio of 2:1 is considered to be the best current ratio.488 5.79 2009-10 2010-11 2011-12 2012-13 4748.84 1361.23 1371.58 1201.23 Quick Ratio 1.57 3182.64 2283. Current Ratio at IFFCO is always greater than 2 in all five years for which data has been analyzed indicating that IFFCO never really face a major problem in meeting its short-term liabilities.74 7672.58 1201.50 1519. greater is the ability of the firm to meet its short term obligations.98 4748.98 6081.98 6081.34 3797.Inventories Current Liabilities Year 2008-09 2009-10 2010-11 Current Assets (in Crores) 2603.

This is due to large amount of inventory at IFFCO during that period.161 and 3.98 Cash to Current Asset Ratio (%) 7. The Quick Ratio of 1:1 is considered to be satisfactory. Cash to current assets ratio Cash to Current Asset Ratio Cash Current Assets = X 100 Year 2008-09 Cash (in Crores) 199.10 Current Assets (in Crores) 2603.63 1371. However. The quick ratio of the company is above 1 for all the five years.89 3.10 1731. The quick ratio was 3.99 1577.57 3182.74 7672.36 4198.061 1. 3.646 .061 during the year 2010-11and 2011-12 respectively.64 5941.867 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis Position of Liquid ratio is very good.80 2011-12 2012-13 5775. the reason for this is the purchase of Paradeep production plant during that period. This is so because if the quick assets are equal to the current liabilities then the company may be able to meet its entire short-term obligations pretty conveniently.

094 .91%.32 69. The ratio had variations in this period an in the year 2012-13.28 5775.84 243.93 Current Assets (in Crores) 2603.87 9942. the highest was 7.440 4.65% in the year 2008-09 after which it is decreasing. In the last 5 years.213 0.98 4748.81 2009-10 2010-11 2011-12 2012-13 98.63 4748. Sales to current assets ratio Sales to Current Asset Ratio = Sales Current Assets Year 2008-09 2009-10 Sales (in Crores) 7396.22 330.907 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The Cash to Current Assets Ratio indicates what percentage of current assets is comprised of cash at hand and cash at bank. This is a POSITIVE SIGN as it shows effective utilization of the funds of the organization and there is not much of idle cash with the organization.99 2. Upon analyzing the data of the past 5 years for IFFCO it was observed that the cash balances formed only a very small percentage of the current assets.98 Sales to Current Asset Ratio 2.74 7672.068 5. 4. it was 0.98 6081.841 2.

106 4.82 2010-11 2011-12 2012-13 10330.82 32933.99 1. An increasing sale to current assets ratio is a POSITIVE SIGN as it indicates that the company has a healthy production scenario because of which most of inventory is being converted into sales for the company.30 6081.699 2.28 5775.11 12162. Working capital turnover ratio Working Capital = Current Assets .Current Liabilities Working Capital Turnover Ratio = Sales Average Working Capital Year Sales (in Crores) Working Capital (in Crores) Working Capital Turnover Ratio .292 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The Sales to Current Assets Ratio basically measures how well a company is making use of its assets in generating sales. IFFCO has shown a decrease in its sales to current assets ratio from 2009-10 to 2011-12 after which it is constantly increasing which implies that the company is doing well and inventory is not being held up at any stage in the production process.74 7672. 5.

860 in the year 2008-09 to 2.620 7.27 4133.406 in the year 2012-13.11 4447.499 in 2010-11 but it increasing since then to 7.93 10330.87 9942.83 2008-09 2009-10 2010-11 2011-12 2012-13 7396.30 1580.499 2.82 32933. showing the company is better able to generate sales from its Working Capital.Current Liabilities Sales to Working Capital Ratio = Sales Average Working Capital Year Sales (in Crores) Working Capital (in Crores) Sales to Working Capital Ratio . The company has been able to gain more Net Sales with the smaller amount of Working Capital in 2012-13 as compared to that in 2011-12. A high or increasing Working Capital Turnover is usually a Positive Sign.680 4. Sales to working capital ratio Working Capital = Current Assets .070 2.72 4642. The working capital turnover had been decreasing from 4.406 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis IFFCO has a high working capital turnover ratio.11 12162. 6.14 4.36 2443.

406 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis The Sales to Working Capital ratio measures how well the company's working capital is being used to generate sales.499 2.070 2.87 9942.11 12162. and each item will directly affect this ratio. The sales to working capital ratio has been increasing from 2011-12 for IFFCO which is good as it implies that the company is generating more & more sales and is able to utilize its working capital more efficiently with the passing years. PROFITABILITY RATIOS 1.72 4642.36 2443.84 2008-09 2009-10 2010-11 2011-12 2012-13 7396.11 4447. Working Capital represents the major items typically closely tied to sales.620 7.30 1580.27 4133.680 4.14 4. The decrease of the ratio in the previous years was due to the increase in inventory holding which was required for the Paradeep production plant.93 10330. indicating the company is more able to use its working capital to generate sales. Return on Assets Return on Assets (ROA) Profit After Tax Average Total Assets = . Increasing Sales to Working Capital ratio is usually a positive sign.82 32933.

35 175.85 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Profit After Tax (in Crores) 319.025 .22 6709.01 Average Total Assets (in crores) 4449.13 ROA 0.59 360.051 0.072 0.33 9855.02 257.64 341.58 10830.018 0.24 14151.024 0.

86 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis ROA is an indicator of how profitable a company is relative to its total assets.77 ROE 0.100 0.27 3598. because the company is earning more money on less investment.61 3665.070 0.01 Average Equity (in crores) 3205.37 3428. The higher the ROA number.02 257.35 175.64 341.25 3823. The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. the better. Return on Equity Return on Equity (ROE) = Profit After Tax Average Equity Year 2008-09 2009-10 2010-11 2011-12 2012-13 Profit After Tax (in Crores) 319.094 . the ROA is increasing from the year 2010-11 which is good for the company. At IFFCO.100 0.049 0. 2.59 360. Earlier it was decreasing as there was increase in the assets due to purchase of the production plants.

IFFCO ROE had always been good. There was a decrease in the year 2010-11due to the purchase of Paradeep plant which increased the purchases of the organization. 3. From the data. ROE shows how well a company uses investment funds to generate earnings growth. It measures a firm's efficiency at generating profits from every unit of shareholders' equity.87 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis Return on Equity measures the rate of return on the ownership interest of the common stock owners. Return on Capital Employed Return on Capital Employed (ROCE) Profit Before Tax Average Capital Employed = .

At IFFCO.0718 0. It basically can be used to show how much a business is gaining for its assets.25 380.24 14151.52 441.90 251.13 ROCE 0.95 Average Capital Employed (in crores) 4449. Net Profit Margin Net Profit Margin = Profit After Tax Sales . This is due to the variable increments in the capital employed (majorly the loan funds) as compared to the profit before tax.92 481.1058 0.0351 0.88 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Profit Before Tax (in Crores) 470. ROCE had shown variable changes. or how much it is losing for its liabilities.58 10830.0312 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis ROCE is used to prove the value the business gains from its assets and liabilities.0255 0.33 9855. 4.22 6709.

The sales turnover depend upon the element of subsidy which is decided by the government from time .59 360.64 341. the component of subsidy increased tremendously due to high international fertilizer price.35 175.11 12162. 25545. administering and selling the products. This ratio is the overall measure of the firm’s ability to turn each rupee sales into net profit. Looking at the turnover of 2012-13.time depending on the condition of international market.89 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Profit After Tax (in Crores) 319. the subsidy amounted to Rs.034 0.01 Sales (in Crores) 7396.93 10330.35 crores for the year 2011-12.02 257.87 9942.to . . From the data.82 32933. During the year 2012-13.60 crores vis-à-vis to subsidy amounted to Rs. IFFCO have a variable net profit margin.021 0.30 Net Profit Margin 0. 6194.017 0.043 0.011 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis Net profit margin ratio establishes a relationship between net profit and sales and indicates management’s efficiency in manufacturing.

it can be clearly said that the position of the Loans & Advances with respect to current assets is increasing every year (a marginal decrease in the year 2010-11) which is very Good for IFFCO. The ratio was around 44.116% in 201112 which had increased to 71.90 LOANS AND ADVANCES TO CURRENT ASSETS Loans and Advances to Current Assets Ratio = Loans and Advances Current Assets X 100 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Loans and Advances (in Crores) 1148.28 5775.221 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis As per the data.943 51.70 3104.116 55.74 7672.221% in 2012-13.055 61. .77 2656.318 71.56 5464.99 Loans and Advances to Current Assets Ratio 44.82 3541.77 Current Assets (in Crores) 2603.98 4748.98 6081.

623 80.56 5464.17 4490.629 78.77 Working Capital (in Crores) 1499.10 Loans and Advances to Working Capital Ratio (%) 76. At IFFCO.707 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis This ratio shows how significant Loans & Advances Are to Working Capital and that Loans & Advances plays an important role in working capital management of IFFCO. This means that company is having enough cash and utilizing it effectively.77 2656.429 63. this ratio has always been increasing which is good for the organization.14 3387.82 3541.91 LOANS AND ADVANCES TO WORKING CAPITAL Loans and Advances to Working Capital Ratio = Loans and Advances Working Capital X 100 Year 2008-09 2009-10 2010-11 2011-12 2012-13 Loans and Advances (in Crores) 1148.05 4404.39 4880.414 121.70 3104. This ratio shows that the company has more cash in hand and can utilize these funds as per the company requirement. .

17 4490. The trend of working capital with respect to Current Assets and Current Liabilities for IFFCO is increasing.23 1371.10 2008-09 2009-10 2010-11 2011-12 2012-13 Analysis Working Capital Position indicates changes in Current Assets and Current Liabilities over the study period and also during a particular year.57 3182.98 6081.58 1201. This shows a GOOD GROWTH of the company.98 4748. . Working capital position shows operational efficiency & proper utilization of short term resources in an organization.40 4880. However.92 Working Capital Position Working Capital = Current Assets .05 4404. The Working Capital is managed properly & efficiently by the organization.Current Liabilities Year 2008-09 2009-10 2010-11 2011-12 2012-13 Current Assets (in Crores) 2603.74 7672.89 Working Capital (in Crores) 1499.84 1361. there was decrease in the year 2011-12 due to decrease in the level of inventory.14 3387.28 5775.99 Current Liabilities (in Crores) 1104.

226 0.136 0.63 0.202 0.94 706.10 1.95 412.546 1.70 3982.38 1347.70 5127.36 2926.60 823.65 638.53 230.68 1525.32 1457.141 1.011 1127.3 0 360.125 0.89 42.144 0.957 2.19 0.684 2.019 .51 886.068 0.28 1288.386 2.210 0.35 4595.38 1755.050 Net Worth Sales Turnover Net Profit Inventory Total Current Assets Total Current Liability Working Capital Total Assets Working Capital to Sales Turnover Inventory to Working Capital Working Capital Ratio Working Capital Turnover Inventory to Current Assets Inventory to Sales Net Profit Margin 3958.10 97.22 9.97 0.229 0.21 431.053 0.21 0.06 0.89 4490.93 COMPARISON WITH SOME COMPETITORS IN THE INDUSTRY IFFCO Coromandel National International Fertilizers Fertilizers and Chambal Chemicals Fertilizers Travancore 647.77 0.02 1971.060 1.12 6.72 7.14 9374.41 0.56 316.061 1234.87 32933.50 0.41 7.98 496.053 1470.069 0.58 277.501 0.04 0.610 0.99 3182.362 0.584 0.01 1731.7 7 0.36 7672.51 3726.10 17303.82 1566.53 392.46 348.86 1851.

we find that  Current assets are increasing more than current liabilities.  Position of inventory is Very Good in current assets (22. which shows greater degree of utilization of inventory during the study period.564%).  Loans and Advances are increasing every year and contribute majorly to current assets. But the current ratio has decreased as the percentage increase in current liabilities is more than the current assets.  Net profit margin decreased in the year 2012-13 because of the significant increase in the raw material prices and consequent increase in subsidy.  Working capital of the company had increased till 2010-11after which it has remain constant with small changes. This means that the company is not facing any problem to get the required short term financing.  Large part of working capital is involved in maintaining inventory and it depends on the level of inventory every year.  Inventory as a component of current assets was high during the beginning of the period after which it has continuously decreasing.307%.94 FINDINGS After the analysis of the components of current assets & current liabilities and the trends of working capital.  Debt to equity ratio increased during the year 2012-13 as the debt increased due to increase in short term borrowings. . This ratio had decreased during this period with an increase in the year 2011-12. Looking on the trends. IFFCO has been able to manage the profits. This increase was due to the significant increase in the debts of the company.  Position of Debtors to Current Assets is 5. Inventory Turnover Ratio increases consistently.  Cash and Bank Balances have decreased during this period which indicates proper utilization of funds at IFFCO.

95  The major variation in the ratios during this period is due to the purchase of Paradeep production plant. CONCLUSIONS AND SUGGESTIONS .

. the manufacturers/ importers have to wait for additional budget or their subsidiary get realized in the next financial year. Another alternative would be to have varying stock or inventory levels during the different seasons or even months and. when the total outflow of any financial year is more than the budgeted subsidiary.  The current percentage of inventory is high which is not good for operational efficiency and sound working capital and thus. After analyzing and interpreting the financial data of INDIAN FARMERS FERTILIZER COOPERATIVE LIMITED (IFFCO) with the help of Ratio Analysis. it need to be controlled by using various inventory management techniques such as JIT or Kanban. Inventory and Debtors are efficiently managed to strengthen the position of the organization both in short term and long terms. 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.  Cash balances have a lower percentage in current assets. 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. thereby.e. In IFFCO Ltd. there are two most important factors.  As the sales turnover majorly consists of subsidiary. Working Capital plays a very important role in the functioning of any organization... This requires some concern as cash and bank balances are the most liquid of all current assets. the company shall also depend less on subsidy which is dependent on the annual budget fixed by the government of India.96 Working capital is one of the most important aspects of operational efficiency of business. Debtors and Inventory that affect working capital.. Both the current assets and current liabilities are very much influencing factors on the working capital of an organization. i. altering the production to suit such needs. In current assets. After the discussion and analysis of the financial position of IFFCO Ltd.

. This will reduce the subsidy burden on the government and companies will be able to realize cash against their sales. they are compensating manufacturers/ importers by means of subsidy. The government should device a method whereby the price of fertilizers should increase every year to some extent.97  As the Government of India wants the fertilizers to be supplied at minimum price.

98 CHAPTER 2 Cash Management .

There are very few service centres which transacts in cash. Sales are often termed as Release Order (RO). only to large federations. From the Head Office. The system of payment through cheques is not used further. The main objective of Cash Management of IFFCO is not different from the basic objective of cash. Its internal sources generation has been adequate enough to finance the working capital need besides its other long term commitments though to meet its working capital requirements. the cash is provided to the plants depending on their requirements. Figure: Cash flow at the Organization The cash is collected by Marketing Central Office (Mkco) and is transferred to the Head Office (HO). The plants produce fertilizers and the sale of products provides cash which is collected by Marketing Central Office. The Field Representatives (FR) takes Demand Drafts/ pay orders from the corporate societies before the Release Order. The payments are done through the means of demand drafts/ pay orders. a large co-operative society. has been generating large amount of profits over the years from the date of its commercial production. The fertilizers are sold to corporate societies and most of the payments are made on prepaid basis. There is very small amount of credit for a defined credit period.99 CASH MANAGEMENT AT IFFCO IFFCO. .

 To compare the length of timeline with that of other companies in the industry or standard set by the company.  The Hong Kong and Shanghai Banking Corporation Ltd.  The Karnataka State Cooperative Bank Ltd.  The Punjab State Cooperative Bank Ltd.  Madhya Pradesh State Cooperative Bank Ltd.  IDBI Bank Ltd. (HSBC)  ICICI Bank Ltd.  Punjab National Bank  Axis Bank  BNP Paribas Implementation of Cash Management at IFFCO .100 IFFCO has been effectively managing the cash in the following ways:  To measure the cash flow time line and assess the magnitude of savings that could result from the alternative management strategies.  To not permit cash to stand idle for as much as a day  To know the requirements of funds at various units at different periods of time  Repayment of loans and debt has been one of the prime objectives  To make every effort to speed up the flow Bankers of IFFCO  Indian Overseas Bank  State Bank of India  Bank of Baroda  Standard Chartered Bank  The Maharashtra State Cooperative Bank Ltd.  HDFC Bank Ltd.  The West Bengal State Cooperative Bank Ltd.

on a daily basis the cash inflows and outflows are recorded in computer and are daily analyzed by the cash and bank section of IFFCO. Sales through Societies In the case of Sales through societies. It also prepares the budgets and forecasts and matches the actual with that. but they still have to inform the head office. SALES PROCEDURE IN IFFCO In IFFCO.e. which would otherwise have a cost structure attaches to it. i. In order to smoothly manage the cash. IOB plays the part of maintaining the daily fund position of IFFCO i. IFFCO has chosen to go for a Centralized Cash Management System.e. which also carries out its daily position on the fund statement book.101 In order to effectively manage its cash. Demand Drafts are received in advance by IFFCO. A very efficient Management Information System has been introduced at IFFCO which facilitates:  Forecasting of cash flows on monthly basis or weekly or daily basis. IFFCO maintains a strict vigil on the movement of funds for collection and payments both. Although manufacturing units are independent enough to issue cheques. its main bank from the consortium of bank. IFFCO takes the service of IOB. the cash is not allowed to remain idle at various branches and is used by the co-operative giant to pay its short term liabilities. The Centralized Cash Management System means that the cash of IFFCO is basically managed from the Head Office situated at New Delhi. so as to sustain liquidity and profitability. The Demand Drafts are collected . Through this system. This Centralized Cash Management at IFFCO also helps in to check the idle cash. there are three systems of sales: 1.  Helps in cash planning A Consolidated Statement is prepared at the corporate office which forms the main basis for planning of funds flow for the continuing month. no credit sales are allowed to them. so as to have a proper control over transaction. which may arise. This system of centralized cash management gives an added advantage to IFFCO to effectively implement a policy of cash flow timeline management.

102 from them and then they are either deposited with the concern district bank or are sent to state office for deposit with the respective bank.

2. Sales through Federation In the case of Sales through Federation, the sales are normally made on credit basis with a defined credit period. The payments are normally received by IFFCO’s State Office and are deposited with the respective bank. 3. Sales through IFFCO’s Own Service Centre The sales through IFFCO’s own outlets are made on cash basis. These outlets are called as Farmers Service Outlet (FSC). The funds are deposited with the bank on daily basis and are transferred by the bank to IFFCO’s state office. In IFFCO, all the realization of sale proceeds is centralized to IFFCO’s Delhi Office i.e. the funds are ultimately reaching Delhi for utilization, for IFFCO’s manufacturing units. The funds that are sent to Delhi are then again redistributed to the manufacturing units and all the other offices, farmer service centers, cooperative societies etc. for meeting their expenses.

COLLECTION PROCEDURE
In earlier times, Field Representatives takes the Demand Drafts/ pay orders and deposits into Area Office. From Area Office it goes to State Office. From State Office, Demand Draft goes to Marketing Central Office and in the end, to the Head Office. This process takes around six days. Due to this delay, the transaction cost was high and there was a loss of interest on the payments received. After the implementation of CMS, bank services are hired for better management of cash. The Field Representatives collects the Demand Drafts from the societies. The bank agent collects these Demand Drafts and deposits them into the State offices, either in person or through courier. From State Offices, the drafts get deposited into the banks through bank agents only. The bank then transfers the money to the Head Office. This process takes one day or a maximum of two days. Thus, it saves at least four days and cash of the

103 organization. There are different banks for different state offices. For the service provided by the banks, different banks charge the organization differently. Cash savings can be classified as follows:  Direct savings Direst Savings are the savings on the interest of the days for which the organisation has received its cash earlier.  Indirect savings It includes administrative cost reduction (transaction and transportation cost). Since the bank is agreement bound, in case of delays, it covers up some of the losses of the organisation. The savings can be explained as following. The collection through CMS in the year 2012-13 was approximately Rs. 5250 crores. As there is more than one bank in the CMS, an approximate interest rate of 8 % p.a. is taken for calculations. Also, a difference of four days is taken. On calculating, the interest comes out to be Rs. 4.6 crores. This means that IFFCO saves around Rs. 4.6 crores in the year 2012-13 due to implementation of CMS.

Cash Management Services (CMS)

The Cash Management Services (CMS) is a technology driven system in which bank is under contractual obligation to make payment at the designated branch on the stipulated date as agreed in the agreement. Under this system, the banks pick up the Demand Drafts from IFFCO’s designated locations and pool the same with them. A High Value Demand Draft of the consolidated amount is deposited by the collecting bankers in IFFCO’s central account for which IFFCO receives the credit the same day. Thus, the amounts which are collected on day zero are received on IFFCO’s Central Account on day one. Salient features of Cash Management Services (CMS)

104 Cash Management is the stewardship or proper use of an entity’s cash resources. It serves as the means to keep an organization functioning by making the best use of cash or liquid resources of the organization. At the same time, the organization has the responsibility to use timely, reliable and comprehensive financial information systems. Cash Management helps the organization in:  Eliminating idle cash balances  Monitoring exposure and reducing risks  Ensuring timely deposit of collections  Properly timing the disbursements  Reducing the interest costs  Improving the liquidity as it reduces the transit time enabling the firm to realize drafts earlier.  Better accounting and Reconciliations as detailed information on drafts deposited are made available on a daily, weekly/periodically basis, thus simplifying accounting, reconciliation and query resolution. Customized Management Information System (MIS) as per requirements of the firm can also be made available.  Interconnectivity with the branch offices increases as these banks provide a host of internet software on the CMS account that allows the firm to view current account balances, download statements, view CMS collections, effect payments/receive payments online, plus a host of other activities.  Collection Services by these banks ensure quick realization of local and outstation drafts on day zero and provide the funds in a central collection account on day one.

are received on IFFCO’s Central Account on day one. IFFCO is saving a lot of interest as the cash credit utilization has been reduced to the extent of amount received in that account. the amount which are collected (as a high value drafts) on day zero. late payments were made due to which IFFCO was losing a lot of amount of money in the form of interests and penalties. then they are bound to pay interest on late transfer of funds. various branches of banks at area offices used to take 2-3 days in transferring the funds to IFFCO’s Central Account.  With the introduction of CMS.  Due to late transfer of funds. since the transfer of funds is done through CMS. DETAILS OF STATE WISE EXISTING CMS BANKS NAME OF BANK HSBC STATE Punjab Haryana Rajasthan West Bengal Maharashtra PICK UP LOCATION Chandigarh Chandigarh Jaipur Kolkata Mumbai Pune Nagpur Aurangabad SERVICE CHARGES NIL NIL NIL NIL NIL NIL NIL NIL PAY OUT DAY Day 1 Day 1 Day 1 Day 0 (HV) Day 1 Day 0 (HV) Day 1 Day 1 Day 1 Day 2 .105 Costs and Benefits of CMS  Before the introduction of cash management services. there is a timely remittance of funds and in the case the bank with whom the CMS agreement has been made fails to make timely remittance. But now. But with the coming of the CMS.

02/1000 NIL NIL NIL NIL NIL Day 2 Day 2 Day 2 Day 2 Day 1 Day 1 Day 1 Day 1 Day 1 Day 1 Day 2 Day 1 Day 1 Day 2 Day 2 Day 2 Day 2 Day 2 Day 2 Day 2 Day 0 (HV) Day 1 Day 1 Day 1 Day 1 Day 1 Day 1 Day 1 Standard Chartered Bank HDFC Bank Jharkhand Uttaranchal Patna Gaya Bhagalpur Muzzafarpur Ranchi Dehradoon Haldwani Rudraprayag Lucknow All 13 Area Offices ICICI Bank Uttar Pradesh IOB Gujrat Chhatisgarh MP Uttar Pradesh Uttar Pradesh Ahemdabad Raipur Bhopal FSC 38 Districts SBI Axis Bank HV: High Value FSC: Farmers Service Centre Cash Management Services (CMS) Agreement through the HSBC Bank .15/1000 NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL 0.15/1000 0. P.15/1000 0. P. Karnataka Tamil Nadu Orissa Kerala NIL 0. Karnataka Tamil Nadu Orissa Kerala HP J&K Bihar Assam A.106 Other Districts BNP PARIBAS Nasik Kholapur Other Districts Assam A.

The bank will be providing its services known as Collection Services in the manner and subject to terms and conditions set out hereunder: 1. In the unlikely event of an instrument being misplaced whilst in transit after being picked up/ acknowledged by HSBC’s courier and credit not made available to IFFCO as per the contracted agreement. Rajasthan.50% . IFFCO will be required to pay interest @ HSBC PLR 15. . Demand drafts etc. Nagpur. Day 1 credit for Nagpur and Day 2 credit for Aurangabad for all cheques picked up on Day 0. HSBC shall provide all assistance to IFFCO to procure a duplicate demand draft to put a stop payment in order that a duplicate instrument is issued at the earliest. West Bengal and Maharashtra. Aurangabad. HSBC shall refund interest @ HSBC PLR 15.50% .4% to HSBC in case of demand draft returns for the period during which the bank will be out of funds. (Day 0 being the date of collection in the clearing locations. Haryana. at 1000 hrs and 1430 hrs by HSBC free of charge..4 % to IFFCO in case of delayed credits to IFFCO’s account.107 Introduction of Cash Management Services (CMS) IFFCO is availing the cash management services of m/s HSBC bank for remittances of sale proceeds in the states of Punjab.4% for the delayed period to a maximum period of 30 days. These services shall cover instruments (demand drafts/ pay orders) favouring IFFCO and marked “A/c Payee only”. Day 1 credit for Pune. Collection services agreement was made on 28th December’2001 between IFFCO and HSBC.) 3. 4. This will aid HSBC in maintaining their service levels of Day 1 credits for Mumbai.50% . Pune. HSBC shall pay interest to IFFCO @ HSBC PLR 15. that are  Locally payable at specified HSBC branch locations  Locally payable at other specified locations  Outstation instruments payable at specified locations  Outstation instruments payable at all other locations 2. pickups by courier services shall be arranged at IFFCO’s offices in Mumbai.

If there is any mismatch in the value of MIS report or any other problem/ query. A customized MIS provided by HSBC bank can include:  Daily report of deposits made at various locations  Location wise report  Credit Forecast report  Monthly cumulative report-date wise/location wise  Monthly charging statement  Monthly draft return statement  Customized reports as per mutual agreement HSBC has a large pool account which has a dummy account of IFFCO. HSBC can make MIS available at the check pickup points.108 5. . amount collected and the cheques deposit slip number. FR) through Management Information System (MIS) report. the State Offices as well as Marketing Head office in New Delhi to aid reconciliation and to help IFFCO exercised greater control on the collections. Management information system (MIS) report MIS report contains the demand draft number. The bank provides details to Marketing Central Office (Mkco) and other offices (SO. the department contacts it immediate lower department only. 6. AO. HSBC shall debit IFFCO for the same. The bank takes one day for realization of money and deposits it directly in the account of Head Office at New Delhi. and HSBC’s statement intimating the non-payment of the instrument(s) will be final and binding on IFFCO. Marketing Central Office checks the amount collected by different State Offices and verifies it to that collected by banks. The MIS can be amended to contained draft wise or deposit slip wise details as per IFFCO’s requirements. In the event drafts are lost in transit.

109 In CMS. HDFC Bank and Axis Bank are deposited into the centralized account of IOB whereas the collection of HSBC bank is deposited into centralized account of SBI. As the money comes into these banks. Through Head Office. SBI manages the collection of 5 states only out of total of 20 states. the banks used are as follows:  The HSBC Bank  BNP Paribas  Indian Overseas Bank  Standard Chartered Bank  The ICICI Bank  State Bank of India. the money is distributed into various departments as per the requirements.  HDFC Bank  Axis Bank The collection of BNP Paribas. it is transferred to the Head Office by the evening. Standard Chartered Bank. ICICI Bank. FOR COLLECTING PAYMENT Current Features .

5. 2. Under this scheme. 3. IDBI is used in 17 states and HDFC in 3 states (Jammu. HP). Banks gives credit to the main pooling account on a pre agreed day. IFFCO has an innovative disbursement scheme known as Anywhere Banking Overdraft Account facility with IDBI and HDFC Bank. Anywhere banking (ANB) Facility ANB facility offers IFFCO the flexibility of making at par payments across multiple locations by using a single current account maintained at Delhi. 229 crores whereas . 4. All the payments are made through IDBI and HDFC banks. Overdraft limit of IDBI is Rs. Daily reports of collection against sales proceeds are made and are submitted in the higher departments for comparison with the projections. Banks gives detailed management information system report as per the requirements of IFFCO.110 1. DISBURSEMENT OF FUNDS In addition to CMS. This collection account is used for funding the disbursement of manufacturing units. Assam. 6. The collections are transferred the same day to the cash credit account of IFFCO as per the standing instructions through a high value instrument. Banks also pick up the high value instruments from the pickup location before the high value cut off time. DDs collected by the state/area offices are picked up by an authorized agent of the banks and sent for collection. Reporting The month wise projections of collections for the year are made in advance. present for clearing and effect the pooling on the same day at the nodal account. the balances of all the state offices maintain are transferred to the Central Account having overdraft facilities whereby the balances with the state offices remain zero.

It. All payments are made through cheques only. Advantages of ANB Facility  Better Fund Management by Reducing Idle Balances: ANB obviates the need to maintain idle funds at multiple locations leading to better funds management. IOB is used.  No service charges: As there is no need of transfer of funds under anywhere banking system.111 that of HDFC bank is Rs. all employee payments and reimbursements are made through cash. 6. thus.95 Crores (previous year Rs. Crores) . the organization saves service charges which they used to pay earlier under the traditional system. interest is debited by the bank to Head Office through Marketing Central Office. But. The month from April to September is known as Kharif Season and from October to March is known as Rabi Season.  Minimum Multiple Bank Account: ANB obviates the need for having multiple accounts at different locations. For all transactions within the local region (within the New Delhi offices). The GOI is estimating the demand based on Kharif and Rabi season and is allocating the supply plans accordingly. Till the overdraft amount is being paid. 20 crores. It also transacts all the local expenses of the Marketing Central Office. Observations  70 % of Sales activity in the business of fertilizers is in Monsoons and the balance 30% is spread throughout the rest of the year.16 Crores) bearing different rates of interest as per details hereunder: INVESTMENTS (in Rs.638.  Investments made by IFFCO As on 31st March 2013. reduces the number of bank accounts at different locations leading to lower administrative load and reduces bank reconciliation. the Society holds Government of India Fertilizer Bonds amounting to Rs. 646.

Retention Price includes cost of production (i.  In IFFCO.2012 646. there are two system of claiming subsidy.97 2106. 2023 TOTAL 2900. under this the subsidy is given as a difference between the sales price and the retention price.e. The subsidy on Nitrogenous Fertilisers is decided on month to month basis depending upon the input price escalation/ de-escalation based on the norms prescribed or notified under the subsidy scheme.65 6638.65% Fertilizer Companies GOI Special Bonds. 2022 6. 2026 7. cost of raw materials. 2022 6. freight cost. marketing & selling & distribution expenses).00% Fertilizer Companies GOI Special Bonds. Norms are set in by GOI for fixing retention price from time to time. utilities.  The basic intention of following the retention price scheme is to give fertilizers to the farmers at a subsidized rate.16 646.  In addition to the retention price subsidy. they have issued the above bonds which have disturbed the cash position of the society.20% Fertilizer Companies GOI Special Bonds. GOI is also reimbursing Freight towards primary and secondary freights to the manufacturers of controlled fertilizers (Urea) to cover the cost of transportation from the production plants to the consumption centres.16 Since the GOI was short of funds.33 1631.03.  The subsidy on urea is received on the retention price fixed for the group of companies. since the society is dealing in Urea and Phosphate Fertilizer.95% Fertilizer Companies GOI Special Bonds.  The Phosphatic Fertilizer has been decontrolled and Concession on Phosphatic Fertilisers has been accounted for based on monthly concession rate as notified by Government of India.  Subsidies from government  The entire fertilizer industry gets subsidy from the government of India.2013 7.  Nitrogenous Fertilisers are under the Concession Scheme as notified by Government of India (GOI) from time to time.95 As at 31.112 As at 31. fixed cost.03. The GOI is also reimbursing the actual fright on primary transportation and fixed amount on secondary transportation. That is. Pending notification of monthly concession rate .

This amount is notified by the government for every month on the basis of the raw material prices of fertilizer. in order to make available the fertilizer at a low rate to the farmers. Year 2008-09 2009-10 2010-11 2011-12 2012-13 Central Subsidy on Fertilizers Urea Decontrolled Imported Indigenous Total P & K Fertilizers 1073 494 10243 7 5142 1186 1211 10653 4 6596 1592 3274 12650 4 10298 2305 6606 16450 6 16934 3049 10981 19517 8 65351 Total Subsidy on all Fertilizers 15879 18460 26222 39990 95849 *budgeted In the year 2012-13. The price for these goods is usually US$370 per metric tonne but during 2012-13 it was US$1200 per metric tonne. 2009 to March. However. 2009. there was a large increase in the subsidy. .113 applicable for the period January. This was due to the increase in the prices of the imported raw materials and finished goods (for resale). the government is allowing subsidy to the manufacturers. the same has been accounted for on an estimated basis in line with the known policy parameters.

114 CONCLUSION  The organization IFFCO is basically a Farmer’s Organization. the cash management system can be further improved. HSBC Bank. All these facilities have helped IFFCO in having faster. customized reports as per mutual agreement etc. monthly cumulative report date wise/ location wise. personalized financial MIS to enable IFFCO to accelerate the collection and payment of funds. The month from April to September is known as Kharif Season and from October to March is known as Rabi Season. reduction in the amount of interest loss suffered by IFFCO due to late arrival of payments. Anywhere banking facility.  Today IFFCO has a tie up with banks such as IOB. despite all the advantages of this New Cash Management System such as receiving the proceeds from the sale of fertilizers within First day of sale. ICICI Bank that are providing IFFCO with facilities such as cash management services. It has enabled the organization to manage its funds in a proper manner resulting in better utilization and availability of funds in cash deficit periods. Thus. it becomes imperative for the organization to have such cash management system in place that would enable the organization to plan the excess cash obtained during surplus periods and ploughs them back into the operations of the organization during deficit periods. . It functions in the cooperative sector of India and is owned by the Government of India along with the cooperative societies.  The Cash Management System at IFFCO is very sound and efficient. 70% of Sales activity in the business of fertilizers is in Monsoons and the balance 30% is spread throughout the rest of the year. monthly cheque return statement. more secure and more reliable collection and payments of funds and cheques from its various Area/State Offices. debit sweep option.  The generation of funds through sale is a seasonal factor. IFFCO is one of the most profitable and financially secure fertilizer companies in India. location wise report. monthly charging statement.  However. etc. credit forecast report. daily report of deposits made at various locations.

the banks with whom the CMS agreements have been made are not the consortium members of IFFCO’s Lead bank. . IFFCO shall have an additional advantage as they shall be in the position to utilize their payments directly from their Cash Credit Accounts.115 Suggestions to Improve the Cash Management System  By making an analysis of all the collection at other locations and implementing the same at state offices also.  IFFCO should focus on implementation of RTGS (Real Time Gross Settlement) and NEFT (National Electronic Fund Transfer) facilities which will improve the cash transfer at IFFCO. these banks are also included as consortium members. In case.  At present.

Seti. 2nd Edition.  Pandey. Principles of Corporate Finance.in  www.faidelhi. P 2008. Financial Accounting for Management.com . S C.com  www. C 2010.  Ramachandran. I M 2008. T K. 9th Edition  Reports  Annual reports of IFFCO  Agreement files of IFFCO  Websites and Internet  www.nic.investopedia. New Delhi. Fertilizers Association of India (FAI). F and Mohanty. Myers.com  www.fert. Ram 2008. New Delhi.org  www.in  www.116 References  Books  Brealey. 8 th SIE Edition.nic.iffco. Kuldeep and Robertson. Fertilizers Statistics 2012-13.  Chandra. Tata McGraw-Hill Publications. Financial Management. R A.wikipedia. Alan. Tata McGraw-Hill Publications.moneycontrol. Vikas Publishing House. N and Kakani.

03.56 5775.17 3.19 10998.28 3532.18 5429.73 2404.82 7552.73 8 9 10 11 1731.6 3958.49 TOTAL .117 Appendix Financial Statements BALANCE SHEET (Rs.71 3182.2013 SOURCES OF FUNDS Shareholders' funds: Share capital Share Application Money Reserve and Surplus Loan Funds: Secured Loans Unsecured Loans Deferred Tax Liability ( Net ) TOTAL APPLICATION OF FUNDS Fixed Assets: Gross block Less: Accumulated Depreciation Net Block Capital Work-In-Progress Investments Current Assets.77 6775.49 323.77 7672.1 413.76 243.77 7.08 1371.97 3688.94 430.79 1416.85 6 7 5256.18 322.10 1048.57 4404.03.9 17303.67 4370.63 5464.93 3264.98 3400.74 12 13 2860.98 8138.64 534.2012 1 2 3 4 426.8 10998.99 1577.16 4965.89 4490.84 290.23 69.87 423.59 7373.12 17303. Loans and Advances Inventories Sundry Debtors Cash and Bank Balances Loans and Advances Less: Current Liabilities and Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure (to the extent not written off) Voluntary Retirement Scheme Expenses As At 31.49 5 8808 3842. in Crores) Schedule As At 31.36 407.32 3541.78 542.66 12802.95 5169.04 4738.

21) 11381.38 200.00) 3.75 959.03.41 16 17 18 19 15169.03.86 11000.93 (3.80 8.2013 (Rs.82 345.49 389.38 Raw Materials Stores and Spares Chemicals and Catalysts Packing Materials Power.01 61.118 PROFIT AND LOSS ACCOUNT Schedule INCOME FROM OPERATIONS Turnover Sales Less: Excise Duty Subsidy on Fertilizers Other Revenue Increase/ (Decrease) in Stocks LESS: COST OF OPERATIONS Consumption of Raw Materials.30 499. Written-off (Voluntary Retirement Scheme Expenses) Profit Before Tax Provision for Taxation 13997. Distribution and Other Expenses Interest Depreciation/ Amortisation Prior Period Adjustments (Net) Deferred Revenue Exp.80 6.00 280.02 7.46 (Under Income Tax Act.14 (1.40 (13.34 41.44 96.35 12162.60 14 15 32933.44 405.70 7387.77 (1136.52 Current Tax Fringe Benefit Tax Deferred Tax Earlier Years Profit After Tax Profit transferred to: Capital Repatriation Fund Dividend Equalisation Fund Contribution towards Approved Donations 92.90 33270.83 118.23 595.48 7707.80 15329.81) 81.47 6194.70 25545.00 1.22 108.86 441.43 756.51 33712.91 1023.94 360.93 (26.86 380.2012 7387. in Crores) For yr 31. 1961) Net Profit as per Multi state . For yr 31.81 7589.26 38.39 981.13 159. Stores etc.72 14539.47 0.22 170.47 5968.46 0.20 470.81 5968.37 410.46) 3. Administration.51) 122.59 0.02 1245.50 56. Fuel and Water Less: Stock Transfer for Self Consumption Purchase of products for resale Employees' Remuneration & Benefits Manufacturing.47 1.96 1481.95 6646.93 257.

In Crores) Year Ended 31.VRS Diminution in value of Long Term Investments (Rs.50 Payment to Cooperative Welfare Fund Donations Paid Net Cash From Operating Activities (A): (B) Cash Flow from Investing Activities: Purchase of fixed Assets including C.69) 1701.71 0.54 257.43 223.52 Liabilities / Provision written back Prior Period Depreciation Operating Profit before Working Capital Changes Adjustment for: Inventories Trade and Other Receivables Trade Payable and Provisions Cash Generated from Operations Direct Taxes Paid (Net of Refunds) Payment towards Cooperative Education Fund 1509.16 148.47 5.21 544.04 (249.2012 441. 2002 358.06) 3.89 (691.54) (1717.I.95 380.54) (115.90) (1. Written off .09) 1072.93 362.04 13.40 857.90 81.31 0.97 (14.29 (274.19 0.16 (3.23) (2.W.75 (132.2013 (A) Cash Flow from Operating Activities: Net Profit before Tax Adjustment for: Depreciation Interest (Net) Provision for Doubtful Debts Loss on Damaged Goods Write down of Value of Goods-in-Transit Amount charged off / adjusted Assets Written-off Loss on Sale of Investments (Net) Exchange Rate Variations (Net) Loss on Sale of Fixed Assets (Net) Dividend Income Profit on sale of Investments Deferred Revenue Exp.119 Cooperative Societies Act.73) .54) (594.41 83.75) (1.84 4.12) 410.01 17.50 (6300.68 0.12) 2.57) 1559.83 (487.67) (76.87) (141.20 2.13 CASH FLOW STATEMENT Year Ended 31.P.88) (0.07) (1.95 470.27 15.19) 1747. Proceeds from Sale of Fixed Assets Purchase of Investments (Net) (135.20 1148.60 107.52 706.10 2.26 1951.22) 3.41 (590.78 925.93) 31.95 (72.30 (279.60) (0.57) (1.3.4 2) 3.3.82) 11.

63 (173.66 (6577.95 0.45) (5.74 115.52) .10) 160.69) 243.32 (87.72 (389.88 286.52) 330.65 (1008.01 (153.97) (4.37) (84.69) (87.35 (362.10) (189.53) (92.61 55.37 5809.87) 4843.21) 589.59) 132.67) (9.120 Dividend Received Profit on Sale of Investments Interest received Net Cash used in Investing Activities (B): (C) Cash Flow from Financing Activities: Proceeds from issue of Share Capital Repayment of Term Loans Repayment of Deferred Trade Tax Loan (Net) 246.14) (84.26 (970.32 69.22 26.84 243.38) (173.55) Increase in Cash Credit Increase in Short Term Loans Interest Paid Dividend Paid Exchange Rate Variation (Net) Net Cash used in Financing Activities (C): NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE CLOSE OF THE YEAR NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS 2.

77 2012-13 6.58 14.51:1 2.09 6.17 2.79 1.84:1 6743 1.5 1.74 0.8 2010-11 6.62 0.5 1.13 3.81 2.12 11.8 3.23:1 6757 4.92 4.37:1 1.42:1 6506 1.16 9.01 4.01 0.9 4.36:1 1.58 0.06:1 3.38 2.20:1 5752 1.53 6.27 9.51 2011-12 6.99 2.85 7.18 13.49:1 2.07 0.15:1 1. of Employees Sales per Employee (Rs.55 9.57 4.76 1.31 6.86 0.25 0.69 2.121 APPENDIX D: SIGNIFICANT FINANCIAL INDICATORS 2008-09 FINANCIAL RATIOS : Operating Profit to Sales (%) Profit before Tax to Sales (%) Return on Capital Employed (%) Profit before Tax to Net Worth (%) Profit After Tax to Net Worth (%) Fixed Assets Turnover (Times) Working Capital Turnover (Times) Inventory of Finished Goods (Months Sales) Inventory of Raw Material & Packing Material (Months Consumption) Sundry Debtors (Months Sales) Current Ratio Quick Ratio Debt Equity Ratio Employees Productivity No.74 0.6 3.78:1 6826 1.78 4.89 3.67 2.41:1 1.37 10. Crore) 6.52 6.06:1 1.48 1.32 7.9 5.12 0.5 10.43 2.41 0.68 3.34 3.87:1 3.87 2009-10 7.21:1 3.2 2.9 0.29 .

58 lakh MT 58.63 lakh MT in 2011-12) Production of NPK/DAP/NP (Best 32.907Gcal / MT in 2011-12) 71.24 lakh MT in 2011-12) Highest Sales of Urea (Previous best 54.68 lakh MT 31.941 Gcal/ MT Appendix F: VALUE ADDED STATEMENT .89 lakh MT Rs.12 lakh MT in 2006-07) Highest Production of Urea (Previous Best 39.2 crore in 2002-03) Highest Turnover (Previous best Rs.441.69 lakh MT 53.1 crore in 2002-03) Profit After Tax (Best PAT 557.360.12163 crore in 2011-12) Plant Productivity (Best 1669 MT in 2008-06) Highest Marketing Productivity (Previous best 6158 MT in 2011-12) Composite Energy Consumption (Lowest 5.95 crore Rs.26 lakh MT in 2006-07) Highest Sales of Fertilisers (Previous best 93.00 lakh MT 112.01 crore Rs 32933 crore 1376 MT per employee 7397 MT per employee 5.122 Appendix E: Provisional highlights of IFFCO performance during 2012-13 Highest Production of Fertilisers (Previous Best 70.95 lakh MT in 2011-12) Profit Before Tax (Best PBT 807.68 lakh MT 40.29 lakh MT in 2011-12) Highest Sales of NPK/DAP (Previous best 38.

89 63.57 636.82 354. Lakh) 29418.3.77 12517.00 33432.50 405.37 66.90 2531.95 37.50 1586.3.75 3.2012 12162.65 43.01 23.53 Appendix G: Some of the well known fertilisers used in India Nitrogenous Fertilisers .75 389.59 747.91 9971.123 (Rs.10 1.56 7.30 499.54 959. Distribution & Other Expenses Total Value Added Applied to meet: Employee Cost Interest Payment Income Tax (Net) Dividend Donations Cooperative Education Fund Retained Cash Profit Total Utilisation of Value Added Ratios Value added to Total Income (%) Value added to Capital Employed (%) Value added to Net Worth (%) Value added per Employee (Rs. Admn.89 1481.56 595.57 17.67 14.2013 32933.20 74.79 84. In Crore) Year ended 31.00 85.96 1023.30 Less: Cost of Materials Manufacturing.80 1586..75 2.46 12.53 0.49 2531.59 Particulars Income from Sales Dividend and Other Income Year ended 31.

20% P2O5 10:26:26 12:32:16 14:35:14 15:15:15 16:20:00 17:17:17 19:19:19 20:20:00 23:23:00 28:28:00 Appendix H: Some Calculations .124 Urea Ammonium Sulphate (As) Ammonium Chloride (ACl) Calcium Ammonium Nitrate (CAN) Phosphatic & Potassic Fertilisers Single Super Phosphate (SSP) Muriate of Potash (MOP) Sulphate of Potash (SOP) Di-ammonium Phosphate (DAP) Rock Phosphate (RP) NPK Grades 46%N 21%N 26%N 25%N 16% P2O5 60%K2O 48%K2O 18 – 46 16 .

33 1347.79 1930.36 Average Inventory 976.65 593.33 1347. Crores) Year 2008-09 2009-10 2010-11 2011-12 2012-13 Opening Stock 495.75 CALCULATION OF AVERAGE INVENTORY (in Rs.34 211.50 1519.94 1577.64 2283.34 211.03 1225.50 1519.48 9166.125 Calculation of Cost of Goods Sold (COGS) (in Rs.86 9406.48 9578.16 10332.13 491.10 Closing Inventory 931.64 2283.23 .13 Closing Stock 353.64 Purchases 6667.1 10200.56 31777. Crores) Year 2008-09 2009-10 2010-11 2011-12 2012-13 Opening Inventory 1020.26 COGS 6809.65 593.52 1654.09 11336.77 31496.10 1731.57 1901.94 1577.56 931.27 353.