A STUDY ON

WORKING CAPITAL MANAGEMENT

with reference to
NAGARJUNA FERTILISERS AND CHEMICALS LTD.,

KAKINADA
A Project Report submitted in partial fulfillment of requirement for

The Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted By
Moyilla.Sahithi
Regd. No. 118200238054
Under the Guidance of
Dr. K. V. Ramana Murthy

Assistant Professor

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

ANDHRA UNIVERSITY (Accredited by NBA & NAAC with ‘A’ Grade)

VISAKHAPATNAM-530017

(2018-2020)

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 DECLARATION

I M.SAHITHI hereby declare that the Project Report entitled “A STUDY ON WORKING
CAPITAL MANAGEMENT” with reference to NAGARJUNA FERTILISERS AND
CHEMICALS LTD., KAKINADA is original work done by me during may to july 2019 in
partial fulfillment of the requirements for the award of Degree, Master of Business
Administration by Andhra University, Visakhapatnam.

Place : Kakinada M.Sahithi

Date : Regd. No. 118200238054

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 ACKNOWLEDGMENT

I take this opportunity to express my gratitude to SRI P.S.S.PRAKASH RAO,

SENIOR MANAGER (FINANCE), for giving me the privilege to undergo project work on “A
STUDY ON WORKING CAPITAL MANAGEMENT” in NFCL.

I am also grateful to P. PRAKASH, MANAGER (FINANCE) who guided me

throughout tenure of this project and helped me in providing necessary information and work in
innumerable ways throughout the preparation of this project.

I would like to express my sincere thanks to B.SRINIVAS, ASSISTANT MANAGER

(TRAINING) of NFCL, who has been a source of immense help and inspiration during the
process of my project work.

I wish to take this opportunity to express myself my deepest sense of gratitude to my

project guide Dr.K.V.Ramana Murthy, ASSISTANT PROFESSOR, Andhra university, for his
guidance to me on successfully bringing this project.

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 CONTENTS

Chapter 1 : THEORETICAL FRAMEWORK

Introduction to Finance

Introduction to Working Capital

Chapter 2 : METHODOLOGY
Scope of the study
Significance of the study
Objectives of the study
Research design

Chapter 3 : ORGANIZATION PROFILE

Industry profile
Company profile

Chapter 4: ANALYSIS

Chapter 5: FINDINGS

SUGGESTIONS

CONCLUSION

BIBLIOGRAPHY

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CHAPTER 1

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 INTRODUCTION

Finance is regarded as “THE LIFE BLOOD OF BUSINESS ENTERPRISE”. Finance

function has become so important that it has given birth to financial management as a separate
subject. So, this subject is acquiring universal applicability. Financial Management is that
managerial activity which is concerned with the planning and controlling of the firm’s financial
resources. As a separate activity or discipline is of recent origin it was a branch of economics till
1890. Still today it has no unique knowledge of its own, and it draws heavily on economy for its
theoretical concepts.

The subject of financial management is of immense interest to both academicians and

practicing managers. It is of great interest to academicians because the subject is still
developing, and there are still certain areas where controversies exist for which no unanimous
solutions have been reached as yet. Practicing Managers are interested in this subject because
among the most crucial decisions of the firm are those which relate to finance and an
understanding of the theory of financial management provides them with conceptual and
analytical insights.

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Scope of Finance Management:
Firms create manufacturing capacities for production for goods; some provide services to
customers. They sell their goods or services to earn profits. They raise funds to acquire
manufacturing and other facilities. Thus, the three most important activities of a business firm
are:

 Production
 Marketing
 Finance

A firm secures whatever capital it needs and employees it (finance activity) in activities that
generate returns on invested capital (production and marketing activities). A business firm thus
is an entity that engages in activities to perform the functions of finance, production and
marketing. The raising of capital funds and using them for generating returns to the supplies of
funds is called the finance function of the firm.

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International Finance:
Functions are broadly classified into three groups. Those relating to resource allocation, those
covering the financing of these investments and theses determining how much cash are taken
out and how much reinvested.

 Investment decision
 Financing decision
 Dividend decision
 Liquidity decision

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 I) Investment decision: Firms have scarce resources that must be allocated
among competitive uses. The financial management provides a frame work for
firms to take these decisions wisely. The investment decisions include not only
those that create revenues and profits (e.g. introducing a new product line) but
also those that save money.
So, the investment decisions are the decisions relating to assets composition of the firm.
Assets can be classified into fixed assets and current assets, and therefore the investment
decisions can also be bifurcated into Capital Budgeting decisions and the Working Capital
Management.

The Capital Budgeting decisions are more crucial for any firm. A finance manager may
be asked to decide about.
1. Which asset should be purchased out of different alternative options;
2. To buy an asset or to get it on lease;
3. To produce a part of the final product or to procure it from some other supplier;
4. To buy or not other firm as a running concern;
5. Proposal of merger of other group firms to avail the synergies of consolidation.
Working Capital Management, on the other hand, deals with the Management of current
assets of the firm. Though the current assets do not contribute directly to the earnings, yet their
existence is necessitated for the proper, efficient and optimum utilization of fixed assets. There
are dangers of both the excessive working capital as well as the shortage of working capital. A
finance manager has to ensure sufficient and adequate working capital to the firm.

II Financing Decisions:
As firms make decisions concerning where to invest these resources, they have also to
decide two they should raise resources. There are two main sources of finance for any firm, the
shareholders funds and the borrowed funds. The borrowed funds are always repayable and
require payment of a committed cost in the form of interest on a periodic basis. The borrowed
funds are relatively cheaper but always entail risk.

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 The risk is known as the financial risk i.e., the risk of insolvency due to non-payment of
interest or non-repayment of capital amount. The shareholders fund is the main source of funds
to any firm.
This may comprise of the equity share capital, preference share capital and the
accumulated profits. Firms usually adopt a policy of employing both the borrowed funds as well
as the shareholders funds to finance their activities. The employment of these sources in
combination is also known as financial management.

III) Dividend Decisions:

Another major area of the decision marking by a finance manager is known as the
Dividend decisions which deal with the appropriation of after tax profits. These profits are
available to be distributed among the shareholders or can be retained by the firm for
reinvestment within the firm. The profits which are not distributed are impliedly retained in the
firm. Al firms whether small or big, have to decide how much of the profits should be reinvested
back in the business and how much should be taken out in form of dividends i.e., return on
capital. On one hand, paying out more to the owners may help satisfying their expectations; on
the other hand, doing so has other implications as a business that reinvests less will tend to grow
slower.
 Reinvestment opportunities available to the firm,
 The opportunity rate of the shareholders.
The Identification of the relevant groups:
The various groups which may have stakes in the financial decisions making of a firm
and therefore required to be considered while taking financial decisions are:
 The shareholders
 The debt investors,
 The employees,
 The customer and the suppliers,
 The public,
 The Government, and
 The Management

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 Objective of the Financial Decision Making
The following two are often considered as the objectives of the financial management.
 The maximization of the profits of the firm, and
 The maximization of the shareholders wealth
Maximization of the Profits of the firm:
For any business firm, the maximization of the profits is often considered as the implied
objective and therefore it is natural to retain the maximization of profit as the goal of the
financial also.
The profit maximization as the objective of financial management has a built in favour
for its choice. The profit is regarded as yard stick for the economic efficiency of any form. If all
business firms of the society are working towards profit maximization then the economic
resources of the society as a whole would have been most efficiently, economically and
profitably used. The profit maximization by one firm and if targeted by all, will ensure the
maximization of the welfare of the society. So, the profit maximization as objective of financial
management will result inefficient allocation of resources not only from the point of view of the
firm but also for the society as such.

Maximization of Shareholder Wealth:

This objective is generally expressed in term of maximization of the value of a share of a
firm. It is necessary to know and determine as to how the maximization of shareholders wealth
is to be measured.
The measure of wealth which is used in financial management is the concept of economic
value. The economic value is defined as the present value of the future cash flows generated by
a decision, discounted as appropriate rate of discount which reflects the degree of associated risk.
This measure of economic value is based on cash flows rather than profit.

Profit Maximization Versus Wealth Maximization:

The objective of profit maximization measures the performance of a firm by a looking at
its total profit. The objective of maximization of the shareholders wealth is operational and

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objective in its approach. A firm that wishes to maximize the profits may opt to pay no dividend
and to reinvest the retained earnings, whereas a firm that wishes to maximize the shareholders
wealth may pay regular dividends.

WORKING CAPITAL MANAGEMENT

Finance is the life blood of every business activity without which the wheels of modern
organization back bone system cannot be greased. Working capital management is one of the
important facets of a firm’s overall financial management. It is concerned with the management
of firm’s current accounts, which include current assets into optimal use by speeding up their
flow to ensure that money does not stagnate any way in any form. The management of working
capital is becoming increasingly important as firms realize that approximately half of the
investments are in working capital. Working capital sphere, therefore, throws open a welcome
challenge and an opportunity for the finance mange to play a key role for effective planning,
controlling, directing and utilizing the working funds.

According to SCHLLER HALEY managing current assets require more attention

than managing plant equipment expenditure too large an investment in current asset’s means
typing up capital than can be used providently elsewhere on the other hand too little. Investment
can also be expensive.

CONCEPTS OF WORKING CAPITAL:

There are two important concepts of working capital. They are:

 Gross working capital

 Net working capital

Gross working capital:

It refers to the firm’s investment in current assets only.

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 Current assets are those assets, which are used in the production and selling operations of
the business and can be converted into cash within a year. They comprise inventory, debtors,
bills receivable, marketable securities, cash and bank balances.

Current liabilities are those which are intended to be paid during the accounting period out
of current assets or the income of the business. They include bank loans, loan other than bank,
bills payable and sundry creditors.

Net working capital:

It refers to the difference between current assets and current liabilities. Net working
capital can be positive or negative. A positive net working capital will arise when current assets
exceeds current liabilities. A negative working capital occurs when current liabilities are in
excess of current assets.

The most common definitions of working capital are:

 current assets - current liabilities

 stocks + trade debtors - trade creditors

Gross working capital concept focuses on two aspects of current assets management:

 How to optimize investment in current assets management?

 How should currents be financed?

The investment in current assets should be adequate and should not be either excessive or
inadequate. Excess working capital will impair in firm’s profitability as idle investment earns
nothing. Whereas inadequate working capital will make the firm unable to meet its current
obligations. The working capital needs will be fluctuating with changing business activity.

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NEED FOR WORKING CAPITAL:

The need for working capital in a business undertaking cannot be over emphasized. The
objective of financial decision making is to maximize the shareholders wealth. To achieve this it
is necessary to generate sufficient profits. The extent to which profits can be earned will
naturally depend upon the magnitude of the sales among other things. A successful sales
programme is in other words necessary for earning profits by any business enterprise. However,
sales will not convert into cash instantly. There is invariably a time lag between the sale of
goods and the receipt of cash. There is, therefore, a need for working capital in the form of
current assets to deal with the problem arising out of the lack of immediate realization of cash
against goods sold. Sufficient working capital is thus, necessary to sustain sales activity.

FACTORS INFLUENCING WORKING CAPITAL:

The business undertaking should plan its operations in such a way it should have neither
too much nor too little working capital. The total working capital requirements are determined
by a variety of factors. The factors which determine the quantum of working capital in a
business undertaking are as follows.

1. General nature of the business-companies which sell a service and the too
immediate cash, require little working capital. But for a manufacturing firm which produces a
product and sells it on credit basis, working capital requires is high.
2. Production cycle if the production process is lengthy working capital required is more
and vice-versa.
3. Speed of operating cycle if the speed of operating cycle is slow working capital needed is
high.
4. Credit terms if the company purchases raw materials on credit basis and sells finished
goods on cash basis, working capital requirements will be low.

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 5. Growth and expansion – Firms with larger growth prospects demand greater working
capital.
6. Dividend policy – firms pursuing a liberal dividend policy require more working capital.
7. Other factors
(a) Production policies
(b) Unpredictability in the availability of raw materials.
(c) Depreciation Policies
(d) Impact of business cycles
(e) Operating efficiency and
(f) Absence of Coordination between production and distribution policies.
A firm should aim at maximizing the wealth of its shareholders. So for that the firm
should earn sufficient return from its operations. Earning a steady amount of profit requires
successful sales activity. The firm has to invest enough funds in current assets for generating
sales. Current assets are needed because sales do not convert into cash instantaneously. There is
always an operating cycle involved in the conversion of sales to cash.

Operating cycle:
It is the time duration required to convert sales into cash. The length of the operating
cycle of a manufacturing firm is the sum of:

 Inventory conversion period (ICP) and

 Debtors conversion period (DCP)

Inventory conversion period is the total time required for producing and selling the product.

Debtors conversion period is the time required to collect the outstanding amount from the
customers.

ICP includes the following:

- Raw material conversion period (RMCP)

- Work in process conversion period (WIPCP)
- Finished goods conversion period (FGCP)

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 Raw material inventory
RMCP = (raw material consumption/360)

Work in process inventory

WIPCP = (cost of production/360)

Finished goods inventory

FGCP = (cost of goods sold/360)

Debtors
DCP = (credit sales/360)

The total inventory conversion period and debtors’ conversion period is known
as Gross operating cycle.

Permanent and Variable working capital:

The operating cycle is a continuous process, and therefore, the need for current assets is
felt constantly. There is always a minimum level of current assets which is continuously required
by a firm to carry on its business operations. So, permanent or fixed working capital is this
minimum level of current assets required by the firm.

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 Variable or fluctuating working capital is the extra working capital needed to support
the changing production and sales activities of the firm.

Both kinds of working capital are necessary to facilitate production and sale through the
operating cycle.

WORKING CAPITAL CYCLE AND ITS MANAGEMENT

The general factors as explained above that too those factors which are uncontrollable
due to external reasons of nature, lead-time of manufacture and existence of market conditions
would limit ones effort of meticulous management by the controllable constituents of working
capital requiring judicious options of applicability should consume almost all the time for
efficient management. In order to understand the management of working capital in all its faces,
I deal with the constituents of working capital, its management, so also the financing forms
available in the following paragraphs.

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 The working capital operating cycle normally confines to a year to year with reference to
which various factors affecting working capital are evaluated. Working capital cycle is the
period within which either raw material converts itself to cash or commences with cash and ends
with cash. This working capital cycle is a continuous process and this should be managed well
for successfully operating the business.

INVENTORY MANAGEMENT:

The component of the raw material in a working capital cycle assumes very significant
role. Generally more than 50% of the year turnover is spent on raw materials undue
accumulation of raw material tells upon profitability due to costs of its carrying.

The maintenance of optimum level of inventories of Ra- Materials maximizes with lower
working capital requirement and shortage of Raw Materials lead to disruption in production,
non-utilization of capacities of production and consequent adverse impact on profitability (since
larger generation from higher profitability directly leads to lesser cost on working capital).
There have been scientific methods established not only for procurement but also for storing.
Working capital cycle is the period within which either raw material converts itself to cash or
commences with cash and ends with cash necessitate certain inevitable volume to be stored, in
case of finished goods many factors to keep at optimum level would be controllable. There can
be host of measures that could be taken for maintaining minimum quantity in the form of
finished goods. Inventory can be managed by using some techniques. One important technique is
economic order quantity method. The economic order quantity is that inventory level that
minimizes the total of ordering cost and carrying cost.

CASH AND ITS MANAGEMENT

Cash is the starting point and the end point of a working capital cycle. I have explained
the foregoing paragraphs about each of the stages in the working capital and its management.
The management necessarily means, ways and means of maintaining as low level in each stage

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possible, without hampering the laid down objectives of the organization of growth and
profitability. While explaining these efforts were only to reduce the conversation period at each
stage and to reach to the cash stage as early as possible. Cash management therefore includes
efficiency of inventory management, work-in-process management, receivables management etc.

Cash management as such, of course, depends on the nature of the organization, market
conditions for the products dealt by the organization policies perused, other external factors
affecting etc.,

The management of cash mainly should serve the following objectives.

a. The cost of capital being a major component in the determinates etc. the suppliers
would lose confidence in the organization profitability, the optimum level of its
maintenance is so essential that any shortage even temporarily would disrupt the whole
activity of the organization. It would fail to meet its commitments to employees’
statutory authorities and there would be lack of competitiveness in supplying the
materials ultimately leading to substantial higher in-puts costs. On the other hand
indiscriminate holding of cash, higher than necessary, would result in loss of interest
apart from stagnation in growth and profitability. It would be the Endeavour of the
organization to rotate cash as fast as possible maintaining cash in its form at the
minimum.
b. The inflow and the outflow of cash should be nearly matched in order to enable
meeting of all its commitments on time at minimum cost.
c. The cash should be available even at the time of an unexpected deviation in the plan of
production and sale.
d. Maintaining lower cash position would also lead to demoralization, lower productivity,
unfavorable bargaining power, strained industrial relations, affecting good will etc.,
maintaining higher cash position would lead to complacency, higher doubtful debts,
higher non-moving item of inventory, obsolescence etc., since it tends to take the
operations with less diligence.

1. Efficient Debt Collection System:

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 While dealing with monitoring receivables I have touched upon the need for
reducing book debts and also control of book debts through aging analysis. In addition,
the system could build in the following for accelerating debt collection even within the
overall credit policy of the organization.

a. Extending cash discounts for early payment by the customers. As long as margin on the
products sold in higher than the cost of borrowed capital, faster collection by this system
resulting in quicker rotation of cash could result in higher profitability.
b. Collection through demand drafts in place of cheques, particularly that from outstations.
c. Opening up of as many collection bank accounts as required near to the sales point for
quicker realization.
d. Adopting faster mode of transfer of funds from collection accounts at various locations to
the overdraft account of the organization, say, by money transfer, telegraphic/tele
transfers, etc. .

2.Economy in Disbursement:

Better management of cash could be achieved through exercise of economy on

disbursements. The following measures would be useful.

a. Collection bank account should be as many but the disbursement bank accounts should
be as few as possible. The authority to disburse should be centralized with few senior
level personnel to render monitoring easy and effective.
b. Proper assessment of man power to restrict expenses on labour.
c. Exploring possibilities of exercising economy in all major operating costs.
d. Availing maximum credit form the suppliers, at the same time not leading to higher
prices for material. A larger period of credit could be availed by extending non-fund
based guarantees either letter of credits or bank guarantees.

3. Temporary Investment in Marketable Securities:

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 There cannot be a perfect match between inflow and outflow of cash. In view of
necessity to provide for contingencies, temporary surplus cash situation might exist.

RECEIVABLES MANAGEMENT:

A firm grants trade credit to protect its sales from the competitors and to attract the potential
customers to buy its products at favorable terms. Trade credit creates accounts receivable or
trade debtors that the firm is expected to collect in the near future. Therefore debtors form a part
of current assets for a firm. It is also an investment.

A firm’s investment in accounts receivables (debtors) depends on:

 The collection period

 The volume of credit sales.

Factoring:

A company can assign its credit management and debt collection to specialist organizations
called factoring organizations. Factoring is a popular mechanism of managing, financing and
collecting the receivables.

 Factoring provides specialized service in credit management, and thus helps the firm’s
management to concentrate on manufacturing and marketing.
 It helps the firm to save cost of credit administration due to the scale of economics and
specialization.

FINANCING WORKING CAPITAL:

Working capital is obtained by the firm from different sources to meet the requirements.
The firm will go for other sources of funds when it is not having sufficient working capital.
Generally working capital is obtained from current assets and sales.

Working capital is financed in various ways like:

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  Trade credit
 Bank finance
- Overdraft
- Cash credit
- Bills purchasing or discounting
- Working capital loan
 Loans from financial institutions
 Commercial papers.

RATIO ANALYSIS
Several ratios, calculated from the accounting date, can be grouped into various classes
according to financial activity or function to be evaluated. As stated earlier, the parties interested
in financial analysis are short and long-term creditors, owners and management.
“Short-term creditors” main interest is in the liquidity position or the short-term solvency
of the firm. Long-term creditors, on the other hand, and more interested in the long-term
solvency and profitability of the firm. Similarly, owners concentrate on the firms’ profitability
and financial condition. Management is interested on in evaluating every aspect of the firms’
performance. They have to protect the interests of all parties and see that the firm grows
profitably. In view of the requirements of the various users of ratios, we may classify them into
the following four important categories.
Types of Ratio:
 Liquidity Ratios
 Leverage Ratios
 Activity Ratios
 Profitability Ratios

I) LIQUIDITY RATIO:
The liquidity refers to the maintenance of cash, bank balance and those assets, which are
easily convertible into cash in order to meet the liabilities as and when arising. So, the liquidity
ratios study the firm’s short-term solvency and its ability to pay off the liabilities.
1. Current Ratio:

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Current ratio is the ratio of current assets and current liabilities. Current assets
are assets which can be covered into cash within one year and include Cash in
hand and at bank, bills receivable, net sundry debtors, stock of raw materials,
finished goods and work in progress, prepaid expenses, Outstanding and occurred
Incomes, and short term or temporary investments. Current liabilities are liabilities,
which are to be repaid within a period of 1 year and include Bills payable, Sundry
Creditors, Bank Overdraft, Outstanding Expenses, Incomes received in advanced,
proposed dividend, provision for taxation, unclaimed dividends and short term
loans and advances repayable within 1 year.

Current Assets
Current Ratio= -----------------------------------
Current Liabilities

A Current ratio of 2:1 is considered as ideal. If a business has an undertaking with its bankers to
meet its working capital requirements short notices, a current ratio of 2 is adequate.

2. Quick Ratio :
Quick Assets
Quick Ratio = ----------------------------------------
Quick Liabilities

A quick ratio of 1 is considered as ideal. A quick ratio of less than 1 is indicative of

inadequate liquidity of the business. A very high quick ratio is also not available, as funds can be
more profitably employed.

3. Absolute Liquid Ratio:

It is the ratio of Absolute Liquid Assets to Current Liabilities. However, for calculation
purposes, it is taken as ratio of Absolute Liquid Assets of Current Liabilities. Trade investment

23
 or Marketable securities are equivalent of cash therefore; they may be included in the
computation of absolute liquid ratio.

Absolute Liquid Assets

Absolute Quick Ratio = -----------------------------------------------------
Current Liabilities

I) LEVERAGE RATIOS:
Leverage ratios indicate the relative interest of owners and creditors in a business. It shows
the proportions of debt and equity in financing the firm’s assets the long-term solvency of a firm
can be examined by using leverage ratios. The long-term creditors like debenture holders,
financial institutions etc., are more concerned with the firms long-term financial strength.

There are two aspects of the long-term solvency of a firm:

1) Ability to repay the principal when due, and
2) Regular payment of the interest they leverage ratio are calculated to measure the
financial rest and firms abilities of using debt.

1) Total Debt Ratio:

Total debt will include short and long-term borrowings from financial institutions
debentures bonds. Capital employed will include total debt and net worth.
The firm may be interested in knowing the proportion of the interest bearing debt in the
capital structure by calculating total debt ratio. A highly debt burdened firm will find difficulty
in raising funds from creditors and owners in future. Creditors treat the owner’s equities as a
margin of safety.

Total Debt

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 Total Ratio = ---------------------------------------
Capital Employed

2) Debt-Equity Ratio:
It reflects the relative claims of creditors and shareholders against the assets of the
business. Debt, usually, refers to long-term liabilities. Equity includes preference share capital
and reserves.
The relationship describing the lenders contribution for each refers of the owner’s
contribution is called debt equity ratio.
A high ratio shows a large share of financing by the creditors relatively to the owners
and therefore, larger claim against the assets of the firm. A low ratio implies a smaller claim of
creditors. The debt equity indicates the margin of satisfy to the creditors so, there is no doubt the
Beth High and Low debt equity ratios are not desirable. What is needed is a ratio, which strikes
a proper balance between debt and equity.

Total Debt
Debt-Equity Ratio = ----------------------------
Net worth

Some financial experts feel that ‘debt’ should include current liabilities also. However,
this is not a popular practice. In case of preference share capital, it is treated as a part of
shareholders funds, but if the preference shares are redeemable, they are taken as a part of long-
term debt shareholder funds are also known as proprietor funds and it includes items equity share
capital, reserves, and surplus. A debt equity ratio of 2:1 is considered ideal.

3) Proprietary Ratios:
It expresses the relationship between net worth and total assets.

Net worth
Property ratio = ----------------------------

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 Total Assets

Net worth = Equity share capital + Preference share capital + reserves – Fictitious assets.
Total Assets = Fixed assets + current assets (excluding fictitious assets)
Reserves earmarked specifically for a particular purpose should not be included in
calculation of net worth.
A high proprietor’s ratio is indicative of strong financial position of the business. The
higher the ratio, the better it is.

a) Fixed Assets Ratio:

Fixed Assets
Fixed Assets = ----------------------------------------
Capital employed

Capital employed = Equity share capital + preference share capital + Reserves + long term
liabilities – Fictitious assets.
This ratio indicates the mode of financing the fixed assets. A financially well-managed
company will have its fixed assets financed by long-term funds. Therefore, the fixed assets ratio
should never be more than 1. A ratio of 0.67 is considered ideal.

b) Interest Coverage Ratio:

This interest coverage ratio is computed by dividing earnings before interests and taxed
by interest charges.

Debt
Interest Coverage Ratio = ------------------
Interest

The interest coverage ratio shows the number of times the interest charges are covered by
funds that are or demurely available for their payment. A high ratio is desirable but too high

26
ratio indicates that the firm is very conservative in using debt and that is not using credit to the
debt advantage of shareholder. A lower ratio indicates excessive use of debt or inefficiency
operations. The firm should make efforts to improve the operating efficiency or to retire debt to
have a comfortable coverage ratio.

III. ACTIVITY RATIOS:

Activity ratios measure the efficiency or effectiveness with which a firm manages its
resources or assets. They calculate the speed with which various assets, in which funds are
blocked up, get converted into sales.

1)Total Assets Turnover Ratio:

The assets turnover ratio, measures the efficiency of a firm in managing and utilizing its
assets. The higher the turnover ratio, the more efficiency the management and utilization of the
assets while low turnover ratio is indicative of under-utilization of available resources and
presence idle capacity. The total assets turnover ratio is computed by dividing sales by total
assets.

Sales
Total assets turnover ratio = --------------------------
Total Assets

2)Working capital turnover ratio:

Cost of goods sold
Working capital turnover ratio = --------------------------------------------
Working Capital

27
 Where if cost of goods sold is known. Net sales can be taken in the numerator.
Working capital = Current Assets – Current liabilities.
A high working capital turnover ratio indicates efficiency utilization of the firm’s funds.
However, it should not result in overtrading.

3) Debtors’ Turnover Ratios:

Debtor’s turnover ratio expresses the relationship between debtors and sales. It is
calculated.
Net credit sales
Debtors Turnover Ratio = ------------------------------------
Average debtors

Net credit sales inspire credit sales after adjusting for sales returns. Incase information
about credit sale is not available. “Sales” can be taken in the numerator. Debtors include bills
receivable. Debtors should be taken at Gross Value, without adjusting provisions for bad debts.
In case, average debtors can’t be found; closing balance of debtors should be taken in the
denominator. A high debtors’ turnover ratio or a low debt collection period is indicative of a
sound credit management policy. A debtors’ turnover collection period of 30-36 days is
considered ideal.

1. DEBT COLLECTION PERIOD:

The debt collection period measures the quality of debtors since it indicates the speed of
the collection. The shorter the average collection period implies the prompt payment by debtors.
No. of days year
Debt collection period = ------------------------------------------------
Debt collection Period

An excessively long collection period implies a very liberal and inefficient credit and
collection performance. This certainly delays the collection of each and impairs the firm’s

28
 liquidity. The average no. of days for which debtors remain outstanding is called debt
collection period or average collection period.

2. CREDITORS TURNOVER RATIO:

Creditors’ turnover ratio expresses the relationship between creditors and purchases.
Net Credit Purchase
Creditors turnover Ratio = -----------------------------------------------
Average Creditors

Net credit purchases imply credit purchases after adjusting for purchases returns. In case
information on credit purchases is not available purchase may be taken in the numerator.
Creditors include bills payable. In case avenue creditors can’t be found, closing balance of
creditors should be taken in the denominator.
The creditors’ turnover ratio is 12 or more. However, very less creditors turnover ratio,
or a high debt payment period, may indicate the firm’s inability in meeting its obligations in
time.

3.PAYMENT PERIOD RATIO:

Credit turnover rate can also be expressed in terms of number of days taken by the
business to pay off its debts. It is termed as debt payment period which is calculated as:
Number of days in a year
Payment Period Ratio= ---------------------------------------------------------
Creditors turnover ratio

4. FIXED ASSETS TURNOVER RATIO : It is defined as

Net Sales
Fixed Assets Turnover Ratio= ----------------------------
Fixed Assets

29
 Fixed assets imply net fixed assets i.e. after depreciation. A high fixed assets turnover
ratio indicates better utilization of the firm’s fixed assets. A ratio around 5 is considered
ideal.

3.INVENTORY TURNOVER RATIO :

Stock turnover ratio indicates the number of times the stock has turned over into sales in
the year. It is calculated as
Cost of goods sold
Inventory Turnover Ratio= --------------------------------------------
Average Inventory

Cost of goods sold = Sales Gross Profit

Average Stock = (Opening stock and closing stock ½)

In case, information regarding cost of goods sold is not known. Sales may be taken in the
numerator. Similarly, if average stock can’t be calculated, closing stock should be taken in the
denominator.
A stock turnover ratio of ‘8’ is considered ideal. A high stock turnover ratio indicates that
the stocks are fast moving and get converted into sales quickly. However, it may also be on
account of holding low amount of stocks and replenishing stocks in larger number of
installments.

IV. PROFITABILITY RATIO:

It measures the overall performance and effectiveness of the firm. Poor operational
performance may indicate poor sales and hence poor profits. A lower profitability may arise due
to the lack of control over the expenses. Bankers, financial institutions and other creditors look
at the profitability’s Ratio as an indicator whether or not the firm earns substantially more than it
pays interest for the use of borrowed funds and whether the ultimate repayment of their debt

30
appear reasonably certain owner are interested to know the profitability as it indicates the return
which they can get on this instruments.

Profitability ratios measure the profitability of a concern generally. They are calculated
either in relation to sales or in relation to investment.

1) NET PROFIT RATIO:

It indicates the result of the overall operation of the firm. The higher the ratio, higher is
the profitability in the business. The net profit ratio is reassured by dividing net profit buy
sales. The net profit ratio indicates management efficiency in manufacturing administrating
and selling the products. This ratio is the overall firm’s ability to turn each rupee of sale into
net profit. If the net profit margin is inadequate, the firm fails to achieve satisfactory return
on shareholder’s funds.

Profit After Tax

Net Profit Ratio = ------------------------------------------
Net Sales

A firm with high net profit margin can make better use of favorable conditions. Such as
rising selling prices, falling cost of products or increasing demand for the product. Such a firm
will be able to accelerate its profits at a faster rate than a firm with a low net profit margin. This
ratio also indicates the firm capacity to withstand adverse economic conditions.

2). RETURN ON NET WORTH RATIO:

It indicates the return, which the shareholders are earning on their resources invested in
the business.

31
 Profit after tax
Return on net worth ratio = -----------------------------------------
Net Wroth

Net worth = Shareholders funds = Equity share capital + Preference share capital + Reserves –
Factious Assets.
The higher the ratio, the better it is for the shareholders. However, inter firm
comparisons should be made to ascertain if the returns from the company are adequate. A trend
analysis of the ratio over the past few years much is done to find out the growth or deterioration
in the profitability of the business.

3). RETURN ON ASSETS RATIO: It is calculated as:

Profit after tax
Return on assets ratio = ------------------------------------------
Total Assets

Total assets do not include fictitious assets. The higher the ratio, the better it is.

4). EARNINGS PER SHARE RATIO:

Earnings per share are the net profit after tax and preferences dividend, which is earned
on the capital representative of one equity share. It’s calculated as:

Profit after tax

available to equity holders
Earnings per share ratio = ---------------------------------------------------------------------
Number of ordinary share

ADVANTAGES OF RATIOS

32
 Useful for evaluating performance in terms of profitability and financial stability
 Useful for intra and inter firm comparison.
 Useful forecasting and budgeting.
 It is just in a tabular form over a period of years indicates the trend of the business.
 Simple to understand rather than the reading but the figures of financial statement.
 Key tool in the hand of modern financial management.
 Enables outside parties to assess the strength and weakness of the firm.
 Ratio analysis is very useful for raking management decision and also highlights the
performance in the area of profitability, financial stability and operational efficiency.

33
CHAPTER 2

34
 SCOPE OF THE STUDY

The present study is intended to cover over a period of 5 years from 2014 to 2018 for examining
the cash management receivable management manages the short-term investment and also
investor’s management for the purpose of working capital management in NFCL plant at
Kakinada.

Working capital management policies have a great effect on firms’ profitability, liquidity
and its structural health. A financial manager therefore chalks out appropriate working capital,
so as to ensure higher profitability proper liquidity and sound structural health of the
organization. In order to achieve this objective the financial manager has to perform basically
following two functions.

- Estimating the amount of working capital.

- Source from which these funds have to arises.

This project is based on the study of working capital management & includes estimation
of the amount of working capital requirements and also analyzing the sources from which these
have to be raised.

35
 SIGNIFICANCE OF STUDY

 This study is important for understanding the management of working capital in

NFCL it gives information on the basis of analysis about percentage of investment in
each current asset cause for changes in working capital from different sources amount
of working capital required.
 The firm’s trade creditors are interest in the firm ability to meet their claim over a
short period of time. So they required the evaluation of the firm’s liquidity position.
 The suppliers of the long-term debt on the other hand of concerned with the long-term
resolutions and survival. They analyses the firm profitability over time.

36
 OBJECTIVES OF THE STUDY

 This study attempts to examine the growth and performance of the industry.
 To study the efficiency with which the firm is utilizing its various assets in generating
sales.

 To study the extent to which the firm has used its long-term solvency by borrowing
funds.
 This study is made to know whether the current assets and current liabilities are properly
managed.
 To review the structure, original growth and performance of NFCL during the study
period.
 To give a brief description of the finance department and conceptual frame work of the
working capital management in NFCL.
 To determine the requirement of working capital to the firm.

37
 RESEARCH DESIGN

This study is made through two sources.

 METHODS

 PRIMARY  SECONDARY
DATA
DATA

1. Primary Data:
The primary data comprises information collected during discussions with Heads of
Departments and from the meeting with officials and staff.

2. Secondary Data:
The secondary data has been collected from information through Annual Reports, Public
Report, Bulletins and other Printed Materials supplied by the Company.
In the present study 1/4th of the total information is from primary data and the rest is from
the secondary data.

38
 LIMITATIONS

 The study has to be made ideal conditional but every study has some limitations those
are.
 This study is limited of the company NFCL only.
 This analysis should not be applied to all the firms in the same industry.
 The time factor of 6 weeks is also a limiting factor for an in-depth study.
 The analysis is prepared on the basis of company reports where some information is kept
confidential by the company and hence total analysis was not possible.
 The ratios are calculated on the basis of past data of five years and they cannot be taken
as future indicators.

39
CHAPTER 3

40
 INDUSTRY PROFILE
India has been predominantly considered as an agricultural dependent economy.
Agriculture plays a very dominant role as more than one-fourth of our GDP come from this
sector. Nearly 70% of population depends on the agriculture for their lively-hood. The basic
need for an agricultural dependent economy is fertilizers and urea is one of the main fertilizers.
India is the second largest manufacturing country in the world.

All fertilizers consist of three main ingredients.

Nitrogen—(N) -- which promotes general plant growth

Phosphorous—(P) -- which promotes flowering

Potassium — (K) -- which promotes strong roots

The ingredients are mixed in various combinations, because plants have different needs.

The combinations are indicated by a three number code:

The first number is the percent of nitrogen (N)

The second number is the percent of phosphorus (P)

The third number is the percent of potassium (K)

About Fertilizer:

Fertilizer is simply, plant food. Just like the human body needs vitamins and minerals,
plants need nutrients in order to grow. Plants need large amounts of three nutrients – nitrogen,
phosphorus, and potassium. These are commonly referred to as macronutrients. Fertilizer
makers take those three nutrients from nature and put them into soluble forms that plants can
easily use.

There are a number of other nutrients plants need in small amounts. These are referred to
as the minor nutrients, or micronutrients. These many nutrients are typically produced
separately, but end up being mixed together in varying amounts to match the needs of a

41
particular crop. The analysis found on each bag or bulk shipment of fertilizer tells the farmer or
consumer the amount of nutrients being supplied. States have a system of laws and regulations
that ensure the fertilizer is properly labeled and delivers the amount for nutrients stated on the
bag.

Our world would be vastly different without commercial fertilizers. Following World
War II, new technologies allowed for the rapid expansion of fertilizer production. Coupled with
growing food demand and the development of higher-yielding crop varieties, fertilizer helped
fuel the Green Revolution. Today, the abundance of food we enjoy is just one way fertilizers
help enrich the world around us.

While fertilizers provide many important benefits that are necessary for our way of life,
the improper use of fertilizers can harm our environment. We’ve used the most recent
developments in science to study our products and make sure safety comes first.

FERTILIZER:

Fuel for growing plants just like humans and animals, plants need adequate water,
sufficient food, and protection from diseases and pests to be healthy. Commercially produced
fertilizers give growing plants the nutrients they crave in the form they can most readily absorb
and use: nitrogen (N), available phosphate (P) and soluble potash (K), Elements needed in
smaller amounts, or micronutrients, include iron (Fe), zinc (Zn), copper (Cu) and boron (B).

Each crop year, certain amounts of these nutrients are depleted and must be returned to
the soil to maintain fertility and ensure continued, healthy future crops. Scientists project that
the earth’s soil contains less than 20 percent of the organic plant nutrients needed to meet our
current food production needs. Therefore, through the scientific application of manufactured
fertilizers, farmers are meeting the challenge of the future, today.

Another component of plant DNA is phosphate, which helps plants to use water
efficiently. It also helps to promote root growth and improves the quality of grain and
accelerates its ripening. And potassium, commonly called potash, is important because it is
necessary for photosynthesis, which is the production, transportation and accumulation of sugars

42
in the plant. Potash makes plants hardy and helps them to withstand the stress of drought and
fight off disease.

Fertilizer Types:

Because every crop is different and the soils and weather conditions crops are grown in
vary dramatically around the world, commercial fertilizers, which are manufactured from natural
sources, come in many formulations.

Combining air with hydrogen using natural gas as the feedstock makes ammonia, the
building block for nitrogen fertilizers. Ammoniated phosphates, which include mono ammonium
phosphate (MAP) and di ammonium phosphate (DAP), are made by reacting ammonia with
phosphoric acid. Muriate of potash, also called potassium chloride, is made from mine ores that
have been processed to remove naturally occurring salts.

Ammonium nitrate is a solid fertilizer containing approximately 34 percent nitrogen that

is water soluble and used in various fertilizer solutions. Aqua ammonia is another nitrogen-
based fertilizer made by combining ammonia with water. It contains up to 25 percent nitrogen
and is either applied directly to the soil or is used to manufacture phosphate fertilizers.

Nitrogen solutions are water solutions of ammonia, ammonium nitrate and, sometimes,
urea, a solid fertilizer containing approximately 45 percent nitrogen, and other soluble
compounds of nitrogen. Nitrogen solutions are used in ammoniating super phosphate, the
manufacture of complete fertilizer and for direct injection into the soil. They vary in
composition and nitrogen content and are sometimes applied under pressure.

NITROGEN (N):

Nitrogen is a part of all plant proteins and is a component of DNA and RNA – the
“blueprints” for genetic characteristics. It is necessary for plant growth and chlorophyll
production. Nitrogen is the building block for many fertilizers. Where does N come from?
Nitrogen is present in vast quantities in the air, making up about 78 percent of the atmosphere.
Nitrogen from the air is combined with natural gas in a complex chemical process to make
ammonia.

43
PHOSPHOURUS/PHOSPHATE (P):

Phosphorus as a nutrient is sometimes most valuable to plants when put near the seed for
early plant health and root growth. Plant root uptake is dependent on an adequate supply of soil
P. Phosphorus is relatively insoluble in water. The water in most soils must replace all of the P
in the soil water 2 to 3 times each day to meet the crop’s demand for Phosphorous. Phosphorus
compounds help in directing where energy will be used. Phosphorus compounds are needed in
plant photosynthesis to “repackage” and transfer energy. Phosphate is also a component of
DNA, so it is one of the building blocks of genes and chromosomes. Phosphorus is involved in
seed germination and helps plants to use water efficiently. Where does P come from?
Phosphorus occurs in natural geological deposits. Deposits can be found in the U.S. and other
parts of the world.

POTASSIUM/POTASH (K):

Potassium protects plants against stresses. Potassium protects plants from cold winter
temperatures and helps them to resist invasion by pests such as weeds and insects. Potassium
stops wilting, helps roots stay in one place and assists in transferring food. Potassium is a
regulator. It activates plant enzymes and ensures the plant uses water efficiently. Potassium is
also responsible for making sure the food you buy is fresh.

Through long-term natural processes K filters into the oceans and seas. Over time, these
bodies of water evaporate, leaving behind mineral deposits. Although some of these deposits are
covered with several thousands of feet of earth, it is mined as potash or potassium chloride.
Potash ore may be used without complex chemical conversion; just some processing is necessary
to remove impurities such as common salt.

44
 FOOD FOR THE GROWING WORLD

Industry at a glance:

Since 1883 the industry has worked to promote the advances in the development and
application of fertilizers that have helped to feed a hungry world. The revolutionary concept of
plant nutrition was born from the discovery of the biological role of chemical elements in plant
nutrition and the need to feed a growing population concentrated away from the farm in the
rising industrial centers of the world.

Because of modern fertilizers, world food production since 1960 has more than doubled,
keeping pace with the population explosion. Today, the fertilizer industry is poised to help
produce the food that will be needed to feed the world’s projected 9 billion people in 2025.

The fertilizer industry is essentially concerned with the provision of three major plant
nutrients – nitrogen (N), phosphorous (P) and potassium (K) – in plant available form. Each
nutrient is responsible for different aspects of plant growth and health.

Fertilizers:

Regulated for quality and safety like other manufactured goods, fertilizers are regulated
for quality and safety at the federal and state levels. Every state in the country, plus Puerto Rico,
has its own fertilizer regulatory program, usually administered by the state department of
agriculture.

45
State Regulation:

State regulation is concerned with consumer protection, labeling, the protection of human
health and the environment, and the proper handling and application of fertilizers. Fertilizers are
regulated at the state level because soil conditions vary dramatically from state to state across the
country. For example, the rocky, thin soils of New England are vastly different from the deep,
rich black soils of the Midwest Corn Belt. A different level of fertilizer nutrients in the soil,
different crops (potatoes versus corn, for instance) and different weather and cropping patterns
require state-specific regulation.

Where Science and safety come first the modern commercial fertilizer industry was
founded on the revolutionary scientific discovery in the last part of the 18th century that chemical
elements play a direct role in plant nutrition. This initial concept was supported by direct
scientific experiment and opened the way for industrial-scale manufacturing of fertilizers of all
types in the 19th century, beginning with super phosphate in 1843. This was followed by
ammonium sulphate, sodium nitrate and, finally, in the first two decades of the 20th century, the
manufacturing of synthetic nitrogen fertilizers directly from atmospheric nitrogen.

Assessing Fertilizer Safety:

Fertilizer research and development historically have been focused on

maximizing economic crop yields from given rates of nutrient application. Since
the advent of the modern environmental movement in the 1960s, research has also
been concerned with minimizing potentially adverse human health and environmental effects
from fertilizer manufacture and application.

As part of its continuing commitment to safety, in 1996, the Fertilizer Institute initiated a
comprehensive safety assessment project to determine the risks, if any, of metals in fertilizer.
Small amounts of metals are found in phosphate and potash fertilizers due to their presence in the
mined ore bodies. In addition to phosphate and potash products, some micronutrient fertilizers.
Which come from both mined ores and recycled wastes, also contain metals.

46
Fertilizers Enrich our World:

Improvements in agricultural efficiency through research and technology increase food

output while protecting the environment and enriching our world in numerous ways. Fertilizers
feed the growing world. As the world’s population continues to climb toward an estimated 8.5
billion in 2040, experts estimate that food production must increase more than two percent
annually to even maintain current diets. Fertilizers protect the environment. The efficient use of
fertilizer also helps to conserve the natural environment. With fertilizers and modern high yield
farming practices, more food is produced per acre each year, so land may be conserved.
Fertilizers, used properly, help to prevent the widespread loss of habitat that results from
wasteful “slash and burn” low-yield farming, which is a major global environmental threat.

47
 COMPANY PROFILE

THE NAGARJUNA GROUP

Our founder Sri K.V.K. Raju (28.11.1928 – 16.06.1993) laid the foundation of the
Nagarjuna Group in 1974 with an investment of Rs. 50 millions. He was a visionary and a
professional technocrat entrepreneur who realized the importance of Core Sectors to an economy
like ours. He has guided the group with his philosophy.

48
 SERVING SOCIETY THROUGH INDUSTRY

Nagarjuna Fertilizers and Chemicals Limited (NFCL) is the first gas based fertilizer factory in
South India. The plant is based on the latest fertilizer technology from M/s. Snamprogetti, Italy
for Urea process with an installed capacity of 1500 Mt/day for each unit. The ammonia process
is based on technology from M/s. Haldor Topsoe, Denmark with an installed capacity of 900
MT/day per each unit.

The feed stock for unit – I is natural gas and feed stock for Unit – II is NG/Naphtha. The
current consumption of natural gas is 2.15 million standard cubic meters per day and 500 MT of
Naphtha per day. The natural gas is being received through pipe lines from Tatipaka situated 92
Kms away from the factory and is marketed by M/s Gas Authority of India Limited. Naphtha is
being supplied by M/s HPCL. The water requirement of 6.0 Million Gallons/day is received
from Samalkot Summer Reservoir through two pipelines.

Finance:

The total cost of the existing complex is Rs. 2156 crores (Rs. 1186 crores for Unit-I and
Rs. 970 crores for Unit – II). This consists of loan of Rs. 1,162 crores (Rs. 515 crores for Unit-I
and Rs. 647 crores for Unit – II) sanctioned by IDBI, IFCI, ICICI, UTI, LIC, GIC and also
Banks. The foreign exchange component of Rs. 781.07 crores was met by the Indian Financial
Institutions like IDBI, IFCI & ICICI and also by Italian Buyers credit.

49
 LIVING IN HARMONY WITH NATURE – NFCL’S
CONTRIBUTION TO ECOLOGY

Environmental protection is an avowed corporate philosophy and the plant is built on the
principle of zero-effluent discharge and is totally eco-friendly. NFCL’s aim is to maintain
ecological harmony, which is NATURE’S INVALUABLE AND BEAUTIFUL GIFT TO
MANKIND.

Man can live in harmony with the environment only when mankind is guided by respect
for the Mother Earth and all living things. Nagarjuna Fertilizers and Chemicals Limited believe
that Industry should exist in harmony with nature. In pursuance of the corporate vision, and as a
humble contribution to the Mother Nature, the complete ecological system in and around the
factory has been changed by establishing a K.V.K.RAJU SUNDARAVANAMU in an area of
747 acres surrounding the Complex.

The entire area has been covered with 4,50,000 plants consisting of 170 species,
transforming a once highly saline marshy area devoid of any vegetation into a lush green
arboreal park. The establishment of 1 KM wide KVK Sundaravanam is an integral part of
overall natural ecological system consisting of eleven water bodies for fish, habitat for animal
life and sanctuary for both indigenous as well as migratory birds with the factory nestled in the
most natural and idyllic surroundings created with dedication.

An integrated Environmental Management Plan (EMP) has been incorporated in the basic
design itself to ensure strict adherence to International Standards. The investment on pollution
control equipment in the Plant is close to Rs. 110 crores of capital investment and recurring
expenditure of Rs. 6 crores being spent annually for operating and maintaining the equipment.

50
MAIN FEATURES OF ECO-SYSTEM:

Aforestation:

740 acres of area has been planted with 4.5 lakh saplings of 170 species. Weak areas
have been planted with selected species based on criteria like tolerance to salinity; availability
from local sources and their ability survive with least maintenance. A full-fledged nursery with
mist chamber and sprinkler irrigation system has been developed for supply of plants to
aforestation programmed.

Animal Enclosures:

A deer park with spotted deer has been set up in an area of six hectares with chain-link
fence on all sides. Separate enclosures for birds, rabbits and certain other animals are made
available. Some of these animals like jungle cat, fox, jackals, mongooses, squirrels, bats, snakes,
and turtles are also being let out freely in this eco-system as a part of our animal conservation
programme.

Use of Treated Effluent:

The total treated effluent generated from the factory is being utilized through a network
of over 17 KM of PVC pipeline for sustenance of the eco-system to show the purity levels of the
effluents and the technological efficiency of the plant equipment.

Awareness Programme:

As a part of NFCL’s sincere endeavor to bring awareness about the benefits of cleaner
environment on the general standards of life, company has started “GREENING THE ROADS”
of Kakinada in Phases. As a part of this programme, flowering trees were planted on either side
of the 4 km length of roads from Bhanugudi Junction to Nagamallithota and from
Nagamallithota to NFCL. This programme is being extended to further areas in phases.

51
 VALUES STATEMENT OF NFCL
COMMITMENT

We the Associates of NFCL are committed to continuously evoking customer delight

through constant review and monitoring and delivering proactive value added solutions. We are
also committed to strive for satisfaction of all stakeholders in a balanced manner through
sustainable growth and profitability.

Excellence:

We shall continuously strive for Excellence in all dimensions of the Company through
teamwork, creativity and other means.

Ethics:

We shall strive for wholesome business relationships by adhering to the principles of

trusteeship, fair play and transparency in all our dealings that we shall practice a work cultural,
which is performance driven and conducive to in proving discipline, accountability and depth
character, team spirit and honesty in all our personal and professional relationships.

We shall build a learning organization where creativity, innovation, entrepreneurship and

knowledge sharing are encouraged and fostered actively

Concern:

We consciously recognize that the development of associates is inextricably linked to the

sustainable growth and profitability of the organization. Therefore, mutual care and concern
between the associates and the organization shall be our abiding value.

52
 NFCL’S VISION STATEMENT

SERVING SOCIETY THROUGH INDUSTRY

“For close to two decades, we at NFCL have predominantly been in the business of
manufacturing and marketing Urea, a segment of the plant Nutrition business space. Given our
cumulated experience and strengths in understanding the farmer, the agriculture, various
initiatives taken in the past, the exposure of Indian agriculture to global economy and therefore
the need for Indian farmers to be globally competitive, have realized the need to provide
innovative and comprehensive Plant Nutrition Solutions.

“The leadership we refer to in our Vision Statement is in terms of providing innovative

and creative solutions.”

53
 NFCL’S MISSION STATEMENT

We shall:

- Pioneer transformation in the approach to plant nutrition

- Deliver holistic plant nutrition solutions to the farmers
- Be the most preferred organization to be associated with
Pioneer transformation in the approach to plant nutrition we shall develop crop, site and stage
specific wholesome plant nutrition solutions. NFCL shall focus on all necessary initiatives
towards this – be it manufacturing technology, regulatory, logistics and using a mix of several
sciences and skills. The most preferred organization to be associated with in the process of
providing these solutions, NFCL shall delight all the stakeholders – employees, investors,
suppliers, customers and society at large. The stakeholders would prefer to be associated with us
not only for the higher value we offer, but also shall cherish their relationship with us due to the
way we deal with them – with full commitment, responsibility and accountability.

EMPLOYEE FOCUS:

NFCL’s aim to have the most satisfied employee base by the turn of the century through
its commitment to Personal and professional development of the individual.

 Rewarding teamwork, innovation and quality behavior

 Through job satisfaction
 Creating and sustaining a close-knit family culture wherein every individual
experience a sense of belonging.

54
Marketing:
NFCL is operating in Andhra Pradesh, Orissa, West Bengal, Maharashtra, Karnataka,
Pondicherry (Yanam territory). A professional team, with a wide range of products, that include
Urea, traded fertilizers (DAP, MOP, Complex fertilizers), Micro-nutrients, Pesticides, Organic
fertilizers and Bio-Pesticides, has taken NFCL very close to the farmers and made
NAGARJUNA a household name among the farming community

Keeping pace with the changes in agricultural practices NFCL has developed organic-
fertilizers and bio-pesticides with support from NARDI. A new concept in fertilizers i.e.,
Customized Fertilizer Granules (CFGs) has been developed and the product is in trials.

NFCL’s Development activities focus on imparting training to farmers and dealers on the
latest package of practices in various crops and technology transfer. Training programs are
carried out both on campus at KVK, Kakinada and off-campus at villages and towns. A Well-
equipped and trained development tem organizes the programs using audio-visual vans, jeeps,
slide projectors and literature on products and crops, etc. State Governments, Agriculture
Universities and the farming community as a whole have acknowledged the effectiveness of
development programs being carried out by NFCL.

55
 PERFORMANCE HIGHLIGHTS

SALES
TURNOVER NET PROFIT
YEAR PRODUCTION SALES
INCLUDING AFTER TAX
SUBSIDY

Ammonia Urea MFG Urea

(Rs. Crores) (Rs. Crores)
(MT) (MT) (MT)

1993-94 (8
188027 308453 251599 364.48 32.11
months)

1994-95 344498 591213 598787 606.51 127.86

1995-96 386357 675149 659094 843.14 192.89

1996-97 413390 708059 689767 882.27 221.18

1997-98 412694 716910 695154 922.49 155.24

1998-99 401627 689648 682836 795.88 122.10

1999-00 699110 1212607 1205376 1214.54 143.73

2000-01 751542 1297510 1283195 1435.96 113.50

2001-02 796024 1364794 1324497 1215.52 46.53

2002-03 706528 1221944 1217629 1062.69 39.70

2003-04 689263 1187259 1101776 748.65 57.47

2004-05 712534 1325467 1265376 1178.26 74.67

56
2005-06 723525 1382953 1256704 1385.63 85.35

2006-07 788471 1379220 1396927.35 1452.94 66.86

2007-08 756815 1324054 1310856.05 1815.24 31.71

2008-09 772584 1354490 1338302 2213.43 22.49

2009-10 782861 1378162 1397101 2383.90 32.41

2010-11 846533 1482103 1505484 2009.68 66.37

2011-12 942487 1655042 1647766 3101.12 118.07

57
CUSTOMER FOCUS:
In recognition that business is based on quality and integrity, NFCL’s aim to have the
most satisfied customer base by enhancing farmer productivity through forward integration on
the one hand, and through catering to industrial needs on the other. Unto this end, NFCL shall:

 Produce high quality products that give value for money

 Offer, both products and services
 Innovate to satisfy the real needs of customers
 Engage in fair, open and ethical practices.

SHAREHOLDER FOCUS:

NFCL aim to keep its shareholders satisfied by:

 Delivering the best long-term return on investment amongst all companies in the Indian agri-
business industry.
 Continuous growth and excellence in business performance.

58
 AWARDS AND HONOURS

 “EPIC” Award for Anti-Pollution measures taken by the Industry by Environment Public
interest Committee, Kakinada in 1993.
 Good Housekeeping Award for 1994 by National Safety Council, A.P. Chapter.
 Best Industrial Canteen Award for 1994 by National Safety Council, A.P. Chapter.
 Indian Chemical Manufacturer’s Association (ICMA) Award for “Environmental Control
Strategies and Safety in Chemical Plants” for the year 1994.
 Award of Merit for 1994-95 by National Safety Council, U.S.A. for completing 2 Million
Accident Freeman Hours.
 ISO 9002 Certification from Bureau Verities Quality International (BVQI), Netherlands, in
1995.
 Golden Peacock National Quality Award by Institute of Directors, New Delhi, India for
1995.
 British Safety Council’s National Safety Award for the five consecutive years, 1994, 1995,
1996, 1997 & 1998 and also for the year 2000.
 “Rajiv Gandhi Parti Bhoomi Mitra” Award for 1994-96 by Wasteland Development Board,
Government of India.
 National Safety Award for 1996 by National Safety Council, U.S.A.
 Award for Innovative and Purposeful Programme for Social Progress for the year 1996 by
Indian Chemical Manufacturer’s Association (ICMA), Mumbai.
 Merit Award for 1997 and 1998 by Royal Society for the Prevention of Accident (RSPA)
 “Best Workers” Welfare (including Family Planning) effort by an Industrial or Commercial
Unit in the State” for the year 1997-98 by Andhra Pradesh Chambers of Commerce &
Industry (FAPCCI)
 Golden Peacock National Award for environmental Management by World Environment
Foundation for the year 1998
 Paryavarana Parirakshak Award by Rotary International at Visakhapatnam for
the year 1998
 VANAMITRA – 1999 from Govt., of A.P. for Developing and Maintaining Greenbelt.

59
 Achieved 84% in OH & S – Audit conducted by British Safety Council, U.K. in January
2000.
 Best School Industry Linkage Award 2000 by NCERT – an Autonomous Organization of
Government of India – December 2000.
 Best Environmental Management Plan – 2000-01 in Vizag Zone by Andhra Pradesh
Pollution Control Board, Visakhapatnam.
 National Safety award for 2000-01 from British Safety Council, U.K.
 Best Environmental Improvement Effort by Industries located in the State in 2000-2001
from Federation of A.P. Chamber of Commerce and Industry, Andhra Pradesh.
 Bronze Award for Occupational Safety for the year 2001 by Royal Society for the
Prevention of Accident (ROSPA), UK
 Commendation Trophy jointly given by National Safety Council, A.P. Chapter &
Director of Factories, A.P. for Implementing OHSAS 18001 in March 2001.
 ‘Environmental Protection Award’ in Nitrogenous Fertilizer plants category for the year
2001-02 from Fertilizer Association of India, New Delhi.
 “Perfect Record” in Occupational Safety/Health Award Programme for operating two
million employee hours without occupational injury or illness for the period from
10.10.01 to 13.11.02 from National Safety Council (NSC) of USA.
 NFCL has bagged two awards from Indian Chemical Council, Mumbai for the year 2009-
10. The awards have come in the categories of “Water Resource Management in
Chemical Industry” under EHS Environment and “Certificate of Merit” for the ‘Best
Complaint under Responsible Care for Codes Environment Protection and Process Safety
management’.

 Shri K. Rosaiah, Chief Minister of Andhra Pradesh presented the “Best Management
cordial industrial relations and for effective implementation of employee welfare
activities on the eve of May Day at Hyderabad. Mr. R S Nanda, Director & Chief
Operating Officer received the award on behalf of the Company.

60
 Award” for the year 2009-10 to NFCL for maintaining excellent NFCL has bagged
‘FE – EVI Green Business Leadership’ Best Performer award for the year 2009-10
under Chemicals and Fertilizers category organized by The Financial Express &
Emergent Ventures in India.

61
 OTHER GROUP COMPANY / INSTITUTIONS
 Nagarjuna Investors Services Limited

 Nagarjuna Agri Chem Limited

 Nagarjuna Palma India Limited

 Nagarjuna Agricultural Research & Development Institute

 KVK Raju International Leadership Academy

 Nagarjuna power Corporation Limited

 Nagarjuna Haifa India Limited

 Nagarjuna Oil Corporation Limited

 Bijam Biosciences Limited

 Nagarjuna Foundation

62
NFCL WINS GAS CONSERVATION AWARD FROM GAIL:

Fertilizer facility of Nagarjuna Fertilizers and Chemicals Limited in Kakinada has been
selected for the ‘Award for Excellence in Natural Gas Conservation’ in the ‘Fertilizers
Sector’ category for its outstanding contribution to natural gas conservation in the country during
2004-05.

This annual award has been instituted by Gas Authority of India Limited (GAIL) as
recognition of the excellent work done by the organizations in Gas Conservation. GAIL has
been conducting a nation-wide Natural Gas Conservation Programme, meant to spread the word
of conservation of this precious natural resource. All the natural gas using industries like power,
fertilizer, steel, sponge iron, transport, glass, ceramic and petrochemicals would be considered
for this award.

This is the 4th achievement of NFCL for its excellence in different departments during
2005. These include; 5 star rating in O.H & S Audit from British Safety Council, UK.
Commendation Award in “Leadership and Excellence Awards in Safety, Health & Environment
(SHE) 2004”, by Confederation of Indian Industry,

Southern Region, Chennai. Re-certification for ISO 9001: 2000 by Bureau Verities
Quality International (BVAI) for quality management systems. And NFCL also received
Environment Protection Award from Fertilizers Association of India.

NFCL wins the prestigious Environment Protection Award from the Fertilizer
Association of India

Nagarjuna Fertilizers and Chemicals Limited (NFCL) the flagship company of the
Nagarjuna Group has won the prestigious FAI (Fertilizer Association of India) Environment
Protection Award in the Nitrogenous fertilizer plants category for the year 2004-05. NFCL had
won the same award for 2001-02 also. Going much beyond the statutory requirements of law for
environment protection, NFCL has implemented a comprehensive protection plan in its plant at
Kakinada. NFCL has been widely acknowledged for its Commitment to the betterment of
Environment and this award further adds to the long list of recognition.

63
 NFCL has also won two more awards from FAI. A video film titled “The Sugarcane”
produced by NFCL was adjudged Runner-up in the Annual Video Film Competition by FAI for
the year 2004-05. The video film has been developed with the objective to transfer technology
and to enhance the yield of sugarcane farmers in Andhra Pradesh. For NFCL, this is the second
consecutive year of winning in this category. An article titled “From Products to Solutions –
Exploring Opportunities” published in the September 2005 issue of the Indian Journal of
Fertilizers was awarded the Second prize in the category of Shriram Award for Best article in
Marketing.

Bureau Verities Quality International (BVQI) awards re-certification of ISO

9001:2000 for Nagarjuna Fertilizers and Chemicals Limited.

Nagarjuna Fertilizers and Chemicals Limited (NFCL) have been re-certified of ISO
9001:2000 by Bureau Verities Quality International (BVQI), for its Quality Management
Systems. The Flagship Company of the Nagarjuna Group has already been an ISO 9001:2000
organization since 1995. This re-certification, which is valid up to February 2008, is only an
extension of recognition for company’s excellent quality management systems.

BVQI team has done the re-certification audit during February at NFCL plant Kakinada.
After conducting audit in Plant Operations and Area Marketing Offices BVQI sent a certificate
to NFCL in which it mentioned “Quality Management System of the Nagarjuna Fertilizers and
Chemicals Limited has been audited and found to be in accordance with the requirements of the
standards ISO 9001:2000”.

BVQI is today the most widely recognized certification body in the world, offering
solutions in the key strategic fields of companies operations: Quality, Health and Safety,
Environment and Social Responsibility. It is recognized by more than 30 national and
international accreditation bodies across the world to deliver ISO 9001 certification.

64
Nagarjuna Fertilizers and Chemicals Limited Awarded the prestigious 5 star
Rating by the British Safety Council, U.K:

Nagarjuna Fertilizers and Chemicals Limited (NFCL), the flagship company of the
Nagarjuna Group has been awarded the highly coveted 5 star rating by the British Safety
Council, U.K. After a detailed Health and Safety Management System Audit conducted during
the month of January 2005, the British Safety Council has awarded an ‘Excellent’ rating (Score
of 92.39%) to NFCL’s manufacturing facility at Kakinada. The audit covered eight areas of
NFCL’s management systems leading to best practices, Fire Control Systems, Measurement and
Control Systems, Workplace implementation, Verification, Best practice and Continuous
improvement.

The British Safety Council (BSC) is one of the world’s leading occupational health,
safety and environmental organizations. BSC’s Five Star Health and Safety Management
System Audit is a benchmark for best practices. It provides a detailed examination of the
organization’s current practices, and gives a comprehensive report and plan for implementing,
monitoring and achieving continuous improvement. It is based on the Business excellence Model
and goes beyond HS (G) 65 and OHSAS 18001 to measure how far an organization has gone
towards achieving best practice.

Information Technology & Communications Department, Government of

Andhra Pradesh signs MoU with IKisan Limited:

To provide agriculture related information and services through Rajiv

Internet Village Centers / (RSDPs/Rural eSeva Centers):

In its efforts towards Grameen Vikas aimed at alleviating rural poverty and ensuring
agricultural development, the Information Technology & Communications Department,
Government of Andhra Pradesh today signed a MoU with IKisan Limited to provide agricultural
related information and services to the vast farming community of the state through Rajiv
Internet Village Centers (RSDPs/Rural eSeva Centers).

65
 The Information Technology and Communications Department has already set up 1200
kiosks spreading across the state under the Rural Service Delivery Point Project (RSDP) in rural
areas to serve as centers of e-commerce and information dissemination. Ikisan Limited has
partnered with the Information Technology & Communications Department to provide
agriculture information software and services in these kiosks. The modules will be in Telugu
and voice enabled addressing the needs of rural population comprising mainly of farmers. The
kiosk operators will be provided training by Ikisan Limited enabling them to effectively utilize
the software and other applications for the benefit of agriculturists.

Ikisan Limited is a pioneer in Agri-Portals in India. A Nagarjuna Group initiative,

Ikisan.com is a comprehensive Agri Portal addressing the Information, knowledge and business
requirements of various players in the Agri arena viz., Farmers, Trade Channel partners and Agri
Input/output companies. Leveraging Information Technology and extensive field presence,
Ikisan is positioned as an Information/Output companies. Leveraging Information Technology
and extensive field presence, Ikisan is positioned as an Information/Knowledge exchange and an
e-Marketplace. An integrated agriculture group, Nagarjuna has core competencies in the fields
of plant nutrition, plant protection, and irrigation and farm services.

Our Values:

Deliver solutions that will please our customers deliver returns that motivate out investors
take actions that strengthen us and inspire the best in others (by setting an example in
relationship, integrity, honesty, humility and hard work).

By understanding the deep and fundamental needs of our people, our customers our
Investors and our Ecosystem (Alliances, Community and Environment).

66
The Group:

Founded in 1973 by Shri K.V.K. Raju with a modest investment of US$ 23 million, the
Nagarjuna Group Today is a prominent industrial house in India with an asset base of US$ 2.5
billion.

1974: Birth of a business group that pioneered several core sector enterprises in the coming
decades. Starting with manufacturing steel, Nagarjuna Steels Limited was launched.

1985: With focus on agriculture input business started plant nutrition business with Nagarjuna
Fertilizers and Chemicals Limited

1992: Forayed into the Crop Protection Business with Investments in Pesticide Formulations
manufacturing followed by Technical Grade Manufacturing in the year 1994.

1994: Micro irrigation business started to address the irrigation problems of farmers living in
water and energy scarce regions.

1995: Ventured into Energy Sector. Entered into power generation by setting up Nagarjuna
Power Corporation Limited.

1997: Entered into petroleum by setting up Nagarjuna Oil Corporation Limited.

Consolidating its core activities, today the Group’s major operations cover Agri and energy
sectors.

67
 The circles, which stand for the core
values of the organization viz., concern,
commitment, quality and integrity towards
its stakeholders viz., customers,
employees, investors and community.
The central circle symbolizes the Sun, the
source of prime energy for the solar
system. The five circles also symbolize
the five elements of the Universe and the
spirit of continuity.
The new corporate logo of the Nagarjuna
Group symbolizes a dynamic and value-based The triangle represents the planet

organization, actualizing the concept of Mars. Mars, from time immemorial has

Trusteeship. symbolized prosperity, success and

abundance of energy. The triangle in the
logo represents the upward flow of
perennial energy towards the mission of
the group “Serving Society through
Industry”

WELFARE MEASURES IN NFCL:

68
 It has taken several welfare measures to improve the general working conditions. They
are given below:

- A.C. Facilities
- Drinking Water Facilities
- Lockers given to employees for keeping their belongings
- Annual Medical Examination
- First Aid Boxes at several locations
- Library Facilities
- School for children of NFCL employees
- Employees State Insurance Facilities
- Uniform to all Employees
- Group’s savings linked Insurance Scheme
- Protective wear like helmets
- Transport facilities
- Canteen facilities
- Housing Loan facilities

NFCL OBJECTIVES:

 Performance management
 High performance potential
 Individual growth potential
 Belief in Youth
 High Result Orientation
 Law procedure orientation
 Entrepreneurial Development
 Distinct Nagarjuna Group Ethos
 High sense of respect for value of time and money Harmonious employee
relations
 Development of Human Resources on a continuous basis
 Highest importance to human values

69
 Objectives assessment of individual performance
 Disciplined behavior of all employees
 Belief in system management
 Belief dynamism
 Belief in multi skilled concept

70
CHAPTER 4

71
 ANALYSIS

SWOT ANALYSYS:

1. STRENGHTS: A broad and modern product range good corporate image especially in
Andhra Pradesh excellent dealer network in most of the other states open work culture
and good working environment qualified trained and motivated team quality assurance
system ISO – 9000 location advantage of plant.

2. WEAKNESSES: Broad product range is not synergies yet. In adequate information

system and coordination between area offices and lead offices. In adequate marketing
database/market information. Procedural bottlenecks some complacency about market
retention. Inadequate reporting systems.

3. OPPORTUNTIES: Huge gap between usage outside and inside India. Expansion
object offering double the quantity. New irrigation projects increasing the demand.

4. THREATS: Decontrol, Joint ventures, International cartels. No availability of raw

materials in future.

72
 CHANGES IN WORKING CAPITAL STATEMENT

For the year ended 31st March 2018

Rs. Crore

PARTICULARS 2017 2018 Increase Decrease

CURRENT ASSETS:

Inventories 212.49 145.27 .29 67.22

Trade receivables 1192.32 1697.90 505.58

Cash & cash equivalents 114.31 71.99 42.32

Short term loans &advances 33.17 33.09 0.08

Other current assets 33.20 94.45 61.25

--------------- --------------

TOTAL C.A 1585.49 2042.71

CURRENT LIABILITIES:

Short term borrowings 1013.07 1045.17 32.1

Trade payable 947.44 1462.75 515.31

Other current liabilities 196.60 220.94 24.34

Short term provisions 1.29 3.25 1.96

--------------- --------------

73
TOTAL C.L 2158.39 2732.11

(A-B) W.C (572.9) (689.4)

DECREASE IN W.C 116.5 116.5

(689.4) (689.4) 683.33 683.33

TOTAL

CHANGES IN WORKING CAPITAL STATEMENT

For the year ended 31st March 2017

Rs. Crore

PARTICULARS 2016 2017 Increase Decrease

74
CURRENT ASSETS:

Inventories 228.16 212.49 .29 15.67

Trade receivables 1989.99 1192.32 797.67

Cash & cash equivalents 94.07 114.31 20.24

Short term loans &advances 2.06 33.17 31.11

Other current assets 58.59 33.20 25.39

--------------- --------------

TOTAL C.A 2372.87 1585.49

CURRENT LIABILITIES:

Short term borrowings 934.37 1013.07 78.7

Trade payable 1655.18 947.44

707.74
Other current liabilities 168.91 196.60 27.69

Short term provisions 1.28 1.29 0.01

--------------- --------------

TOTAL C.L 2759.74 2158.39

(A-B) W.C (386.87) (572.9)

186.03
DECREASE IN W.C 186.03

(572.9) (572.9) 945.12 945.12

TOTAL

75
 CHANGES IN WORKING CAPITAL STATEMENT

For the year ended 31st March 2016

Rs. Crore

PARTICULARS 2015 2016 Increase Decrease

76
CURRENT ASSETS:

Inventories 164.80 228.16 63.36 .29

Trade receivables 1070.37 1989.99 919.62

Cash & cash equivalents 78.10 94.07 15.97

Short term loans &advances 69.47 2.06 67.41

Other current assets 2.52 58.59 56.07

--------------- --------------

TOTAL C.A 1385.26 2372.87

CURRENT LIABILITIES:

Short term borrowings 1002.59 934.37 68.22

Trade payable 1012.50 1655.18 642.68

Other current liabilities 241.18 168.91 72.27

Short term provisions 2.98 1.28 1.7

--------------- --------------

TOTAL C.L 2259.24 2759.74

(A-B) W.C (873.98) (386.87)

INCREASE IN W.C 487.11 487.11

(386.87) (386.87) 1197.21 1197.2

TOTAL

77
 CHANGES IN WORKING CAPITAL STATEMENT

For the year ended 31st March 2015

Rs. Crore

PARTICULARS 2014 2015 Increase Decrease

78
CURRENT ASSETS:

Inventories 251.21 164.80 .29 86.41

Trade receivables 1329.53 1070.37 259.16

Cash & cash equivalents 93.44 78.10 15.34

Short term loans &advances 174.69 69.47 105.22

Other current assets 3.66 2.52 1.14

--------------- --------------

TOTAL C.A 1852.53 1385.26

CURRENT LIABILITIES:

Short term borrowings 1214.54 1002.59 211.95

Trade payable 877.54 1012.50 135.05

Other current liabilities 208.39 241.18 32.79

Short term provisions 36.33 2.98 33.35

--------------- --------------

TOTAL C.L 2336.81 2259.24

(A-B) W.C (484.28) (873.98)

DECREASE IN W.C 389.7 389.7

(873.98) (873.98) 635.11 635.11

TOTAL

79
 CHANGES IN WORKING CAPITAL STATEMENT

For the year ended 31st March 2014

Rs. Crore

PARTICULARS 2013 2014 Increase Decrease

80
CURRENT ASSETS:

Inventories 243.31 251.21 7.9 .29

Trade receivables 2439.01 1329.53 1109.48

Cash & cash equivalents 325.57 93.44 232.13

Short term loans &advances 85.67 174.69 89.02

Other current assets 10.39 3.66 6.73

--------------- --------------

TOTAL C.A 3103.95 1852.53

CURRENT LIABILITIES:

Short term borrowings 2512.19 1214.54 1297.65

Trade payable 407.14 877.54 470.4

Other current liabilities 338.87 208.39 130.48

Short term provisions 19.89 36.33 16.44

--------------- --------------

TOTAL C.L 3278.09 2336.81

(A-B) W.C (174.14) (484.28)

DECREASE IN W.C 310.14 310.14

(484.28) (484.29) 1835.19 1835.18

TOTAL

81
 1. LIQUIDITY RATIO:
 Current Ratio
The current ratio is the measure of the firm’s short term solvency. It indicates the availability
of current assets in rupees for every one rupee of current liability.

Rs. Crore

Year Current Assets Current Liabilities Current Ratio

2013-2014 1852.53 2336.81 0.79
2014-2015 1385.26 2259.24 0.61
2015-2016 2372.87 2759.74 0.85
2016-2017 1585.49 2158.39 0.73
2017-2018 2042.71 2732.11 0.74

Graph

Current Ratio
0.9 0.85
0.79 0.74
0.8 0.73
0.7 0.61
0.6
0.5
0.4
0.3 Column2
0.2
0.1
0
4 5 6 7 8
2 01 2 01 2 01 2 01 2 01
1 3- 1 4- 1 5- 1 6- 1 7-
20 20 20 20 20

Interpretation

The ideal current ratio of current assets and current liabilities is 2:1. From the graph it can be
inferred that there are no sufficient current assets for the organization. The Current ratio of all
the 5 years shown in the table is less than 1.The Company cannot enjoy adequate liquidity which
means the company is struggling to meet its current obligations.

82
  Quick Ratio

Quick ratio establishes a relationship between quick or liquid assets and current liabilities.

Rs. Crore

Year Quick Assets Current Liabilities Ratio

2013-2014 1601.32 2336.81 0.68
2014-2015 1220.46 2259.24 0.54
2015-2016 2144.71 2759.74 0.77
2016-2017 1373.00 2158.39 0.63
2017-2018 1897.44 2732.11 0.69

Graph

Quick Ratio
0.9
0.8 0.77
0.68 0.69
0.7 0.63
0.6 0.54
0.5
Series 3
0.4
0.3
0.2
0.1
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation

The acceptance rule for quick ratio is 1:1. There are so many fluctuations in this ratio
year to year. The company has highest quick ratio in the year 2015-2016 i.e 0.77. The lowest of
the liquidity is recorded as 0.54 in the year 2014-2015.

 Absolute Liquid Ratio

83
 Since cash is the most liquid asset, a financial analyst may examine cash ratio and its
equivalent current liabilities.

Rs. Crore

Year Absolute Liquid Assets Current Liabilities Ratio

2013-2014 93.44 2336.81 0.039
2014-2015 78.10 2259.24 0.034
2015-2016 94.07 2759.74 0.034
2016-2017 114.31 2158.39 0.052
2017-2018 71.99 2732.11 0.026

Graph

Absolute Liquid Ratio

0.06
0.05
0.05

0.04
0.04
0.03 0.03
Series 3
0.03 0.03

0.02

0.01

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation

The ideal Absolute Liquid Ratio of Absolute liquid assets and current liabilities is 1:2. From
the graph it is inferred that the company has no sufficient Absolute Liquid Assets. Amongst all
the years the high ratio of absolute liquid assets is 0.052 during the year 2016-2017.

84
2. LEVERAGE RATIO

 Debt equity ratio

This ratio shows the relationship between borrowed funds and owners capital which is
the popular measure of the long term financial solvency of the firm.

Rs. Crore

Year Total Debt Net Worth Debt Equity Ratio

2013-2014 1406.31 2162.97 0.65
2014-2015 1191.44 1701.63 0.70
2015-2016 1678.07 1213.81 1.38
2016-2017 1571.88 1092.35 1.43
2017-2018 1453.41 1073.22 1.35

Graph

Leverage Ratio
1.6 1.43
1.38 1.35
1.4
1.2
1
Series 3
0.8 0.65 0.7
0.6
0.4
0.2
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation

A Debt Equity ratio is considered ideal if it is 1:1. It is inferred that the company is
maintaining good Debt Equity ratio since 2015. Highest Debt Equity ratio is 1.43 which is

85
maintained in the year 2016-2017. The graph states that the company has overcome the crisis
situation.

3. ACTIVITY RATIO

Activity Ratios are employed to evaluate the efficiency with which the firm
manages/utilizes its assets. These are also called Turn Over ratios because they indicate how
fastly assets convert into sales.

 Total Assets Turnover Ratio

It is the Ratio of sales to Total Assets.

Rs. Crore

Year Sales Total Assets Ratio

2013-2014 3448.43 4942.14 0.69
2014-2015 2531.52 4290.75 0.58
2015-2016 3969.85 5207.22 0.76
2016-2017 3376.27 4294.64 0.78
2017-2018 3921.39 4691.93 0.83
Graph

Activity Ratio
0.9 0.83
0.76 0.78
0.8
0.69
0.7
0.58
0.6
0.5 Series 3
0.4
0.3
0.2
0.1
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Interpretation

The increase in total assets may not be an indicator in ratio. But sales help in the increase
of the financial conditions of the organization. The assets turnover ratio shows the firms

86
efficiency of utilizing the assets to maximize its sales. Highest ratio is observed in the year 2017-
2018. Least ratio is recorded in the year 2014-2015.

 Working Capital Turnover Ratio

A firm may also like to relate net current (or) networking capital to sales. Working capital
determines the liquidity positions of the firm and measures the ability of the firm to meet its
current obligations.

Rs. Crore

Year Sales Net Working Capital W.C.T.O ratio

2013-2014 3448.43 -484.28 -7.12
2014-2015 2531.52 -873.98 -2.90
2015-2016 3969.85 -386.87 -10.26
2016-2017 3376.27 -572.9 -5.89
2017-2018 3921.39 -689.4 -5.69
Graph

0
-7.12 Working Capital Turnover Ratio
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
-2

-2.9
-4

-6 -5.69
-5.89

-8
Series 3

-10
-10.26
-12

Interpretation

From the graph it is inferred that there is a scarcity in the working capital of the
organization. The trend indicates that the company is unable to meet the daily working expenses.

87
There is a major loss in the year 2015-2016 i.e -10.26. But the company is able to manage 2014-
2015 with minimum loss of -2.9. The company has to mainly focus on how to increase financial
position of the firm.

4. PROFITABILITY RATIO

The profitability ratio measures the profitability or the operational efficiency of the firm.
These ratios reflect the finance result of business operations. The result of the firm can be
evaluated in terms of its earnings with reference to given level of assets or owners interest etc.

 Net Profit Ratio

The net profit ratio indicates the overall measure of the firm’s ability to turn each rupee sales in
to net profit.

Rs. Crore

Year Profit After Tax Sales Net Profit Ratio

2013-2014 -236.56 3448.43 -0.068
2014-2015 -360.16 2531.52 -0.142
2015-2016 -89.30 3969.85 -0.022
2016-2017 -121.79 3376.27 -0.036
2017-2018 -21.54 3921.39 -0.005

Graph

88
 -0.07 -0.01
0 Net Profit Ratio
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
-0.02
-0.02
-0.04 -0.04
-0.06
-0.08
-0.1 Series 3

-0.12
-0.14
-0.14
-0.16

Interpretation

The higher the ratio, the more profitable is the business. A high net profit margin would
ensure adequate return to the owners of an organization. But, the graph states that there is no
adequate net profit ratio for the firm. The company suffered this position very badly in 2014-
2015. The maximum ratio is observed in the year 2017-2018.

89
CHAPTER 5

90
 FINDINGS

 The ideal current ratio of current assets and current liabilities is 2:1. From
the graph it can be inferred that there are no sufficient current assets for the
organization. The Current ratio of all the 5 years shown in the table is less
than 1.The Company cannot enjoy adequate liquidity which means the
company is struggling to meet its current obligations.

 Absolute liquidity ratio shows that the company is not in a good position to
meet its obligations, because of the trend in the ratio observed in the last five
years.

 NFCL fix the price of their products according to the “ESSENTIAL

COMMODITY ACT” enacted by the government.

 NFCL occupies dominant role in the Indian fertilizer industry.

 In order to achieve the goals of the organization as whole and achievement

of performance appraisal technique is very useful.

 The company follows SAP for their financial transactions, so that no chance
for misinterpretations.

91
 SUGGESTIONS

 The company’s Working capital turnover ratio should be maintained

appropriately in order to meet its current obligations.

 The company should maintain adequate levels of the liquidity. Current ratio
in high funds should be kept idle, it must be utilized efficiently.

 The company can gain more profits if it can get cheaper financial resources
by decreasing its interest components.

 The company should reduce the collection period after sales to uplift the
liquidity condition.

 The company should try to reduce external liabilities, having to pay high
EPS.

 The company should make arrangements of receivables and cash.

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 CONCLUSION

 The company continues to operate efficiently and the fertilizer operations of

the company are viable and profitable.
 The discipline of financial transactions of the company is observed good.
The implementation of SAP helps it in maintaining clear transactional
details.
 The company can gain more if it can get cheaper financial resources by
decreasing its interest components.
 The interaction with the managers of the company helped us to know and go
through various financial operations of the company.

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 BIBLIOGRAPHY

Company’s Annual Reports

Data collected from the manager.

Information from the company website: www.nfcl.com

Text books:

FINANCIAL MANAGEMENT by I.M.PANDEY

FINANCIAL MANAGEMENT by M.Y.KHAN & P.K.KHAN

FINANCIAL MANAGEMENT by SUDHINDRA BHAT

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