ACKNOWLEGEMENT

It gives me immense pleasure to present this project report on Operating Principles of Working Capital Management carried out at Numaligarh Refinery Limited for the partial fulfillment of requirement of PGDM Degree. No work can be carried out without the help and guidance of various persons .I m happy to take this opportunity to express my gratitude to those who have been helpful to me in completing this project report. At the very outset, I would like to thank my authorities at MIME for permitting me to undertake the summer project at Numalighar Refinery limited, Assam I am very much indebted to the management at Numaligarh Refinery Limited for accepting my application to undergo the summer internship at NRL. I would like to offer my sincere gratitude to my organization Nandan Raj Barooah, Accounts Officer (Finance & Accounts), for his valuable al guide, Mr. Nanda guidance and suggestions in spite of his busy schedule and my institutional guide for his valuable help and guidance. Finally, I express my gratefulness to the Mr. Nagen Kalita, Sr. Manager (T&D) and Mr. Manoj Das, Manager (T&D) for their cordial acceptance and for providing the resources without which the project wouldnt have been possible.

CONTENTS
CHAPTER NO PARTICULARS CERTIFICATE ACKNOWLEDGEMENT CONTENTS LIST OF TABLE LIST OF CHART CHAPTER NO 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 CHAPTER NO 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 CHAPTER NO 3 ABSTRACT INTRODUCTION TO THE STUDY Project title Duration of study Organization guide Institution guide Objective of the study Research methodology Scope and limitations WORKING CAPITAL MANAGEMENT Introduction to working capital Definition Need of working capital The importance of good working capital management Concept of working capital Types of working capital Determinants of working capital Working capital cycle INDUSTRY PROFILE & COMPANY PROFILE
2

PAGE NO

3.1 3.2 3.3 3.4 3.5 CHAPTER NO 4 4.1

History of oil refineries in India Current industry scenario Growth Refineries in India Numaligarh Refinery Limited -An organization profile WORKING CAPITAL ANALYSIS WORKING CAPITAL MANAGEMENT COMPONENT Receivable management -credit policy -credit cycle -average collection period Inventory management -objective of inventory management -size of inventory of NRL -Inventory components

4.2

WORKING CAPITAL LEVEL Working capital trend analysis -current assets -current liabilities -changes in working capital

4.3 4.4

WORKING CAPITAL LEVERAGE WORKING CAPITAL RATIO ANALYSIS Introduction Role of ratio analysis Limitation of ratio analysis Classification of ratio analysis Calculation of Efficiency ratios Calculation of Liquidity ratios
3

4.5 CHAPTER NO 5 5.1 5.2 5.3 5.4

Operating cycle of NRL

INSIGHTS ABOUT THE ORGANIZATION FINDINGS RECOMMENDATION CONCLUSION

ABSTRACT.

Working capital typically means the firms holding of current or short-term assets such as cash, receivables, inventory and marketable securities. These items are also referred to as circulating capital .Corporate executives devote a considerable amount of attention to the management of working capital. There are two possible interpretations of working capital concept -Balance sheet concept & Operating cycle concept. There are two interpretations of working capital under the balance sheet concept. 1. Excess of current assets over current liabilities 2. Gross or total current assets. Operating cycle concept: A companys operating cycle typically consists of three primary activities: Purchasing resources, Producing the product and Distributing (selling) the product. These activities create funds flows that are both unsynchronized and uncertain. Unsynchronized because cash disbursements (for example, payments for resource purchases) usually take place before cash receipts (for example collection of receivables).They are uncertain because future sales and costs, which generate the respective receipts and disbursements, cannot be forecasted with complete accuracy. So this study on working capital management in reference to Numalighar Refinery Limited helps us to understand how the organization estimate, manage and forecast the working capital. This study is an effort to understand the operative facet of the existent theories on working capital management from the vantage point of Numaligarh Refinery Limited (NRL). The study is based on the information provided by the employees at NRL through
6

questionnaires and one-to-one discussions. And also data collected from the annual report of five years that is from financial year 2004-05 to 2008-09.

CHAPTER 1

INTRODUCTION TO

THE STUDY

 1.1 PROJECT TITLE 1.2 DURATION OF STUDY 1.3 ORGANISATION GUIDE 1.4 INSTITUTIONAL GUIDE 1.5 OBJECTIVE OF STUDY 1.6 RESEARCH METHODOLOGY 1.7 SCOPE AND LIMITATIONS

CHAPTER 1 INTRODUCTION TO THE STUDY 1.1 PROJECT TITLE A study on operating principles of working capital management with reference to Numaligarh Refinery Limited 1.2DURATION OF STUDY (May-June) 2010

1.3ORGANISATION GUIDE Mr. Nandan Raj Barooah Accounts Officer (Finance& Accounts) Numaligarh Refinery Limited 1.4INSTITUTIONAL GUIDE Dr BRR Senior lecturer (Finance Dept) Mats Institute of Management and Entrepreneurship 1.5 OBJECTIVE OF THE STUDY The overall objective of the study is to develop a clear understanding of the facets of working capital management with reference to the corporate environment at Numaligarh Refinery Limited. Study of the working capital management is important because unless the working capital is managed effectively, monitored efficiently planed properly and reviewed periodically at regular intervals to remove bottlenecks if any the company cannot earn profits and increase its turnover With this primary objective of the study, the following further objectives are framed for a depth analysis.

To study the working capital management of NRL To study the optimum level of current assets and current liabilities of the company To study the liquidity position through various working capital related ratios. To study the working capital components such as receivables account, cash management, inventory position. To study the way and mean of working capital finance of NRL.
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 To estimate the working capital requirement of NRL To study the operating and cash cycle of the company.

1.6 RESEARCH METHODOLOGY INTRODUCTION Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying the research work systematically. In that various step, those are generally adopted by a researcher in studying his problem along with the logic behind them. It is important for researcher to know not only the research method but also know methodology. The procedure by which researchers go about their work of describing, explaining, and predicting phenomenon are called methodology. Methods comprise the procedures used for generating, collecting, and evaluating data. All this means that is necessary for the researcher to design his methodology for his problem as the same may differ from problem to problem. Data collection is important step in any project and success of any project will be largely dependent upon how much accurate one will be able to collect the necessary data. There are two types of data collection method: 1) Primary data- The primary data is that data which is collected fresh or first hand, and for first time which is original in nature. Primary data can collect through personal interview, questionnaire etc. to support the secondary data. 2) Secondary data collection The secondary data are those which have already collected and stored. Secondary data easily get those secondary data from records, journals, annual reports of the company etc. It will save the time, money and efforts to collect the data. Secondary data also made available through trade magazines, balance
10

sheets, books etc The study is based on the facts and figures provided by the employees of the finance department at Numaligarh Refinery limited through questionnaires, one-one discussion and various published materials. It is a two-phased exploratory study. The study was carried out in two phases: Phase1: Exploratory Phase In this phase, qualitative research was conducted through a series of in-depth discussions with the Accounts Officer of the Finance & Accounts Department of Numaligarh Refinery Limited, who also supervised this study. These discussions were conducted over a period of two month. Phase2: Extended Exploratory Phase A questionnaire was developed on the qualitative findings and the theoretical knowledge base. The questionnaire consisted of descriptive questions regarding the basic working capital management at Numaligarh Refinery Limited and was administered to the employees at the Finance and Accounts Department of the organization. The basic objective of administering this questionnaire was to collect the relevant basics from the employees who were constrained by time limits. In this study the questionnaire was an aid only to gather the qualitative information.

1.7 SCOPE AND LIMITATION OF THE STUDY. The scope of the study is identified after and during the study is conducted. The study of working capital is based on tools like trend Analysis, Ratio Analysis working capital leverage, operating cycle etc. Further the study is based on last 5 years Annual Reports of Numaligarh Refinery Ltd. Limitations of the study
11

Following limitations were encountered while preparing this project: a) Limited data This project has been completed with annual reports; it just constitutes one part of data collection i.e. secondary. There were limitations for primary data collection because of confidentiality b) Limited period This project is analysis part is based on five years annual report. Conclusions and recommendation are based on such limited data. So the trend may or may not reflect the actual position of working capital of the company. c) Limited area Also it was difficult to collect the data regarding the competitors and their financial information. Also industry figures are difficult to get

CHAPTER 2 WORKING CAPITAL MANAGEMENT

12

 2.1 INTRODUCTION TO WORKING CAPITAL 2.2 DEFINATION 2.3 NEED OF WORKING CAPITAL 2.4 THE IMPORTANCE OF GOOD WORKING CAPITAL MANAGEMENT 2.5 CONCEPT OF WORKING CAPITAL 2.6 TYPES OF WORKING CAPITAL 2.7 DETERMINANTS OF WORKING CAPITAL 2.8 WORKING CAPITAL CYCLE.

2.1 INTRODUCTION WORKING CAPITAL MANAGEMENT Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working
13

capital involves managing inventories, accounts receivable and payable, and cash. Corporate executives devote a considerable amount of attention to the management of working capital. 2.2 DEFINATION Working Capital refers to that part of the firms capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.

2.3 NEED OF WORKING CAPITAL MANAGEMENT . Different industries have different optimum working capital profiles, reflecting their methods of doing business and what they are selling. Businesses with a lot of cash sales and few credit sales should have minimal trade debtors. Supermarkets are good examples of such businesses; Businesses that exist to trade in completed products will only have finished goods in stock. Compare this with manufacturers who will also have to maintain stocks of raw materials and work-in-progress. Working capital needs also fluctuate during the year. The working capital would not typically be a constant figure businesses operate in industries that have seasonal changes sales, stocks, debtors, etc. would be at higher levels at some than at others. amount of funds tied up in throughout the year. Many in demand. This means that predictable times of the year

In principle, the working capital need can be separated into two parts: A fixed part, and A fluctuating part The fixed part is probably defined in amount as the minimum working capital requirement for the year. It is shown in the diagram below:

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2.4 THE IMPORTANCE OF GOOD WORKING CAPITAL MANAGEMENT Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash. Working capital constitutes part of the Crown's investment in a department. Associated with this is an opportunity cost to the Crown. (Money invested in one area may "cost" opportunities for investment in other areas.) If a department is operating with more working capital than is necessary, this over-investment represents an unnecessary cost to the Crown.
15

From a department's point of view, excess working capital means operating inefficiencies. In addition, unnecessary working capital increases the amount of the capital charge which departments are required to meet from 1 July 1991. There are many aspects of working capital management which make it an important function of the financial manager
1. TIME: working capital management requires much of the financial managers time. 2. INVESTMENT: working capital represents a large portion of the total investments

in assets.
3. CRITICALITY: working capital management has great significant for all firms but

it is very critical for small firms.

4. GROWTH: the need for working capital is directly related to the firms growth.

2.5 CONCEPT OF WORKING CAPITAL: The concept of Working Capital includes Current Assets and Current Liabilities both. There are two concepts of Working Capital they are Gross and Net Working Capital. 1. Gross Working Capital: Gross Working Capital refers to the firm's investment in Current Assets. Current Assets are the assets, which can be converted into cash within an accounting year or operating cycle. It includes cash, short-term securities, debtors (account receivables or book debts), bills receivables and stock (inventory). 2. Net Working Capital: Net Working Capital refers to the difference between Current Assets and Current Liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. It includes creditors or accounts payables, bills payables and outstanding expenses. Net Working Copulate can be positive or negative. A positive Net Working Capital will arise when Courtney Assets exceed Current Liabilities and vice versa. 2.6 TYPES OF WORKING CAPITAL

16

The operating cycle creates the need for current assets (working capital). However the need does not come to an end after the cycle is completed to explain this continuing need of current assets a destination should be drawn between permanent and temporary working capital.
1) Permanent working capital: the need for current assets arises as already observed

because of the cycle .To carry on business certain minimum level of working capital is necessary on continuous and interrupted basis. For all practical purpose this requirement will have to be meet permanent as with other fixed assets. This requirement refers to as fixed working capital.
2) Temporary working capital: Any amount over and above the permanent working

capital is temporary fluctuating or variable working capital .this portion of required working capital is needed to meet fluctuation in demand consequent upon changes in product and sales as result of seasonal changes.

2.7 DETERMINANTS OF WORKING CAPITAL There are not set rules or formulae to determine the working capital requirements of firms. A large number of factors, each having a different importance, influence working capital needs of firms. The importance of factors also changes for a firm over time. Therefore, an analysis of relevant factors should be made in order to determine total investment in working capital. The following is the description of factors which generally influence the working capital requirements of firms.

Nature of business Working capital requirements of a firm are basically influenced by the nature of its business. Trading and financial firms have a very small investment in fixed assets but require a large sum of money to be invested in working capital. Retail stores, for example, must carry large stocks of a variety of goods to satisfy varied and continuous demands of their customers. Some manufacturing businesses, such as tobacco manufacturers and
17

construction firms, also have to invest substantially in working capital and a nominal amount in fixed assets. In contrast, public utilities may have limited need for working capital and have to invest abundantly in fixed assets. . Such concerns have to make adequate investment in current assets depending upon the total assets structure and other variables. Market and demand conditions The working capital needs of a firm are related to its sales. However, it is difficult to precisely determine the relationship between volumes of sales and working capital needs. In practice, current assets will have to be employed before growth takes place. it is therefore necessary to make advance planning of working capital for a growing firm on continuous basis. Sales depend upon demand conditions. Large number of firms experience seasonal and cyclical fluctuations in the demand for their products and services. These business variations affect the working capital requirement, specially the temporary working capital requirement of the firm. When there is an upward swing in the economy, sales will increase correspondingly, the firms investment in inventories and debtors will also increase. Under boom, additional investment in fixed assets may be made by some firms to increase their productive capacity. This act of firms will require additions of working capital. To meet their requirements of funds for fixed assets and current assets under boom period, firms generally resort to substantial borrowing. On the other hand, when there is decline in the economy, sales will fall and consequently, levels of inventories and debtors will also fall. Under recession, firm try to reduce their short term borrowings. Seasonal fluctuations not only affect working capital requirement but also create production problems for the firms. During peak periods of demand, increasing production may be expensive for the firm. Similarly, it will be more expensive during the slack periods when the firm has to sustain its working force and physical facilities without adequate production and sales.
18

Technology and manufacturing policy The manufacturing cycle comprise of the purchase and use of raw materials and the production of finished goods. Longer the manufacturing cycle, larger will be the firms working capital requirements. Therefore the technological process with the shortest manufacturing cycle may be chosen. Once a manufacturing technology has been selected, it should be ensured that manufacturing cycle must be completed within the specified period. This needs proper planning and coordination at all levels of activity. Any delay in the manufacturing process will result in the accumulation of WIP and waste of time. In order to minimize their investment in working capital, some firms, specifically those manufacturing industrial products, have a policy of asking for advance payments from their customers. Non manufacturing firms, services and financial enterprises do not have a manufacturing cycle. Credit policy The credit policy of the firm affects the working capital by influencing the level of debtors. The credit terms to be granted to customers may depend upon the norms of the industry to which the firm belongs. But a firm has the flexibility of shaping its credit policy within the constraint of industry norms and practices. The firm should use discretion in granting credit terms to its customers. Depending upon the individual case, different terms may be given to different customers. The firm should be prompt in making collections. A high collection period will mean tie up of large funds in debtors. Slack collection procedures can increase the chance of bad debts. In order to ensure that unnecessary funds are not tied up in debtors, the firm should follow a rationalized credit policy based on the credit standing of customers and other relevant factors. The firm should evaluate the credit standing of new customers and periodically review the credit worthiness of the existing customers. The case of delayed payments should be thoroughly investigated. Availability of credit from suppliers

19

The working capital requirements of a firm are also affected by credit terms granted by its suppliers. A firm will needless working capital if liberal credit terms are available to it from suppliers. Suppliers credit finances the firms inventories and reduces the cash conversion cycle. In the absence of suppliers credit the firm will borrow funds for bank. The availability of credit at reasonable cost from banks is crucial. It influences the working capital policy of the firm. A firm without the suppliers credit, but which can get bank credit easily on favorable conditions, will be able to finance its inventories and debtors without much difficulty. Operating efficiency The operating efficiency of the firm relates to the optimum utilization of all its resources at minimum costs. The efficiency in controlling operating costs and utilizing fixed and current assets leads to operating efficiency. The use of working capital is improved and pace of cash conversion cycle is accelerated with operating efficiency. Better utilization of resources improves profitability and thus, helps in releasing the pressure on working capital. Although it may not be possible for a firm to control prices of materials or wages of labor, it can certainly ensure efficient and effective utilization of materials ,labor and other resources.

Price level changes The increasing shift in price level make functions of financial manager difficult. He should anticipate the effect of price level changes on working capital requirement of the firm. Generally, rising price levels will require a firm to maintain a higher amount of working capital. Same levels of current assets will need increased investment when prices are increasing. However, companies that can immediately revise their product prices with rising price levels will not face a severe working capital problem. Further, Firms will feel effects of increasing general price level differently as prices of individual

20

Products move differently. Thus, it is possible that some companies may not be affected by rising prices while others may be badly hit.

2.8 Working

Capital Cycle

Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cashflow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans

21

CHAPTER 3
22

INDUSTRY PROFILE & COMPANY PROFILE

3.1 HISTORY OF OIL REFENIRIES IN INDIA 3.2 CURRENT INDUSTRY SCENERIO 3.3 GROWTH 3.4 REFENIRIES IN INDIA.

3.5 NUMALIGARH REFENIRY LIMITED

- AN ORGANIZATION PROFILE.
3.6 PEST ANALYSIS OF NRL

S3.1 HISTORY OF OIL REFENIRIES IN INDIA

23

The origin of oil & gas industry in India can be traced back to 1867 when oil was struck at Makum near Margherita in Assam. At the time of Independence in 1947, the Oil & Gas industry was controlled by international companies. India's domestic oil production was just 250,000 tons per annum and the entire production was from one state Assam. The foundation of the Oil & Gas Industry in India was laid by the Industrial Policy Resolution, 1954, when the government announced that petroleum would be the core sector industry. In pursuance of the Industrial Policy Resolution, 1954, Government-owned National Oil Companies ONGC (Oil & Natural Gas Commission), IOC (Indian Oil Corporation), and OIL (Oil India Ltd.) were formed. ONGC was formed as a Directorate in 1955, and became a Commission in 1956. In 1958, Indian Refineries Ltd, a government company was set up. In 1959, for marketing of petroleum products, the government set up another company called Indian Refineries Ltd. In 1964, Indian Refineries Ltd was merged with Indian Oil Company Ltd. to form Indian Oil Corporation Ltd. During 1960s, a number of oil and gas-bearing structures were discovered by ONGC in Gujarat and Assam. Discovery of oil in significant quantities in Bombay High in February, 1974 opened up new avenues of oil exploration in offshore areas. During 1970s and till mid 1980s exploratory efforts by ONGC and OIL India yielded discoveries of oil and gas in a number of structures in Bassein, Tapti, Krishna-Godavari-Cauvery basins, Cachar (Assam), Nagaland, and Tripura. In 1984-85, India achieved a self-sufficiency level of 70% at that time. After Independence, India also made significant additions to its refining capacity. Today, there are a total of 18 refineries in the country comprising 17 in the Public Sector, one in the private sector. The 17 Public sector refineries are located at Guwahati, Barauni, Koyali, Haldia, Mathura, Digboi, Panipat, Vishakapatnam, Chennai, Nagapatinam, Kochi, Bongaigaon, Numaligarh, Mangalore, Tatipaka, and two refineries in Mumbai. The private sector refinery built by Reliance Petroleum Ltd is in Jamnagar. It is the biggest oil refinery in India. Oil production had begun to decline whereas there was a steady increase in consumption and domestic oil production was able to meet only about 35% of the domestic requirement. To meet its growing petroleum demand, India is investing heavily in oil fields abroad.
24

India's state-owned oil firms already have stakes in oil and gas fields in Russia, Sudan, Iraq, Libya, Egypt, Qatar, Ivory Coast, Australia, Vietnam and Myanmar. Oil and Gas Industry has a vital role to play in India's energy security and if India has to sustain its high economic growth

3.2 CURRENT INDUSTRY SCENERIO The world witnessed the worst economic recession in over six decades. Oil prices spiraled upward to unprecedented heights. International financial markets tumbled as government across nations struggled to bail out sinking corporate and financial institute. But hopefully, worst of the crisis behind us and the world might as well see a new economic order emerge in the years to come. Inherent strengths of Indias economy, aptly proved this time around, could well promote the country to higher echelons in the emerging global economic order. In its latest analysis, the International Monetary Fund (IMF) has forecast a contraction of the global economy during 2009 by 1.4% followed by a 2.5% growth in 2010. In the context of Indian economy, Gross Domestic Product (GDP) growth rate during declined to 6.7% from the level of 9% in previous three years. Indias merchandise export during 2008-2009 decreased by 2.4% against increase of 28.9% recorded during 20072008. Overall imports during 2008-2009 experienced a growth rate of 12.9% There has been a deceleration in both oil and non-oil products. Petroleum, Oil, and Lubricant (POL) imports during 2008-2009 at US$ 90.8 billion grew by 14% against a high growth rate of 39.4% during 2007-2008. 3.3 GROWTH Despite slowdown of the economy, demand for petroleum products in India, unlike those of developed countries remained at a fairly high level. Total consumption of petrol and diesel

25

products during 2008-2009 grew by 4.5% including growth in consumption of petrol and diesel 9% and 8.4% respectively. The countrys total refinery crude throughput during 2008-2009 was 160.77 MMT, marginally higher by 3% over throughput during the previous year at 156.10 MMT. On an overall basis, capacity utilization of the 19 refineries during 2008-2009 improved by 108% against 105% in 2007-2008. Domestic crude oil production has however declined in 20082009 to 33.51% MMT from 3.12% MMT in 2007-2008 Refinery margin during 2008-2009 remained slack compared to the previous two years. Regional benchmark Singapore recorded an average GRM of USD 5.78 per barrel during 2008-2009 compared to USD 7.6 per barrel during 2007-2008 and USD 6.1 per barrel 2006-2007 NRL could end the year 2008-2009 with a GRM of USD 6.78 per barrel.

3.4 REFINERIES OF INDIA

Jamnagar Refinery (Reliance Industries), 650,000 bbl/d (103,000 m3/d) Reliance Petroleum (Reliance Industries), 580,000 bbl/d (92,000 m3/d) Mangalore Refinery (MRPL), 190,000 bbl/d (30,000 m3/d) Digboi Refinery, Assam (IOC), 13,000 bbl/d (2,100 m3/d) Guwahati Refinery Assam (IOC), 20,000 bbl/d (3,200 m3/d) Bongaigaon Refinery Assam (IOC), 48,000 bbl/d (7,600 m3/d) Numaligarh Refinery Limited Assam (NRL), 58,000 bbl/d (9,200 m3/d) Haldia Refinery (IOC), 116,000 bbl/d (18,400 m3/d) Panipat Refinery (IOC), 240,000 bbl/d (38,000 m3/d) Gujarat Refinery (IOC), 170,000 bbl/d (27,000 m3/d) Barauni Refinery (IOC), 116,000 bbl/d (18,400 m3/d) Mathura Refinery (IOC), 156,000 bbl/d (24,800 m3/d)
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Chennai Refinery (IOC), 185,000 bbl/d (29,400 m3/d) Mumbai Refinery (HPCL), 107,000 bbl/d (17,000 m3/d) Visakhapatnam Refinery (HPCL), 150,000 bbl/d (24,000 m3/d) Mumbai Refinery Mahaul (BPCL), 135,000 bbl/d (21,500 m3/d) Nagapattnam Refinery (CPCL), 20,000 bbl/d (3,200 m3/d) Kochi Refinery (Kochi Refineries Ltd), 172,000 bbl/d (27,300 m3/d) Tatipaka Refinery (ONGC), 1,600 bbl/d (250 m3/d) Essar Refinery (Essar), 14 MTPA

3.5 NUMALIGARH REFINERY LIMITED

27

AN ORGANIZATION PROFILE

About Numaligarh Refinery Limited

Share-holding Pattern Corporate Vision Corporate Mission Corporate Objective Corporate Logo Concept Refineries in India and Location of Numaligarh Refinery Limited. Major units Future Plans Joint Ventures

ABOUT NUMALIGAR REFINERY LIMITED.

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NRL which was set up at Numaligarh in the district of Golaghat (Assam) in accordance with the Assam Accord signed on 15th August 1985, has been conceived as an instrument for speedy industrial and economic development of the region. NRL, a Govt. of India enterprise, is one of the most sophisticated and hi-tech refineries in India. The 3 MMTPA Numaligarh Refinery Limited was dedicated to the nation by the erstwhile Honorable Prime Minister Shri A.B. Vajpayee on 9th July 1999. NRL has been able to display creditable performance since commencement of commercial production in October, 2000. With its concern, commitment and contribution to socio-economic development of the state combined with a track record of continuous growth, NRL has been conferred the status of Mini Ratna PSU. The present authorized capital of the company is Rs. 1000 crore and paid up capital is Rs. 735.63 crore. The refinery and marketing terminal are operated by fully automated system and supported by a business system driven by Enterprise Resource planning (ERP). NRL has been certified with ISO: 9001, ISO: 14001 and OHSAS: 18001 in current version. NRL is a grass root refinery with a blue chip profile that can match any multinational company operating at the global level in terms of quality, professionalism, competence and capability. NRLs product range includes LPG, Naphtha, Motor Spirit (MS), Aviation Turbine Fuel (ATF), Superior Kerosene Oil (SKO), High Speed Diesel(HSD), Raw Petroleum Coke(RPC), Calcined Petroleum Coke(CPC) and Sulphur. Strategic decision was taken to enter into the Retail Distribution Segment. Permission was received from Govt. of India to market MS and HSD through a chain of 510 retail outlets in a phased manner. Hitherto, scores of retail outlets, aptly christened Energy Stations have already been commissioned in the North East and other parts of India and the process continues

SHARE HOLDING PATTERN OF NRL

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Table 1.1

Authorized Share Capital Paid-up Share Capital Face Value of Share Paid-up Value per share Sl. No. 1

Rs. 1000,00,00,000/Rs. 735,63,15,440/Rs. 10/- each Rs. 10/-each Total no. of shares held 45,35,45,99 8 Paid-up capital (In Rs.) % of Holding 61.65

Name of shareholder

Bharat Petroleum Corporation Limited jointly with their nominees Govt. of Assam jointly with their nominee

453,54,59,98 0/-

9,08,21,344

90,82,13,440/ -

12.35

Oil India Limited

19,12,64,2 02

191,26,42,02 0/735,63,15,4 40/-

26.00

TOTAL

73,56,31, 544

100.00

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CORPORATE VISSION To be a vibrant, growth oriented energy company of national standing and global reputation having core competencies in Refining and Marketing of petroleum products committed to attain sustained excellence in performance, safety standards, and customer care and environment management and to provide a fillip to the development of the region.

CORPORATE MISSION Develop core competencies in Refining and marketing of petroleum products with a focus on achieving international standards on safety, quality and cost. Maximize wealth creation for meeting expectations of stakeholders. Create a pool of knowledgeable and inspired employees and ensure their professional and personal growth. Contribute towards the development of the region.

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CORPORATE OBJECTIVES

To excel in its performance, NRL would strive to: Maximize refinery capacity utilization and optimize product pattern by efficient refinery operation. Ensure smooth and timely evacuation of products; create a sound customer base and necessary marketing infrastructure. Achieve highest standards in product quality, safety health and environmental protection. Manage and operate the facilities in an efficient and cost effective manner for generation of adequate internal resources. Inculcate best business practices through the use of ERP and e-commerce. Focus on development and growth of Human Resource through proper training and career planning. Plan for production and marketing of low volume, high value products. Remain at the technological forefront by continuous up gradation of in-house expertise and absorption of the latest technologies. Establish strong corporate identity and brand equity. Facilitate economic and industrial development of the region.

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GENESIS

Table 1.2

Proposal for a Refinery included in "Assam Accord" as a part of Government of India's offered economic package IBP Co. Limited appointed as implementing agency (Equity Structure IBP : 51%, GOA: 10%, Public : 39%) Environmental clearance received EIL Appointed as Prime Consultant

August 15, 1985

June 23, 1989

May 31, 1991 August 28, 1992

Foundation stone laid by former Prime Minister Shri P V Narasimha Rao CCEA( Cabinet Committee of Economic Affairs) approval Accorded Numaligarh Refinery incorporated BPCL inducted as major promoter BPCL : 32%, IBP:19%, GOA : 10%, Public : 39% Approved Commissioning Numaligarh Refinery dedicated to the Nation by Hon'ble Prime Minister Shri A. B. Vajpayee

July 3, 1992

July 15, 1992

April 22, 1993 June 2, 1995

April, 1999 July 9, 1999

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Commencement of Commercial Operations

October, 2000

CORPORATE LOGO The design concept of NRL corporate identity is based upon the theme ENERGY IN MOTION. The sun is the universal source of energy. The speeding sun with a blazing travel of light represents the energy in motion. NRL will produce refined petroleum products which would supply both energy for motion as well as light for the nation. But as an organization created by people, NRL is also determined to be socially responsible to contribute towards the industrial growth of the North East region. NRL is a perfect combination of highly trained professionals and state-of-the art technology. The upward moving logo is designed to reflect the spirit of the organization. The logo serves as the demonstrative symbol of NRLs commitment towards ushering in a new industrial dawn in North-East. The logo has been constructed in Apple Macintosh computer using Freehand 5.0 Software. Complexity & boldness are carefully applied to the design, to make the NRL logo stand out from the crowd to provide a picture of confidence energy, light and a sense of social energy.

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REFINERIES IN INDIA AND LOCATION OF NRL

Numaligarh Refinery and its township are well connected by air, road and rail.
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 The nearest airport is Jorhat, 70 kms away from NRL site. Indian Airlines and Jet

Airways operate from/to Jorhat four days a week.

Road distance from Guwahati to Numaligarh is 250 km through NH-37 toward east. Takes around 5 hours by luxury caches that operate daily in the morning and afternoon.

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 The nearest railhead is at Furkating, 35 km from NRL.

Temperature ranges from 7 to 24 degree Celsius during winter and 18 to 35 degree Celsius in summer.

MAJOR UNITS 1 Crude & Vacuum Distillation unit

The Crude Distillation Unit (CDU) takes raw crude as input and its capacity is 3 MMTPA. The Crude Oil feed to CDU is basically Assam Mix Crude, which is a blend of OIL and ONGC Crude in weight ration of 40% OIL and 60% of ONGC crude. CDU is designed to produce Fuel Gas, Liquefied Petroleum Gas(LPG), Light Naptha, Kerosene, Diesel and Reduced Crude Oil(RCO). Vacuum Distillation Unit (VDU) is designed to process hot RCO from CDU and to

produce Vacuum Diesel (VD), Light Vacuum Gas Oil(LVGO), Medium Vacuum Gas Oil (MVGO), Heavy Vacuum Gas Oil (HVGO) and Vacuum Residue. Designed capacity of VDU is 1.32 MMTPA.

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Both the units were commissioned in April 1999. The technology has been provided by EIL.

2 Delayed Coker Units:

The Delayed Coker Unit (DCU) produces Raw Petroleum Coke (RPC) from the input it gets from the Vacuum Distillation Unit and ids directly marketed to customers. The tech has been provided by EIL. Its production capacity is .306 MMTPA. The unit was commissioned in Sept. 1999. 3. Hydro Cracker Unit:

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Hydro Cracker Unit converts heavy hydrocarbon distillate into high valued lighter hydrocarbon by removing the sulphur and nitrogen content. The Hydro cracker technology has been provided by Chevron Research and Technology, USA who has supplied its Hydro cracker technology 10 about 42 hydro crackers situated all over the world. Its production capacity is 1.1 MMTPA. The unit was commissioned in June 2000.

4. Hydrogen Unit:

Hydrogen input to the hydro cracker is provided by the hydrogen unit, which uses Naphtha as feed and fuel. Haldor Topsoe of Denmark has provided the technology for the unit. Its production capacity is 38000 TPA and the unit was commissioned in February 2000.

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5. Coke Calcination Unit:

In this unit the impurities such as a moisture and sulphur of raw coke are removed which increase its electrical conductivity, bulk density and makes it suitable for particular use. Svedala of USA has provided the technology for the unit. Its capacity is 0.104 MMTPA and was commissioned in May 2004.

6. Sulphur Recovery Block:

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It is a very important unit of NRL due to the fact that sour gas and sour water from the other units of the plant contain a recoverable amount of sulphur. The sulphur recovery block consists of three major constituent parts: a) Amine treatment and regeneration: The basic purpose of this unit is to treat the sour gas from the Hydrocracker unit and Delayed Coker Unit and send it to for final sulphur recovery. b) Sour water stripping unit : It receives sour water from the hydro Cracker Unit and Delayed Coker Unit c) Sulphur Recovery unit: The basic purpose of this unit is to recover sulphur. The feed to this unit consists of sour gas, acid gas and fuel gas. The capacity of Sulphur recovery block is 4000 TPA. It was commissioned in July 2000 and designed by EIL. 7. Motor Spirit Plant:

A 225 TMTPA capacity Motor Spirit (MS) Plant with an approved project cost of Rs. 2968.6 million has been mechanically completed. The Naphtha Hydro treating unit and
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Catalytic refinery unit have been commissioned and MS production conforming to BSII has been commissioned from end of July 2006. The isomerization unit is under commissioning which will enable production of MS conforming to Euro-III at full capacity. The process technology is imported M/s Axem of France. The project would add value to the surplus naphtha currently available on the refinery and would also give better marketing flexibility to NRL.

FUTURE PLANS

The company has identified following major projects/schemes to be undertaken for feasibility study/ implementation in a phased manner. Wax Project: NRL has initiated actions to explore the possibility of setting up a Wax Plant for production of paraffin & microcrystalline wax. Naphtha Splitter Unit: In order to supply 160 TMTPA of petrochemical grade Naphtha to the proposed Assam Gas Cracker Project as feed stock, the process package for a Naphtha Splitter Unit within the Refinery has been prepared. For production of Needle Coke for adding value to Petroleum Coke produced in the Refinery, a technology tie-up has been made with IOCL (R&D). NRL is exploring the possibility of projecting some of the major ENCON projects as CDM (Clean Development Mechanism) under Kyoto Protocol. Studies for production of Euro-VI MS/HSD in Numaligarh Refinery are being initiated.

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JOINT VENTURE a) M/s DNP Limited (Natural Gas Pipeline Project from Duliajan to Numaligarh): NRL has initiated actions for submission of Naphtha by natural gas as feed and fuel. Substitution of Naphtha by natural gas is expected to improve net refining margin of the company. In this regard, NRL has signed agreements with M/s OIL for supply of 1.0 MMSCMD of natural gas to Numaligarh Refinery and with M/s Assam Gas Company Limited (AGCL) for transportation of natural gas from Duliajan to Numaligarh through new pipeline. For implementation, operation and maintenance of the natural gas pipeline, a joint venture Company was incorporated on 15th of June07 in the name and style of M/s DNP Limited with equity participation of 40% by NRL and 60% by AGCL. The estimated project cost is Rs. 318 crore. The project is expected to be complete by the end of 2008.

b) M/s Brahmaputra Cracker & Polymer Limited (Assam Gas Cracker Project): In order to implement the proposed Assam Gas Cracker Project at an estimated cost of Rs. 5461 crores, a new joint venture project company M/s Brahmaputra Cracker & Polymer Company Limited (BCPL) was incorporated on 8th January 2007 with equity participation from GAIL (70%), OIL (10%), Govt. of Assam (10%) and NRL (10%). NRL will also supply 160 TMT of petrochemical of grade Naphtha per annum to the proposed Gas Cracker project as feed. The Feed-Stock-Supply-Agreement was signed between NRL and M/s BCPL on 19th September 2007. An amount of Rs. 110 crores has been earmarked by NRL in the XIth Five Year Plan for this joint venture project.

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3.6 PEST ANALYSIS OF NRL Numaligarh Refinery Limited tries to find out what factors will affect its new products and its markets. It does this through a technique called PEST analysis. PEST is made up of the first letters of the four key factors which affect demand for property. Each of these factors is called external as it is outside Numaligarh Refinery Limiteds control. The factors are: Political
-

Government rules such as on planning and policies, Government funded (threat of change of funding method) Very important politically to ensure continued supply Health of the economy Increasing inflation- likely to have impact on cost more Well developed capital markets Increasing energy prices internationally likely to have impact on cost

Social -

Economic

Increasing demand, need for more capacity in future Environmental concerns may drive new technology use in future Increasing need may lead to substitute in future like use hybrid car, solar energy utilization etc

Technology
- New technological adaptation for efficient utilization of resources and environment

friendly.

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Two other factors can be added to turn PEST into PESTLE. These are:

Legislation changes in the law. Environmental environmental factors are crucial for Numaligarh Refinery

Limited and so the plant is set up at a distance of 25 kms away from Golaghat District.

Conclusion PEST-LE is a useful tool for Numaligarh Refinery Limited to use. It makes sure that factors which may affect it in the future have been taken into account. It will help NRL to plan substantially its future projects.

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CHAPTER 4 WORKING CAPITAL ANALYSIS OF NUMALIGARH REFINERY LIMITED.

4.1 4.2 4.3 4.4 4.5 Working Capital Management components Working Capital Level Working Capital Leverage Working Capital Ratio Analysis Operating Cycle of NRL.

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4.1 WORKING CAPITAL MANAGEMENT COMPONENTS

1) RECEIVABLES MANAGEMENT.

Receivables or debtors are the one of the most important parts of the current assets which is created if the company sell the finished goods to the customers dut not receive the cash for the same immediately. Trade credit arises when the company sells the goods at credit to the customers It is essential marketing tool, acting as bridge for the movement through production and distribution stages to customers. The basic objective of management of sundry debtors is to optimize the return on investment on this asset. It is obvious that if there are large amounts tied up in sundry debtors, working capital requirement would be high and consequently interest charges will be high. Debtor management is the process of finding the balance at which company agrees to receive its payment without hampering or having any adverse effect on its sales and customer agree to pay at their economical buying concept. Sundry debtor level depends on two measure issues: Volume of Credit sales Credit period allowed to customers. Following factors may be considered before allowing credit period to the customer:1. Nature of product 2. Credit worthiness of the customer, which varies from customer to customer 3. Quantum of advance received from customers 4. Credit policy of company, say number of days allowed to customer for payment to the customers 5. Cost of debtors 6. Manufacturing cycle time of the product etc.

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Objective of receivables management is to promote sales and profit until that

point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance the additional credit.

Table 1.3 Size of receivables of NRL

PARTICULARS 2004-2005 SUNDRY DEBTORS INDICES 175.78 100 2005-2006 268.00 152.46 2006-2007 210.38 119.68 2007-2008 479.56 272.81 2008-2009 141.89 80.72

CHART NO 1.3

Credit policy:
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The term credit policy is used to refer to the combination of three decision variables: Credit standard are criteria to decide the types of customers to whom goods could be sold on credit. If a firm has more slow paying customers, its investment in accounts receivable will increase. The firm will also be exposed to higher risk of default. Credit terms specify duration of credit and terms of payment by customers.

Credit Policy Variables

These are:
1. Credit standards and analysis

2. Credit terms 3. Collection policy and procedures

Credit policy of Numaligarh Refinery Limited

From Oil Marketing Company (OMC) the three major buyers are:

BPCL IOCL HPCL ESSAR India Limited RELIANCE Industries Limited SHELL India Limited

From Private Marketing Companies the three major buyers are:

Others include buyers which are not regular, companies like NALCO, Hindalco, Brahmaputra Carbon, India Carbon etc. Specialty products like RPC, CPC, and SULPHUR were marketed directly by NRL.

Credit period extended to OMCs by NRL

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Table no 1.4

Company name
BPCL IOCL HPCL

Credit name 3 WEEKS 2 WEEKS 2 WEEKS

BPCL Trade Cycle (debtors cycle) Table no 1.5 Sales 1ST week sales 2nd week sales 3rd week sales 4th week sales Date 1st-7th of the month 8th-14th of the month 15th -21st of the month 22nd-last day of the month Payment mode to NRL 25th of that month 2nd of next month 11th of next month 18th of next month

IOCL, HPCL Trade Cycle Table no 1.6 Sales 1st week sales 2nd week sales 3rd week sales 4th week sales Date 1st-7th of the month 8th-15th of the month 16th-23rd of the month 24th last day of the month Payment mode to NRL 18th of that month 27th of that month 4th of the next month 11th of next month

For the private marketing companies only 3 days credit period is extended. Also payment mode depends upon the upliftment trends based on the quantity they lift. These payments are made basically from Thursday to Saturday of the week. Retail outlet credit policy is evaluated every 6 months based on the following factors:
1. Daily sales(sales should be equal to or more than 10 KL)

2. Distance of retail outlet from refinery.

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For others no credit period is extended. Payment depends on terms and conditions of purchase items.

Creditors cycle of NRL

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors - slow payment by you may create ill-feeling and can signal that your company is inefficient. There are two major creditors for Numaligarh Refinery Limited (NRL), which constitute 80% of the expenses of refinery they extend credit to NRL for 3 weeks. They receive the crude from Oil India Limited and ONGC TRADE CYCLE OF NRL Crude Received 1st week 2nd week 3rd week 4th week table no 1.7 Date 1st-7th of the month 8th-15th of the month 16th-22nd of the month 23rd-last day of the month Payment by NRL 25TH of the month 2nd of next month 11th of next month 18th of next month

Average Collection Period

The average collection period measures the quality of debtors since it indicate the speed of their collection. The shorter the average collection period the better the quality of debtors since a short collection period implies the prompt payment by debtors. The average collection period should be compared against the firms credit terms and policy its credit and collection efficiency.

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The collection period ratio thus helps an analyst in two ways 1. In determining the collectability of debtors and thus, the efficiency of collection efforts 2. In ascertaining the firm s comparative strength and advantages related to its credit policy and performance.

The debtor s turnover ratio can be transformed in to the number of days of holding of debtors. Table no 1.8 Particulars Gross Sales Average Debtors (Rs in crore) 2006-2007 2007-2008 7930.32 239.05 33.17 11 8764.16 344.97 25.40 14

2004-2005 4298.99 202.76

2005-2006 5820.37 221.89 26.23 14

2008-2009 8853.35 310.72 28.49 12

Receivable Turn 21.20 Over Ratio Average Collection 17 Period (days)

CHART NO 1.8

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Observations
The size of receivables is staidly decreasing till 2006-2007, it indicates company was allowing more credit earlier, but it was not a bad signal because receivables were supporting to the increase in sales. In the financial year 2007-2008 receivables period showed increase and in 2008-2009 it decreased again, but as compared to the normal collection period of NRL which has been implemented this year from April is 7 days it is clear that the company has increased its efficiency of collection of receivables. For effective management of credit, they should lay down clear cut guidelines and procedure for granting credit to individual customers and collecting individual accounts should involve following steps: (1) Credit information (2) Credit investigation (3) Credit limits 4) Collection procedure

2.) INVENTORY MANAGEMENT

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The term inventory is used to designate the aggregate of those items of tangible assets which are 1. Finished goods (saleable) 2. Work-in-progress (convertible) 3. Material and supplies (consumable ) In financial view, inventory defined as the sum of the value of raw material and supplies, including spares, semi-processed material or work in progress and goods. The nature of inventory is largely depending upon type of operation carried on For instance, in the case of a manufacturing concern, the inventory will generally comprise all three groups mentioned above while in the case of a trading concern, it will simply be by stock- in- trade or finished goods. . A firm neglecting the management of inventories will be jeopardizing its long run profitability and may fail ultimately.

Objective of inventory management

In a company there should be an optimum level of investment for any asset, whether it is plant, cash or inventories. Again inadequate disrupt production and causes losses in sales. Efficient management of inventory should ultimately result in wealth maximization of owners wealth. It implies that while the management should try to pursue financial objective of turning inventory as quickly as possible, it should at the same time ensure sufficient inventories to satisfy production and sales demand. The objectives of inventory management consist of two counterbalancing parts 1. To maintain a large size of inventories of raw materials and WIP for efficient and smooth production and of finished goods for uninterrupted sales operations.
1. To maintain a minimum investment in inventories to maximize profitability.

Both excessive and inadequate inventories are not desirable. These are two danger points which the firm should avoid. The objective of inventory management should be determine
54

and maintain optimum level of inventory investment. Te optimum level of inventory will lie between the two danger points of excessive and inadequate inventories. The firm should always avoid a situation of over investment or under investment in inventories. The major dangers of over investment are: Unnecessary tie up of the firms funds loss of profit Excessive carrying costs Risk of liquidity the firm should minimize the investment in inventory implies that maintaining an inventory , such that smaller the inventory, the better the view point .obviously, the financial manager should aim at a level of inventory which will reconcile these conflicting elements. Some objective as follow 1. To have stock available as and when they are required.
2. To utilize available storage space but prevents stock levels from exceeding space

available. 3. To maintain adequate accountability of inventories assets. 4. To provide, on item by- item basis, for re-order point and order such quantity as would ensure that the aggregate result confirm with the constraint and objective of inventory control. To keep low investment in inventories carrying cost an obsolesce losses to the minimum. Size of Inventory of NRL Table no 1.9 Particulars Raw material Stock in process Finished products others Total 20042005 88.78 97.84 462.57 68.25 717.44 20052006 94.97 79.02 575.26 48.84 798.09 2006-2007 183.87 87.95 501.8 47.42 821.04 (Rs in crore) 20072008 185.31 113.63 550.18 72.71 921.38 20082009 210.76 86.84 592.02 88.91 978.53
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Indices

100

111.24

114.44

128.42

136.39

Chart No 1.9

Inventory components
The manufacturing firm s inventory consist following components
1. Raw material 2. Stock in process 3. Finished goods

To analyze the level of raw material inventory and work in progress inventory held by the firm on an average it is necessary to examine the efficiency with which the firm converts raw material inventory and work in progress into finished goods Inventory Holding Period
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The reciprocal of inventory turnover gives average inventory holding in percentage term. When the numbers of days in year are divided by inventory turnover, we obtain days of inventory holding period. Table 2.0 Particulars Inventory TOR Inventory holding period Raw material TOR Inventory holding period 2004-05 8.34 43 30.5 2005-06 9.45 38 52.54 7 2006-07 12.09 30 40.5 9 2007-08 14.06 26 40.77 9 2008-09 14.02 26 36.5 10

Raw material holding period 12 Chart no 2.0

Observation The days of inventory holding period s showing a decreasing trend, as the stock in process are decreasing and finished goods are increasing. It shows the efficiency of the management .the raw material holding period is showing a fluctuating trend in number of days as the raw materials are increasing every year
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4.2 WORKING CAPITAL LEVEL

The consideration of the level investment in current assets should avoid two danger points excessive and inadequate investment in current assets. Investment in current assets should be just adequate, not more or less, to the need of the business firms. Excessive investment in current assets should be avoided because it impairs the firms profitability, as
58

idle investment earns nothing. On the other hand inadequate amount of working capital can be threatened solvency of the firms because of it s inability to meet it s current obligation. It should be realized that the working capital need of the firms may be fluctuating with changing business activity. This may cause excess or shortage of working capital frequently. Table no 2.1 Size of working capital level 2004-05 2005-06 ( Rs in crore) 2006-07 2007-08 2008-09

Particulars A)Current Assets Inventories Sundry Debtors

Cash and Bank Balance Other current Assets Loans and Advances Gross total of (A) B)Current Liability Liabilities Provision Gross total of (B) Working capital(A-B)

717.44 175.78 1.33 250.02 1144.58

798.09 267.73 30.90 .276 75.44 1172.43

821.04 210.38 390.30 39.80 115.31 1576.83

921.38 479.57 512.03 1.74 109.93 2024

978.53 141.89 292.02 1.77 91.45 1505.66

660.02 219.37 879.39 265.19

618.95 168.67 787.62 384.81

889.07 222.72 1111.79 465.04

1446.63 182.67 1629.3 394.7

888.59 169.64 1058.23 447.43

Working capital trend analysis

In working capital analysis the direction at changes over a period of time is of crucial importance. Working capital is one of the important fields of management. It is therefore very essential for an analyst to make a study about the trend and direction of working capital over a period of time. Such analysis enables as to study the upward and downward trend in current assets and current liabilities and it s effect on the working capital position.
59

In the words of S.P.Gupta The term trend is very commonly used in day-to-day conversion trend, also called secular or long term need is the basic tendency of population, sales, income, current assets, and current liabilities to grow or decline over a period of time. Emphasizing the importance of working capital trends, Analysis of working capital trends provide as base to judge whether the practice and privilege policy of the management with regard to working capital is good enough or an important is to be made in managing the working capital funds Further, any one trend by itself is not very informative and therefore comparison with the years, illustrated the ideas in these words, An upwards trends coupled with downward trend or sells, accompanied by marked increase in plant investment especially if the increase in planning investment by fixed interest obligation Table 2.2 Working Capital Size 2004-05 265.19 100 2005-06 384.81 145.10 2006-07 465.04 175.36 (Rs in crore) 2007-08 394.7 148.83 2008-09 447.43 168.72

Year
Working Capital(A-B) Indices

Chart No 2.2

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Observation It was observed that major source of liquidity problem is the mismatch between current payments and current receipts from the Comparison of funds flow statement of NRL for last 5 years. It is observed that in the year 2005-2006 current assets increased by 2.4% and current liability decreased by 10.43% and working capital increased by 45.10%. In the year 2007-08 the net working capital decreased by 15.12% as current assets increased by only by 28.35% and current liabilities increased 46.54%. This indicate that the company is utilizing its short term resources efficiently.

Current Assets
Total assets are basically classified in two parts as fixed assets and current assets. Fixed assets are in the nature of long term or life time for the organization. Current assets convert in the cash in the period of one year. It means that current assets are liquid assets or assets which can convert in to cash within a year.

Table no 2.3

Current Assets Size

(Rs in crore)
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Particulars A)Current Assets Inventories Sundry Debtors

Cash and Bank Balance Other current Assets Loans and Advances Gross total of (A) C A Indices

2004-05

2005-06

2006-07

2007-08

2008-09

717.44 175.78 1.33 _ 250.02 1144.58 100

798.09 267.73 30.90 .276 75.44 1172.43 102.43

821.04 210.38 390.30 39.80 115.31 1576.83 137

921.38 479.57 512.03 1.74 109.93 2024 176.83

978.53 141.89 292.02 1.77 91.45 1505.66 131.54

Chart No 2.3

Composition of current assets

Analysis of current assets components enable one to examine in which components the working capital fund has locked. A large tie up of funds in inventories affects the profitability of the business or the major portion of current assets is made up cash alone, the profitability will be decreased because cash is non earning assets.
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Table No 2.4

Composition of Current Assets

(No in %)

Particulars A)Current Assets Inventories Sundry Debtors

Cash and Bank Balance Other current Assets Loans and Advances Total

2004-05

2005-06

2006-07

2007-08

2008-09

62.68 15.35 .12 _ 21.85 100

68.07 22.83 2.63 .03 6.44 100

52.06 13.34 24.75 2.54 7.31 100

45.52 23.69 25.29 .07 5.43 100

64.99 9.42 19.39 .12 6.08 100

Chart no 2.4 Current asset Composition In %

Observation It was observed that the size of current assets is increasing with increases in the sales till 2007-2008 .The excess of current assets is showing positive liquidity position of the firm but it is not always good because excess current assets then required, it may adversely affects on profitability. Current assets include some funds investments for which
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company pay interest. The balance of current assets is highly increased in year 2007-08 because of increase in cash balance. Current asset components show sundry debtors are the major part in current assets it indicates that the inefficient collection management. Over investment in the debtor affects liquidity of firm for that company has raised funds from other sources like short term loan which incurred the interest

Current liabilities
Current liabilities mean the liabilities which have to pay in current year. It includes sundry creditors means supplier whose payment is due but not paid yet, thus creditors called as current liabilities. Current liabilities also include short term loan and provision as tax provision. Current liabilities also includes bank overdraft. For some current assets like bank overdrafts and short term loan, company has to pay interest thus the management of current liabilities has important. Table No 2.5 Particulars Current Liability Liabilities Provision Gross total of C L Indices 660.02 219.37 879.39 100 618.95 168.67 787.62 89.56 889.07 222.72 1111.79 126.42 1446.63 182.67 1629.3 185.27 888.59 169.64 1058.23 120.33 Current Liability Size 2004-05 2005-06 (Rs in crore) 2006-07 2007-08 2008-09

Chart no 2.5

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Observation Current liabilities show continues growth each year because company creates the credit in the market by good transaction. To get maximum credit from supplier which is profitable to the company it reduces the need of working capital of the firm. The current liability increased by 46.54% in the year 2007-2008 and the working capital need decreased by 15.12 % in the same year. In the year 2008-09 current liabilities decreased by 35% and working capital increased by 13.35%.

Changes in working capital

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There are so many reasons to changes in working capital as follow 1. Changes in sales and operating expenses: The changes in sales and operating expenses may be due to three reasons. There may be long run trend of change e.g. The price of raw material say crude may constantly raise necessity the holding of large inventory.

Cyclical changes in economy leading to ups and downs in business activity will influence the level of working capital both permanent and temporary.

Changes in seasonality in sales activities 2. Policy changes:The second major cause of changes in the level of working capital is because of policy changes initiated by management. The term current assets policy may be defined as the relationship between current assets and sales volume.

3. Technology changes:The third major point if changes in working capital are changes in technology because change in technology that is to install new technology in the manufacturing unit or other business purpose more working capital is required. A change in operating expenses rise or fall will have similar effects on the levels of working following working capital statement is prepared on the base of balance sheet of last two year.

Table no 2.6

Statement of Changes in Working Capital

(Rs in crore)

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Particulars

2007-08

2008-09

Changes in W C Increase Decrease

A) Current Assets Inventories Sundry Debtors Cash and bank balance Other current Assets Loan & Advances Total of A B)Current Liability Liabilities Provision Total of B W C Total of ( A-B) Net Increase in WC TOTAL 1446.63 182.67 1629.3 395.35 52.07 447.43 447.43 888.59 169.64 1058.23 447.43 1090.06 1147.24 1147.24 558.04 13.03 921.38 479.57 512.03 1.74 109.93 2024.65 978.53 141.89 292.02 1.77 91.45 1505.66 .03 18.48 57.15 337.68 220.01

Observation Working capital increased from 2008-2009 because

1) There is increase in sales in 2009, there was an increase in net current assets in 2009

from 520.15 crore to 571.78 crore. 2) Sundry debtors have decreased in the financial year 2008-09. So it has affected the working capital.

4.3) WORKING CAPITAL LEVERAGE

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One of the important objectives of working capital management is by maintaining the optimum level of investment in current assets and by reducing the level of investment in current assets and by reducing the level of current liabilities the company can minimize the investment in the working capital thereby improvement in return on capital employed is achieved. The term working capital leverage refers to the impact of level of working capital on company s profitability. The working capital management should improve the productivity of investment in current assets and ultimately it will increase the return on capital employed actually required means increase in the cost of Interest charges on short term . Higher level of investment in current assets than is loans and working capital on capital finance raised from banks etc. and will result in lower return and vice versa. Working capital leverage measures the employed

responsiveness of ROCE (Return on Capital Employed) for changes in current assets. It is measures by applying the following formula. Working Capital Leverage = % change in ROCE % Change in Current Assets Return on Capital Employed (ROCE) = EBIT Total assets The working capital leverage reflects the sensitivity of return on capital employed to changes in level of current assets. Working capital leverage would be less in the case of capital intensive companies. working capital leverage expresses the relation of efficiency of working capital management with the profitability of the company.

Table no 2.7

calculation of working capital leverage (Rs in crore)

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Particulars ROCE % Change in ROCE % Change in CA W C Leverage Chart No 2.7

2004-05 1.12 34.93 31.24 1.18

2005-06 1.29 15.17 2.43 6.24

2006-07 1.98 53.48 34.79 1.53

2007-08 1.87 5.5 28.35 0.19

2008-09 2.23 19.25 25.6 0.75

Observation Working capital leverage of the company has decreased in the year 2006-07 and it has further decreased in the next financial year 2007-08 .taken into the scenario of oil industry . When the current assets increases by a good rate it effects the return on capital employed. When investment in current assets is more than requirement that increases the cost of funds raised from short term sources may be bank loans which affected the profitability of NRL.

4.4 WORKING CAPITAL RATIO ANALYSIS

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1 Introduction Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as the indicated quotient of two mathematical expressions and as the relationship between two or more things .The absolute figures reported in the financial statement do not provide meaningful understanding of the performance and financial position of the firm. Ratio help to summaries large quantities of financial data and to make qualitative judgment of the firm s financial performance. 2 Role of ratio analysis Ratio analysis helps to appraise the firms in the term of their profitability and efficiency of performance, either individually or in relation to other firms in same industry. Ratio analysis is one of the best possible techniques available to management to impart the basic functions like planning and control. As future is closely related to the immediately past, ratio calculated on the basis historical financial data may be of good assistance to predict the future. E.g. On the basis of inventory turnover ratio or debtor s turnover ratio in the past, the level of inventory and debtors can be easily ascertained for any given amount of sales Similarly, the ratio analysis may be able to locate the point out the various areas which need the management attention in order to improve the situation. E.g. Current ratio which shows a constant decline trend may be indicate the need for further introduction of long term finance in order to increase the liquidity position. As the ratio analysis is concerned with all the aspect of the firms financial analysis liquidity, solvency, activity, profitability and overall performance.

3 Limitations of ratio analysis

1. The basic limitation of ratio analysis is that it may be difficult to find a basis for making the comparison 2. Normally, the ratios are calculated on the basis of historical financial statements. An organization for the purpose of decision making may need the hint regarding the future happiness rather than those in the past. The external analyst has to depend upon
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the past which may not necessary to reflect financial position and performance in future. 3. The technique of ratio analysis may prove inadequate in some situations if there is differs in opinion regarding the interpretation of certain ratio. 4. As the ratio calculates on the basis of financial statements, the basic limitation which is applicable to the financial statement is equally applicable In case of technique of ratio analysis also i.e. only facts which can be expressed in financial terms are considered by the ratio analysis.

4. Classification of working capital ratio

Working capital ratio means ratios which are related with the working capital management e.g. current assets, current liabilities, liquidity, profitability and risk turnoff etc. these ratio are classified as follows. EFFICIENCY RATIO The ratios compounded under this group indicate the efficiency of the organization to use the various kinds of assets by converting them the form of sale. This ratio also called as activity ratio or asset management ratio. As the assets basically categorized as fixed assets and current assets and the current assets further classified according to individual components of current assets viz. investment and receivables or debtors or as net current assets, the important of efficiency ratio as follow
1. Working capital turnover ratio 2. Inventory turnover ratio 3. Receivable turnover ratio 4. Assets turnover ratio

LIQUID RATIO The ratios compounded under this group indicate the short term position of the organization and also indicate the efficiency with which the working capital is being used. The most important ratio under this group is follows
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1. Current ratio 2. Quick ratio 3. Absolute liquid ratio

Efficiency ratio
1. Working capital turnover ratio

It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase in sales contemplated working capital should be adequate and thus this ratio helps management to maintain the adequate level of working capital. The ratio measures the efficiency with which the working capital is being used by a firm. It may thus compute net working capital turnover by dividing sales by working capital. W.C TOR = Sales Net working capital Table no 2.8 Particulars Sales Working capital 2004-05 4298.49 265.19 2005-06 5820.37 384.81 15.12 (Rs in crore) 2006-07 7930.32 465.04 17.05 2007-08 8764.16 394.7 22.20 2008-09 8853.35 447.43 19.78

WC turnover ratio 16.20

Chart no 2.8

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Observation High working capital ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in working capital Company s working capital ratio shows mostly more than two, except for the year 2005-06 because of excess of cash balance in current assets which occurred due to encashment of deposits. In the year 2008 the ratio was high, it indicates that the capability of the company to achieve maximum sales with the minimum investment in working capital.

2. Inventory turnover ratio Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. It is calculated by dividing the cost of goods sold by average inventory Inventory TOR = Cost of goods sold Average Inventory The average inventory is the average of opening and closing balance of inventory in a manufacturing company like NRL inventory of finished goods is used to calculate inventory turnover ratio.

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Table no 2.8 Particulars 2004-05 2005-06 4908.09 518.91 9.45 2006-07 6513.88 538.54 12.09

(Rs in crore) 2007-08 7716.34 526 14.66 2008-09 8010.73 571.09 14.02

Cost of goods 3495.99 sold Average inventory Inventory turnover ratio 419.00 8.34

Chart No 2.8

Observations

It is observed that Inventory turnover ratio indicates maximum sales achieved with the minimum investment in the inventory. As such, the general rule high inventory turnover is desirable but high inventory turnover ratio may not necessary indicates the profitable situation. An organization, in order to achieve a large sales volume may sometime sacrifice on profit, inventory ratio may not result into high amount of profit.

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3. Receivable turnover ratio Receivable turnover ratio = gross sales Average account receivable Gross sales are inclusive of excise duty and scrap sales because both may enter in to receivables by credit sales. Average receivable calculate by opening plus closing balance divide by 2. Increasing volume of receivables without a matching increase in sales is reflected by a low receivable turnover ratio. It is indication of slowing down of the collection system or an extend line of credit being allowed by the customer organization. The latter may be due to the fact that the firm is losing out to competition. A credit manager engage in the task of granting credit or monitoring receivable should take the hint from a falling receivable turnover ratio use his market intelligence to find out the reason behind such failing trend. Debtor turnover indicates the number of times debtors turnover each year Generally the higher the value of debtor s turnover, the more is the management of credit.
Debtor turnover ratio = 365

Receivable turnover ratio Table no 2.9 Particulars Gross sales Average debtors Receivable TOR 2004-05 4298.99 202.76 21.20 2005-06 5820.37 221.89 26.23 (Rs in crore) 2006-07 7930.32 239.05 33.17 2007-08 8746.16 344.97 25.40 2008-09 8853.35 310.72 28.49

Chart No 2.9

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4. Current assets turnover ratio Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current assets .current assets includes the assets like inventories, sundry debtors, bills receivable, cash in hand or bank, marketable securities prepaid expenses and short term loans and advances. This ratio includes the efficiency with which current assets turn into sales. A higher ratio implies a more efficient use of funds thus high turnover ratio indicate to reduced the lock up of funds in current assets. An analysis of this ratio over a period of time reflects working capital management of a firm.

Current assets TOR =

Sales Current assets

Table no 3.1 Calculation of CA TOR

(Rs in crore)
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Particulars Sales Current assets C.A turnover ratio

2004-05 4298.99 1144.58 3.75

2005-06 5820.37 1172.43 4.96

2006-07 7930.32 1576.83 5.02

2007-08 8746.16 2024 4.32

2008-09 8853.35 1505.66 5.88

Chart No 3.1

Observation It was observed that current assets turnover ratio does not indicate any trend over the period of time. Turnover ratio was 3.75 in the year 2004-05 and 4.96 in 2005-06 and 5.02 in 2006-07 respectively but it decreased in 2007-08 to 4.32 because of high cash balance. Cash did not help to increase in sales volume, as cash is non earning asset. In the year 2008-09 company increased its sales with increased investment in current assets, thus current assets turnover ratio increased to 5.88 in 2008-09

LIQUIDITY RATIO
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1. Current ratio
The current ratio is calculated by the following formula Current ratio = Current assets Current liabilities Current assets include cash and those assets which can be converted in to cash within a year, such marketable securities, debtors and inventories. All obligations within a year are included in current liabilities. Current liabilities include creditors, bills payable accrued expenses, short term bank loan income tax liabilities and long term debt maturing in the current year. Current ratio indicates the availability of current assets in rupees for every rupee of current liability Table no 3.2 Particulars Current assets Current liabilities Liquidity ratio Chart No 3.2 calculation of current ratio 2004-05 1144.58 879.39 1.30 2005-06 1172.43 787.62 1.48 (Rs in crore) 2006-7 1576.83 1111.79 1.41 2007-08 2024 1629.3 1.24 2008-09 1505.66 1058.23 1.42

Observation The current ratio indicates the availability of funds to payment of current liabilities in
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the form of current assets. A higher ratio indicates that there were sufficient assets available with the organization which can be converted in cash, without any reduction in the value. As ideal current ratio is 2:1, where current ratio of the firm is more than 2:1, it indicates the unnecessarily investment in current assets. In NRL scenario the current ratio is less in all the 5 years

2. Quick Ratio
Quick ratios establish the relationship between quick or liquid assets and liabilities. An asset is liquid if it can be converting in to cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset .other assets which are consider to be relatively liquid and include in quick assets are debtors and bills receivable and marketable securities. Inventories are considered as less liquid. Inventory normally required some time for realizing into cash. Their value has also the tendency to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities Quick ratio = Current assets - Inventory Current liabilities Table No 3.3 particulars Liquid current assets Current liability Quick ratio Calculation of Quick ratio 2004-05 427.14 879.59 0.48 (Rs in crore) 2006-07 755.79 1111.79 0.68 2007-08 1102.62 1629.3 0.67 2008-09 527.13 1058.23 0.49

2005-06 374.43 787.62 0.47

Chart no 3.3

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Observation
Quick ratio indicates that the company has sufficient liquid balance for the payment of current liabilities. The liquid ratio of 1:1 is suppose to be standard or ideal but here the quick ratio is less than 1.1 it indicates that the firm maintains the less liquid assets than actual requirement of such assets. In the year 2006-07 the company maintained Rs 0.68 cash for every one rupee expenses it can be said as liberal policy of finance for working capital .Rs .79 is the ideal investment which affects on the cost of the fund and returns on funds

3 Absolute liquid ratio

Even though debtors and bills receivables are considered as more liquid then inventories, it cannot be converted in to cash immediately or in time. Therefore while calculation of absolute liquid ratio only the absolute liquid assets as like cash in hand cash at bank, short term marketable securities are taken in to consideration to measure the ability of the company in meeting short term financial obligation. It is calculated by absolute assets dividing by current liability Absolute Liquid Ratio = Absolute liquid Assets Current Liability
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Table no 3.4 Particulars Absolute liquid assets Current liability Absolute liquid ratio 2004-05 1.33 879.59 0.0015 2005-06 30.90 787.62 0.039 2006-07 390.30 1111.79 0.351

(Rs in crore) 2007-08 512.03 1629.3 0.314 2008-09 292.02 1058.23 0.275

Chart No 3.4

Cash and Bank to Current Liabilities

Observation Absolute liquid ratio indicates the availability of cash with company is sufficient because company also has other current assets to support current liabilities of the company. In the year 2007-08 absolute liquid ratio increased because of company carry more cash balance, as a cash balance is ideal assets company has to take control on such availability of funds which is affect on cost of the fund. 4.5 OPERATING CYCLE OF NRL The need of working capital arrived because of goods and their actual realization after sale. This time gap is called Operating time gap between productions of Cycle or Working Capital Cycle The operating cycle of a company consist . of time period between
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procurement of inventory and the collection of cash from receivables. The operating cycle is the length of time between the companys outlay on raw materials, wages and other expanses and inflow of cash from sales. Operating cycle is an important concept in management of cash and management of cash working capital. The operating cycle reveals the time that elapses between outlays of cash and inflow of cash. Quicker the operating cycle less amount of investment in working capital is needed and it improves profitability. The duration of the operating cycle depends on nature of industries and efficiency in working capital management.

Calculation of Operating Cycle

To calculate the operating cycle of Numaligarh Refinery Limited last five year data is being used. Operating cycle of the NRL may vary year to year as changes in policy of management about Credit policy and operating control. Table No 3.5 operating cycle (No Of Days) 2007-08 9 3 14 26 52 31 21 2008-09 10 4 12 26 52 27 25

Particulars 2004-05 2005-06 2006-07 ADD Raw Material holding period 12 7 9 Intermediate stock 6 5 3 Receivable collection period 17 14 11 Inventory holding period 43 38 30 Gross operating period 78 64 53 LESS Creditors payment period 35 30 25 Net operating cycle 43 34 28 Raw material holding period is calculated by the following formula RM holding period =Raw material consumed Average raw material

Chart No 3.5

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Observation The operating cycle of Numaligarh Refinery Limited shows the number of days are decreasing in the recent years, it reflects the efficiency of the management. If no of days of operating cycle increases the cost of funds taken from outside of the business increases. In the year 2004-05 the number of days was highest as inventory holding period increased in that year.

CHAPTER 5
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5.1 INSIGHTS ABOUT THE ORGANISATION 5.2 FINDINGS 5.3 RECOMMENDATION 5.4 CONCLUSION

5.1 INSIGHTS ABOUT THE ORGANISATION Numaligarh Refinery Limited has recorded a crude output of 2.62 million metric tons during 2009-10, the highest ever in the history of its operations. NRLs profit before tax grew by 13.2 per cent to Rs 361.71 crore while profit after tax was posted at Rs 232.08 crore, according to a release issued by the company
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1.

Departments at Numaligarh Refinery and their Functions Numaligarh Refinery Limited is an oil refining and marketing company. It is engaged in the refining and marketing of light, medium and heavy distillates through its retail stations. The companys area of operation is spread across the Northeast region of India. The company is headquartered in New Delhi and employs 718 people.The operations at the refinery are divided into six divisions, viz. Finance and Accounts Personnel and Administration Purchase Department Stores Department Production Department Marketing Department

The following includes, in brief, the major functions of the above mentioned departments at Numaligarh Refinery Limited.

1.1

Finance and Accounts Department: The activities carried out under the different sections in the Finance & Accounts department of NRL are as follows:

Pricing Fixing of price for different finished goods for the refinery at different locations and issue price circulars to concerned departments in this regard. Issue price circulars for the retail outlets at different locations of the country. Issue circulars on crude price.

Treasury and Insurance Section

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Fund management (working capital management, investment of surplus funds etc.) Payment to vendors. Liaison with bank for account opening. Optimize the source pattern of fund to minimize interest cost. Risk management of the company Selection of insurer Lodgments of claim Coordination activity for claim settlement

Main Accounts Preparation of monthly, quarterly, annual accounts. Maintenance of books of accounts. Ensure compliance of Accounting Standards and other statutory compliances from the point of view of the books of accounts. MIS, Budgeting and Costing Generation of different MIS for management as well as outside agencies. Preparation of revenue budget and necessary coordination activity in this regard. Maintenance of costing records as per statutory

Vendor Monitoring and Crude Accounting Monitoring vendor balances like advances, deposits etc.

Handling the complete purchase cycle of crude from issuing purchase order to raising goods receipt and valuation of crude stock.

Payroll Section Payroll processing for all the employees at all the locations of the company. Payment of tour and other advance and their settlement.
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Marketing Finance OMC and other customer sales accounting, balanced monitoring etc. Co-ordination with dealers in other states. Ensuring legal companies like Sales Tax etc.

1.2.

Personnel & Administration: Administration Providing transport facility which is required for performing different activities of the company. Providing guest house facility to the guests. Providing hospital and school facilities to offer best services to employees and their families. Security of the company is ensured through deployment of Central Industrial Security Force (CISF)

Industrial Relation Canteen facilities are provided to the employees. Employees grievances are redressed without any delay. Closely monitoring whether the Industrial Disputes Act and Factories Act are followed in proper manner. Benefit Management Medical benefits are offered to the employees. building.
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Loans are arranged for purchasing computers, furniture and for the house

Payroll Payment of salaries which includes bulks and allowances to the employees. Payment of performance linked incentives. Payment of productivity linked incentives.

Recruitment of Employees The company considers the quality of its human resources to be its most important asset and constantly endeavours to attract and recruit best possible talent to meet its current and future needs. Following techniques are generally adopted for recruiting the employees. 1. Advertisements in newspapers. 2. Through employment exchange 3. Campus recruitment.

Selection of Employees The employees who are selected as trainee after they qualify through a written examination and a personal interview. The mid-level employees are generally selected through the personal interview only. Human Resource Development In order to leverage the human element of the company, Human Resource Development (HRD) initiatives towards performance improvements are take up by the company. It places great emphasis on training and development of employees at all objectives through intensive communication with all its employees. The HRD activities mainly focused on multi-skilled training and enhancement of managerial competencies to attain excellence in all spheres of work.

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1.3. Purchase Department:

The purchase dept. and stores dept. are under the Commercial Department. Procurement of indigenous materials like engineering equipments, spares, chemicals etc. Procurement process starts when the purchase requests are generated by the different departments of the company. Open tender is invited through press and internet to various firms/ vendors. The purchase dept. generally follows double bid system for selecting the vendors. It involves two stages:
Techno-commercial bid: At this stage it is looked into whether the

materials are technically and commercially acceptable.

Price bid: At this stage the prices of the materials are considered.

However, the firms which can clear the techno-commercial bid can enter into the price bid. The firm which offers the lowest price is generally awarded the tender. The purchase order is then issued to the firm. The particulars such as delivery time, packing size etc. are mentioned in the purchase order. Goods are generally received by the stores department. The stores department issues the Good Received Note (GRN) after the inspection of materials. After getting the GRN from the Stores Department, the purchase department authorizes the payment of bill. However, the draft is issued by the Finance & Accounts Department.

1.4.

Stores Department:

Receiving of materials:The receipt section shall receive materials against approved purchase order only. The receipt section would determine the most suitable time for receiving materials and equipments from suppliers who deliver them at the stores. In
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normal condition, the receipt section shall receive materials from 8 AM to 3 PM in all working days. Internal inspection of materials: On receipt of automatic inspection call over intranet mail of NRL, indentor / user function should carry out inspection of materials within seven days in accordance with the specifications, prescribed tests, approved samples etc. as per the purchase order. Inspection has to ensure not only the quality of the material received but also the quantity of the same. Movement of material to custody and issue section: Each accepted items are to be tagged with exact item code, purchase order no., quantity, description and specification. Accepted items are to be handed over to Custody ( Issue ) to ensure the actual physical quantity remains at par. Any discrepancies found as a result of stock verification should be investigated immediately at the spot and a detailed report to be submitted thereon to the Finance Department. After getting approval from the competent authorities, necessary corrective measures like adjustments, stock transfer, disposal etc. shall be carried out by the Issue and Custody Section. Disposal of scrap material: Scrap generated by different user departments shall be segregated into steel scrap, stainless steel scrap, copper scrap, wood scrap etc. are collected from the plant accumulated by the departments. Then the sufficient quantities in lot shall be deposited to Issue & Custody section. The disposal committee examines the scrap materials and based on their recommendations scrap materials are to be disposed off by warehouse department. Preservation of materials: Adequate preservation of material such as oiling, greasing, painting etc. depending on material is taken care of by Issue & Custody Section of warehouse. During storage periodical checks are mad to ensure that protection given is still satisfactory and renewed if necessary.

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1.5.

Production Department:

Objective : The prime objective of the department is to process crude oil as raw material and to produce different marketable grade products like Liquefied Petroleum Gas (LPG), Naphtha, Motor Spirit ( MS), Superior Kerosene Oil (SKO), Aviation Turbine Fuel (ATF), High Speed Diesel (HSD) and Petroleum Coke. Operation: The different refinery operations are as follows: 1)Distillation 2)Catalytic Reactions 3)Absorption The different equipment that are used to carry out the refinery operations are: 1. Pump 2. Compressor 3. Exchanger 4. Distillation Column 5. Reactor 6. Header etc.

Distillation: It is carried out separate different boiling range components. Crude oil is distilled in distillation columns to produce various straight run products which are blended to produce marketable grade products. Catalytic Reactions: The different reactions involved in the refinery are: Hydrogenation Dehydrogenation Reforming Hydro cracking
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Polymerization

To carry out these reactions different catalytics are used which promote the kinetics of the reaction.

Absorption: This process is used to separate a particular component from a gas mixture by applying suitable absorbent. Special Techniques Adopted: Optimization of energy and lost reduction are the key parameters monitored in the refinery operation. For this different automated system are available. This includes Automatic Control System Sophisticated Monitoring Device Upgraded Feedback System Different Engineering Tools

1.6.Marketing Department: NRL generally markets its petroleum products by using

three distribution channels. These are: Whole selling: The major products of the refinery, namely LPG, MS, SKO, ATF and HSD are generally marketed through the holding company BPCL, while some quantity of products is marketed through HPCL and IOCL based on long term product sharing agreement. The company sells its products to OMCs (Oil Marketing Company) in short term credit (for a period of 1 week). The company markets its products outside the North

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East only through the holding company BPCL. Moreover, NRL is continuing supply of MS and HSD to Essar Oil, Reliance for their retail outlets in North East. Retailing: In accordance with the approval from Govt. of India for marketing of MS and HSD, setting up 510 retail outlets over Eastern, parts of Northern and Southern regions, the company launched its retail network aptly known as - NRL ENERGY STATIONS. A total of 73 retail outlets are operating in various parts of country. Sales from the outlets have been quite encouraging and the company has been earning a loyal set of customers. Direct Selling: The special products namely RPC, CPC and Sulphurs are being directly marketed by the company to industries like Fertilizers, Aluminium etc. Moreover, HSD is directly sold to Tea Estates. However the marketing department of the company is divided into three groups: A.) B.) C.) Marketing Operations Retail Marketing Market Engineering

A.)

Marketing Operations: The group is responsible for the following activities: Coordination with BPCL for preparation of distribution plan on daily basis. Scheduling of dispatch of products based on availability of tank trucks and rail racks. Actual loading operation. Preparation of bill.

B.)

Retail Marketing: This group handles the retail business of the company. The following are the main activities of the group:

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Retail market survey for knowing about the demand and identification of prospective locations. Selecting the location of retail outlets. Releasing the advertisement through print media. Selection of dealers. Operation of retail business through dealers network.

C.)

Marketing Engineering: This group is responsible for the following activities:

Designing and construction of Retail outlets Procurement of materials like pumps etc. for construction of retail outlets.

1.7.

OMS Department: The OMS (Oil Movement & Service) Department of the

refinery has an elaborate arrangement for storage facilities of feed, intermediate products and finished products along with their blending facilities. From the OMS Department finished products are pumped to the respective processing units.

Briefly the OMS dept. follows the following functions: Supply of feed to units Blending of products Receipt and storage of intermediate products. Measurement and sampling of products. Dispatch of finished products to marketing terminal.

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The OMS department facilities at NRL can be broadly divided into three categories: Crude Oil storage and transfer. Intermediate storage and transfer. Product Storage and transfer.

Crude Oil storage and transfer: Crude oil received from OIL through a 12 pipeline in the refinery complex. Four numbers of floating roof tanks each of normal capacity 50,000 M3 (cube) are provided for storing their crude. Three numbers of crude oil transfer pumps are provided for feeding them to crude distillation unit.

Intermediate storage & Transfer: The intermediate system is comprised of storage and transfer of: a.) Vacuum residue which is feed to Delayed Coker Unit (DCU) b.) Vacuum distillate which is feed to Hydro cracker unit (HCU) c.) DCU distillate feed to HCU.

Finished Product Storage and transfer: Normally in most of the cases storage capacities for the finished products such as MS, HSD, ATF, Naphtha, LPG, SKO, RPC, CPC etc are based on 15 days production in the refinery. Based on product evacuation plan, these finished products are pumped to marketing Terminal. Marketing Terminal holds certain tanks for storing these products for as short period of time before dispatching the products either through road loading and rail loading. Department of Finance and Accounts & Treasury operation

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The Finance and Accounts department at Numaligarh Refinery is headed by the Director (Finance). The responsibilities are subsequently split throughout the hierarchy as Finance & Business Development Finance & Accounts Marketing Accounts Treasury Pricing Taxation Main Accounts Payroll Budget MIS

Hierarchal of finance department with functions Director (finance) - He looks after the Integrated Information System, Internal Audit and other functions of the dept General Manager (finance) - overall incharge of Internal Audit and Finance & Administrative

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Deputy General Manager (Finance & Business Development)- Apart from finance , he looks after the business development including joint ventures , payroll, main accounts, budget etc. He is also incharge of MIS Chief Manager (Finance & Administrative) He looks after the operations of finance department. He has his own portfolio, he looks after the insurance, direct and indirect taxation excise duty, and also marketing finance Senior Manager (F & A) looks after the operations of finance dept Manager (F & A) There is 3 managers who are incharge of payroll & maintenance of accounts, excise and marketing finance Deputy Manager (F&A) he looks after the treasury pricing , direct taxation t, tax etc Assistant Manager (F& A) There are 3 managers one manager is incharge of TDS ( tax deduction at sources) the other is incharge of looking after the MIS and the 3rd one is incharge of insurance & sales tax Officers (F&A) There are 8 officers looking after the various financial activities of the department.

5.2 FINDINGS Working capital management is important aspect of financial management. The study of working capital management of Numaligarh Refinery ltd. has revealed that the current ratio was as high and the liquidity position of the company showed an decreasing trend. The study has been conducted on working capital ratio analysis, working capital leverage, working capital components which helped the company to manage its
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working capital efficiency and affectively 1. Working capital is showing an increasing trend till 2006-07 where it is found to be highest. In the year 2007-08 decreased due to increase in current liabilities but in 2008-09 it increased again as current liabilities decreased 2. Average collection period has been reduced in the last 5 years in the year 2006-07 it was least only 11 days 3. Size of inventory of NRL is showing an increasing trend in the last 5 years 4. Current ratio is higher which indicate that the company has current liabilities which is high 5. Current assets are showing an increasing trend till 2007-08, it decreased in 2008-09 due to decrease in cash & bank balances and sundry debtors 6. Working capital leverage has decreased, reductions of working capital leverage shows inefficient current assets management 7. NRL follows a conservative policy that is a greater amount of investment in current assets 8. NRL maintains a high liquidity but at the sometime it incurs to losses. 9. The average gross refinery margin of IOCL during the year 2000-10 was found to be US $ 4.47 per bbl as against 3.69 per bbl during the corresponding previous year. Whereas adjusted GRM after accounting for freight and CST under recoveries during 2008-08 was better at USD 1.21 per bbl against a negative GRM of USD 0.87 per bbl during 2007-08

5.3 RECOMMENDATION

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Recommendation can be use by the firm for the betterment increased of the firm after study and analysis of project report on study and analysis of working capital. I would like to recommend 1. Company should raise funds through short term sources for short term requirement of funds, which comparatively economical as compare to long term funds 2. Company should take control on debtor s collection period which is a major part of current assets 3.Also the company can take control over inventory holding period as ideal is 21 days but in the last financial year it is found to be 26 days 4. Company has to take control on cash balance because cash is non earning assets and increasing cost of funds Over all company has good liquidity position and sufficient funds to repayment of liabilities. Company has accepted conservative financial policy and thus maintaining more current assets balance. Company is increasing sales volume per year.

5.4 CONCLUSION The summer internship is a part of the PGDM degree awarded by AICTE. We have got much information and benefit from the internship. It has helped us to understand the concepts that we have studied in classroom in a much better and broader way. We were to exploit the available opportunity to the fullest.
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The organization I have chosen is Numaligarh Refinery Limited. Numaligarh Refinery Limited (NRL) is a subsidiary of BPCL.NRLs Distillate Yield (yield of high value of liquid petroleum products) during 2009-10 was recorded at 85.32 showing an improved performance against previous years figure of 84.72 percent. The refinerys specific energy consumption, a measure of energy efficiency in operation, during 2009-10 was recorded at 67.6 MBN which was again an improved performance compared to 70.7 MBN a year ago. On the safety front, the refinery has been able to sustain its excellence in performance with achievement of 14.09 million loss time accident free man hours till March 31, 2010. NRL has also achieved the feat of being the first refinery in North East to produce and despatch Euro-IV grade motor spirit (petrol) As a part of conclusion, I would like to conclude the summer internship project report by saying that it was really a great experience for me to do my SIP in such an organization.

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