Table of Contents:

Chapter No. Name of the Chapter Page Number

1 Introduction to the Organization
2 Working Capital Management at NFL
3 Analysis of Overall Liquidity Position
4 Conclusion and Recommendations
5 Bibliography
 CHAPTER-I
INTRODUCTION TO
THE ORGANISATION
(A) INTRODUCTION TO THE FERTILIZER SECTOR

The history of the Indian fertilizer industry dates back to 1906, when the first fertilizer
factory opened at Ranipet (Tamil Nadu). Since then, there have been major
developments in terms of both the quantity and the types of fertilizers produced, the
technologies used and the feed stocks employed. The fertilizer industry in India is in
the core sector and second to steel in terms of investment.

India is a country of more than 1 000 million people. It is the seventh largest nation in
the world with a geographical area of 328.7 million hectares. Agriculture is the
mainstay of the Indian economy, contributing about 22 percent of gross domestic
product (ODP) and providing a livelihood to two-thirds of the population. The net
cultivated area has been about 141 million ha for the last 30 years. However, there has
been a progressive increase in the gross cropped area as the cropping intensity has
increased from 118 to 135 percent in the last three decades. The total gross cropped
area is about 190 million ha. Broadly, the climate of India is of the tropical monsoon
type. It has four seasons: winter (January/February), a hot summer (March-May),
rainy southwest monsoon (June-September), and post-monsoon (October-December).
The climate is affected by two seasonal winds: the Southwest monsoon and the
northeast monsoon. The distribution of rainfall is very uneven in terms of time and
space (Table 1). About 72 percent of the area receives an annual rainfall of no more
than 1 150 mm. India has a net irrigated area (land area that receives irrigation from
the different sources) of 54.68 million ha and a gross irrigated area (total area of crops
that are irrigated) of 75.14 million ha (the largest in the world). Surface water and
groundwater resources contribute 46 and 54 percent, respectively, of the total. Food
crops occupy 69 percent of the irrigated area, the remaining 31 percent being under
non-food crops. The land in India suffers from varying degrees of degradation. Soil
fertility depletion is a cause of concern for Indian agriculture. There exists a gap of
about 10 million tons of nutrients (NPK) between the removal of nutrients by crops
and their addition through fertilizers. The use of plant nutrients per hectare is
relatively low and imbalanced, and this is one of the major reasons for low crop yields
in India. There are two main cropping seasons, namely kharif (April-September) and
rabi (October-March). The major kharif crops include rice, sorghum, pearl millet,
maize, cotton, sugar cane, soybean and groundnut, and the rabi crops are wheat,
barley, gram, linseed, rapeseed and mustard. With its good range of climates and
soils, India has a good potential for growing a wide range of horticultural crops such
as fruits, vegetables, potato, tropical crops. Food grain (cereals and pulses) crops
dominate the cropping pattern and account for about 60 percent of total gross cropped
area (Figure 1).

S.No. Sector Capacity(lmt Percentage

) share

N P N P

1 Public 34.98 4.33 29.0 7.65

sector

2 Co-op 31.69 17.13 26.27 30.27

sector

3 Private 53.94 35.13 44.73 62.08

sector

Table : Sector wise installed manufacturing capacity as on 31.01.2007

 SHARE OF DIFFERENT COMPANIES IN FERTILIZATION SECTOR

Figure: Share of different companies in fertilization sector

CAPACITIES BUILD UP:

At present, there are 56 large size fertilizer units in the country manufacturing a wide
range of nitrogenous, phosphoric and complex fertilizers. Of these, 29 units produce
urea, 20 units produce DAP and complex fertilizers, 7 units produce low analysis
straight nitrogenous fertilizers. There are 9 units that manufacture ammonium
sulphate as byproduct. Besides, there are about 72 small and medium scale units in
operation producing single super phosphate (SSP). The total installed capacity of
fertilizer production which was 119.60 LMT of nitrogen and 53.60 LMT of phosphate
as on 31.03.2004 has marginally increased to 120.61 LMT of nitrogen and 56.59
LMT of phosphate as on 31.01.2007.

PRODUCTION CAPACITY:
The production of fertilizers during 2005-06 was 113.54 LMT of nitrogen and 42.21
LMT of phosphate. The production target for 2006-2007 has been fixed at114.48
LMT of nitrogen and 48.20 LMT of phosphate, representing a growth rate of 0.83%
in nitrogen and 14.19% in phosphate, as compared to the actual production in 2005-
2006. Production target for nitrogenous fertilizer is less than the installed capacity
because of constraints in supply and quality of natural gas for Rashtriya Chemicals
and Fertilizers (RCF), Trombay and Bharamputra Valley Fertilizer Corporation Ltd.
(BVFCL), Namrup. Similarly, the production target for phospahtic fertilizer is less
than installed capacity due to constraints in availability of raw materials/intermediates
which are substantially imported. The production performances of both nitrogenous
and phosphatic fertilizers during 2006-07 were less than the target. For nitrogenous
fertilizers this was mainly due to constraints in supply and quality of natural gas,
equipment breakdowns, and RCF Trombay-V and DIL Kanpur remained under
unscheduled shutdown. In case of phosphate, production in DAP plants was low on
account of shortage of imported phosphoric acid and ammonia. Production of
complexes was higher than the corresponding period of last year. However, taken
together, the production of 'N' and 'P' during the year was higher than that in the
corresponding period of last year.

CAPACITY UTILIZATION:
The domestic fertilizer industry has by and large attained the levels of capacity
utilization comparable with others in the world. The capacity utilization during 2005-
06 was 94.1 % for nitrogen and 74.6% for phosphate. The estimated capacity
utilization during 2006-07 is 93.6% of nitrogen and 82.0% of phosphate. Within this
gross capacity utilization, the capacity utilization in terms of the urea plants was
102.0% in 2005-06 and is estimated to be 99.0% in 2006-07. As for phosphate
fertilizers, apart from the constraints mentioned earlier, the actual production capacity
utilization has also been influenced by the demand trends. The capacity utilization of
the fertilizer industry, particularly in respect of urea, is expected to improve further
through revamping modernization of the existing plants.

Strategy for Growth:

The following strategy has been adopted to increase fertilizer production

 Expansion and capacity addition. Efficiency enhancement through

retrofitting/revamping of existing fertilizer plants.

 Setting up joint venture projects in countries having abundant and cheaper raw
material resources.

 Working out the possibility of using alternative sources like liquefied natural gas,
coal gasification, etc., to overcome the constraints in the domestic availability of
cheap and clean feedstock, particularly for the production of urea.

 Looking at possibilities of revival of some of the closed units by setting up

Brownfield units subject to availability of gas.

Feedstock Policy:
At present, natural gas based plants account for more than 66% of urea capacity,
naphtha is used for less than 30% urea production and the balance capacity is based
on fuel oil and LSHS as feedstock. The two coal based plants at Ramagundam and
Talcher were closed down due to technological obsolescence and no viability. Natural
gas has been the preferred feedstock for the manufacture of urea over other feedstock
viz. naphtha and FO/LSHS, firstly, because it is clean and efficient source of energy
and secondly, it is considerably cheaper and more cost effective in terms of
manufacturing cost of urea which also has a direct impact on the quantum of subsidy
on urea.

Steps Taken to Ensure Adequate Availability of Gas and Pipeline

Connectivity for Fertilizer Sector:
Although natural gas is the preferred feedstock for production of urea, but due to the
dwindling supplies of natural gas, gas based units have been facing shortage of natural
gas. Average actual supply of gas to fertilizer units during 2005-06 was 28.48
MMSCMD against the requirement of 34.72 MMSCMD. With the commissioning of
LNG terminal of Petronet LNG Limited (PLL) and commencement of supplies of R-
LNG to consumers w.e.f. 1.4.2005, the supply position of gas to urea units along the
HBJ pipeline has improved as the shortfall was only 3.20 MMSCMD. However,
shortfall of gas for urea units in Urban Region and KG Basin is very acute
.Furthermore the requirement of gas for the fertilizer sector will increase in next 3-4
years on account of new and expansion projects of urea, additional production of urea
beyond 100% by existing urea units, conversion of non-gas based units to NG/LNG
and revival of closed urea units of HFC and FCI.

In the context of preparing a credible plan of action for conversion of non-gas

based units to NG/LNG and ensuring adequate availability of gas for the existing
units as well as to take care of future requirement of Gas, a series of meetings have
been held between the Ministry of Petroleum and Natural gas and the Department of
Fertilizers and prospective suppliers of NG/LNG. As per the position emerging from
the deliberations held with the Ministry of Petroleum and Natural Gas, it has come out
that the domestic gas availability scenario will remarkably improve from 2009-10 and
there should be no problem of general availability of NG/LNG from 2008-09 onwards

Expenditure on Urea Subsidy:

The financial support to indigenous and imported urea from the year 2002-03 onwards
is indicated --below:-

PERIOD AMOUNT OF SUBSIDY DISBURSED TOTAL

ON SUBSIDY ON
UREA

INDIGENOUS IMPORTED
UREA UREA

2002-03 7790 0 7790

2003-04 8521 0 8521

2004-05 10243.15 493.91 10737.06

2005-06 10460.17 493.91 11878.24

2006-07(RE) 10410.37 1093.54 11503.91

2006-07(RE) 11400.37 2703.54 14103.91

(B) INTRODUCTION TO THE COMPANY

The rise in fertilizer consumption in India has been quite phenomenal during the
past two and a half decades. To meet the rise in consumption of fertilizers, creation of
additional capacity was also planned. The change in worldwide energy concept and
the rise in oil prices in 1973 forced India to broad base its nitrogenous production by
adopting new and sophisticated technology which could use cheaper sources of raw
materials hitherto not tried in the country.

It is in this context that National Fertilizers Limited (NFL) (A Public Sector

Undertaking) was conceived to plan and implement two modern large capacity single
stream nitrogenous fertilizer plants in the predominant fertilizer consuming areas of
Northern States of India to cater to ever increasing demand for fertilizer in the region.

National Fertilizers Limited was incorporated on 23rd August,

1974 for setting up two nitrogenous fertilizer plants, each with a capacity of 5,11,500
MT of Urea per annum at Bathinda (Punjab) and Panipat (Haryana) based on fuel oil/
LSHS as main raw material. On reorganization of Fertilizer Corporation of India
Limited (FCI) - NFL group of companies, Nangal unit of FCI was taken over by NFL
on 15t April 1978. Later on, a gas based fertilizer plant was entrusted to NFL. It has
come up at Vijaipur in Guna District of Madhya Pradesh, which started production in
July 1988, with an installed capacity of 7, 26,000 MT of Urea per annum. The
Vijaipur Project was completed within time schedule and without cost overrun for
which NFL was awarded 'Excellence in Project Management' by the Ministry of
Program Implementation for successful completion of Vijaipur Project. Subsequently,
Govt. of India entrusted for expansion of Vijaipur Unit (Vijaipur Unit-II) on gas
based with same installed capacity as was for Vijaipur Unit-I. Vijaipur Unit-II started
commercial production on 315t March 1997. NFL has four operating units and one
Central Marketing Office with Zonal Offices at Chandigarh, Bhopal, Lucknow and
New Delhi. There are area offices of marketing division also in most of the States
besides Dispatch and Coordination Cells at Units (D & C Cell). It has its Registered
Office at Scope Complex, Core-III, 7- Institutional Area, Lodhi Road, New Delhi-
ll0003 and Corporate Office at A-ll, Sector-24, District Gautam Budh Nagar, and
NOIDA (U.P) 201301.
 NFL was given the 'Mini Ratna Category-I' status by the Govt. of India in July,
1988 based on the Company's overall performance during the preceding years.

 NFL Vijaipur Unit, during 1998-99, received ISO 14001 Certification in addition
to ISO 9002 Certification already obtained by the Unit. NFL, thus, is the First
Company in Public and Cooperative Sector in the Fertilizer Industry to have both
these Certifications.

 NFL has been selected by a panel of judges for Economic Times- Harvard
Business School Association of India Corporate Performance Award for 1994,
among 213 Public Sector Companies in the country.

 International Greenland Society, Hyderabad awarded NFL "Best Environmental

and Ecological Implementation Award" for 1995-96.

BATHINDA UNIT
1) National Safety Award to the Unit from the Ministry of Labor, Government of
India for Meritorious Performance in Industrial Safety during 1989.

2) Merit Certificate from NPC to the Unit for performance improvement during 1991-
92.

3) Bathinda Unit received "Prime Minister's Shram Award" and "Vishwakarma

Rashtriya Puraskar" during 1994-95 under various suggestion schemes. The Unit also
received "Punjab Safety Krit Shiromani Award" and "Krit Veer Awards" from the
State Government. The Unit also received "Udyog Excellence Gold Medal and a
Citation" from Industrial Economic Forum, New Delhi.
4) "Jawahar Lal Nehru Memorial National Awards" constituted by the International
Greenland Society, Hyderabad for Pollution Control and Energy Conservation won by
the Unit.

5) The Unit won 1st Prize in:

 Lowest Accident Frequency Rate;

 Maximum Reduction in Accident Frequency Rate; and

 Longest Accident Free Period.

6) During 2001-02, Bathinda Unit was awarded National Safety Award First Prize for
Largest Accident Free Period' in Fertilizer and Chemical Industry relevant for 1999.

MISSION OF THE COMPANY:

National fertilizers limited mission is to produce as well as market fertilizer and
chemically and serve the consumers.

 Farmer and other consumers with quality products and services to the benefit of
the national economy

 To produce and market fertilizers and by product efficiently economically besides

achieving a reasonable and consistent growth

 To effectively manage the assets and resources of the company to ensure a

reasonable return on investment and to maximize internal resources.

 To carry out Rand D activities for increasing plant availability, energy saving,
process improvement-utilizing efficiency in the application of chemical

CORPORATE OBJECTIVES OF NFL:

In terms of Memorandum of Association, NFL was set up to manufacture and market
chemical fertilizers, other chemicals and by- products as well as to provide the allied
services. In order to achieve and maintain a leading position in the production and
marketing of fertilizers, the following micro objectives have been identified.

PRODUCTIVITY

 To achieve the best possible levels of production and economy in use of

inputs while ensuring safety and proper maintenance of plant and machinery and
 pollution control. More specifically (a) strive to raise capacity utilization (b) To
improve upon consumption norms consistently.

RESEARCH AND DEVELOPMENT

 To carry out R and D activities

 Increasing plant availability,

 Saving in the use of energy in different form, )r Better recovery of saleable

by- products,

 Process improvement /development,

 Increasing utilization efficiency on a sustained basis in the application of

chemical fertilizers in combination with other agricultural inputs.

PROFITABILITY

 To manage the assets, men and materials in most effective and efficient
manner ensuring,

 Reasonable return on investment commensurate with principles laid down by

the government from time to time, and

 Generation of increasing internal resources.

MARKETING AND CONSUMER SERVICES

 To provide to the farmers high quality products in right time and in adequate
quantities and with a package of modern agricultural practices, at the same
time, maintaining reputation for fair business practices.

 To further intensify promotional efforts for increased use of fertilizers and to

maximize distribution of company's products within the areas covered by the
Company, consistent with Govt. policy.

ORGANISATION

 To develop and maintain an organizational environment for encouraging

individual and group initiative, innovation and productivity and also sustain
fair deal and humane approach.
GROWTH

 To achieve reasonable and consistent growth in the business of manufacture

and marketing of fertilizers and chemicals compatible with needs of the
market.

 To work out diversification/expansion schemes to increase profitability of the

company and meet the changing needs of the customers.

THE COMPANY (NATIONAL FERTILIZERS LIMITED)

Registered on 23.8.1974

Authorized Capital Rs.500.00 Crores

Paid up Capital Rs.490.58 Crores

Capacity 3.70 Lakh MT Nitrogen

The capacity has increased from 13.70 lakh MT Nitrogen to 14.86 lakh MT Nitrogen
consequent upon commissioning of Nanga 1 Unit Revamp Scheme w.e.f. 1.2.2001
and reassessment of capacities of Vijaipur-I and II w.e.f. 1.4.2000. The total capacity
of Urea is 32, 30,700 MT which in term of Nitrogen comes to 14.86lakh MT.
PLANTS RELATED CAPACITIES

TONNES/DAY TONNES/ANNUM

Unit Methanol Urea Unit Methanol Urea

Nangal 67 1450 22110 478500 220110

Panipat - - 1550 - 511500 235290

Bathinda - 1550 - 511500 235290

Vijaipur-I - 2620 - 864600 397716

Vijaipur- II - 2620 - 864600 397716

Total 67 2620 22110 3230700 1486122

MARKETING AND SERVICES:

The complete farmer satisfaction through best services is the drawing force of NFL's
marketing, strategy. The Company has expanded its program from improving the crop
productivity at farm level to the overall development of the farming community. To
provide to the farmers high quality products in the right time, NFL has an extensive
and integrated marketing network. The Company provides comprehensive capsules of
various fertilizer promotion activities, which include agronomical programs, use of
extension media, publicity and farmer development programs.
FERTILIZERS:
The complete farmer satisfaction through best services is the drawing force of NFL's
marketing, strategy. The Company has expanded its program from improving the crop
productivity at farm level to the overall development of community. To provide to the
farmers high quality products in the right time, NFL has an extensive and integrated
marketing network. The Company provides a comprehensive capsule of various
fertilizer promotion activities, which includes agronomical programs, use of extension
media, publicity and farmer development programs.

Soil testing services are provided free of cost to the farmers to advocate the balanced
use of fertilizers at economic levels. One mobile soil-testing unit caters to the need of
the remotest of remote farmers in far areas and provides technical guidance to the
farmer at field level.

Other farm services include fertilizer demonstration on cultivator's fields, field days,
fertilizer/farmers Mela, pilot project, adoption of villages etc. NFL also conducts
various training programs to educate the farmers on the balanced use of fertilizer and
its timely application besides providing guidance on pesticides and fungicides.
NFL PRODUCTS
MAIN PRODUCTS

(1) KISAN UREA

Kisan Urea is a highly concentrated, solid, nitrogenous fertilizer, containing 46.0% .It
is completely soluble in water hence Nitrogen is easily available to crops. It contains
Nitrogen in amide form which changes to ammonia forms and is retrieved by soil
colloids for longer duration. Urea is available in granular form and can be applied by
drill and broadcasting.

Kisan urea is ideally suitable for all types of crops and for foliar spray which
instantly removes nitrogen deficiency. Kisan Urea also has a strong and long lasting
effect on crop resulting in bumper crops Carbonic acid present in Kisan Urea helps in
absorption of other nutrients like phosphate and Potash by roots of crop.

(2) NEEM UREA

 (3) BIO –FERTILIZERS
NFL manufactures and markets three types of Bio-Fertilizers, Rhizobium, Phosphate
Solubilishing Bacteria (PSB) and Azetobactor. Starting with a mere 23 MT
production in 1995-96, the production has risen to 173 Mts in 2002-03. The Company
presently markets its bio-fertilizers in Madhya Pradesh, Maharashtra, Orissa,
Rajasthan and Punjab.

Bio-fertilizers are used to supplement chemical fertilizers as also to maintain soil

fertility; besides the following:

1. Bio-Fertilizers are Supplement to Chemical Fertilizers.

2. Bio-Fertilizers are cheap and can reduce the cost of cultivation.

3. Fix Biological Nitrogen in the soil, which is readily available to the plant.

4. Increase crop yield by 4-5% on an average.

5. Improve soil properties and sustain soil fertility.

6. Provides plant nutrient at low cost and useful for the consecutive crops.

INDUSTRIAL PRODUCTS:
NFL manufactures and markets the following Industrial Products.

Product Chemical
Formula Specifications Used for/Industry Packaging
Supply
Methanol Minimum 99.8 wt% * Formaldehyde Supplied
(CH3OH) Specific gravity * Automotive antifreeze in Road
Max.0.7928 at 20oC * Chemical Synthesis Tankers
* Aviation Fuel
* Rocket fuel
* Dehydrator for natural
gas
Nitric Acid Dilute HNO3 by wt.54% * Organic Synthesis Road
(HNO3) and 60%concentration. * Photo engraving Tankers
Balance water * Medicine
* Preparation of Nitro
* Compounds
Oxidiser in liquid rocket
propellants
* Refining of Silver
Ammonium Nitrate Flakes 95% concen. * Explosives, Pyrotechnics Flakes in
(NH4NO3) Balance water * Herbicides & Insecticides Polethene
* Nitrous Oxide HDPE
Melt Concen 82-84% * Absorbent for Nitrogen Bags
Balance water Oxides Melt in
* Ingredient for freezing
Stainless
 mixtures Steel
* Oxidiser in solid rocket road
properties tankers.
* Nutrient for Antibiotics &
yeast
* Catalyst

Rubber & Tyre Industry

Sugar Industry

Sulphur (S) 99.5% purity * Sulphuric Acid Loose

Moisture 0.5% * Sugar Industry
* Rubber & Tyre Industry

Drugs & Pharmaceuticals.

Textile finishes Paints & Dyes

Industrial Grade Nitrogen 46.6% * Animal Feed 50Kgs.HDPE

Urea Moisture 0.4%-0.5% * Synthetic resins Bags.
(NH2CONH2) Melting Point 131oC * Textile finishes
Biuret Less than 1.0% * Melamine Resins
* Paints & Dyes
* Drugs & Pharmaceuticals.

Steel Manufacturing

Liquid Oxygen(O2) 97-98% purity * Steel Manufacturing Road

Inerts 2-3% * Copper Manufacturing Tankers
* Welding & Cutting
* Medical purposes.
Liquid 99.99% purity * Animal Husbandry for Cryogenic
Nitrogen(N2) 0-10 PPM Oxygen Semen preservation bottles
* Electronic Industry for small
quantity;
bulk in
road
tankers.

Rubber industry
Rubber industry

Carbon Slurry[ C ] Carbon on dry basis * Rubber industry Loose

by wt.– 98%, Ash * Ink making industry
etc.– 2%

Aerated Water

Carbon dioxide CO2 (97-98%) purity * Aerated Water Through

Gas Inect gases – 2 to * Dry Ice pipe line
(CO2) 3% Methanol by wt.
500 PPm (Max)
H2S – 1 PPm (Max)
Anhydrous 99.5% purity (mm) * Nitric Acid production Road Tankers
Ammonia * Urea Production
(NH3) * Hydrazine
* Nitriding of Steel
* Refrigerant Solvent
* Yeast Nutrient
* Rocket Fuel
* Reducing Agent for Ores
Sodium Nitrite 97.00% purity by wt. * Organic synthesis 50 Kg
(NaNO2) NaNO3 – 1% by wt. * Rubber additives HDPE
Moisture and Volatile * Chemical reagent Bags
matter 1.0% * Pharmaceuticals
* Photographic regent
* Pickling meat
* Medicines
* Dyeing & Printing of
Fabrics
* Rust Proofing etc
 Glass Manufacturing

Sodium Nitrate 98% purity by wt. * Oxidising agent 50 Kg

(NaNO3) Na NO2 – 0.5% * Oxidizer in solid rocket HDPE
Moisture – 1% propellants bags
* Fertilizers
* Glass Manufacturing
* Chemical Reagent
* Dynamities/matches
* Military Explosives
* Refrigerant/Medicines

Aircraft & Missile industry

Liquid Argon (Ar) 99.999% purity * Arc Welding Road Tankers

Oxygen 0.5PP * Plasma cutting
Nitrogen 0.2PPm * Lamp industries
Maximum impurity 10 * Aircraft & Missile industry
PPm * Cryogenics
H20 0.1 PPm & Refrigeration
* Gas Crhomatagraphy Gas
analysis
* Copper refining;
* S.S.Production
* Metal Refining.

Lliquid CO2 (CO2) Purity: 99.93% * Aerated water Road Tankers

CO : <5 PPm * Dry Ice
O2 : < 10 PPm
Oil : NT
Methanol : NT
H2S : NT
Off Grade Methanol : 60-80% Road Tankers
Methanol Higher alcohol :5-10%
(CH3OH) Water : 20-30%
SPECIALIZED SERVICES:
NFL has a proven track record of over two decades in the areas of Project
Management, Plant operation and Maintenance etc. NFL provides its expertise in the
areas of specialized services.

NFL is well known for taking up assignments in India and abroad in the fields of

• Commissioning Activities of Plant/ Equipments

• Heavy Equipment Erection supervision

• Complete operation of Chemical plants on a continuous basis

• Overall maintenance of plants; specialized maintenance and repair

services/shutdown/turn around jobs.

• Special maintenance and repair services for rotator equipment, like pumps,
compressors, turbines etc.

• Energy Audits leading to energy savings

• Safety Audit Services

• Design and monitoring of Environment Protection Systems

• NDT, Corrosion and RLA services

• Laboratory Services

• Training of technical manpower in Operation Maintenance and Safety Management

• Consultancy in Project Management

MOU PERFORMANCE

Memorandum of Understanding (MOU) is a negotiated agreement between

Government as owner of public enterprises and the management of the Public Sector
Enterprises (PSEs). MOU is meant to measure the Performance of Management of
PSE at the end of the year in an objective and transparent manner.
In the search of improving accountability and giving higher operational autonomy to
Public Sector Undertaking, the Department of Public Sector Enterprises (DPE)
Government of India introduced the concept of Memorandum of Understanding
(MOU) in early nineties. The new Industrial Policy of 1991 made it mandatory for all
PSUs to enter in to MOU with their respective Administrative Ministries. The MOU
over these years has gained significant improvement from the fact that it reflects the
company’s overall composite rating and secondly the performance of the Chief
Executive of the company is partly seen through MOU. The strengthening of existing
system of monitoring PSUs through MOU is an important element of the present
policy of the Government. NFL started signing MOU from the year 1991-1992 and
has been getting Excellent rating for most of the years. NFL's MOU rating from 1991-
92 to 2007-08 is given below

MOU RATING:

YEAR RATING
1991-92 Excellent
1992-93 Excellent
1993-94 Excellent
1994-95 Excellent
1995-96 Excellent
1996-97 Fair
1997-98 Very Good
1998-99 Good
1999-00 Very Good
2000-01 Excellent
2001-02 Excellent
2002-03 Excellent
2003-04 Excellent
2004-05 Excellent
2005-06 Excellent
2006-07 Excellent
2007-08 Excellent
2008-09 Under Evaluation
ENVIRONMENT

NFL has a long tradition of nurturing the environment in and around its
manufacturing Units. At NFL, we believe in sustainable development without
degrading the environment and are fully committed to our responsibility to the
Society. In line with our commitment to this object, we have installed with state of art
effluent treatment facilities at all our Units. At NFL Vijaipur the Company has
adopted cleaner technology to minimize generation of pollutants.

All the pollutants generated in the manufacturing process are treated at source and
pollution control schemes have been incorporated at the inception stage itself.

NFL meets the standards prescribed by the Central and State Pollution Control boards
and ensures that our Pollution Control measures and upgraded from time to time. The
major facilities available at NFL's operating Units are :

a) Installation of NOX Abatement Scheme along with associated sodium

nitrite/nitrate plants for Nitric Acid Plant at Nangal.

b) Provision of Thermal Urea Hydrolyser at Nangal.

c) Facilities for cyanide and chromate treatment of effluent from carbon recovery
and cooling towers sections at Nangal.

d) Provision of acoustic granulators for reducing dust emissions from Prilling

towers at Panipat & Bathinda.

e) Provision of additional electrostatic precipitators on all the coal fired boilers at

Panipat, Bathinda and Nangal.

The Company has also adopted an extensive Afforestation program and has planted
more than 1.5 lakh trees of different species. The once barren stretch of land around
NFL Vijaipur Unit in Madhya Pradesh is now a lush green belt with about 1.5 lakh
trees-which stands testimony to the Company's Commitment to environment
preservation.
 INTRODUCTION TO BATHINDA PLANT
Bathinda unit of National Fertilizers Ltd. is situated in Bathinda Distt. of Punjab
State. The Unit is situated 8 Km away from Bathinda City, on "Sibian Road".
Bathinda as one of the sites for fuel oil based plant was basically chosen from
consumption point of view. The following factors were considered in view by Govt.
of India while selecting the site at Bathinda.

• Availability of land

• Steady power supply in the vicinity of project.

• Availability of good quality water from the Sirhind Canal.

• Bathinda town being conjunction of Punjab, Haryana and Rajasthan and all
States having potential for fertilizer consumption.

IMPLEMENTATION OF PROJECT:
To take up challenging job for completion of this Project within a period of 36
months from the zero date i.e. from 26.09.1974, the contracts were signed with "Toyo
Engineering Corporation" (TEC) and Engineers India Limited (ElL), well known
Japanese and Indian Consultancy Companies respectively.

MILESTONES OF THE PROJECT

Effective date of contract with TEC/EIL 26-09-1974

Commissioning of water filtration Plant 15-12-1976

Commissioning of D.M Plant 04-03-1977

Commissioning of Instrument Air System 13-03-1977

Commissioning of boiler -1 01.08.1977

Commissioning of Boiler – 2 02.12.1977

Ammonia Production 28-05-1979

Urea Production 02-06-1979

Commercial production started 01-10-1979

PROJECT COST:
The approved project cost of Bathinda unit is Rs. 239.30 crores with a foreign
exchange component of Rs.67.87 crores. Foreign Exchange was mainly met from
Japanese yen credit. However, for certain equipments, foreign exchange were met out
of free foreign exchange and Dutch credit.

REQUIREMENTS OF RAW MATERIAL:

Fuel oil /LSHS 850MTDay

Coal 1680 MTDay

Water 13 MGD

Power 28MWH

CAPTIVE POWER PLANT:

Electrical Energy is the major necessity of every plant. To fulfill the need of
electricity, C.P.P. was setup in this unit. It provides electricity as well as Stearns to the
urea and ammonia plant. It minimizes Tripping of fertilizer plant due to transient
voltage dips and power cuts, ensuring availability of stable, uninterrupted power and
augmentation of Stearns to the ammonia and urea plant. It helps to increase
production by bringing consistency in it with the avoidance of breakdowns, thus
leading to profitability.
 Chapter-II:
WORKING CAPITAL
MANAGEMENT AT NFL
 WORKING CAPITAL MANAGEMENT

INTRODUCTION
Working capital management has acquired great importance in recent times.
The brains in every organization is now days spending their previous time to resolve
the problems of working capital. Working capital is an integral part of the overall
financial management. The management of chart assets and chart team sources of
financing is working capital management.

Every business needs funds for two purposes.

• For its establishment.

• To carry out its day to day operation

Funds are required to create production facilities through purchase of fixed

assets such as plant, machinery, land, building, furniture etc. Investments in these
assets represent that part of firm's capital which is blocked on permanent basis and is
called fixed capital. Funds are also needed for short term purposes for the purchase of
raw materials, payment of wages and other day to day expenses. These funds are
known as gross capital. In layman language working capital refers to that part of
firm's capital that is required for financing short term assets such as cash, debtor,
inventory and marketable securities. The main aim of financial management is to
maximize shareholder's funds. It is possible only when company earn profit. The
amount of such profit depends upon magnitude of value.

There is always a time gap between value of goods and receipt of cash.
Working Capital is required for this period. The main aim of working capital
management is to manage the firm's current assets and current liabilities. This is
because if firm can't maintain capital **** level of working capital it becomes
insolvent and forced into bankruptcy. The interaction between current assets and
current liabilities is main theme of theory of working capital. Working capital is life
blood and controlling nerve of business.

MEANING OF WORKING CAPITAL

The term' working capital' refers to the firm’s total current assets. It is also
termed as gross 'working capital' since the term' working capital' according to the
surrounding terminology is used for the difference of current assets and current
liabilities. In case the term working capital is used for current assets the term used for
the excess of current assets over current liberalities is networking capital.
CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital

(a) Balance sheet concept.

(b) Operating cycle or circular flow concept.

a) BALANCE SHEET CONCEPT:

There are two interpretations of working capital under the balance sheet
concept.

i.) Gross working capital

ii.) Net working capital

In the broad sense, the term working capital refers to the gross working capital and
represents the amount of funds invested in current assets. Thus, the gross working
capital is the capital invested in total current assets of the enterprise. Current assets
are those assets which in the ordinary course of business can be converted into cash
within a short period of normally one accounting year. Examples of current
assets are:

CONSTITUENTS OF CURRENT ASSETS

1 Cash in hand and bank balances

2 Bills Receivables

3 Sundry Debtors (less provision for bad debts).

4 Short-term loans and advances

5 inventories of stocks, as

(a) Raw materials,

(b) Work-in-process

(c) Stores and spares

(d) Finished goods

6 Temporary Investments of surplus funds.

7 Prepaid Expenses.

8 Accrued Incomes.

In a narrow sense, the term working capital refers to the net working capital. Net
working capital is the excess of current assets over current liabilities, or say:

Net Working Capital = Current Assets – Current Liabilities

Net working capital may be positive or negative .when the current assets exceed the
current liabilities the working capital is positive and the negative working capital
results when the current liabilities are more than the current assets. ( Current liabilities
are those liabilities which are included to be paid ordinary course of business within a
short period of normally one accounting year out of the current assets or the income
of the business examples of current liabilities are:

CONSTITUENTS OF CURRENT LIABILITIES

1. Bills Payable.

2 Sundry Creditors or Accounts Payable.

3. Accrued or Outstanding Expenses

4. Short-term loans, advances and deposits.

5. Dividends Payable.

6. Bank Overdraft.

7. Provision for taxation, if it does not amount to appropriation of profits.

The gross working capital concept is financial or going concern concept whereas net
working capital is an accounting concept of working capital. These two concepts of
working capital are not exclusive; rather both have their own merits. The gross
concept is sometimes preferred to the net concept of working capital for the following
reasons:
1. It enables the enterprise to provide correct amount, of working capital at the right
time.

2. Every management is more interested in the total current assets with which it has to
operate than the sources from where it is made available.

3. The gross concept takes into consideration the fact that every increase in the funds
of the enterprise would increase its working capital.

4. The gross concept of working capital is more useful in determining the rate of
'return on investments in working capital.

The net working capital concept, however, is also important for the following reasons:

1. It is a qualitative concept which indicates the firm's ability to meet its operating
expenses and short-term liabilities.

2. It indicates the margin of protection available to the short-term creditors, i.e., the
excess of current assets over current liabilities.

3. It is an indicator of the financial soundness of an enterprise.

4. It suggests the need for financing a part of the working capital requirements out of
permanent sources of funds.

To conclude, it may be said that, both, gross and net, concepts of working
capital are important aspects of the working capital management. The net concept of
working capital may be suitable only for proprietary from of organizations such as
sole-trader or partnership firms. But the gross concept is very suitable to the company
form of organization where there is divorce between ownership, management and
control.

However, it may be made clear that as per general practice, net working
capital is referred to simply as working capital. In the words of Hoagland, "Working
capital is descriptive of that capital which is not fixed. But the more common use of
the working capital is to consider. It is the difference between the book value of the
current assets and current liabilities.
b) Operating cycle or circular flow concept.

As discussed earlier, working capital refers to that part of firm's capital which
is required for financing short term or current assets such as cash, marketable
securities, debtors and inventories funds, thus invested in current assets keep
revolving fast and are being constantly converted into cash and this cash flow out
again in exchange for other current .assets. Hence, it is also known as revolving or
circulating capital. The circular flow concept of working capital is based upon this
operating or working capital cycle of a firm. The cycle starts with the purchase of raw
material and other resources and ends with the realization of cash from the sale of
finished goods, it involves purchase of raw material and stores, its conversion into
stock of finished goods through work in progress and service costs, conversion of
finished stock into sales, debtors and receivables and ultimately realization of cash
and this cycle continues again from cash to purchase of raw material and so on.

The speed/time duration required to complete one cycle determines the

requirements of working capital, longer the period of cycle, larger is the requirement
of working capital,

The gross operating cycle of a firm is equal to the length of the inventories and
receivables conversion periods. Thus,

Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP

RMCP = Raw Material Conversion Period

WIPCP = Work In Progress Conversion period

FGCP = Finished Goods Conversion Period

RCP = Receivables Conversion Period

Classification or kinds of working capital

Working capital may be classified in two ways

(a) On the basis of concept.

(b) On the basis of time

On the basis of concept, working capital is classified as gross, working capital and net
working capital as discussed earlier. This classification is important from the point of
view of the financial manager. On the basis of time working capital may be classified
as:

1. Permanent or fixed working capital

2. Temporary or variable working capital

1. Permanent or Fixed Working Capital: Permanent or fixed working capital is the

[minimum amount which is required to ensure effective utilization of fixed facilities
and for maintaining the circulation of current assets. There is always a minimum level
of current assets which is continuously required by the enterprise to carry out its
normal business operations. * For example, every firm has to maintain a minimum
level of raw "materials, work-in-process, finished goods and cash balance. This
minimum level of current assets is- called; permanent or fixed working capital as this
part of capital is permanently blocked in current assets. As the business grows, the
requirements of permanent working capital also increase due to the increase in current
assets. The permanent working capital can further be classified as regular working
capital and reserve working capital required to ensure circulation of current assets
from; cash to inventories', from inventories to receivables and from receivables to
cash and so on. Reserve working capital is the excess amount over the requirement for
regular working capital; which may be provided for contingencies that may arise at
unstated periods such as strikes; rise in prices, depression, etc.

2. Temporary or Variable Working Capital: Temporary or variable working

capital is the amount of working capital which is required to meet the seasonal
demands and some special exigencies. Variable working capital can be further
classified as seasonal working capital and special, working capital. Most of the
enterprises have to provide additional working capital to meet the seasonal and special
needs. The capital required to meet the seasonal needs of the enterprise is called
seasonal working capital. Special working capital is that part of working capital which
is required to meet special exigencies such as launching of extensive marketing
campaigns for conducting research etc.

Figures given below Illustrate the difference between permanent and temporary
working capital in the sense that it is required for short periods and cannot be
permanently employed gainfully in the business figures given below illustrate the
difference between permanent and temporary working capital.

IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING CAPITAL:

Working capital is the life blood and nerve centre of a business. Just as circulation of
blood is essential in the human body for maintaining life, working capital is very
essential to maintain the smooth running of a business. No business can run
successfully without an adequate amount of working capital. The main advantages of
maintaining adequate amount of working capital are as follows:
1. Solvency of the business: Adequate working capital helps in maintaining solvency,
of the business by providing uninterrupted flow of production.

2, Goodwill: Sufficient working capital enables a business concern to make prompt

payments and Jience helps in creating and maintaining goodwill.

3. Easy loans. A concern having adequate working capital, high solvency and good
credit standing can arrange loans from banks and others on easy and favorable terms.

4. Cash discounts. Adequate working capital also enables a concern to avail cash
discounts on the purchases and hence it reduces costs.

5. Regular supply of raw material: Sufficient working capital ensures regular supply
of raw materials and continuous production.

6. Regular payment of salaries, wages and other day-to-day commitments. A company

which has ample working capital can make regular payment of salaries, wages mid
other day-to-day commitments which raises their morale of its employees, increases
their efficiency, reduces wastages and costs and enhances production and profits.

7. Exploitation of favorable market conditions. Only concerns with adequate working

capital can exploit favorable market conditions such as purchasing its requirements in
bulk when the prices are lower and by holding its inventories for higher prices.

8. Ability to lace crisis. Adequate working capital enables a concern to face business
crisis in emergencies such as depression because during such periods, generally, there
is much pressure on working capital.

9. Quick and regular return on investments. Every Investor wants a quick and regular
return on his investments. Sufficiency of working capital enables a concern to pay
quick and regular dividends to its investors as there may not be much pressure to
plough back profits. This gains the confidence of its investors and creates a favorable
market to raise additional funds in the future.

10. High morale. Adequacy of working capital creates an environment of security

confidence, high morale and creates overall efficiency in a business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate working capital to run its
business operations. It should have neither redundant or excess working capital nor
inadequate nor shortage of working capital. Both excess as well as short working
capital positions are bad for any business. However, out of the two, it is the
inadequacy of working capital which is more dangerous from the point of view of the
firm.
DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING
CAPITAL

1. Excessive Working Capital means idle funds which earn no profits for the business
and hence the business cannot earn a proper rate of return on its investments.

2. When 'there is a redundant working capital, it may lead to unnecessary purchasing

and accumulation of inventories causing more chances of theft, waste and losses.

3. Excessive working capital implies excessive debtors and defective credit policy
which may cause higher incidence of bad debts.

4. It may result into overall inefficiency in the organization.

5. When there is excessive working capital, relations with hanks and other financial
institutions may not be maintained.

6 Due to low rate of return on investment the value of shares may also that MP of
shares.

7. The redundant working capital gives use to speculative transactions.

DISADVANTAGES OR DANGERS OF INADEQUATE WORKING CAPITAL

1. A concern winch has inadequate working capital cannot pay it’s shun term
liabilities in tune. Thus, it will lose its reputation and shall not be able to gel good
credit facilities.

2. It cannot buy us requirements in bulk and annul avail of discounts, etc.

3. It becomes difficult for the firm to exploit favorable market conditions and
undertake profitable projects due to lack of working capital.

4. The firm cannot pay day-to-day expenses of its operations mid it creates
inefficiencies, increases costs and reduces the profits of the business.

5. It becomes impossible to utilize efficiently the fixed assets due to non- availability
of liquid funds.

6. The rate of return on investments also falls with the shortage of working capital.

THE NEED OR OBJECTS OF WORKING CAPITAL

The need for working capital cannot be over emphasized. Every business
needs some amount of working capital. The need for working capital arises due to the
time gap between productions mid realization of, cash from sales. There is an
operating cycle involved in the sales band realization of cash. There are time gaps in
purchase of raw materials and production; production and sales; mid sales and
realization of cash. Thus, working capital is needed for the following purposes:

1.) For the purchase of raw materials, components and spares.

2.) To pay wages and salaries.

3.) To incur day-to-day expenses and overhead costs such as fuel, power and office,
expenses, etc.

4. To meet the selling costs as packing, advertising, etc.

5. To provide credit facilities to the customers.

6. To maintain the inventories of raw material, work-in-progress, stores mid spares

mid finished stock.

For studying the need of working capital in a business, one has to study the
business under varying circumstances such as a new concern, as a growing concern
mid as one which has attained maturity. A new concern requires a lot of liquid funds
to meet initial expenses like promotion, formation, etc. These expense's, are called
preliminary expenses mid are capitalized. The amount needed as working capital in a
new concern depends primarily" upon its size and the ambitions of its promoters.
Greater the size of the business unit, generally, larger will be the requirements of
working capital. The amount of working capital needed goes on increasing with the
growth and expansion of business till it attains maturity. At maturity, the amount of
working capital needed is called normal working capital. There are many other factors
which influence the use of working capital in the business. They are discussed later
on.

FUNCTIONS OF WORKING CAPITAL MANAGEMENT

The following are the important functions of working capital management:

(I) Changes in the level of sales because of seasonal, cyclical and random factors are
to be adjusted with. Adverse short-run development may cause difficulties to the firm
in its growth.

(II) The value of the firm is to be maximized and efficient working capital
management can contribute to this goal. The level of current assets should not be
beyond a point where marginal returns on additional current assets are less than the
cost of capital required to finance additional current assets.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

 Following points emphasis the importance of working capital management:

(I) Time involved. Financial manager has to devote the largest portion of his time in
day to day internal operations of the firm and hence the importance of working capital
management.

(II) Relationship with sales growth. The need to finance current assets is closely and
directly related to growth of sales. If sales increase, more amounts are required to be
invested in accounts receivable. Moreover, in anticipation, greater stocks are to be
kept for the increased sales.

(III) Quantum of investment. In most of the concerns which are not manufacturing,
current assets may be even more than half of the total assets of a business. Large
investment requires careful attention of the finance manager in respect of the current
assets management particularly since the investments lend to be relatively volatile.

(IV) Importance for small firms. A small firm cannot avoid investments in current
assets and, therefore, for it the management of current assets assumes special
significance. It is so because of the difficulty in arranging long-term loans also - the
effect being increased current liabilities on account of short-term loans.

DETERMINANTS OF WORKING CAPITAL

Following are the factors which determine the requirements of working

capital:

(1) Manufacturing cycle. The production process consumes time right from the
purchase and use of raw materials to the completion of finished goods. The longer the
duration, the greater is the requirement of working capital. The manufacturing cycle
may shorter for certain concerns and longer for others it depends on the type of the
product to be manufactured, work to be done through machine labor and hand Inborn,
degree of rationalization of manufacturing procedure', through lime, motion mid
fatigue studies etc.

(2.) Production Policy: If the production is evenly spread over the entire year,
working capital requirements are greater, because the inventories will lie
unnecessarily accumulated during oil - season period. But if the production schedule
favors a varying production plan as per the seasonal requirements, working capital is
required to a greater extent during a specified season only. The production policies
arc; affected by so many factors-availability of raw materials, labor, stocking facility
etc. and therefore, whatever the production policies are, the firm has to arrange its
working capital requirements accordingly. The decisions of management regarding
automation also affect working capital requirements. In a labor intensive process, the
requirement of working capital will be higher. In case of a highly automatic plant, the
requirements of long-term funds would be greater.
(3) Nature and size of business. Manufacturing firms require less working capital as
compared to trading and financial firms. However, certain manufacturing firms also
require a heavy investment in working capital. Public utility concerns require less
capital. The needs of working capital for a large business are more than those of a
small business. Also, shorter the manufacturing process, lower the requirement of
working capital because inventories are to be maintained at a lower level. Therefore,
highly capital intensive industries require large working capital to run their
sophisticated and long production process.

(4) Seasonal and cyclical fluctuations. On account of market boom, sales increase
and, as a consequence, the requirements of inventories and debtors Increase. Slack
seasons reduce the requirements of investment in working capital.

(5) Credit Policy. Liberal credit policy leads to higher sales and, therefore, more
working capital is required. Even if sales do not grow, liberal policy in respect of
credit period allowed will require more investment in debtors because the collections
would also be slower then. In the same way, an organization which has a very
efficient debt collection system and offers strict credit terms will require lesser
working capital as compared to organization where debt collection system is not so
efficient.

(6) Credit facilities. If the credit period allowed to the company is more, the
requirements of working capital would be less for the company. If the company does
not enjoy liberal credit facilities from its suppliers, it will have to arrange for greater
funds for investment in current assets.

(7) Inventory policies. This has also an impact on working capital requirements since
large amount of funds is normally locked up in inventories. An efficient firm may
stock raw material for smaller period and may require lower working capital.

(8) Efficiency of operations. If the operations of the company are efficiently

managed, the operating costs would be low and the resources would be utilized in the
best possible manner resulting in speeding up of the working capital cycle and, thus,
reducing the working capital requirements.

(9) Dynamic attitudes. If the management of the firm is dynamic and is thinking in
terms of expanding the business or diversifying it, greater funds are required by the
business. The main reason why more funds are required early is that advance planning
is essential if the firm is to expand and grow.

10) Price fluctuations: Price level changes, particularly inflation have a great effect
on the requirements of working capital in periods of rising prices more funds are
required to be invested in working capital. Same level of operations can be conducted
only with greater funds if the value of money falls.

(11) Supply fluctuations. Regular supply of raw materials and labor would cause
lesser working capital requirements, large quantities of raw material are required to be
stored because of fear of non-availability at a later date or on account of increased
prices, and more funds are needed for working capital.

(12) Abnormal Factors. Factors such as strikes and lockouts require additional
working capital. Recessionary conditions require more stock of finished goods while
inflationary conditions require more fund for working capital to maintain same
amount of current assets.

(13) Tax liability. Greater tax liability means greater requirements of working capital.
Tax liability can be reduced by proper tax planning and tax management and thus the
working capital requirements can also be reduced.
MANAGEMENT OF WORKING CAPITAL

Working capital management is really concerned with the administration of all

the current assets and current liabilities it is basically concerned with

(a) Determining the need for working capital.

(b) Determining the optimal levels of investment in various current assets, and
Examining the latest patients upgrading each element of working capital.

(c) It is obvious that given a constant level production higher the amount of working
capital, the lower will be the return on investment, since capital turnover ratio will be
less. On the other hand, lower the amount of working capital; the higher would be the
amount of the Risk since the company would not have adequate liquidity to meet its
term obligations. In working capital management, therefore, we have to strike a
balance between risk and profitability. We have to find out that level of achievement
in working capital which gives a reasonable amount of liquidity to a good working
capital turnover ratio.

The management of working capital includes.

• Cash management

• Receivable management

• Inventory management
INTRODUCTION TO CASH MANAGEMENT
Cash is the important current asset for the operations of the business. Cash is
the basic input needed to keep the business running on a continuous basis; it is also
the ultimate output expected to be realized by selling the service or product
manufactured by the firm. The firm should keep sufficient cash, neither more nor less.
Cash shortage will disrupt the firm's manufacturing operations while excessive cash
will simply remain idle, without contributing anything towards the firm's profitability.
Thus, a major function of the financial manager is to maintain a sound cash position.

Cash is the money which a firm can disburse immediately without any
restriction. The term cash includes coins, currency etc. held by the firm, and balances
in its bank accounts. Sometimes near-cash items, such as marketable securities or
bank time’s deposits, are also included in cash. The basic characteristic of near-cash
assets is that they can readily be converted into cash. Generally, when a firm has
excess cash, it invests it in marketable securities. This kind of investment contributes
some profit to the firm.

Cash management is concerned with the managing of:

(i) Cash flows into and out of the firm,

(ii) Cash flows within the firm, and

(iii) Cash balances held by the firm at a point of time by financing deficit or investing
surplus cash. It can be represented by Cash.

Management cycle as shown below sales generate cash which has to be

disbursed out. The surplus cash has to be invested while deficit has to be borrowed.
Cash management seeks to accomplish this cycle at a minimum cost. At the same
time, it also seeks to achieve liquidity and control. Cash management assumes more
importance than other current assets because cash is the most significant and the least
productive asset that a firm holds. It is significant because it is used to pay the firm's
obligations. However, cash is unproductive. Unlike fixed assets or inventories, it does
not produce goods for sale. Therefore, the aim of cash management is to maintain
adequate control over cash position to keep the firm sufficiently liquid and to use
excess cash in some profitable way.

In order to resolve the uncertainty about cash flow prediction and lack of
synchronization between cash receipts and payments, the firm should develop
appropriate strategies for cash management. The firm should evolve strategies
regarding the following four facets of cash management:

Cash planning: Cash inflows and outflows should be planned to project cash
surplus or deficit for each period of the planning period. Cash budget should be
prepared for this purpose.
Manage the cash flows: The flow of cash should be properly managed. The cash
inflows should be accelerated while, as far as possible, the cash outflows should be
decelerated.

Optimum cash level: The firm should decide about the appropriate level of
cash balances. The cost of excess cash and danger of cash deficiency should be
matched to determine the optimum level of cash balances.

Investing surplus cash: The surplus cash balances should be properly invested
to earn profits. The firm should decide about the division of such cash balance
between alternative short-term investment opportunities such as bank deposits,
marketable securities, or inter-corporate lending.

MOTIVES FOR HOLDING CASH

The firm's need to hold cash may be attributed to the following three motives

The transactions motive

The precautionary motive

The speculative motive

Transaction Motive

The transactions motive requires firm to hold cash to conduct its business in
the ordinary course. The firm needs cash primarily to make payments for purchase*,
wages and salaries, other operating expenses, taxes, dividends etc. The need to hold
cash would not arise if there were period synchronization between cash receipts and
cash payments, i.e. enough cash is received when the payment has to be made. But
cash receipts and payments are not perfectly synchronized. For those periods, when
cash payments exceed cash receipts, the firm should maintain some cash balance to be
able to make required payments. For transactions purpose, a firm may invest its cash
in marketable securities. Usually, the firm will purchase securities whose maturity
corresponds with some anticipated payments, such as dividends, or taxes in the future.
Precautionary Motive:

The precautionary motive is the need to hold cash to meet contingencies in the
future. It provides a cushion or buffer to withstand some unexpected emergency. The
precautionary amount of cash depends upon the predictability of cash flows. If cash
flows can be predicted with accuracy, less cash will be maintained for an emergency.
The amount of precautionary cash is also influenced by the firm’s ability to borrow at
short notice, less the need for precautionary balance.

Speculative Motive:

The speculative motive relates to the holding of cash for investing in profit-
making opportunities as and when they arise. The opportunity to make profit may
arise when the security prices change. The firm will hold cash, when it is expected
that interest rates will rise and security prices will fall. Securities can be purchased
when the interest rate is expected to fall; the firm will benefit by the subsequent fall in
interest rates and increase in security prices. The firm may also speculate on materials'
prices. If it is expected that materials' prices will fall, the firm can postpone materials'
purchasing and make purchases in future when price actually falls.

Cash planning is a technique to plan and control the use of cash. It helps to anticipate
the future cash flows and needs of the firm and reduces the possibility of idle cash
balances (which lowers firm's profitability) and cash deficits (which can cause the
firm's failure).

Cash planning protects the financial condition of the firm by developing a projected
cash statement from a forecast of expected cash inflows and outflows for a given
period. The forecasts may be based on the present operations or the anticipated future
operations. Cash plans are very crucial in developing the overall operating plans of
the firm.

Cash planning may be done on daily, weekly or monthly basis. The period and
frequency of cash planning generally depends upon the size of the firm and
philosophy of management. Large firms prepare daily and weekly Forecasts.
Medium-size firms usually prepare weekly and monthly forecasts. Small firms may
not prepare formal cash forecasts because of the non-availability of information and
small-scale operations. But, if the small firms prepare cash projections, it is done on
monthly "oasis, AS a firm grows and business operations become complex cash
planning becomes inevitable for its continuing success. Cash Forecasting and
Budgeting.

Cash budget is the most significant device to plan for and control cash receipts and
payments. A cash budget is a summary statement of the firm's expected cash inflows
and outflows over a projected time period. It gives information on the timing and
magnitude of expected cash flows and cash balances over the projected period. This
information helps the financial manager to determine the future cash needs of the
firm, plan for the financing of these needs and exercise control ov.er the cash and
liquidity of the firm.

The time horizon of a cash budget may differ from firm to film. A firm whose
business is affected by seasonal variations may prepare monthly cash budgets. Daily
or weekly cash budgets should be prepared for determining cash requirements if cash
flows show extreme fluctuations. Cash budgets for a longer intervals may be prepared
if cash flows are relatively stable.

Cash forecasts are needed to prepare cash budgets, Cash forecasting may be done on
short or long-term basis. Generally, forecasts covering periods of one year or less are
considered short-term; those extending beyond one year are considered long-term.
CASH MANAGEMENT IN N.F.L BATHINDA:-
In N.F.L, Bathinda, a cash budget is prepared which is the summary statement
of firm's expected cash inflow and outflow. For the whole financial year with a month
break up need of exact cash is sent to the head office which is situated at Noida for
approval. The head office sends after approving it. Funds are transferred to Bathinda
plant by head office on weekly basis or in case whenever the need of cash arises.
Reports of fund position are sent to head office on daily basis

In N.F.L Bathinda, ratios analysis has been used as an important tool to make analysis
of cash management as under:

(a) Cash to current assets:

Cash to current assets = cash / total current assets.

Year Cash Total current Assets Cash to current assets

2002-03 198150 2862758124 .00692%

2003-04 191994 1869151524 .0103%

2004-05 84057 1508964018 .0055%

2005-06 158636 3357189550 .0047%

2006-07 147081 4092193663 .0036%

2007-08 143456 2191197852 .0065%

This ratio depicts the percentage of cash in total current assets. The
fluctuations occur due to change in working capital over the years.

(b.) Cash Ratio:

Cash Ratio = Cash / Total current Liabilities

This ratio depicts the percentage of current liabilities that can be paid by cash.
Higher the ratio better is the ability to pay. It can be shown by the below table as:
 Year Cash Current liabilities Cash ratio

2002-03 198150 717179283 .027%

2003-04 191994 427452677 .045%

2004-05 84057 1197327858 .007%

2005-06 158636 1264674288 .0125%

2006-07 147081 1323546977 .011%

2007-08 143456 1744042615 .082%

INVENTORY MANAGEMENT

The objective of inventory management is to minimize the costs associated

with holding inventories without impairing operational efficiency. The problem in
inventory management is to determine the optimum level of inventories and to
maintain the same. The optimum level should ensure that the firm does not suffer on
account of production and sales requirements, keeping in view the minimum possible
costs in order to maximize profitability. Excessive investment in inventories and short
investment in inventories may be equally harmful for the enterprise.

TECHNIQUES OF INVENTORY MANAGEMENT

The following techniques of inventory management useful for efficient management

of inventories:

(1) Economic Order Quantity (EOQ).The quantity for which the order should be
placed is known as the economic order quantity. It is the size of the order the gives the
lowest total costs. The costs of inventories are ordering costs and carrying costs:

(i) Ordering cost: The costs of placing an order and obtaining the supplies are known
as the ordering cost. Normally the ordering cost is fixed per order. Hence, if more
orders are placed, ordering cost will have to be incurred. It also applies that the
quantities purchased on each order are smaller.

(ii) Carrying costs. Carrying costs are those costs which are required to be incurred
on account of inventory storage, handling, insurance etc. it also includes the interest
costs on account of investment being locked up in inventories. Such costs are assumed
to be constant per unit of inventory, per unit of time. The total carrying costs for a
period is the carrying costs per unit multiplied by the average number of units of
inventory for the period the average inventory being half of the quantity ordered,
assuming the usage of inventory on a perfectly steady basis over a period of time and
also assuming that there is no safety stock.

Ordering costs decrease while carrying costs increase if more and more
inventories are held and less and less orders are placed, and vice versa. A proper
balance is struck off by a level which gives the minimum total costs. With the help of
a formula, the economic order quantity can be calculated as under:

Q= Economic Ordering Quantity

U= Quantity (units) purchased in a year (month)

p= cost of placing an order

S= Annual (monthly) cost of storage of one unit

2. Safety Stock. The above E.O.Q model does not take into account the factor of
uncertainty, which is likely to exist with respect to delivery time, production rate and
sales rate, Moreover, Safety stocks are essential for the firm because there is a
likelihood of 'stock-out' on account of the delay in delivery of goods or increased
usage. To find out the optimum level of safety stock, a trade or between 'stock out'
costs and carrying costs is arrived at. Stock-out costs include loss of contribution as
well as damage to the firm's reputation. The optimum level will be higher if stock-out
costs are more and there is greater uncertainty of usage and deliver}' times, and vice
versa. More carrying costs amount to lower level of safety stock and vice versa.

The safely stock may be calculated by applying the following formula:

Safety Stock = Average Usage X period of Safety Stock.

3. Minimum/Maximum Levels. Fixation of minimum and maximum levels of

various inventor> items is the simplest and the oldest form of inventory management
It takes into account factors like (I) importance of each item to the production sales
process, (II) availability of alternative resources of supply I substitutions, (III) lead
time involved in the procurement of items. This method ensures that the inventory
levels are neither too low nor exceed the maximum fixed for each item.

4. Re-order Level. The optimal order (or re-order) point (or level) is the level of
inventor;' at which the economic order quantity of additional stock should be ordered.
It is the point at which the expected usage of an item of inventory would just exhaust
the existing inventory during the time required in obtaining fresh delivery. Thus the
re-order level can be determined by applying the following formula:

Re-order Level = Consumption during lead time

OR Average Usage X Lead Time

(Per day/week) (In days/weeks)

Lead time means the time normally required In getting delivery of goods after
placing an order. Average usage refers to the quantity of inventory to be consumed on
an average during a particular period.
7. ABC Analysis. The basic idea underlying ABC analysis is that every item of
inventory is not equally important from the viewpoint of control. Certain items are
very large in number (in quantitative terms) but are not of a high value, while certain
items are very few in number but are costly ones. The policy of control according to
the value of the items is more effective and less time consuming for the management.
Under ABC analysis, inventories are classified into three categories category A
consists of those items which are very few in number, say 10% of the total quantity
but are more valuable., possessing, say, 70% of the total value. Category B comprise
of items more in number as compared to category A items, but having lesser value
compared to that of category A items. For example, 35% of the total quantity may be
put in category B and the items may be having, say 25% of the total value, under
category C, the items are very large in number, say 55% of the total but their value is
very thin, say 5% of the total. The management would concentrate on Category A
items to the maximum possible extent. Category B items shall be paid less attention
to, and category C items the least.

8. Inventory Turnover Ratios: Computation or inventory turnover ratios helps a lot

in exercising control over the inventories. To evaluate the optimum use of inventories
for generation of sales, the ratio of average inventory to turnover is calculated. It is
expressed as the times inventory has been rotated over sales both expressed in terms
of costs and selling prices. If the ratio is as per the norms expected, there has been an
effective utilization of inventories and the investment inventories have been optimum.
Historical comparisons and inter-firm comparisons can be made to comment over the
effective use of inventories. A detailed analysis may disclose the following types of
inventories:

(i). Fast moving inventories. The inventories which are in great demand are fast
moving -inventories. Such inventories should be especially cared for, so that sales do
not suffer.

(ii) Slow moving inventories. The inventories which are moving at a slow rate are
slow moving inventories. The reasons should be further investigated. If the demand
such products is receding. Their production may be stopped in future. If there seems
to be a scope in the market, step may be taken to boost up sales through advertisement
campaigns etc.

(iii) Dormant Inventories. Inventories which are not in demand are termed as
dormant inventories. As attempt should be made to clear off such inventories as early
as possible though at a loss

(iv). Obsolete inventories. If the inventories have become out of date they are called
obsolete and such inventories should be scrapped forthwith.
INVENTORY MANGEMENT IN N.F.L BATHINDA:
In N.F.L Bathinda, mainly ABC Analysis and XYZ analysis is being used to
manage the inventories. Under ABC analysis ‘A’ categories includes the items which
have a consumption of more than Rs. 1, 00,000 during the year. It includes items like
router, heat exchanger, bulk chemical, pump, gear box etc. Category ‘B’ includes
items like mechanical spares. It includes those whose consumption value is more than
Rs. 20,000 but less than Rs. 1, 00,000 and ‘C’ category includes items like nut bolts,
general tools, painting brush, gloves etc. It includes value less than Rs. 20,000.

Under XYZ analysis, the ‘X’ category includes the items which are high in
units or which had items for more than 100000 units. We can say that it is just the
opposite of ABC Analysis.

In N.F.L, the procedure of acquiring inventory starts with the receipt of

material. As the material reaches to main gate, it is inspected. After this, material
reaches to store department. After that, there is inspection of material and finally,
issuing of materials is done.

ACCOUNTING & EVALUATION FO INVENTORY

Inventory as a percentage of Current Assets

Financial Year Inventory Current Assets Percentage of

C.A.

2002-03 1259413501 2862758124 44%

2003-2004 945086061 1869151524 50.5%

2004-2005 597492180 1508964018 40%

2005-2006 717991133 3357189550 21.38%

2006-2007 635746628 4092193663 15.5%

2007-08 761151922 2191197852 33.74%

From the above data, it can be analyzed that there has been overall decrease in
inventory.
RECEIVABLES MANAGEMENT
The third important component of current assets is the accounts receivable.
The credit and collection polices are to be properly laid down and effectively
implemented to manage the accounts receivable efficiently. The credit policies should
be such which balance the risk on one hand and the profitability on the other. The
investment receivables should be at an optimum level-which can be determined by a
trade-off between the cost of carrying receivables (including debt losses) and the
profit on sales. Collection policies should ensure timely collection of dues so as to
minimize the risk of bad debt losses. The efficiency of a firm's collection policy can
be measured by the rate at which credit sales are converted into cash.

FACTORS DETERMINING SIZE OF INVESTMENT IN RECEIVABLES:

1. Credit Policies. The credit policy of a firm influences the sales significantly. The
credit policy may be liberal or strict-a liberal policy increases the sales but may result
in more bad debts or may involve more costs on account of large investment being
locked up in receivables; a strict credit policy may bring the sales down, but the
chances of bad debts are minimized. The firm has to follow a path which is neither of
a liberal credit policy nor of a strict one. In order to maximize sales with minimum of
investment in receivables and minimum risk of bad debt losses.

2. Volume of Sales. The greater the volume of sales the greater will be the investment
in receivables. The volume of sales is affected by the extent of credit allowed to the
customer’s Liberal credit to more volume of sales and as a consequence the size of
investment in receivables in increases.

3. Credit Terms. Credit terms include two aspects:

(a) Credit Period.

(b) Cash Discount.

(a) Credit Period. If the demand of a product is inelastic the credit period may be
small. However, if product has an elastic demand, the credit period will determine the
quant.um of sales. The credit period is also dependent on the custom in the industry
and the practice followed by various competitors. Credit period is also determined by
availability of funds and the credit risks involved. Also if the credit period is too long,
possibility of bad debts will increase.

The longer the period of credit allowed to customers, the greater will be the
size of investment in receivables. Credit terms are sometimes mentioned as '3/15, net
40'. It means that 3% discount is given if the bill is paid before the 15th day, after the
date of invoice and payment is due by the 40th day, thus the credit period is 40 days.
(b) Cash Discount. Firms allow cash discount to customers so that they are induced
to make payment before the due date. Incentives in this form may reduce the size of
investment in receivables. The firm can see the effect of varying the rates of discount
and duration or discount period on the volume of sales and the size of receivables.
The discount policy should be such which increases the collections in such a way that
the opportunity savings arising there from are more than the cost of the discount.
Thus, the rate of discount to be given should depend upon the cost of carrying debts.

5. Credit Standards. The basic criterion for extension of credit to customers is

known as credit standard, if a firm allows credit to only those customers who have a
strong financial position, there are fewer chances of bad debt losses. But in such a
case the company may lose its sales and the profit foregone may be more than the bad
debt losses. The marginal cost of credit (bad debt losses, higher investigation and
collection costs and higher amounts locked up I: 1 receivables resulting in higher
costs of capital because customers having less reputation delay payments) should be
compared with the marginal profit on increased sales in order to determine the
optimal credit standard. The quantity of a customer should be judged according to the
profitability of default. Thus classification of customers is very important according to
their credit rating.

In foreign countries specialized agencies are engaged in the task of providing rating
information regarding individual parties.

Credit risk can be evaluated in terms of 5 Cs of credit-character, capacity, capital,

collateral and conditions.

6. Collection Policy and Procedures. The procedures followed by a firm to get the
payment of accounts receivables should be effective if the size of investment in
accounts receivables is to be contained. The collection machinery should be so geared
that as soon as the credit period is over, the receivables are converted into cash. The
procedures may include personal letters, telegraphic reminders, telephone calls and at
last legal actions.
RECEIVABLES MANAGEMENT IN N.F.L BATHINDA:
In this unit, there is no receivable management as all are controlled by the
head office, situated at NOIDA. To boost up the sales, the company pays attractive
cash discounts to its customers for early payments so that the credit collection period
is decreased. The credit worthiness of the customer is compared with the credit
standards of the company. It takes into account the promptness of the customer to pay.

For giving credit to a new customer, the financial position of the customer is
investigated. The frequency of payments and cash discount availed helps in forming
an opinion about the customer.

FINANCING OF WORKING CAPITAL:

Most important sources of financing working capital are:

• Trade creditors

• Bank finance

• Share capital

But in N.F.L Bathinda all sources of finances doesn't used. They mainly
dependent on bank finance because other finance act are formed in head office. The
most important source of working capital finance in NATIONAL FERTILIZER
LIMITED BATHINDA is mainly banks.

Banks are the main institutional sources of working capital finance in India.
Banks provide for the working capital needs of the firm in different forms like
overdraft, cash credit, discounting of bills and working capital loans.

NATIONAL FERTILIZERS LIMITED BATHINDA gets finance from STATE

BANK OF INDIA (SBI) which is their main bank and other includes BANK OF
INDIA, STATE BANK OF PATIALA (SBOP), CORPORATION BANK (which
mainly act as a collecting bank).

N.F.L Bathinda can get cash credit up to Rs 1 crore from STATE BANK OF INDIA
which is their main bank.
 CHAPTER-III
ANALYSIS OF OVERALL
LIQUIDITY POSITION
ANALYSIS OF OVERALL LIQUIDITY POSITION:
The short term creditors of a company, like suppliers of goods of credit and
commercial banks providing short term loans, are primarily interested in knowing the
company's ability to meet its current or short- term obligations as and when these
become due. The short term obligations of a firm can be met only when there are
'sufficient liquid assets. Therefore, a firm must ensure that it does not suffer from lack
of liquidity or the capacity to its current obligations. If a firm fails to meet such
current obligations due to lack of good liquidity position, its goodwill in the market is
likely to be affected beyond repair. It will result in a loss of creditor's confidence in
the firm and may even closure of the firm. Even a very high degree of liquidity is not
good for a firm because such a situation represents unnecessarily excessive funds of a
firm being tied up in current assets. Therefore, it is very important to have a proper
balance in regard to the liquidity of the firm.

Liquidity refers to the ability of a concern to meet its current obligations as

and when these become due. The short term obligations are met by realizing amounts
from current assets. The current assets should either be liquid or near liquidity. These
should be convertible into cash for paying obligations of short term nature.
Comparing them with current liabilities should assess the sufficiency or insufficiency
of current assets. If current assts can payoff current liabilities, then liquidity position
will be satisfactory. On th8 other hand if current liabilities may not be easily met out
of current assets then liquidity position will be bad. The bankers, suppliers of goods
and other short term creditors are interested in the liquidity of the concern. They will
extend credit only if they are sure that current assets are enough to payout the
obligations.

To measure the liquidity of a firm, the following ratios can be calculated:

• Current ratio • Quick ratio or liquid ratio • Working capital turnover

ratio

All these ratios can be shown as in below table:

Financial year Current ratio Quick ratio W.C. Turnover ratio

2002-03 4.96 2.58 3.89

2003-04 6.54 2.73 4.62

2004-05 1.16 0.62 22.58

2005-06 2.61 2.01 3.68

2006-07 3.03 2.52 2.93

 CHANGING POSITION OF WORKING CAPITAL
Schedule for change in Working Capital

Particular 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Current Assets
(in crores)

Inventories 125.94 94.50 59.74 71.79 63.57 76.115 34.31

Debtors 137.23 67.71 69.71 243.40 315.40 122.38 247.37

Cash and .019 67.71 .0084 .016 .0147 .0143 .0234

Bank

Loan and 23.08 24.67 21.42 20.53 30.24 20.60 24.63

Advances

Total (A) 286.269 186.899 150.87 335.74 409.22 219.119 306.033

Current
Liabilities
(in crores)

Liabilities 53.08 24.80 111.20 120.55 125.05 149.77 154.83

Provisions 18.64 17.94 8.53 5.91 7.30 24.62 25.01

Total (B) 71.72 42.74 119.73 126.46 132.35 174.40 179.84

Working 214.549 144.159 31.14 209.28 276.87 44.71 126.193

Capital (A-B)
ANALYSIS OF WORKING CAPITAL OF N.F.L BATHINDA:
From the table we can analyze that inventories are getting decrease over the
period of time from the year 2002 to 2004. After 2004 inventories increased in the
year 2005 but again eventually it got decreased. The debtors show that from the year
2004-05 it is increasing each year. The main reason for increase in debtors is that
subsidies does not realized from that period. The cash & bank balance moreover
remained same over the period of time. It doesn't change much. The loan & advances
also show a sudden change over the period. Till the period 2Q04-05 it was around
RS.150.87 crore. From the year 2004-05 it increased twice. The main reason for this
is that loan & advances to BCCL and CCCL increased.

The working capital in the year 2002-03 was RS.214.549 crore and it
decreased till year 2004-05 to Rs 31.14. The main reason for this as inventory got
decreased and liabilities got increased. But from the year 2005-06 it eventually got
increased due to sudden increase in debtors and it increased % "the year 2006-07 from
Rs 31.14 crore to Rs 276.87 crore.

In 2004-0.5 there is drastic decrease in working capital around Rs 31.14 crore because
suddenly liabilities increased.

From all this information we can analyze that there working capital position is going
sound from the year 2005 to 2006-07.
 CHAPTER- IV
CONCLUSION &
RECOMMENDATIONS
SWOT ANALYSIS
STRENGTH:
• Profit making and reputed firm.

• Capable and highly disciplined staff.

• Technical and operating capability comparable with other firms.

• Producing high quality products comparable with the International Standards

as awarded by ISO 9001.

• Availability of cheap and skilled labor.

• Highly diversified.

WEAKNESS:
• Facing some infrastructure problems.

• Problem of timely availability of imported and indigenous raw materials.

OPPURTUNITIES:
• Setting up of joint ventures in India/ Abroad.

• Good demand for neem-coated urea.

• Location Advantages as the main production units are located in the main
consumption area.

• Scope for growth in Bio-fertilizers.

THREATS:
• Increasing input cost of feed stock i.e. fuel oil/ SHS/ Naptha/ NG.

• Slow growth in urea consumption during last 7-8 years.

• Globalized competitive scenario in industrial products.

• Single nutrient product base.

Thus after the depth study of working capital management in NFL Bathinda,
the conclusion is that a good working capital management is that where the
firm has efficient funds to meet the requirements. It is necessary for the
smooth running of the business. There must not be inadequate or excessive
working capital because working capital management policies of a firm have a
great effect on its profitability, liquidity and structural health of the
organization. Inadequacy of working capital may lead a firm to insolvency and
working capital implies idle funds, which earns no profits to the business.

In NFL Bathinda, working capital management is based on two aspects: Cash

Management and Inventory Management. Receivable Management is not
maintained here because all accounts are settled in head office, Noida. To
boost up the sales, the company pays attractive cash discounts to the
customers for the early payment so that the credit collection period is
decreased. Cash is being sent by Head Office to the plant after approval. In
Inventory Management, ABC Analysis and XYZ Analysis are being followed.
 RECOMMENDATIONS:
• Non moving inventory may be got amended according to the needs of the
manufacturing departments so that their use may become possible. If it is not
possible, then these items should be disposed off.

• The firm should try to improve its sales by marketing at large scale and face
the competition.

• The firm should try to increase its production by bringing in new technology
and reducing its cost of production.

• Reducing working capital turnover ratios shows that the management is unable
to utilize the working capital efficiently. So the firm should increase its
working capital turnover.

• For financing the working capital, the firm is more dependent on the outsider’s
funds, which may prove dangerous in the long run.

• The firm is presently using ABC Analysis and XYZ Analysis. It should use
VED Analysis along with ABC Analysis for better Inventory Management.
 CHAPTER- V
BIBLIOGRAPHY
 BIBLIOGRAPHY:
• Financial Management by I.M. Pandey. (Vikas Publishing House Pvt. Ltd.)

• Khan, M.Y. and Jain, P.K., Financial management, Tata McGraw Hill.
Financial Management

• Maheswari and Mittal, Cost Accounting and Financial Management

• Annual Reports

• www.nationalfertilizers.com