NFL, is a Mini Ratna Company was incorporated on 23rd August
1974. It is the second largest producers of Nitrogenous Fertilizers in
the country with 16.6% share in Urea production during 2005-2006. NFL operating plants are at Nangal, Bathinda, Panipat and Vjaipur. The Govt. of India, in 1984, entrusted the Company to execute the countrys first inland gas based fertilizer project of 7.26 lakh tonnes Urea capacity in District Guna of Madhya Pradesh & commercial production started from 01-07-1988. NFLs mission is to be the market leader in fertilizers and a significant player in all its other business, reputed for customer satisfaction, reasonable reward to shareholders, ethics, professionalism and concern for ecology and the community.
COMPANY PROFILE INDUSTRY These are the following products and services NFL delivers: PRODUCTS Bio fertilizers Neem coated urea Indutrial products Kisan urea Traded products SPECIALIZED SERVICE Commissioning Activities of Plant & Equipments Heavy Equipment Erection supervision Laboratory Services Consultancy in Project Management
LANDMARK NFL received the Excellent MoU rating for the ninth time for the year 2008-09. Vijaipur unit received Green Tech Safety Award 2009 in fertilizer sector from Green Tech Foundation, New Delhi, for best safety practices. It also bagged the Silver Award for outstanding achievement in Environment Management by M/s Green tech Foundation, Hyderabad in the year 2010-11. NFL received the Excellent MoU rating for the ninth time for the year 2008-09. STATEMENT OF PROBLEM AND OBJECTIVE To understand the working capital management and liquidity position of NFL. To assess the impact of working capital on profitability. To determine the working capital leverage for examining the sensitivity of ROE to changes in the level of gross working capital of the company. The Major Objective of this study is to understand the working capital management of National Fertilizers Limited and to suggest necessary measures to overcome the shortfalls if any in the industry.
METHODOLOGY Methodology may be a description of process, or may be expanded to include a collection of theories, concepts or ideas as they relate to a particular discipline or field of inquiry. This project requires a detailed understanding of the concept Working Capital Management. Therefore, firstly we need to have a clear idea of, what is working capital, how it is managed in National Fertilizers Limited, what are the different ways in which the financing of working capital is done in the organization etc. OPERATING CYCLE Working capital, also known as net working capital, is a measurement of a businesss current assets, after subtracting its short-term liabilities. It is a valuation of the assets that a business or organization has available to manage and build the business. Generally speaking, companies with higher amounts of working capital are better positioned for success because they have the liquid assets that are essential to expand their business operations when required. The need for working capital gross or current assets cannot be over emphasized. As already observed, the objective of financial decision making is to maximize the shareholders wealth.
ANALYSIS The features of working capital distinguishing it from the fixed capital are as follows: Short term Needs: Working capital is used to acquire current assets which get converted into cash in a short period. Circular Movement: Working capital is constantly converted into cash which again turns into working capital. Liquidity: Working capital is more liquid than fixed capital. It is due to this trait of working capital that the companies with a larger amount of working capital feel more secure. There are two concepts of working capital: Gross working capital Net working capital(NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES)
TURNOVER RATIO (Net sales / Inventory) The Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. Turnover for the company has been increasing steadily for the past ten years, with a growth of 81.23 percent since 2001-02. The marginal decrease/increase in sales turnover in the following years is on the account of decrease/increase in prices of petroleum products. This in turn results in decrease/increase in the amount of subsidy provided by the government, which in the end results in lower/higher turnover. 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 QUICK RATIO [(Current Assets - Inventories) / Current Liabilities ] An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio/ ATR, the better the position of the company. Looking at the chart we can see that for NFL, the quick ratio/ATR is more than 1 with some exception in the early 2000s. This shows that the company is in a good position to handle its current liabilities and has passed the acid test. Also as said earlier, NFL with its up-gradation plans, this excess liquidity will help it in the days to come.
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 DEBT EQITY RATIO (Debt/Equity) It is a measure of the company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. The debt equity ratio of NFL has been reducing continuously over the years. This is for the reason that NFL is trying to become a debt free company and has been striving for the same. But in the year 2011-12, this ratio is expected to go higher as many expansion and modernization projects have been carried out.
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 FINDINGS & CONCLUSION Working capital of the company was increasing and showing positive working capital each year. It shows good liquidity position. Positive working capital indicates that company has the ability of payments of short terms liabilities. Working capital increased because of increment in the cash and bank balance and reduction is sundry creditors. Current assets components shows sundry debtors were the major part in current assets it shows that the efficient receivables collection management. The profitability of the company has a positive relation with the accounts receivable of the company. This shows that in the Indian fertilizer industry in which most of the customers are farmers, who are poor, will be happy to see themselves get credit sales. This brings in more customers and higher sales. Liquidity of the company is seen to be stable and good. It was also found that liquidity also has a positive impact on the profitability of the company. The analysis shows us that with increase in the liquidity of the company the profitability also gets a good lift.
RECOMMENDATIONS
Better credit policies and collection policies can help the company is reducing the average collection period and also expand on the number of people who can go for credit purchase . Company can use legal ways or through collection agencies to keep a strict check on the defaulters. NFL has a high inventory holding period, considering that the production is done with gas and coal. With the conversion of all plants to gas based plant, the company should strive for a minimum inventory concept, as pipelines are used to provide these plants with gas continuously. To face the present global challenges the human resources department should be develop to improve various skills among the employees specially the motivational skills and having the regular training for the employees about various developments in the market. NFL right now has only three zonal offices Chandigarh, Lucknow and Bhopal. Company should try to expand its zones to the south too, as they are also one of the most farming intensive states.