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WORKING

CAPITAL MANAGEMENT

NATIONAL FERTILIZERS LIMITED, NANGAL UNIT


SUMMER INTERNSHIP

In Partial Fulfillment of the requirement for the award of


Master of Business Administration (M.B.A.),
For the Session 2014-16
HIMACHAL PRADEH TECHNICAL UNIVERSITY
RAJIV GANDHI GOVT.ENGINEERING COLLEGE
CAMPUS AT NAGROTA BAGWAN, KANGRA

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Nangal Plant
National Fertilizers Limited

SUBMITTED TO: SUBMITTEDBY:


Mr. Shubankar Mitra Sunita Devi
Sr. Manager (H.R.Deptt) M.B.A.(Finance)
National Fertilizers Limited Roll No. 51MB5013504
Nangal unit, NayaNangal

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PREFACE
Education becomes more meaningful when its theoretical aspects are
combined with practical experience. This provides an opportunity to the
students to improve their understanding of the studies.

MBA is a course, which combines both its theory and application as its
content of study in the field of management as a part of this course, every
aspirant has to undergo at least six to eight weeks Industrial Training in
an organization of repute. The purpose of this training is to expose the
students or management sciences to real business situation and to provide
insight into the various functions carried out within the organization.

In order to use the theoretical knowledge I get the opportunity of


Industrial Training in National Fertilizers Limited Naya Nangal.

As complementary to training, I have prepared and submitted a project


report on Financial Analysis of NFL. It is an attempt to present on account
of practical knowledge and observations gathered during the vocational

training.

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ACKNOWLEDGEMENT
No job or task can be completed without the co-operation and support of
people around us. I being no exception had to seek the help of others to
make this project successful.
I would like to thank NFL for providing me with an opportunity to
undertake industrial training, which has been a learning experience for me.
My special thanks to my Project who guided me a
lot.
My project would not have been completed without the guidance of staff
members of the NFLs, Finance, Store, and Human Resource Development
Department. A lot of individuals have contributed in the preparation of this
project. I am thankful to all of them for their timely help encouragement,
support, valuable comments, suggestions and many innovative ideas in
carrying out this project. It is my proud privilege and pleasure to express
deep sense of gratitude to these people.

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Objectives of the study

The major objective the project was to analyze working capital of the NFL Nangal Unit.
The other objectives of the study are as follows:
To study the working capital position of NFL.

To study their cash, receivable and inventory management.

To find out length of their working capital cycle.

To analyze performance and position of the company

The Project study is based on Four Years Balance Sheet, profit and loss account. The
Balance Sheet, profit and loss account of NFL Nangal unit is for year ending 31st Mar
2012, 2013, 2014, 2015

The Balance Sheet, profit and loss account of NFL Nangal Unit is collected from
the Management Reporting Section of Finance and Accounts Department.

Exploratory and descriptive research design. The data is analyzed in tabular form and in

well and easy to understand manner. Both Primary and Secondary data has been used in

this study.

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CONTENTS

Table of Contents Page


Abstract 7
Introduction to Fertilizer Industry 8
Company Profile 11
Introduction to the Topic 29
Research Methodology 32-33
Analysis of the Study 34
Cash Management 42
Inventory Management 44
Findings 55
Suggestions 59
Bibliography 62

List of Figures
Net Working Capital Chart 37
Current Ratio Chart 49
Quick Ratio Chart 50

Debtor Turnover Ratio Chart 52

Net Profit Chart 54

List of Tables

Industrial Products 20
Balance Sheet 35-36

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Analysis-Working Capital
36-37
Analysis of Ratio 40-41
Working Capital Turnover Ratio 41

ABSTRACT
The development of the fertilizers industry is of great importance to our National
Company as; the primary occupation of 70% of the Countrymen is agriculture and for a
good yield, Fertilizer plays an important role. The increase in the Fertilizer Industry
shall lead to the development of agriculture which will further lead to rise in per capita
income of the people due to increased yield and high quality. The efficiency of this
industry would help the country to earn more of foreign exchange by exporting more
and high quality of grains and other agricultural products..
National Fertilizers Ltd. is the main Fertilizer producing company in India. This
Company has its four Units, situated at Bathinda, Panipat, Vijaipur and Nangal. This
company has 16.5% market share of urea in the country.
Nangal unit, which was taken up for this study has made enormous contribution of the
overall agricultural development in the region. Since its inception the factory has had
remarkable performance with positive finance results and sustained high level of
production. The major objective the project was to analyze working capital of the NFL,
Nangal Unit.
It includes following also: -
1. To study the working capital position of NFL.
2. To study their cash, receivable and inventory management.
3. To find out length of their working capital cycle.
4. To analyze performance and position of the company

Exploratory and descriptive research design:

The data is analyzed in tabular form and in well and easy to understand
manner. Both Primary and Secondary data has been used in this study.
After analyzing the working capital of NFL, Nangal Unit, some
important conclusions are drawn about the working of this firm.

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The short-term
financial position of the firm is not very satisfactory. The liquidity
position of the company is otherwise satisfactory.
The cost of production of this company being high, it has been observed
that the subsidy enjoyed by the company is very high. The company gets
advantage of the subsidy from the Govt. of India.

Introduction

FERTILIZER INDUSTRY

Indian economy is an agriculturist economy. Agriculture production plays a very


important role in the prosperity of the country. As the limited and the production is
increasing at a tremendous rate, it is very necessary to increase production and only way
to increase the production is to do intensive cultivation with the use of chemical
fertilizers.
The development of the fertilizer industry is of great importance to our National
economy as; the primary occupation of 70% of the Countrymen is agriculture. And for a
good yield, Fertilizer play, an important role. The increase in the Fertilizer industry shall
lead to the development of agriculture which will further lead to rise in per capital
income of the people due to increased yield and high quality. The efficiency of this
industry would help the country to earn more of foreign exchange by exporting more
and high quality of grains and other agricultural products.

Fertilizer helps to fulfil the objective of GREEN REVOLUTION by its environmental


friendly ways to produce urea for farmers in high and good quality.

NFL National Fertilizers Ltd.


RCF Rashtriya Chemicals fertilizers ltd.
IFFCO Indian farmers Fertilizers Co-Operative Ltd.
KRIBHCO KrishakBharati CoOp. Ltd.

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GNVFC Gujarat Narmada Valley
Fertilizers Company Ltd.
IGFCC Info Gulf fertilizers & Chemicals Ltd.
CFCL Chambal fertilizers & chemical Ltd.
TCL Tata Chemical Ltd.
OCF Oswal Chemical and Fertilizer Ltd.

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HISTORY OF THE COMPANY

In 1954 the Govt. of India appointed a committee called The fertilizer


production Committee under the chairmanship of Sh. B.C MUKHRJEE (FCI Ex.
Chairman & Managing Director) to suggest ways for further expansion of fertilizer
production in India. The Govt. however simultaneously issued a directive to the
committee that one of the proposed fertilizer units should be located near the Bhakra
Dam. The main consideration for setting up a plant in Nangal (PUNJAB) was that there
would not be enough demand of electricity from Bhakra Dam. Heavy water a by-
product in this process could be produced for the use in these atomic reactors as
moderator.
On February 17, 1956 the proposed Nangal factory was incorporated under the
name of Nangal Fertilizers & Chemical Ltd. (NFCL) with its registered at Nangal
having an authorized capital of Rs. 31 crores. In July 15, 1959, the name of (NFCL) was
changed to Hindustan Fertilizers & Chemicals ltd.(HFCL).
The FCL Ltd. was incorporated on Jan 1st, 1961 by proclamation of the
fertilizers & chemicals companies amalgamation order 1960, having a authorized
capital of 75 crores. With the re-organization fertilizers co-operation of India with effect
from 1st April 1978, the Nangal unit of Fertilizer Corporation of India came under the
NFL fold. The company expanded its installed capacity in 1984 by installing and
commissioning of its Vijaipur gas based Plant in Madhya Pradesh.

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COMPANY PROFILE
National Fertilizers Limited (N.F.L) was registered on 23.08.1974 with an authorized
capital of 500 crores. NFL set up two-fertilizer plant in Bathinda (Punjab) and
Panipat(Haryana), NFL has emerged as an industrial giant in the fertilizer sector. Over
the years company has expanded into a multi unit company with four manufacturing
units with varied technology. Three of these units are strategically located in the high
consumption areas of Punjab & Haryana. The company has an installed capacity of
35.49 lack MT of Nitrogenous fertilizers.

NFL, Corporate Office, Noida


The plants at Nangal, Bhatinda and Panipat are based on partial oxidation of fuel
oil/high petroleum stock and matching Urea capacity of 1550 MT per day at Bhatinda
and Panipat and 1450 MT per day Urea at NANGAL while the rest being converted to
Industrial Products as per demand.

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The Vijaipr Plant was a landmark
achievement in project management in India. The plant was completed well within time
and approved project cost. In recognition of this achievement, the project was awarded
the First Prize on Excellence in Project Management by Govt. of India. Subsequently
the Vijaipur plant doubled its capacity to 14.52 lakh MTs by commissioning Vijaipur
Expansion Unit i.e. Vijaipur-
II in 1997. The annual capacity was subsequently re-rated w.e.f. 1.4.2000 from 7.26
lakh MT of Urea to 8.64 lakh MT for Vijaipur-I &Vijaipur-II Plants each. Three of the
Units Three of the Units are strategically located in the high consumption areas of
Punjab and Haryana. The Company has an installed capacity of 32.31 lakh MT of Urea.
The company produced 33.44 lakh tonnes of Urea and recorded an annual sales turnover
of Rs.5127 crores.
NFL, a profitable public sector undertaking operates under the administrative control of
Department of Fertilizers in the Ministry of Chemicals & Fertilizers The Companys
strength lies in its sizeable presence, skilled manpower, Marketing and strong
distribution network nationwide.

Registered office
Scope Complex, core-111, 7 Institutional area,Lodhi road,
New Delhi- 110003
Corporate office
A-11, sector 24, District GautamBudh Nagar,
Noida (U.P) 201301
MANAGEMENT TEAM
BOARD LEVEL
Sh. Manoj Mishra Chairman and Managing Director
Sh. R.K. Chandiok Director (Finance)
Cap. Pawan Kumar Kaul Director(Marketing)
Sh. M. Sagar Mathews Director (Technical)
Rajiv Yadav &Rakesh kumar Govt. Nominee
Sh. M. Raman Independent Director
Sh. Raj Kumar Company Secretary

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SALIENT FEATURES OF THE COMPANY
N.F.L. was given the Mini Ratna Category-I by the Govt. of India in 1998
based on the companys overall performance during the preceding years..
Recently NFL has been A in Public Sector Undertaking because of its constant
good performance.
National Fertilizers Limited, Ranbaxy Laboratories Limited and Indo Rama
Synthetics Limited have secured the National Safety Awards for the year
2001-02.
NFL has signed memorandum of association for 2009-10 with the Department of
Fertilizers.
NFL is the first company in Pubic Sector having the certification of ISO-9002,
ISO-9001 and ISO-14001.
NFL has linked agreement on 26th February, 2009 with Gas Authority of India
Ltd. For transportation & supply of Natural Gas to NFLs Panipat, Bathinda and
Nangal Plants.
Nangal Unit of NFL has received ICWAI National Award for Excellence in
Cost Management 2008 from Institute of Cost and Works Accountants of India
in appreciation of the efforts in Cost management.

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OB
JECTIVES
\CORPORATE OBJECTIVES:
NFL is an instrument of society. It has been to serve the needs of the people within the
scope of its basic objectives. To achieve this, NFL must:
Select capable people and improve their knowledge and skills on organized
basis.
Motivate and enthuse the employees to achieve higher productivity with team
spirit.
Lay down integrated objectives, define individual goals and maintain an
atmosphere conducive to achievement of these goals.
BASIC OBJECTIVES:
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:

MICRO OBJECTIVES:

1. PRODUCTIVITY -
To achieve the best possible levels of production and economy in the use of
inputs while ensuring safety and proper maintenance of plant and machinery and
pollution control. More specifically:-
(a) To strive to raise capacity utilization. And
(b) To improve upon consumption norms consistently.
2. RESEARCH & DEVELOPMENT
To carry out R&D activities for:-
(a) Increasing plant availability.
(b) Saving use of energy in different forms.
(c) Better recovery of saleable products.
(d) Process improvement /development.

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(e) Increasing
utilization efficiency on a sustained basis in the application of chemical
fertilizers in combination with other agricultural inputs.

3. PROFITABILITY:
To maintain the assets, men and material in most effective and efficient manner ensuring
(a) reasonable return on investment commensurate with the principles laid down by the
Govt. from time to time, and (b) generation of increasing internal resources.

4. MARKETING & CONSUMER SERVICES:


(a) To provide to the farmers high quality products in right time and in
adequate quantities.
(b) To further intensify promotional efforts for increased use of fertilizers
and to maximize distribution of Companys products within the areas covered by the
company, consistent with Government Policy.
5. GROWTH
To achieve reasonable and consistent growth in the business of manufacture and
marketing of fertilizers and compatible with needs of the market.

LOCATION OF NFL PLANTS

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Chart shows the strategically location of NFL plants in the country.

PLANTS AT A GLANCE

The company has its units in various places like Nangal, PanipatBathinda&Vijaipur. The
Government of India has approved the Implementation of Vijaipur Expansion project
with an outlay of 987 Crores. Three of the Units are strategically located in the high
consumption areas of Punjab. Companys strength lies in its sizeable presence,
professional marketing and strong distribution network nationwide.

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National Fertilizers Limited,
Vijaipur, Distt. Guna,
Madhya Pradesh-473111.
Email :cc@nfl.co.in
Fax : 07544 - 273089, 273109
Tel. : 91- 7544 - 273101 273090
Vijaipur Plant
National Fertilizers Limited,
Gohana Road,
Panipat,
Haryana-132106.
Email : nflpanipat@nfl.co.in
Fax : 0180- 2652515
Tel. : 0180- 2652481 to 485, & 0180-
2655570

Panipat Plant
National Fertilizers Limited,
Sibian Road,
Bathinda,
Punjab-151003.
Email : nfladm@nfl.co.in
Fax : 0164- 2270463; 0164- 2271270
Tel. : 0164- 270220/2271200
Bathinda Plant

National Fertilizers Limited,


NayaNangal,
Distt. Ropar,
Punjab-140126.
Email : nangal@nfl.co.in
Fax : 0187-220541
Tel. : 0187-220543
Nangal Expansion Plant

ISO CERTIFICATIONS

NFL is known in the industry for its work culture; value added human resources, safety,
environment, concern for ecology and its commitment to social upliftment. All NFL
plants have been certified for ISO-9002 for conforming to international quality
standards and international environmental standard i.e. ISO-14001. With the
certification of Corporate Office/Marketing operations under ISO-9001 : 2000, NFL has
become the first Fertilizer Company in the country to have its total business covered
under ISO-9001 Certification.

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ISO CERTIFICATIONS

PLANTS/OFFICE CERTIFICATION AWARDED SINCE

Vijaipur Plant ISO-9002/ISO-14001 1997-98/98-99

ISO 9001:2000 2003-04

Panipat Plant ISO-9002/ISO-14001 1999-00/2000-


01
ISO 9001:2000 2003-04

OHSAS-18001 2004-05

Bathinda Plant ISO-9002/14001/18001 2000-01/2001-


02/03-04
ISO 9001:2000 2003-04

OHSAS-18001 2003-04

Nangal Plant ISO 9001: 2000 2002-03

ISO-14001 2001-02

CO/CMO ISO 9001:2000 2002-03

PLANTS AND INSTALLED CAPACITY

PLANTS INSTALLED
CAPACITY (MT)
NANGAL 478500
BATHINDA 511500
PANIPAT 511500
VIJAIPUR I 864600
VIJAIPUR II 864600

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INSTALLED CAPACITY OF NFL

864600 864600

QUANTITY IN (MT)
511500
511500
478500

NANGAL
BATHINDA
PANIPAT
VIJAIPUR-1
VIJAIPUR-2

UNITS

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PRODUCTS
KISAN UREA:
Kisan Urea is a highly concentrated, solid, nitrogenous fertilizer, containing 46%. It is
completely soluble in water hence Nitrogen is easily available to crops. It contains
Nitrogen in amider form, which changes to ammonical forms and is retrieved by soil
colloides 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.

NEEM-COATED UREA
National Fertilizers Limited (NFL) is the first fertilizer manufacturer in the country
which has developed Neem- Coated Urea, which on demonstration has improved the
crop yield by 4-5%. N.F.L. has made strides in developing a process for manufacture of
Neem-Coated Urea on commercial scale. The company is focusing its thrust to widen
the marketing operations of Neem-Coated Urea.
NFL has made efforts to harness unique properties of Neem is regulating release of
Nitrogen to crops when mixed into soil and making available to farmers a more efficient
Nitrogenous fertilizers in the form of its Neem-coated Urea primarily based upon

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research work conducted by
scientists of Indian Agriculture Research Institute, New Delhi.

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INTRODUCTION TO NANGAL UNIT
As you cross the sutlejbarrage,s west end, you start breathing a different air an air of
hope. Your eyes certainly cant miss a prosperous township on the right and a gigantic
fertilizer factory of National Fertilizer Limited on the left, which are the sign of
progress that India has achieved since independence.
With coming up of Bhakra Dam and surplus power available from the project, it
was decided by the government of India to set up a fertilizer factory at NayaNangal,
which went into production in 1961. The plant was envisaged to produce Calcium
Ammonium Nitrate (CAN)-a nitrogenous fertilizer with 20.50% Nitrogen with 164 MV

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power consumption. This product
was subsequently upgraded to 25% nitrogen. Initially production route was power
intensive electrolysis process for the generation of hydrogen followed by high-pressure
ammonia synthesis. Subsequently in 1978, went on stream, another Ammonia Plant
based on fuel oil gasification, which added urea a nitrogenous fertilizer with 46%
nitrogen to its range of production. In 1984, Methanol plant with capacity of 50 MTPD
was added, which was later on raised to 67MTPD. In 1990, Electrolysis plant was
replaced with Front-end Hydrogen plant (NMP-1) based upon reforming of Naphtha for
production of Hydrogen thus reducing the electrical power consumption.
On February 17, 1956 the proposed Nangal Factory was incorporated under the
name of Nangal Fertilizers and Chemicals limited (NFCL) with its registered at
Nangal having and authorized of 31 Cores. The name of changed to Hindustan
Chemicals and Fertilizers Limited(HFCL) with effect from July 15, 1959.
The FCL Ltd. was incorporated on Jan. 1st 1961 by proclamation of the
fertilizers and chemicals companies amalgamation order 1960, having authorized capital
of Rs. 75 crores. On 19 Jan., 1961 Nangal Unit becomes the constituents of Fertilizers
Corporation of India.
With the re-organization fertilizers co-operation of India with effect from 1st
April 1978. The Nangal Unit becomes a constituent unit of the National Fertilizers
Limited, which has already two units under it, located at Bathinda (PUNJAB) &Panipat
(HARYANA). 4th plant of National Fertilizers Limited, at Vijaipur (M.P.) was
commissioned in 1987.

MISSION STATEMENT
To produce targeted quantity of fertilizer efficiency and economically by
optimum utilization of resources with due regard to safety and production control.

JOURNEY TOWARDS EXCELLENCE

The Nangal unit of NFL acted as paragon of excellence in the field of


development of Fertilizer industry in India after being commissioned in 1961. The

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luxuriant growth of NFL Nangal
Unit beings with the commissioning of first fuel oil based Fertilizer plant in India with
rated capacity of 900 MTPD Ammonia and 1450 MTPD Urea. A unique synthesis of
technologies from M/S SHELL, M/S LURGI (Germany) & M/S TECHNIMONT (Italy)
give Nangal Unit an edge over the contemporary technologies. The adoption of versatile
technologies and desire for related diversification led to the manufacture of various
industrial products and byproducts like Nitric Acid, Ammonium Nitrate, Liquid
Nitrogen, Liquid Oxygen, Industrial gases etc.

FUTURE EXPANSION

To meet the challenges of the ensuing millennium, the goal of achieving a group
turnover of Rs. 10,000/- crores from diverse business and a net profit of Rs. 1200 crores
has been projected. NFL has revamped its urea plant at Nangal for raising the annual
with installed capacity from 330000 MTPA to 478500 MTMTPA per annum with the
additional Capital Cost of Rs. 167 crores. Significant feature of this project would be
towards optimum utilization of Ammonia available within plants besides enhancement
in Product Quality & Environment improvement. As Revamp of Nangal Urea Plant has
already started and planes are in the pipeline to revamp, replace the existing fuel oil
based plants with change in feedback to LNG. To retain the loyalty of the customers and
to add value to their brand, NFL has been planned to setup single window outlets for the
farmers to carry out one stop shopping for total input to the farmer.

CAPACITY UTILIZATION OF UREA OF NFL, NANGAL


UNIT

24
YEAR UREA
INSTALLED ACTUAL CAPACITY
CAPACITY PRODUCTION UTILIZATION IN
% AGE
2010-11 478500 478500 100.00%
2011-12 478500 503584 105.24%
2012-13 478500 471380 98.51%
2013-14 478500 394827 82.51%
2014-15 478500 478500 100.00%

CAPACITY UTILIZATION IN % AGE


120.00%

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%
2010-11 2011-12 2012-13 2013-14 2014-15

The above table and chart indicates the capacity utilization of Urea. The Urea Plant is
running on 100.00% capacity in 2010-11, 105.24% in 2011-12, 98.5% in 2012-13. In
2013-14, 82.5%,and in 2014-1 it is 100% .

PRODUCTION OF UREA OF NFL, NANGAL


UNIT

25
Chart Title
600000

500000

400000

300000

200000

100000

0
2010-11 2011-12 2012-13 2013-14 2014-15

SWOT ANALYSIS
STRENGTHS:
1. High capacity to produce.
2. Percentage of profits in industrial products is very high.
3. The company with an excellent track record of high profits.

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4. The NFL plants are
located in virgin market for some of the industrial products.
5. An easy starter more that 25 years experience in the fertilizer industries.
6. Highly situated amidst high fertilizer consumption areas in the state of
Punjab, Haryana and Madhya Pradesh.
7. Lower capital cost- plants at Bathinda, Panipat and Nangal. Fully
depreciated Vijaypur plant with an investment of Rs. 533 crores and vijaypur
expansion plant with an investment of Rs. 1071 crores against the present
glass root plant cost of about Rs. 1500 crores.

WEAKNESSES:
1. Large equity base.
2. Old and energy intensive fuel oil based Nangal, Panipat and Bathinda
requiring high maintenance.
3. High cost of production in fuel oil based plants.
4. High investments for revamp/replacement and change over of feedstock
from fuel oil/ LSHS to LNG.
5. Single nutrient product base.
6. Highly centralized system.
7. Lack of sufficient promotional and publicity activities.
8. Requirement is seasonal.

OPPORTUNITIES:
1. Growth in fertilizer consumption in the eastern market of the country.
2. Marketing of neem coated urea of large scale.
3. Marketing of agriculture inputs/services under one roof.
4. Marketing of other fertilizer like DAP, MOP, SSP to harness existing
imbalance in nutrients base and to move towards the NPK ratio of 4:2:1
5. Marketing of seeds and pesticides.
6. Marketing of specialized services and association in joint venture in
India/abroad.

THREATS:
1. Decline in the consumption of nitrogenous fertilizers in predominant market
areas.
2. Energy intensive i.e. fuel oil based could face closure due to new policy on
fertilizer unless technology modifications are implemented.

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3. Dismantling of
distribution system.
4. Availability of cheaper improved fertilizers.
5. Increasing price of inputs i.e. fuel oil/LSHS/Naphtha/gas in India.
6. Requirement of large investments for modernization of fuel oil/LSHS based
plants.

NANGALHUB OF INDUSTRIAL ACTIVITY


Nangal area has become an important Industrial area in the Punjab State. Beside,
NFL, Fertilizers Complex at NayaNangal, Punjab Alkalies& Chemicals Limited (PACL)
has also been in operation since 1984. The two big industries are located very near to
each other because of common raw material linkages and infrastructure. A few small-
scale chemical industries manufacturing Paraffin was etc. are also coming up. The
NayaNangal Industrial Complex in well connected by road and rail network to major
industrial hubs of India. All this has transformed NayaNangal into Chemical belt of
agriculturally dominated Punjab State. Concentration of chemical industries at one place
demand from ecology preservation.

ORGANISATIONAL STRUCTURE OF THE


COMPANY
The company has a very big organizational setup at its corporate office at Noida.
Managing director is the head of the organization who co-ordinates with fertilizers
ministry for the latest policies and function of government. He also controls all the four
units of NFL and Marketing wingspread all over India. The outlay of the organizational
structure at corporate office can be shown as on the next page: -

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CHAIRMAN & MANAGING DIRECTOR

DIRECTOR DIRECTOR FINANCE DIRECTOR MARKETING


TECHNICAL

ED VIGILENCE CGM VIJAYPUR GM NAYA NANGAL CGM BHATINDA CGM PANIPAT

Chief Chief Chief Chief Chief Chief Chief Chief


Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr. Mgr.
Fin. F&A HRD Mfc. Mat. Prod. Elect. Inst.

Dy/ Dy/ Dy/ Dy/ Dy/ Dy/ Dy/ Dy/


Astt.Mgr. Astt.Mgr. Astt.Mgr. Astt.Mgr. Astt.Mgr. Astt.Mgr. Astt.Mgr. Astt.Mgr.

Staf Staf Staf Staf Staf Staf Staf Staf

INTRODUCTION TO WORKING CAPITAL


Working capital is simply current asset minus current liabilities and the amount can be
positive or negative. Working capital is basically an expression of how much in liquid
assets the company currently has to build its business, fund its growth and product value
for the owner. The faster a business expand, the more cash it will need for working
capital and investment the cheapest and best sources of cash exist as working capital
right within the business . Good management of working capital is very important
because the term is used for the capital needed for day-to-day operations.

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KINDS OF WORKING CAPITAL

On the basis of concept On the basis of time

Gross working Net working Permanent Temporary


capital capital working capital working capital

ON THE BASIS OF CONCEPT


1. GROSS WORKING CAPITAL:-
Gross working capital is the total of all the current assets of a business.
2. NET WORKING CAPITAL:-
Net working capital means the excess of current assets over current liabilities. i.e.net
working capital=current assets current liabilities.
CURRENT ASSETS
This is any cash that can be quickly turned into cash. This includes:-
Cash in hand and bank balance
a. prepaid expenses
b. accounts receivable
c. sundry debtors most securities
d. inventory
e. accrued incomes

CURRENT LIABILITIES
This is a liability in the immediate future. This includes
a. sundry creditors
b. accounts payable
c. outstanding expenses
d. short term loan, advances and deposits
e. bank overdraft
f. provision for taxation

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ON THE BASIS OF
TIME
3. PERMANENT WORKING CAPITAL :-
To carry on day-to-day operation of the business without any obstacles, a
certain minimum level of raw material, work in progress, finished goods and cash must
be maintained in a continuous basis. The amount needed to maintain current asserts in
this minimum level is called permanent working capital.

4. TEMPORARY WORKING CAPITAL:-


Valuable working capital on the other hand represents the amount
needed over and above the permanent working capital to take care of seasonal shifts in
sales or activity levels.

Working capital management includes following:


-
(1) CASH MANAGEMENT
Cash is one of the current assets of a business. It is needed at all times to
keep the business going. A business concern should always keep sufficient
cash for meeting its obligation. Any shortage of cash will hamper the
operation of a concern and any excess of it will be unproductive. Cash is
most unproductive of all the assets. While fixed assets like machinery, plant
etc and current asset such as inventory will help the business in increasing its
earning capacity, cash in hand will not add anything to the concern. It is in
this content that cash management assessment much importance cash
management deals with the following:-
1. Cash inflows and outflows.
2. Cash flows with in two firms.
3. Cash balance held by the firm at a point of time.

(2) RECEIVABLES MANAGEMENT

A sound managerial control requires proper management of liquid assets and


inventory. These assets are a part of working capital of the business. An efficient

31
use of financial resources is
necessary to avoid financial distress, receivables resulting from credit sales. A
concern is required to allow credit sale in order to expand its sales volume.
Receivables management is the process of making decision relating to
investment in trade debtors. It has been stated earlier that certain investments in
receivables is necessary to increase the sales and the profit of a firm. But at the
same time investment in the assets involves cost consideration also. Further,
there is always a risk of bad debts.

(3)INVENTORY MANAGEMENT

Every enterprise needs inventory for smooth running of its activities. It serves as
a link between production and distribution processes. The investment in
inventories constitutes the most significant part of current asset/working capital
in most of the undertaking. The purpose of inventory management is to ensure
availability of material in sufficient quantity as and when required and also to
minimize investment in inventories. An efficient system of inventory
management will determine: -

1. What to purchase?
2. From where to purchase?
3. Where to store?

32
RESEARCH METHODOLOGY
In order to achieve the objectives mentioned a systematic methodology norms were
followed. Every minute detail of data was collected by direct method i.e. through

33
interaction as well as by indirect
method i.e. by assessing the written records. The work was preceded under the direction
of finance manager and category wise report was prepared. This project was basically a
fact gathering exercise and evaluating and comparing aspects drew influence.

OBJECTIVES OF THE STUDY

Good better best, never let it rest till your good is better and your better is
best.
The objectives of the study are as follows:
a. To study the working capital position of NFL.
It Includes: -
To study their cash, receivable and inventory management.
To find out length of there working capital cycle.
To analyze performance and position of the company.

RESEARCH DESIGN:
Exploratory and descriptive research design. The data is analyzed in a tabular
form and in well and easy to understand manner.

DATA COLLECTION
Both Primary and Secondary data has been used in this study.

Primary data
Most of the data has been collected through personal interaction with senior
officers and staff of finance department of NFL-Nangal unit.

Secondary data
Secondary data includes financial reports and manuals of the NFLs Nangal Unit
and companys annual reports. It also includes journal, manuals and books on the topic
under study. To get information about industry and company, many web sites were also
visited.

34
WORKING CAPITAL OF NATIONAL
FERTILIZERS LIMITED,
NANGAL UNIT.

35
NET
WORKING CAPITAL
WORKING CAPITAL CYCLE
CASH MANAGEMENT AT NFL
RECEIVABLE MANAGEMENT AT NFL
INVENTORY MANAGEMENT AT NFL

FINANCIAL PERFORMANCE ON NATIONAL


FERTILIZERS LIMITED, NANGAL UNIT

PARTICULARS 31.03.2013 31.03.2014 31.03.2015


SOURCE OF FUNDS

36
Shareholders Funds

Head office and Inter unit Accounts 202363.63 210804.32 234066.19


Reserves & Surplus 0.00 0.00 0.00
Govt. grants 121856.65 116048.45

Loan Funds
Secured Loans 273.91 217.80 132.76
Unsecured Loans 0.00 0.00

Non current liability 5502.15 5199.50 6560.68


TOTAL 208139.69 338078.27 356808.08

APPLICATION OF FUNDS
Fixed Assets
Gross Block 37038.06 177657.62 179077.63
Less: Depreciation 28572.43 35257.74 43898.43
Net Block 8465.63 142399.88 135179.2
Capital Stores / Work in Progress 131139.73 57.91 12.78
139605.36 142457.79 135191.98
Add- non CA 1627.93 87219.89 62763.23
141233.29 229677.68 197955.21
CURRENT ASSETS, LOANS &
ADVANCES
Inventories 5064.77 8121.17 5797.64
Sundry Debtors 82196.03 7433.64 86744.87
Cash & Bank Balances 8.86 2.16 1.91
Loans & Advances 658.15 679.04 633.88

Other current assets 380.06 50176.48 85734


85734.08
A' 88307.87 133712.49 178912.38
Less:
Current Liabilities & Provisions
Liabilities 20274.53 24005.89 18241.21
Provisions 1126.96 1306.05 1818.33

37
B'
21401.49 25311.94 20059.54

Net Working Capital ( ' a ' b ' ) 66906.38 108400.55 158852.84

Miscellaneous Expenditure ( to the extent 0.00 0.00 0.00


not written off or adjusted )

TOTAL 208139.69 33807.27 356808.08

ANALYSIS OF WORKING CAPITAL


NATIONAL FERTILIZERS LIMITED, NANGAL UNIT
PARTICULARS 2012-13 2013-14 2014-15
CURRENT ASSETS : -
Other current assets 380.06 50176.48 85734.08
Inventories 5064.77 8121.17 5797.64

Sundry debtors 82196.03 74733.64 86744.87


8.86 2.16 1.91
Cash and bank Balances
658.15 679.04 633.88
Loan & advances

Total of current assets 88307.87 133712.49 178912.38

CURRENT LIABILITIES: -
Sundry creditors 20274.53 24005.89 18241.21
Provisions 1126.96 1306.05 1818.33

TOTAL of C.L 21401.49 25311.94 20059.54


NET WORKING CAPITAL
66906.38 108400.55 158852.84
(C.A C.L)

38
NET WORKING CAPITAL

160000

140000

120000

100000

80000

60000

40000

20000

0
2012-13 2013-14 2014-15

HOW MUCH WORKING CAPITAL DO YOU


NEED?
The key to judging the right amount of working capital requires your business
understanding your cash or operating cycle. This is the time it takes from when cash is
converted into goods and services, to when you receive payment for them. This delay
creates the need for working capital. Each operating cycle generates a flow of income
including a margin of profit which should be sufficient to cover running expenses and
your drawings, if you can get money to move faster around the cycle.

39
WORKING
CAPITAL CYCLE
CASH flows in a cycle into, around and out of a business. It is the business
lifeblood and every managers primary task is to help it flowing and to use the cash flow
to generate profits. If a business is operating profitably, then it should, in theory,
generate cash surpluses. If it does not generate surplus, the business eventually run out
of cash.
The faster a business expands the more cash it will need for working capital and
investment. The cheapest and best sources of cash exist as working capital right with in
business. Good management of working capital will help to improve profits and reduce
risks. Bear in mind that the cost of providing credit to customers and holding stocks can
represent a substantial proportion of firms total profits.
There are two elements in the business cycle that absorb cash inventory (stocks
and work in progress) and receivable (debtor owing your money). The main sources of
cash are payables (your creditors) and equity and loans.
Each component of working capital (namely inventory, receivable, and payables)
has two dimensions TIME and MONEY. When it comes to working capital- TIME IS
MONEY. If you can get money to move faster around the cycle (e.g. reduce inventory
level relative to sales), the business will generates more cash or it will need to borrow
less money to fund working capital. As a consequence you could reduce the cost of bank
interest or youll have additional free money available to support additional sales
growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g.
get longer credit or an increased credit limit; you efficiently create free finance to help
fund for future sales.

SOURCES OF CASH
Sources of additional working capital include the following:
Existing cash reserves
Profits (when you secure cash!)
Payables (credit from suppliers)
New equity or loan from shareholders
Bank overdrafts or lines of credit
Long- term loans

40
If you have insufficient
working capital and try to increase sales, you easily over-stretch the financial resources
of the business. Exceptional cash generating activities e.g. offering
High discounts for early cash payment
Bank overdrafts exceeds authorized limit
Seeking greater overdrafts or lines of credit
Part paying suppliers or others creditors
Paying bills in cash to secure additional supplies
Management pre-occupation with surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay wages,
pending receipts of a cheque)

HANDLING RECEIVABLES (DEBTORS)


Cash flow can be significantly enhanced if the amounts owing to a business are
collected faster. Every business needs to knowwho owes their money how much is
owed... How long it owes for what it is owned.
Slow payment has a crippling effect on business in particular on small business that can
least afford it. If you dont manage debtors, the will begin to manage their business as
you will gradually lose control due reduced cash flows and, of course, you could
experience an increased incidence of bad debt. The following measures will help
manage your debtors:
1. Have the right mental attitude to the control of credit and make sure that it gets
the priority it deserves
2. Establish clear practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers and
customers.
4. Be professional when accepting new accounts, and especially large ones.
5. Check out each customer thoroughly before you offer credit. Use credit
agencies, bank references, industry sources etc.
6. Establish credit limits for each customer and stick to them.
7. Continuously review these limits when you suspect fought times are coming or
if operating in a volatile sector.
8. Be very close to your large customers.
9. Invoice promptly and clearly.
10. Consider charging penalties on over dues accounts.

41
11. Consider accepting credit
/debit cards as a payment option.
WORKING CAPITAL CYCLE AT NFL: No. of Days
1. Holding period of raw material =12days
2. Holding period of W.I.P =3days
3. Holding period of finished goods =18days
4. Average collection period =170days
5. Average payment period =33days
Working capital cycle at NFL (1+2+3+4-5)

Analysis of Ratio
PARTICULARS 2012-13 2013-14 2014-15

Net Sales 183703.40 97993.66 160305.79

Stock(Accretion(+)/Discreti -2326.98 1550.43 -1066.36


on (-)
Total Income 181376.42 99544.09 159239.43
Raw Material, Packing and 113944.58 62950.59 90753.33
Other Material
Power & Fuel 50895.47 30481.71 46906.05
Past Period Adjustments - 0.00 0.00
Total Expenditure 164840.05 93432.3 137659.38
Cost of Goods Sold 167167.03 91881.87 138725.74
Gross Profit 16536.37 6111.79 21580.05
Salaries & Allowances 11078.22 11090.76 13761.72
Repairs & Maintenance 1826.72 1495.71 1335.69
Other Expenses 2388.22 2511.74 2659.16
Marketing Overheads
i) Freight & handling 3273.21 2332.62 3310.34
ii) Marketing Expenses 1011.83 777.41 1025.55
Corporate Office Expenses 406.35 403.77 538.77
Deferred Revenue 0.00 0.00 0.00
Expenses Written Of
Other Income -763.64 -981.86 -1281.40
Interest 2859.09 3896.60 6256.08
Depreciation 1491.44 1905.12 2299.91
Total Expenses 23571.44 23431.87 29905.82
Net loss after Tax (7035.07) (17320.08) (8325.77)
Net Fixed Assets 8465.62 142399.88 135179.20

42
Capital work in Progress
131139.73 57.91 12.78
Total Net Fixed Assets 139605.35 142457.79 135191.98
Inventory 5064.77 8121.17 5797.64
Sundry Debtors 82196.03 74733.64 86744.87

Cash and Bank Balance 8.86 2.16 1.91


Loans and Advances 658.15 679.04 633.88
Total Current Assets 87927.81 83536.01 93178.3

Investments 0.03 0.03 0.03


Total Net Assets 227533.16 225993.8 228370.28

Sundry Creditors and other 4773.89 4522.20 987.13


Liabilities
Provisions 6219.17 6010.18 7765.79
Total Current Liabilities 10993.06 10532.38
8752.92

Misc.expenses not written 0.00 0.00 0.00


of
Total 227533.16 225993.8 228370.28

Loan Funds 273.91 217.80 132.76


Reserve and Surplus - -
Shareholders Funds 202363.63 210804.32 234066.19
Net Working Capital 76934.75 73003.63 84425.38
Capital Employed 87959.75 215403.51 219604.58

WORKING CAPITAL TURNOVER RATIO

YEAR C.O.G.S WORKING CAP. RATIO

2012-13 167167.03 76934.75 2.17

2013-14 91881.87 73003.63 1.25

2014-15 138725.74 84425.38 1.64

43
CASH MANAGEMENT IN NFL

44
Cash management in NFL
includes following:

A.CASH INFLOW AND OUTFLOW


CASH INFLOWS
1. Receipts from corporate office Noida in sale of products.
2. Sales in canteen
3. Rent
4. Income from hospital
5. Sales
6. Salvage of Surplus Materials
OUT FLOWS
1. Petty expenses
2. Payments of salaries
3. Railway Freight Payments
4. Truck Unions Payments
5. Sales Tax, Excise Duty, etc.

B.CASH BALANCE HELD BY THE FIRM


In NFL Nangal unit, maximum cash credit limit of Rs.2, 00,000 is allowed by the
Corporate Office. The unit can withdraw maximum of Rs.2, 00,000 from the bank.

C.CASH PLANNING IN NFL


As such there is not any provision of preparation of projected cash flow statements
either on daily or monthly basis.

D.CONVERSION OF PAYMENT IN CASH


In NFL collection are accepted through demand draft, favoring national fertilizers
limited NayaNangal, DisttRopar (pb.)

E. INTER BANK TRANSFER


NFL is having accounts with various banks and branches of these banks in various
cities, so the amount can be transferred easily to the bank where disbursement is made.It
helps in avoiding excess money in the bank.

45
46
INVENTORY
MANAGEMENT SYSTEM IN NFL,
AT NANGAL UNIT
The success of any organization depends upon the factor that how efficiently the
resources are utilized. In this connection the inventory management and control system
of any organization have a vital role to play. As far as the NFL is concerned a
comprehensive procedure is laid down in the stored manual of the company, for the
purpose of inventory control and management system is such a way, that resources of
the organization are properly utilized.
INTRODUCTION

The material department in Nangal unit is defined in two departments:


A. Purchase department.
B. Store department.

A. PURCHASE DEPARTMENT

The principal objectives of a purchase department are summarized as the procurement


of materials or supplies of the right quality, in the right quantity, at the right time, from
the right suppliers, at the right price.
In NFL purchase department deals with oil, and bags. For these NFL corporate office
has lined up the long-term contracts with the concerned suppliers. For jute/HDPE bags
purchase order are being issued by NFL, Corporate Office and necessary delivery of
these bags delivery orders are being issued by Nangal unit, as regard the purchase of
import items procurement action is being taken by Nangal unit, however, the L.C.S
ARE being opened by the corporate office. a part from the purchase, purchase
department Nangal unit also complementary certain complementary activities. These
are:

1. Market research for new material and development of new source of supply.
2. Follow up suppliers to insure proper delivery.
3. Quality assurance in respect of supplies made by vendors.

47
4. Inspections of material for
quality with a view to ensure that specification are compiled with.
5. Development of proper and streamline system and procedure relating to
purchasing function to ensure that work is carried out efficiently and at lowest
reasonable operating cost.
6. Coordination with others functions within the department like, transportation,
receiving, store keeping, inventory control, accounting etc.
7. Coordination with the production, maintenance and finance departments
regarding alteration in production schedule presenting breakdown or
requirement of items etc in right time.

B.STORE DEPARTMENT

In NFL stores department deals with the receipt, inspection, storage and issue of all
items expect some bulks items like jute/HDPE bags Sulphuric acid naphtha oil and coal
which are being handled by directly by user department, in the operations of NFL. They
are in direct touch with the department in its day to day activities: the most important
purpose solved by the stores is providing the uninterrupted service to the manufacturing
divisions. Further stores are often equated directly with money, as money is licked up in
the stores.

The function of stores department in Nangal unit may be classified as:


I. To receive the raw materials, components, tools, equipments and others items and
account for them.
II .To provides adequate and proper storage and preservation to various items.
III .To meets the demand of consuming department by proper issue and account of the
consumption.
IV .To minimize obsolesce surplus and scrap through proper codification, preservation
and handling.
V. To highlight stock accumulation, discrepancies and abnormal consumption and effect
control measure.
VI. To provide supporting information for effective purchase action.

48
Stores also have to keep liaison
with purchase department as well as finance department with regard to stores
accounting; Physical stock verification disposal of scrap and surplus materials. Lodging
of normal claims on the underwriters/carriers etc.

49
CODIFICATION OF STORES
To facilitate computer processing and proper accounting all item of stores shall be allotted 7
digits material code. The seven digits are allocated in the following manner:

TYPE OF Primary 1st&2nd SECONDARY 3RD& 4TH THRITARY


MATERIAL DIGIT DIGIT 5TH,6TH& 7TH DIGIT
GENRAL Main Category Sub Category e.g. hand tools, Detailed
STORES e.g. tools, machines tools etc. specifications
hardware etc.
PLANT SPARES Deptt./ Plant of Major equipment or assembly Exact
section. e.g. pump compressor, heat specification/parts
exchanger etc.

A control register shall be maintained for allotting code number to stores and spares. Considering
the importance of this function a component officer in the materials department shall allot new
codes. It shall be ensured that same item which difference nomenclatures are allocated the same
code, which will help on verity reduction and standardization. Few new receipts 24-characters
nomenclature shall be fed to the computer periodically.

RATIO ANALYSIS AND INTERPRETATION


Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the indicated
quotient of two mathematical expressions and as the relationship between two or more things.
In financial analysis, a ratio is used as an index or yardstick for evaluating the financial position
and performance of a company. The absolute accounting figures reported in the financial
statements do not provide a meaningful understanding of the performance and financial position
of a company. An accounting figure conveys meaning when it is related to some other relevant
information. The ratio helps us to make quantitative judgment. The ratio analysis converts
figures into meaningful comparable forms & removes the difficulty of drawing inferences tool it
enables analysts to draw quantitative answers to questions such as : -
Is the net profit adequate?
Are the assets being used efficiently?
Is the company solvent?
Can the company meet its current obligations or so on?
There are four types of ratios
Liquidity ratios
Activity ratios
Profitability ratios
Solvency ratios
Following is the analysis and interpretation of balance sheet and income statement of NFL.

LIQUIDITY RATIO:-

The liquidity position of the company is studied through the Current ratio and Quick ratio.

NAME FORMULA 2012-13 2013-14 2014-15

CURRENT RATIO C.A/C.L 4.13 5.3 8.91


QUICK RATIO Q.A/C.L 7.5 7.2 9.9
CURRENT RATIO

Current Ratio: - As per the rule of thumb the acceptable form of Current Ratio is 2:1. The
current ration of NFL Ltd hasincreased 8.91 in 2014-15 in comparison to 2013-14 ratio is 5.3.But
4.13 in the year 2012-13.this ratio was quite satisfactory showing that firm has taken adequate
steps to improve its liquidity position in the rest of the years.
CURRENT RATIO

9
8
7
6
5
4
3
2
1
0
2012-13 2013-14 2014-15
QUICK RATIO

The Quick ratio is a rigorous measure of a firms ability to serve Short-term liability.
The usefulness of the ratio lies in the fact that it is widely accepted as the best available test
of the liquidity position of a firm.Generally, an acid test ratio of 1:1 is considered satisfactory
as firm can meet all current claims.A high quick ratio is an indication that the firm is liquid
and has ability to meet its current or liquid liabilities in time.. which is 9.9 in 2014-15 and 7.2
in 2013-14.

QUICK RATIO

10
9
8
7
6
5
4
3
2
1
0
2012-13 2013-14 2014-15

ACTIVITY RATIOS
These ratios are also called turnover ratios. Turnover indicates the speed the capital employed
has been rotated in the business.
NAME FORMULA 2012-13 2013-14 2014-15

INVENTORY TURNOVER C.O.G.S/Avg. 17.3 13.93 19.93Time


RATIO Inventory Times Times s

INVENTORY CONVERSION No. Of Days/ 21.1 days 26.2 days 18.31 days
PERIOD Inventory turnover
ratio

DEBTOR TURNOVER RATIO Net Sales/ Debtor 2.23 1.31 1.85


Times Times Times

INTERPRETATION
Inventory Turnover Ratio: - This ratio indicates how fast inventory is sold. A high ratio is
good from the viewpoint of Liquidity and vice versa. A low ratio would signify that inventory
does not sell fast and stays on the shelf or in the warehouse for a long term. Inventory turnover
ratio measures the velocity of conversion of stock into sales. It can be seen from the data that
inventory turnover ratio was 17.3:1 times in the year 2012-13, 13.93:1 in the year 2013-14 and
slightly increased in the year 2014-15 to19.93:1
Inventory Conversion Period:-The analysis of the ratio of Inventory Conversion Period
shows that it was 21.1 days in the year 2012-13, 26.2 days in the year 2013-14and 18.31 days in
the year 2014-15.
Debtor Turnover Ratio: - This ratio measures how rapidly receivables are collected. A high
ratio is indicates of shorter time lab between credit sale and cash collection. A low ratio shows
that debts are not being collected rapidly.

DEBTOR TURNOVER RATIO

2.5

1.5

0.5

0
2012-13 2013-14 2014-15

Debtor turnover ratio is 2.23 times in 2012-13 and then decreased to 1.31 times in 2013-14
and 1.85 times in 2014-15.

Profitability ratios:
A) GENERAL
NAME FORMULA 2012-13 2013-14 2014-15
GROSS G.P/NET SALES 9% 6.2% 13.5%
PROFIT
N.L AFTER TAX/ NET -3.8% -17.7% -5.1%
NET loss
SALES

Interpretation
Gross profit ratio: - A high ratio of gross profit of sale is a sign of good management as it
implies that the cost of production of the firm is relatively low. It may also be indicative of a
higher sale price without a corresponding increase in the cost of goods sold. The Gross margin of
the company is not so high due to the restrictions on maximum profit by the Govt. of India.
Company can not increase its sales price as the selling price of Urea is controlled by Ministry of
Fertilizers.

Chart Title

15%

10%

5%

0%
2012-13 2013-14 2014-15

-5%

-10%

-15%

-20%

GROSS PROFIT NET loss


NET PROFIT RATIO

Net profit ratio: The Company have not any profit in last three years. The loss of the
company in 2012-13 is -3.8% and increased in 2013-14 to -17.7% and -5.1 in 2014-15.
FINDINGS
As I did summer project for two months in NFL Nangal unit this is a great experience for me to
analyze the working capital condition of the unit. But time period is not sufficient that person can
analyze the working capital by different tools but in this short span I did my best to analyze
financial position of plant.
This unit is mainly producing urea apart from this they produce other product too
which are related with urea production. Methanol gas is providing good profit to unit
as we see in current year also. But I found that company is confined to limited area
they should diversify there plant and start entering in more competitive environment.
Company is using old machinery for production due to this requirement of manpower
is more and the sales are just satisfactory.
Repair & Maintenance expenses of the plants are on higher side.
The unit incurs heavy Freight charges, which are more than the freight subsidy
received from the Govt.
Salary & wages, Social, Administrative and marketing expenses of the unit are very
high. At the same time these expenses constitute a major part of the cost of
production.
Production of Urea never crosses the 100% of installed capacity in the financial years
under study whereas the production in earlier year recorded more than 100% capacity
utilizations for a number of times.
.
CONCLUSION
Presently National Fertilizers Ltd. is the main Fertilizer production company in India. This
Company has its four Units situated at Bathinda, Panipat, Vijaipur and Nangal. The company has
16.5% market share of urea in the country.
Nangal Unit, which was taken up for this study has made enormous contribution to the overall
agricultural development in the region. Since its inception the factory has had remarkable
performance with positive finance results and sustained high level of production.
After analyzing the Financial Statement Analysis of NFL, Nangal Unit, some important
conclusions are drawn about the working of this unit. The short term financial & liquidity
position of the company is satisfactory.
The profitability of the unit as shown by the financial statements is not very high. This is due to
the reason that selling price of Urea is fixed by Fertilizers Industry Coordination Committee
(FICC) of Department of Fertilizers & Chemicals, Govt. of India. During the fixation of
Retention Price of Urea a limited %age of profit is allowed on Net Worth. Current ratio and
Quick ratio are above the prescribed parameters in the first two financial years which are due to
non settlement of escalation claims of subsidy by the Ministry of Chemicals & Fertilizers.
Subsidy is allowed on the Urea sold not on dispatched to ware houses. Higher ware house stock
at the end of the year increases the currents assets, which reflects as increased current ratio.
The Memorandum of Understanding (MOU) for Production target of Urea has been signed
between NFL and Ministry of Chemical & Fertilizers in the beginning of financial year and
company cannot produce beyond the targeted quantity. If the company produces beyond the
targeted quantity then subsidy is not given by FICC on the quantity produced in excess to the
target. FICC calculates the Subsidy on excess quantity by considering Import Parity Price (IPP)
in place of Retention Price (RP) and IPP is generally much lower than RP.
The Inventory of the Unit is higher as compare to its sales
Urea producing Units cannot sell its product on its own discretion in any area. The ministry of
chemicals & fertilizers also allocates the area for selling urea and the unit is bound to sell its
product in that particular area. The rate of freight subsidy is same for every destination whereas
freight charges vary from destination to destination which results into difference in freight
subsidy and actual freight charges.
If the Govt. of India stops to provide subsidies to Urea manufacturing plants then they cannot be
viable for long.
Number of employees of the units is more as compare to other Urea manufacturing units. The
company also pays comparatively high salaries to its staff in addition to the many more facilities
like accommodation, hospital, schooling etc that results into heavy salary & wages expenses.
Head office of the company and Central Marketing Office is located at Noida, which controls
four manufacturing units in addition to Central Marketing Network. The company itself sells all
the production and marketing offices are located in almost every state of India manned by
companys own employees. Such a big network is the reason for high marketing cost.
The book value of the net fixed assets of the company is very low. Major part of assets of
the company is of current nature this is due to the fact that plant is very old and has been
depreciated to nearly zero value with the passage of time.
The Plant of Nangal Unit was installed with the help of a foreign company and entire
technology was imported it is therefore of a high value. Since the plant is very old it therefore
requires regular maintenance. On many occasions old components are require replacement and
results into heavy repair & maintenance expenses.
SUGGESTIONS
During the course of preparing this project report, I have gone through in detail in the working of
finance department of the unit and an effort has been made to merge the practical concept of
financial analysis statements. Apart from the models explained in my report few more steps can
be under taken to help in increasing the financial position of the company. These can be
explained as:
In order to achieve the ideal current and quick ratio, the company should try to reduce
credit period. On the other hand marketing department should make efforts to minimize
the warehouse stock, which will result into early recovery of subsidy as well as decrease
in interest on short-term borrowings.
The unit has to take a number of steps to increase the profitability. In this connection
following steps are suggested:-
Company should make efforts to produce targeted quantity with lower energy as
compare to energy norms prescribed by the Ministry of Chemicals & Fertilizers, which
will help in increasing profitability.
Since the plant is very old, it requires continuously major repairs. The company should
replace the old plant with a new one with latest and automatic technology, which will
reduce manpower and at the same time repair expenses will come down. This step will
surely increase the profitability of the Unit.
The company is holding great skilled human resources. There is a huge demand of skilled
manpower in other Fertilizers and Petrochemical companies. Surplus staff can be sent on
deputation in these companies and this can be a good source of revenue for the company.
The company has a big and good residential colony. With the decrease in number of
employees, a major part of this colony is lying vacant. These vacant accommodations
can be given on rental basis. This will help to increase in income from rent and avoid
thefts etc.
The procurement of Plant spares and General spares, except Specific Spares should be
procured on need basis. The obsolete spares, which are lying in inventory for more than
five years should be disposed off. Items of common nature should be identified between
the Nangal, Bathinda, Vijaipur, Panipat units so that the stock available at one unit can be
utilized by other unit. Firstly it should be started with some high value items and a list of
these should be circulated to other units. In this way the spares lying in other plants can
be utilized which will save funds as well as lead-time in the procurement of specific
spares. This system will also avoid production loss in case of breakdown.
BIBLIOGRAPHY

Reports
Sphere Company Magazine.
Annual Reports of National Fertilizers Limited.
Accounting Manuals of National Fertilizers Limited, Nangal Unit.

Websites
www.nationalfertilizers.com
www.kisan.net/fai.htm
www.fert.nic.in/aboutfert/aboutfertilizers.asp
www.tatachemicals.com
www.kribhco.net
www.gnvfc.net