1 CHAPTER 1 1.

1 INTRODUCTION The study of the working capital management at Tamil Nadu Newsprint and papers Ltd was aimed to study the existing policy of the companys working capital, to analyses its components and to suggest methods for its improvement. The study has analyses and interpreted data using various tools and techniques. The various policies and practices adopted by the company for their cash, receivables and inventory management were studied. The study has also focused on the various highlighting features of the company and it has also diverted attention to many crucial aspects that needs management attention. Based on the findings, suitable suggestion are given to the company for an efficient management of its working capital. Working capital management is a significant facet of any business enterprises as investment in current assed and the level of current liabilities have to be geared quickly to changes in sales. Moreover investment in assets represents a substantial portion of total investment. The importance of working capital management id reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities. To answer the following questions it becomes essential to study the working capital management of the company. Thus working capital plays a vital role in keeping the wheels of a business enterprise running. It is the life blood and controlling nerve for very business. Now considering the importance of working capital for any business enterprise it becomes very essential to study this concept. Thus the project elaborately deals through the study of Working Capital Management."

2 1.2 INDUSTRY PROFILE

1.2.1 Paper and Paper Board The demand for paper and paper board is largely influenced by the level and growth of population and national income along with the development of manufacturing output, trends in communications and office technology, educational materials requirements, literacy, etc., just to mention a few. In view of the above factors the Indian paper market and industry's growth prospects appear promising during the current decade. 1.2.2 World Paper Industry-2010 Total demand is expected to exceed 420 million tons. Grade wise distribution is a under:

3 Table No.1

Percentage Newsprint P&W Paper Corrugating Materials Carton Boards Sack Tissue Other Paper & Board 12 30 29 10 2 6 11

Million Tons 50 126 122 42 8 26 46

Total

100

420

4 The average growth rate in North America, Western Europe and Japan is expected to be 2.8%. In Asia, Latin America and Eastern Europe to be 4to 5% pa. By 2010, the largest increase in Paper and paperboard i.e., which is 53 million .

Presently within the reach of 145 million tons, the Asia will become the world's largest paper consuming continent. The combined share of North America and Western Europe of global paper and paper board production has declined from 67 to 62%and it is expected to drop to 40% by 2010. The combined contribution of Latin America, Asia and Japan has increased 11 to 22% and by 2010 it is expect to reach 29% of the World paper and Paperboard. In Asian continent, per capita consumption that is presently at 45 Kgs is expected to grow. Current Per capita (in Kgs). World North America Western Europe China India 60 300 170 28 5

1.2.3

Domestic Industry

1.2.3.1

Economic Scenario

The following are the most important demand determinants for paper and paperboard in India for the next 5-10 years. Indias population is forecast to grow from 923 in 1994to 1.23billion by the 2010, corresponding to an average long-term growth rate on 1.8%. The medium-term outlook for the Indian economy seems promising. The reform measures taken by the Government since 1991 have received full support from the IMF and World Bank, providing the basis for sustained growth. The emerging middle class in the country will certainly change the overall consumption habits in India with favorable impacts on paper and paperboard demand. The manufacturing and export sectors are expected to grow even faster than the economy in the general, vigorously increasing the demand for packaging materials with more emphasis on the quality of packaging. The literacy rate in India has been steadily growing (52% in 1995) although it is still well below the Asian average and expected to reach at lest 70 to 75% during the next 10 years.

The average GDP growth is expected to remain at beyond 6 to 7% per annum in the next 5 to 10 years.

The possibility of further

duty cut is expected to be minimum in the near

future.TNPL is already taking part in WTO band of 40% of Printing and Writing Paper and 35%of Newsprint. The decline in the tax-GDP ratio had dropped from 11 percent in 1989 to the current level of 8 percent which has resulted in revenue loss of rs.75,000 crores. Government spending for primary education and eradication of illiteracy is to be increased considerably as per World Bank guidelines, other international funding agencies etc. Major thrust on Human Resource Development and Information Technology. For increase of 1d% in GDP paper demand increased by One lakhs tons annually.

2.3.2

Industry Scenario The present installed capacity is around 50 lakh tons. The industry is highly fragmented capacity ranges from 5 tons /day to 600 tons/days.

Scarcity of convention raw material has compelled units to alternative unconventional raw material has compelled units to alternative unconventional raw material and recycled fiber.

Future units have to be based only on unconventional raw fiber.

material and recycled

Current capacities of the small and medium units are unviable. The minimum of 1lakh ton year capacity is only viable because the cost of the project and raw material are going to be the threatening factors.

With the vagaries of exchange rate fluctuation nonintegrated units without in house pulping and mainly depending on external source cannot survive.

The average capacity utilization has been only around 70 t 75%. The Indian consumers are highly price sensitive.

1.2.4

Demand-Supply Trend 2010

The major growth is expected beyond 20%pa in the cut size segment especially with the widening of SOHO segment besides corporate, educational institutions.

No new projects are envisaged in the near future. Usage of reels is going to increase with up gradation of printing infrastructure for offset printing which would cut loss and TNPL quality would be preferred by the end users.

With the up gradation of PM#1 and PM#2, TNPL can meet the quality requirement of end users in the multi color hi tech printing, the growing segment namely for surface sized paper with better optical and surface properties.

The major growth is expected beyond 20% pa in the cut size segment especially with the widening of SOHO segment sides corporate, educational institutions.

The export potential to nearby countries like in South East Asia, Middle East, Sri Lanka etc will be encouraging because of logistics, minimum lead time for delivery and established quality. TNPL should aim at least 12 to 15% of annual production for export, which would also sustain demand in the country.

With the Government policy minimizing and banning the usage of plastics for packaging purpose, the demand for paper and paperboard is expected to grow in the domestic market.

As TNPL are the Franchise of WWF, its product will be preferred by the institutions and the developed countries will also prefer on considering the eco friendliness.

With the globalization, packaging and packaging label are considered to be the add value to the product. Hence cost effectiveness and quality up gradation with higher capacity will enable TNPL in maintaining the domestic market share against imports.

The international C&F price for Printing and Writing Paper is not expected to fall below US$ 700/mt and with the duty element of even 25% the landed cost at Indian port would be around Rs.42,000 taking in to account current exchange rate of Rs.46.50 the normal variety compared to its Cream wove/Super Printing paper.

TNPL Product Mix at different capacities is given below. The growth in literacy and demand for packaging items gas demanded growth for Paper and paper Boards which is going to be 5to 8% pa on an average. 2000 2005 2010 2015 32.85lakhs 41.33(estimated) 52.62 70.90

TNPL can confidently endeavor to capitalize the opportunity with its strengths to achieve the market share in the domestic industry by 2010as follows

10 Table No.2

Variety

Demand 2010(tons)

TNPL Share(%)

Cream wove Maplitho

1,12,5000 5,52,000

9 (1,00,000 Tons) 8 (44,000 Tons)

Copier/OS2000

2,00,000

18 (36,000 Tons)

TNPL has not concentrated on the industrial varieties because, there are already too many players and the market is of longer credit period.

The above projections of the market share have been based on the presumptions that we will be price competitive with acceptable quality.

The constant demand growth for variety paper likely Cream wove, surface s Maplitho, is expected to double and TNPL s focus is to get at least 133 market share.

11 WORLDS TOP CONSUMERS-2007 Paper & Board Consumption Table No.3

S. No.

Country

Quantity (1000 Tons) 94.648 35.859 30.303 17.642 12.692 10.939 10.305 7.517

% Change 99/98 4.2 7.1 1.2 3.3 1.9 2.4 3.7 6.3

1. 2. 3. 4. 5. 6. 7. 8.

USA China Japan Germany United Kingdom France Italy Canada Korea

9.

6.639

26.7

10.

Spain

6.437

6.1

12

S. No. 11. 12. 13.

Country Brazil Taiwan Mexico

Quantity (1000 Tons) 6.363 5.097 4.824

% Change 99/98 1.4 5.4 9.2

14. 15. 16. 17. 18. 19. 20.

India Belgium Australia Netherlands Indonesia Russia Malaysia

4.020 3.523 3.641 3.412 3.105 2.655 2.349

5.7 7.9 6.2 0.3 11.6 23.4 46.4

13

WORLD STATISTICS 2007 Paper and Board Production by Grade (1000 tons) Table No.4

Product

Newsprint

PWP

Packaging on other & Board % 41.616 6.274 62.13 57.887 2.075 10.069 1.988 182,039

Total

Region West Europe East Europe North America Asia Australia Latin America Africa Total

% 10.332 2.036 15.722 7.717 762 882 360 37,810

% 31,964 1.943 30.42 26.747 509 3.501 676 95.760

% 83.911 10.36 108.272 92.353 3.345 14.456 3.018 315,712

Pulp Production by Grade (1000 Tons)

14

Table No.5

Product Region West Europe East Europe North America Asia Australia Latin America Africa

Chemical 22.502 5.131 61.934 17.252 1.047 9.652 1.742

Mechanical 13.326 2.003 20.526 4.244 1.282 687 317

Other 324 191 0 15.203 0 1.067 694

Total 36.152 7.325 82.461 36.701 2.329 11.406 2.755

15 1.3 1.3.1 COMPANY PROFILE TNPL AT A GLANCE Established in 1979. World Bank supported project. Primarily focused on manufacture of paper from bagasse. Indias largest integrated pulp and paper mill at a single location. Daily production 600 tones of Newsprint/paper Annual production 180,000 tones of Newsprint/paper Number of paper machines Annual bagasse consumption 800,000 tonnes Number of sugar mills supplying bagasse :6 Company employs around 1800 people. Saves over 30,000 acres of forestland

16

TAMIL NADU NEWSPRINT AND PAPERS LIKITED better known as TNPL owns and successfully operates Indias premier and one of the worlds largest bagasse based paper mills located at Kagithapuram in Karur district of Tamil Nadu about 400 kms from South West of Chennai city in Southern India. The plant is designed for a nominal capacity of 1,80,000 tonnes of Newsprint/Paper per annum using bagasse as the principal raw material. The furnish mix for Newsprint consists of 60% Chemical Bagasse pulp and 40% Mechanical bagasse Pulp. Printing & Writing Paper is manufactured using 75% chemical bagasse pulp and 25% chemical wood pulp produced from locally available hardwoods. At full production, the mill requires about 8,00,00 tonnes of bagasse Every year. Presently, the bagasse is procured from the nearby 5sugar mills, within a radius of 5 to 120 kms from the mills site, on fuel substitution basis under a firm tie up arrangement. The tie-up is being extended to include 2 more sugar mills to meet the additional bagassse requirement rise out of the expansion project, which the mill implemented in the year 1995 to double the production capacity to 1,80,000 tonnes of paper per annum. TNPL s plant is designed with an account on the latest technology. It is the most modern paper mill in the country with a unique bagasse handling and pulping system, multi fuel boilers, a mechanized finishing section and a higher sophisticated R&D Centre. The 8.6 meter deckle Belbaie Paper Machine (PM #1) supplied by Beloit Walmsley, U.K. has a design speed of 750 m/min and has been in operation since 1985 producing quality newsprint and printing & writing paper , It is equipped with Measures Vision 2002 online process control system for uniform basis weight , caliper and moisture control of the sheet. Plans are afoot to upgrade this machine for producing coated varieties of paper.

17 The second paper machine (PM#2) PROCURED AND COMMISSIONED UNDER THE Expansion Project in September 1995 is from JM Voith, Germany with DCS from ABB Sweden, The 6.6 mete deckle PM has a Duoformer CFD and a design speed of 1000m/min. The paper quality parameters like substance, caliper and moisture are controlled by ABB smart platform. Both the are designed to produce newsprint, as well as printing and writing paper Censuring flexibility in production depending on the market situation. By Utilizing bagasse on a large scale, the mill conserves valuable cell forest resources to the tune of 0.36 million tones per year , thereby saving 30,000 acres of forest land every year. By producing indigenous newsprint, out bagase TNPL helps the country in saving precious foreign exchange against Newsprint import. TNPL produces quality Newsprint like Standard Newsprint (49gsm), high brightness Newsprint, pink Newsprint etc. its printing and writing papers include Telephone dictionary papers, computer stationary paper , SS Maplitho, Offset Printing papers, cream wove papers etc .The company has recently introduced photo copier paper in the market under the brand name TNPL copier.

18 1.3.2 Complete Range TNPL is a dominant newsprint and printing &writing paper manufacture in the paper industry. India leading newspapers, including The Hindu, The times of India, Ananda Bazaar Patrika, and Hindustan times amongst others are printed on new sprint on the new sprint manufactured by TNPL. It was the first company to introduce high brightness and pink newsprint in the market leader in the computer stationary and note book segment. TNPL also supplies large quantities of the paper for text books, public issue stationary printing, telephone directory, photocopying etc. 1.3.3 Exports: TNPL made a entry in to the export market in 1994-95 by exporting 7168tonnes of printing & Writing papers to Egypt, Jordan, Iran and Srilanka. In 1995_96, 8152tonnes of paper was exported . Persistent down load trend in the international prices of paper from November 1995 affected the exports. During 1996-97 the quality exported was 5139tonnes.

19 PRODUCTS Printing & Writing Papers Table No.6

S.No. Variety

End use Computer Stationery, General use Carbonless Coating

Substance (GSM) 50

1.

Super Printing

2.

Offset Printing

Note books ,Letter Pads, Account Books

54-60

3.

Lottery Printing

Note books ,Label printing, stationery

60

4.

S.S. Maplihto

Label Printing ,Varnishing Multi coloured Printing , Envelops. Lottery ticket printing, Book Printing, Computer Stationery, Bus ticket printing Bible leaflets, Computer stationery, Invoice Copy, Carbonless coating, Notebooks

54

5.

Cream wove

58-60

6.

Special Printing

47-50

7.

TNPL Copier

Photo Copying

80

20

S.No. Variety

End use

Substance (GSM) 72

8.

Duplicating

Stencil Copying

9.

Telephone Directory Booking Printing Magazine Printing Magazine

Telephone Directory, Printing Whit /Yellow pages

40-44

10.

Printing school, college guides Novels, Questions papers , Pamphlets, Bills books, Bus ticket etc. Bible Printing, computer Stationery for multipart, coating base for clay coating

54-60

11.

40-42

12.

Printing (Water Sized)

Base paper for clay coating

60-70-80

13.

Colour Wove

Ballot Papers

75

21 NEWSPRINT Table No.7

S.No. 1. 2. 3.

Variety Standard Newsprint Pink Newsprint High Brightness Newsprint

End use Printing of Newspaper Printing of Newspaper Printing of Newspaper

Substance 49 49 49

1.3.4

Corporate Philosophy

Technology Leadership Eco Friendly Quality Consciousness Cost Effectiveness Positioning to be the market leader Minimize environmental impact Professionalism and Team work Harmony with the community

22 1.3.5 Objectives of the Company TNPL was promoted worth the objectives of manufacturing Newsprint and printing and writing paper using primarily an unconditional raw material (I e) bagsse, agricultural waste. The mill which was put-up at a cost of Rs.239 crores has an installed capacity to manufacture 50,000 ton of Newsprint and 40,000 ton of printing and writing paper and has the flexibility to change the mix according to market situation.In recognition of the pioneering effort behind project their and in view of its importance to India, the world bank supported the project be way of loan of US$100 million. The mill was established line a record period of 36 months .Commercial operations commenced in October 1985. By producing indigenous Newsprint out of bagasse, the company helps the country in conserving foreign exchange and dividing forest resources.

23

1.3.6

Competitors Seshasayee Paper & Boards Limited National Newsprint and paper mills Mysore Paper mills Hindustan Newssprint Limited J.K.Industries Rarjalaseema Paper millLikited Ballarour Industries Sirpur Industries Karthiksyan Paper & Boards LTD. Andhra Pradesh Paper mills LTD.

24

1.3.7

Future Plans: Improving product quality with usage of additives and retention aid. New product development and product improvement to meet customer satisfaction. Studies on alternative raw materials for paper making Continuous process improvement and product improvement. Efficient quality improvement and composting of solid waste. Environment friendly bleaching.

25

1.3.8

SWOT Analysis

Strengths Abundant natural resources. Making paper eco-friendly. Manufactures using state of the machinery. Improved dimensional stability Free from operational problems. First large paper mill to double its capacity with a short span of 8 years. Free from price and distribution controls.

26 Weaknesses Low quality of out put when compared to the world standard. Inefficient collection system of in conventional raw materials. Capital intensive and high gestation period. Source : Industry Spotlight, June 1994 Opportunities Very low per capita consumption of the order of only 3kgs as against Asian average of 18kgs and an international average of 2000kgs Threats Vulnerable to government policies. Environmentalists are against this industry due to the depiction of forest cover. Growing population. Low literacy rate

27

CHAPTER 2

2.1

NEED FOR THE STUDY OF WORKING CAPITAL MANAGEENT AT TNPL: Working capital provides adequate support for the smooth functioning of the normal business operations of any company . The need to study the working capital management of TNPL arised mainly to: Find out the working capital policy s adopted by the company. To study and analyses the components of working capital. To analyses the companys cash inventory and receivables management. To find out the duration of the companys operating cycle. To study how the company has used applied its funds for its operation. Thus the study reveals a clear picture of the companys working capital position and how it can improve its working capital for a better utilization.

28

2.2

OBJECTIVES OF THE STUDY To study and analyze the working capital management norms of the company for the past 5 years (2002-2007) To study the companys working capital policy and to analyses the components of working capital. To make suggestions for effective utilization of working capital.

29

2.3

SCOPE OF THE STUDY The study covers an analysis of data pertaining to the past five years (i.e 20022003to2006-2007) The study covers an in depth analyses of the company s working capital policy and with the help of ratios it analysis the companys cash management,receivable and inventory management. To understand the recent trend of the company a fund flow statement for 2002-2003 has been analyses.

30

2.4

LIMITATIONS OF THE STUDY

Data will become too volumnious when the period of the study is extended beyond five years and hence it is restricted to five years.

Time was a limiting factor in conducting the study. . The analysis has been done on with the year end figures and does not reflect on a month to month basis.

31

2.5

METHODOLOGY OF THE STUDY This study was aimed at systematic collection, analysis, reporting of data and findings relevant to Tamilnadu Newsprint and Papers Ltd. The following are the two major sources of collection of data.

1.

Primary Data

The study has used an unstructured in depth interview technique to collect information, as such an interview will reveal more unambiguous answers and doubts can be clarified. The manager of finance for TNPL has given facts regarding the companys practices.

2.

Secondary Data In this method recourse had been had to the following a. Annual reports of company for five financial years used to project the financial performance of Tamil Nadu Newsprint and Papers Ltd. b. CMA report which contained working capital projections.

32 2.6 TOOLS AND TECHNIQUES OF THE STUDY Ratio Analysis This is a widely used tool of financial analysis. Ratios reflect the relationship between variables and help to draw conclusions. It indicates the direction of change in performance. Improvement, deterioration or constancy over the years. Ratio analysis thus has been used to study the existing trend in the financial performance of TNPL. Operating Cycle This cycle helps in identifying the net period for which finance is to be arranged, the cycle begins with the raw materials stage and ends with the realization of cash after sales. This helps the company to reduce its period of operating cycle in future. Fund Flow Statement This is visualized as a continuous process, for every use of funds, there must be an offsetting source. Thus Fund flow analysis is made for the year 2002-2003, so that recent changes made be the company can be studied and the was in which it has used and applied its funds can be analyzed and interpreted.

33 2.7 REVIEW OF LITERATURE

(i)

Book Name: Public enterprises and economic development

Author: Ahmad A Issue of the Book: 1998, Page No: 35 48 Topic: Efficiency of working capital in Indian private enterprises during the post liberation era Abstract: The global wave of privatization, which originated in the united kingdom in the 1980s spread almost all over the world, has stimulated considerable debate in India on the rationally of denationalizing its private enterprises .The collapse of the social economies of the soviet union and the eastern European countries, as well as the opening up of the economies by the communist china have influenced the lobbies to move one step forward from deregulation to privatization. The continuous rising trend in adverse balance of payment situation in India leading to increasing dependence of the international funding agencies like the international monetary fund , Asian development bank , world bank etc., has also provided the plea to adopt economic liberalization policy by government of India. In mid 1991, the central government set in motion a new economic industrial policy after discarding the old nehruvian line of social pattern. Since then, various policy statements pronounced by the government of India have thrust towards deregulation, globalization and liberalization. Globalization and liberalization process of the country has made a path to multinational companies to access the Indian markets resulting in intensified competition in the market place.

34 We will do well to remember the words of Charles Darwin: it is not strongest of the species that survive nor the most intelligent, but the one most responsive to change. While many of the pes are learning to survive and grow by adopting themselves to the new situation large group of private sector undertakings, significant both in number and investment have been reset with serious problems like slow growth, low productivity, inadequate emphasis on research and development, insufficient working capital management etc. With the changes in economic scenario the WCM practices in India have also shown remarkable changes. In fact the working capital management in both public sector and private sector has failed to maintain its conventional practices during post liberisation era. So it is high time to measure the efficiency of working capital management and the corporate performance by computing Pearson simple correlation coefficient, as well as spearmans rank correlation coefficient between the selected total performance indicator and each of the selected measures relating to WCM of the company under study.

35

(ii)

Michael J. Peel Nicholas Wilson: MICHAEL J. PEEL IS A LECTURER IN accountancy and finance at

Cardiff Business School, University of Wales, and Nicholas Wilson is Professor of Credit Management at the University of Bradford, England. Very little research has been conducted on the capital budgeting and working capital practices of small firms. The purpose of this paper is to present the results of a preliminary study on the working capital and financial management practices of a sample of small firms located in the north of England. In general, the results of the survey indicated that a relatively high proportion of small firms in the sample claimed to use quantitative capital budgeting and working capital techniques and to review various aspects of their companies' working capital. In addition, the firms which claimed to use the more sophisticated discounted cash flow capital budgeting techniques, or which had been active in terms of reducing stock levels or the debtors' credit period, on average tended to be more active in respect of working capital management practices. It is hoped that the issues raised will stimulate further theoretical and empirical contributions on this neglected and important area of small business research.

36

CHAPTER 3 ANALYSIS & INTERPRETATIONS

3.1 WORKING CAPITAL PLOLICY Two important issues in formulating the working capital policy are: 1. What should be the ratio of current assets to sales? 2. What should be the ratio of short term financing to long term financing?

3.1.1

Current Assets in Relation to Sales Any firm may fall under any of the following categories a. conservative current asset policy b. Aggressive current asset policy A conservative current asset in relation carry a high level of current assets I

relation to sales. This is because of the safety component. An aggressive current asset policy would carry a low level of current assets in relation to sales.

37 3.1.2 Ratio of Short term Financing to Long Term Financing The two broad alternatives in this respect are: a. A conservative current asset financing Policy: This relies more on long-term b. Sources like debentures, share capital etc and less on short term sources. c. An aggressive current asset financing policy: This relies more or short term d. Bank financing and less on long term sources.

TNPLS POSITION OF WORKING CAPITAL POLICY Aggressive Current Asset Policy Table NO.8

Year Current Asset Sales Ratio CA :Sales

2006 38734.43 67128.52 0.57

2007 36358.84 84922.46 0.42

2008 36790.98 92047.73 0.39

2009 39051.45 102047.21 0.38

38 Data Analysis From the above table it can be clearly seen that current assets are less than the sales of the company and hence for each year the companys sales is more than the current assets. Data Interpretation Thus it can be clearly stated that the company follows an aggressive current asset Policy. This reduces the risk if the firm, this is also accompanied by lower expected profits. TNPLs Position of Current Asset Financing Policy: Table No.9
2005-2006 Year Short Term Sources 30568.81 38734.43 36790.98 39051.45 2006-2007 2007-2008 2008-2009

Data Analysis Thus the company follows an aggressive current asset financing policy where it is exposed to more risk, but is reduces the average cost of financing.

39 3.1.3 Overall working Capital Policy Table No.10

Aggressive overall working Capital Policy Working Capital Policy TNPL s Working Capital Policy Moderate Overall working Capital Policy Conservative Overall Working Capital Policy

Data Analysis Thus the company follows an Aggressive overall working capital policy that has a combination of an Aggressive current asset policy land an aggressive current asset financing policy. Data Interpretation This provided a package of high risk and high returns company.

40 3.2 COMPOSITION OF WORKING CAPITAL Table No.11

Years

Inventory to W.C (%)

Debtors to W.C (%) 59.98

Cash & Bank to W.C (%) 6.89

Loans & Advances to W.C (%) 66.20

2005-2006

63.17

2006-2007

52.57

55.26

8.74

54.84

2007-2008

98.23

66.09

11.92

54.71

2008- 2009

94.39

63.09

14.23

77.21

Data Analysis

From the above table it cab be observer that during the year 2007-2008, the Inventory of raw materials ( i.e, store and spares) recorded the highest a the company expanded its capacity from 80,000pa to 1,20,000pa capacity per annum. Debtors were high during the year 2005-2006 and 2007-2008 which had a long debt collection period. Cash and Bank balance had an average of 5.20% on a stable basis.

41

FIG.1 TNPL COMPOSITION OF WORKING CAPITAL

Data Analysis Loans and advances were very high during the year 2002-2003; the companies had to an extent of lakhs inter corporate deposits and the balances with the port trust and central excise. Data Interpretation The debtors to working capital were very high during 2002-2003 and 20032004, the company has to reduce its debt collection period.

42 3.3 A RATIO ANALYSIS financial ratio is a relationship between two financial variables. It helps to

ascertain the financial condition of a firm. This analysis helps the company to identify its financial strength and weakness and to perform better through comparison with is competitors and with the industrial averages. 3.3.1 Net Working Capital It represents the excess of current assets over current liabilities. It is employed not as a ratio but as a measure of the companys liquidity position. The greater the amount of networking capital, the greater the liquidity of the firm.

3.3.2

CURRRENT RATIO It is the ratio of total current assets to total current liabilities s and indicates the

ability of the company to meet is current obligations. A 2:1 ratio is considered to be an ideal ratio and represents a good short term solvency position. Current Assets Current Ratio = _______________ Current Liabilities

43 TAMIL NADU NEWSPRINT LIMITED Statement of Current ratio for the period from 2002-2003 to 2005-2006

Table No.13

Years/Particulars Current Ratio

2005-2006 2.30

2006-2007 2.40

2007-2008 1.76

2008-2009 1.66

Data Analysis It can be observed from the above table that the current ratio position of the company has been very comfortable from he year 2002-2003 till 2006-2007. During the year 2006-2007 the current ratio has marked an improvement from 2.52 to2.65. This ratio has been at its highest during the year 2004-2004. Data Interpretation This increasing trend of the current ratio indicates a higher liquidity position of the company and the company is able to meet all its.

44

FIG3, CURRENT RATIO OF TNPL

3 2.5 2 1.5 1 0.5 0 2005- 2006- 2007- 20082006 2007 2008 2009 Current Ratio Acid Test Ratio

Current obligations. Thus the company has a good short term solvency position.

45 3.3.3 Acid Test Ratio This relationship between liquid assets and liquid liabilities is measured by the acid test ratio. It gives a clear picture about the firms ability to meet its short term liabilities out of long term assets. It is calculated as a difference between current assets and stock. Therfore1:1 is considered to be an ideal ratio. Current Assets Stock Acid Test Ratio= _________________ Current Liabilities TAMIL NADU NEEWSPRINT & PAPERS LIMITED Statement of Acid test ratio for the period from 2002-2003 to2006-2007

Table No.14

Years/Particulars Acid Test Ratio

2005-2006 1.12

2006-2007 1.66

2007-2008 1.01

2008-2009 1.03

Data Analysis

The ratio seems to have a high tendency to fluctuate from 1.30 to 2.05. This ratio has been increasing till the year 06-07, and them has decreased later.

46

FIG4. ACID TEST RATIO OF TNPL

3 2.5 2 1.5 1 0.5 0 2005- 2006- 2007- 20082006 2007 2008 2009
Data Interpretation

Acid Test Ratio Current Ratio

This increasing trend indicates the holding of higher volume of quick assets when compared to the ideal ratio of 1:1. The cash management of the company has not

47 been effective during the year 2004-2005 and their e has been a steady decrease in stock and current liabilities.

The company has invested its surplus funds in short term deposits and other inter corporate deposits, so that whenever needed it can utilize them.

3.3.4

Current Assets to Total Assets Ratio This ratio helps to identify how much of the total assets is made up of current assets what percentage of the total assets consists of current assets. It is calculated as Current Assets = ____________ Total Assets

TNPLs Statement of Current assets to total assets ratio for the period from 2002-2002 to 2006-2007 Table No.15

Years/Particulars CA to TA ratio In %

2005-2006 0.35 35%

2006-2007 0.36 36%

2007-2008 0.33 33%

2008-2009 0.28 28%

48 Data Analysis From the table & graph, it is evident that 32 to 39%of the total assets is made up of current assets. A ratio of more than 50% but less than 75% CV can be considered as an ideal ratio. Data Interpretation Thus company is following an aggressive current asset policy where it has invested more on fixed assets and less on current assets. More over the company is manufacturing, entity and it requires more heavy investments in fixed assets than current assets. 3.3.5 Current Assets Turnover Ratio The current assets turnover ratio indicates the efficiency of utilization of current assets. The more efficient the management the higher is the turnover ratio , while a lower ratio indicates under utilization of available resources and presences of idle capacity. Sales Current Assets Turnover Ratio = ______________ Current Assets

TNPLs Statement of Current Assets Turnover Ratios for the period from 02-03 to 06-07 Table No.16

Years/Particulars

2005-2006 1.77

2006-2007 1.95

2007-2008 2.32

2008-2009 2.40

49 Current Assets turnover ratio (in times)

50 Data Analysis From the above calculations, it can be calculated that the average CATR IS 1.36. Fir energy.1 Re of current assets utilized is 1.36Re realized. The CATR was highest in the year 2006-2007. Data Interpretation This shows the improvement in the effective utilization of available resources except for the year 04-95, which is decreased by 0.08 times due to under utilization of current assets. 3.3.6 Working Capital to Sales Working Capital Working Capital to Sales = _______________ Sales This ratio is the reciprocal of working capital turnover ratio and this indicates how many times sales have turned over during the year. Statement showing TNPLs working capital to sales ratio for 04-95 to 06-07 Table No.17 Years/ Particulars Ratio (in times)

2005-2006 0.25

2006-2007 0.29

2007-2008 0.18

2008-2009 0.16

51 Data Analysis From the above table it can clearly seen that the ratio has been increasing till the year 07-08 and then has decreased. Data Interpretation The lower the ratio, the better will be the performance of the company. The ratio was in an increasing trend till 06-07 due to under trading prevailing in the company. During the year 2008-09 it recorded the highest and subsequently incurred a net loss. 3.3.7 Working Capital to Net worth Working Capital Working Capital to Net worth = _________________ Net worth This indicates the proportion of working capital being financed by net worth or equity capital. TNPL; s Statement showing working capital to net worth ratio for 2005-06to 2008-09

Table No.18

Years/Particulars Ratio

2005-2006 0.48

2006-2007 0.50

2007-2008 0.56

2008-2009 0.43

52

FIG.6 W0RKING CAPITAL TO NET WORTH AND SALES

1 0.8 0.6 0.4 0.2 0 2005- 2006- 2007- 20082006 2007 2008 2009 Networth sales

Data Analysis The table shoes an increase in the ratio till the year 03-04 an then a sudden dip in the ratio during the recent years. Data Interpretation

This shows a conservative approach towards risk management by the company till he year 03-04 and then later has adopted an aggressive policy.

53

3.3.8

Working Capital Turnover Ratio This ratio indicates whether of not working capital has been effectively utilized

in making sales. It is calculated as: Net Sales ______________ Working Capital TNPLs Statement showing working capital turnover ratio for the year ended2004-05 to 2007-08 Table No.19

Years/Particulars Working capital turnover ratio

2005-2006 2.18

2006-2007 2.04

2007-2008 1.97

2008-2009 2.29

54 Data Analysis The higher the ratio the better is for the company. This ratio was high during 02-03 and then came down during the period 04-05, where the company suffered a lose. During the recent years the companys ratio seems to be increasing. Data Interpretation This indicates a better position during the recent years, even the companys ROCE will increase when this turnover is higher. A very high turnover ratio indicates over trading by the company. 3.3.9 3.3.9.1 Profitability Ratios Gross Profit Ratio This ratio expresses the relationship between gross profit and net sales. This indicates the degree to which the selling price of goods per unit may decline without resulting in losses from operations to the firm. It is calculated as: Gross Profit __________ * 100 Net Sales TNPLs Statement of gross profit for the year2004-05 to2007 -08 Table No.20

Years/Particular Gross Profit (in %)

2005-2006 45.54

2006-2007 32.22

2007-2008 25.25

2008-2009 27.87

55

FIG. 8 TNPL; S ROI, GROSS PROFIT, NET PROFIT RATIO AND OPERATING COST RATIO

50 40 30 20 10 0 2005- 2006- 2007- 20082006 2007 2008 2009 Gross Profit (in %) Net Profit ratio ROI

Data Analysis The table shoes an increase in the ratio till the year 03-04 an then a sudden dip in the ratio during the recent years. Data Interpretation This shows a conservative approach towards risk management by the company till he year 2006-07 and then later has adopted an aggressive policy.

56 3.3.9.2 Net Profit Ratio This ratio indicates net margin earned on a sale of Rs.100. This ratio helps in determining the efficiency with which affairs of the business are being managed. Net operating profit ________________ Net sales TNPLs Statement of net profit ratio for the year ending 02-03 to 06-07 *100

Table No.21

Years/ Particulars Net Profit ratio

2005-2006 26.55

2006-2007 16.22

2007-2008 20.54

2008-2009 24.87

Data Analysis This declining trend of net profit is mainly during the recession stage in the economy. The company has incurred a net loss during the year 2005-06. Data Interpretation The decreasing trend over the years indicates the need improvement in the operational efficiency of the business during sump period.

57 3.3.9.3 Return on Capital Employed This ratio is otherwise called as Return on investment ROE or overall profitability ratio. It indicates the percentage of return on the capital employed. It is calculated as: Operating profit _____________ * 100 Capital employed TNPLs statement showing overall profitability for the year ending 02-03 to06-07 Table No.22
Years/ Particulars ROI 2005-2006 15.55 2006-2007 16.22 2007-2008 12.36 2008-2009 15.87

Data Analysis The ROCE has been at an average of 15.04 and the highest was during the year 0203. The decline in profit during the year 05-06 was due to the higher operational cost. Data Interpretation Thus when the operational costs are reduced the company can improve its ROI.

58 3.3.10 Operating Cost Ratio Operating costs include the cost of direct materials, direct labor and other over heads. Thus operating cost ratio is calculated: Operating cost ____________ * 100 Net sales TNPLs statement showing operating cost ratio for the year ending 04-05 to 06-07 Table No.23

Years/Particulars Operating ratio (in %) Data Analysis

2005-2006 55.17%

2006-2007 71.22%

2007-2008 79.36%

2008-2009 76.87%

The operating cost ratio was at its highest during the year 02-03 and due to this even the operating profit was reduced Data Interpretation The companys operating cost has at its lowest only during 04-05 and the later years have an average of 76.59% operating cost. Thus is mainly due to the heavy manufacturing expenses incurred by the company after its expansion stage.

59 3.3.11 Interest Coverage Ratio This ratio indicates whether the business would earn sufficient profits to pay periodically the interest charges. The higher the number the more secure the lender is in respect of his periodical interest income. It is calculated as : Income before interest and tax ____________________________ Interest charges TNPLs statement interest coverage ratio for the year ended 2005-06 to 2008-09 Table No.24

Years/ Particulars Interest coverage ratio 2005-2006 2.11 2006-2007 1.91 2007-2008 1.57 2008-2009 2.95

Data Analysis This ratio was at its highest during the year 07-08 (I e) 4.11 times than the later year .It recorded the lowest during the year 04-05. Data Interpretation The higher the number, the more secure the lender is in respect of his periodical interest income. Thus for the year 06-07 the interest charges were low compared to the later year and hence the company was in a better position during 07-08 3.3.12 Debt Equity Ratio

60

The dept equity ratio is determined to ascertain the soundness of the long term financial policies of the company. It is calculated as: External long term funds = _____________________ Internal shareholders funds TNPLs statement showing dept equity ratio for the year ended 04-05 to 07-08 Table No. 25
Years/ Particulars Debt equity ratio 2005-2006 1.25 2006-2007 0.91 2007-2008 1.07 2008-2009 0.95

Data Analysis The company maintains an average of 1.045. An ideal ratio can be taken as 1. During the year 2006-07 and other years the company was able to maintain a ratio near to1. Data Interpretation If the shareholders funds are equal to borrowed funds, then this ratio can be quite satisfactory. The company has been able to maintain that ratio more or less for each year except for the year 07-08, it had more of long term debts.

61 3.4 WORKING CAPITAL FINANCING A combination of long term and short term sources of finance support current assets. A Long term source primarily supports fixed assets and secondarily provides the margin money for working capital. Thus a business firm can explore various sources to meet its financial requirements. Ina a study at TNPL, it has been analyses that short term sources of finance Provide major support for its current assets requirements. The various other modes of financing explored TNPL are.. 1) Bank finance A consortium of banks provides the finance they need that is available both for short term and long term period. 2) Fixed Deposits The are classified to be medium term ranging from a period of 1 to 3 years. 3) Bills Discounting This is done through discounting export bills, as a now their exports have largely increased and it accounts for more than their domestic sales. 4) Inter corporate Deposits These are unsecured and are available for a short period of 90 days. 5) Commercial Papers Commercial papers are issued by the company as and when it requires funds, recently during l2005 it issued P for thirty five cores. The RBI guidelines its limit for each issue.

62

Bankers of TNPL Andhra Bank Canara Bank Indian Bank Indian overseas Bank Oriental bank of commerce State Bank of Patiala Syndicate Bank

63 3.5 CASH MANAGEMENT Cash management is one of the key areas of working capital management. The objectives of cash management of a company is to meet payment schedules and for et funds committed to cash balances. Cash management at YNPL is found to have increased over thy rears. This was due to increased holding of cash earlier due to its expansion scheme. The closure of many current accounts has reduced its cash holdings. No specific cash is followed by the company. Cash budget are prepared to forecast their requirements. The company invests its surplus cash in bank deposits, inter corporate deposits and with the excess cash they even prepay term loans. The company during last year (2002-2003) prepaid a term loan amounting to fifty crores. So by making advance payments they are able to cut their discount rate.

64 FIG.9 CASH TO CURRENT ASSETS AND CASH TO WORKING CAPITAL RATIO

16 14 12 10 8 6 4 2 0

Current asset working capital 2005-

2006- 2007- 20082006 2007 2008 2009

65 Table No.26

Years Ratio (in %)

2005-2006 3.51

2006-2007 5.55

2007-2008 5.16

2008-2009 5.90

Data Analysis Cash is an unproductive asset and idle. Thus excessive balances reduces profitability though increase liquidity. The company has been maintaining an average of 3.07% on the whole. The increase in the cash ratio during 03-04 was mainly attributed to the increase in the deposit account balances and savings account of the employees security deposits. Data Interpretation

Thus the company has been prudentially maintaining an efficient cash system which has ensures that cash ha been locked up and has been put to effective uses.

66 3.5.1 Cash : Current Liabilities Ratio Cash Cash : Current Liabilities Ratio Current Liabilities = __________________

Table No.27

Years Ratio

2005-2006 7.16

2006-2007 12.25

2007-2008 9.11

2008-2009 7.40

Data Analysis This ratio indicates the amount of cash that comprises current liabilities. The cash shows a decreasing trend while the current liabilities shows an increasing trend during the year 03-04. Data Interpretation The company has sought to increase the profitability by utilizing the cash to procure other assets.

67 3.5.2 Cash : Working Capital Ratio

Cash Cash: Working Capital Ratio = _________________ Working Capital

Table No.28
Years Ratio 2005-2006 6.85 2006-2007 8.75 2007-2008 11.93 2008-2009 14.72

Data Analysis This ratio tells us the contribution of current assets in the form of cash to networking capital of the company. Maintaining cash as such merely blocks up funds and thus should be maintained in other forms. The company has been consistently maintaining cash at an average of 5.20%. Data Interpretation The company has thus been able to manage cash consistently.

68 3.6 INVENTORY MANAGEMENT The term inventory refers to the stockpile of the product a firm is offering for sale and the components that make up the product that will be sold in future in the normal course of business operation. The main objective of inventory management of accompany is to minimize the firms investment in inventory and to meet the demand for the product by efficiently organizing the firms production and sales operation. At TNPL it was found that purchase were determined mainly by the quality and they procure their main raw material mainly bagasse on a tie up with five sugar mills on a sub situational basis. As the project of the company is designed to maximize the utilization of bagasse, there would be no additional requirement of wood. TNPL has its own unique system of holding finished goods. It has been receiving ZERO STOCK LEVEL for the past nine years consecutively. This is a major record for any company. By meeting the demand supply gap, accurately and by its overall marketing strength, quality, planning for future, its through market intelligence, understanding the needs of its customers and flexibility in production have all supported in its achieving of ZERO STOCK LEVEL During the period 2004-2005 the demand and supply was a bad period for the company a they had faced problem of dumping from foreign suppliers. But from 2005-2006 trends have very much changed for the company and the future is even brighter.

69

The inventory department is computerize for easy decision making and operational, even warehouses are linked to computers. The company flows EOQ (Economic Order Quantity) model, ABC analysis for the Inventory management

The company also uses safety level stock, reorder levels to maintain it stock position of its raw materials. The company has implemented an online integrated system (OIIS), it is a mine ERP package developed be CMC Ltd. Under this OIS the company has developed certain modules relating to Finance Production Quality control Marketing Personnel department.

The information flows online to the various departments and accordingly decisions can be taken. Thus through this online facility, requisition for material ordering and even accounting of sales can be done.

70

3.6.1

Composition of Inventory

Table No.29

Year Stores and spare parts Loose tools Consumables Raw material Purchased materials in transit Packing materials Work in process Standing crops Chemicals Fuel Finished goods

2005-2006 35.22 0.05 34.11

2006-2007 36.48 0.07 36.39

2007-2008 46.82 0.10 34.56

2008-2009 41.5 0.05 19.68 31.56

6.30

0.57

1.62

2.68

2.50 0.91 0.17 2.97 17.72 2.45

2.21 6.09 0.16 1.49 16.53 -

3.62 0.74 0.28 2.03 7.59 2.57

4.43 0.28 -

71 Data Analysis Raw materials inventory consists of items that are purchased from other on a barter system and these are converted into finished goods. The work in process inventory consists of items currently being used in the production process. They are normally partially or semi finished gods. Stores and spares needed for continuous production are also maintained. It is ascertained that stores and spares parts is maintained at a higher level while the raw material inventory ranks second. This company has achieved zero stock level for the past nine years and only during the year 2008-2009 there as 2.57% of finished goods stocked due to recession faced the company. Data Interpretation Thus the company possesses an efficient system to manage its inventory by periodically reviewing inventory and during the year 05-06 and 08-09 it had reduced its consumption of chemicals, fuel and packing materials. Fuel consumption was more during 03-04 due to the expansion programme sought by the company. It had adopted its expansion scheme to double its capacity from 90,000 to 1, 80,000 tons.

72

FIG.10 INVENTOROY TURNOVERRATIO

7 6 5 4 3 2 1 0
rti cu la rs

Series1 Series2
200805 2006- 20070 6 2009 2 0 0 2007 2008 2

Ye ar s/ Pa

73 3.6.2 Inventory Turnover Ratio

This ratio indicates whether investments in inventory are efficiently used or not. It shows whether the investment in inventory is within proper limits or not , it also indicates the efficiency of the firm in selling its products.

Net sales Inventory turnover ratio = _____________ Avg. Inventory

TNPL a statement of inventory turnover ratio for the period 05-06 to 08-09

Table No.30
Years/Particulars Inventory turnover (in times) 2005-2006 5.58 2006-2007 5.14 2007-2008 6.15 2008-2009 6.18

Data Analysis From the above calculations it can be observed that, there is an increasing trend of the ITR ratio.

74

Data Interpretation This shows a good inventory management policy followed by the company. Thus this indicates an increasing trend of the companys conversion of stock into sales.

FIG 11. INVENTORY TO WORKING CAPITAL

Years/Particula rs 2005-2006 2006-2007 2007-2008 2008-2009

75 3.6.3 Inventory to Working Capital

Inventory Inventory to Working Capital = _____________ Working Capital

Table No.31
Years/Particulars Ratio (in times) 2005-2006 63% 2006-2007 52% 2007-2008 98% 2008-2009 94%

Data Analysis This ratio tells us contribution of current assets in the form of inventory to working capital. Inventory levels should be constantly checked as shortage disrupts the production process. At the same time excessive inventory also increases cost by over stocking which may lead to pilferage and blocking of funds. The sudden increase in the ratio during 204-05-04 and 2007-08 is due to reduced company has over years brought down this ratio from 70.31% to 63.31%.

76 3.7 RECEIVABLES MANAGEMENT Accounts receivable process and practices are being radically redesigned to cope with equally radical new competitive challenges accounts receivables management is made up of several varied sub processes which cut across a number of important dimensions of the firm. At TNPL, based on the market conditions gods are sold on credit basis. Higher demand indicates increasing proportion of cash sales and vice versa. Majority of their customers include Indias ananda Bazaar Patrika, Hindustan Times amongst others are printed on newsprint manufactured by TNPL.Is exporting countries include Egypt, Jordan Iran and Srilanka. Outstanding portion of its debtors are mainly for writing papers and these are also marked driven. It gives a period of 30 to 65 days for collection of its debts. A maximum 90 days is given. The company selects its customers based on their credit worthiness and various other factors like past experiences, valid references and financial soundness. The company offers incentives for early payments.

77

3.7.1

Debtors Turnover Ratio and debt collection Period This ratio indicates the extent to which the debts have been collected in time. It is helpful to the company because it explains to them whether their debtors are paying money within a reasonable time. Credit Sales Debtors turnover ratio = ______________ Accounts receivable TNPLs Statement of debtors turnover ratio and debt collection period for the Period to 05-06 to 08-09 Table No.32
Years/Particulars DTR (in times) Collection period (in days) 2005-2006 5.66 64.4 2006-2007 6.07 60.1 2007-2008 8.71 41.9 2008-2009 10.35 35.26

Data Analysis

The debtors turnover ratio has been throughout fluctuating and has been at its highest during the year 02-03 and lowest in 04-05(I e) 5.05 and 2.53 respectively which is reflected in the collection period also. Data Interpretation

78

To maximize profitability a higher turnover of inventory should be a compared by prompt collection of receivables. The collection efforts can be stepped up to ensure a prompt collection. The company incurred a loss during the year 05-06, due to excess of accounts receivable.

FIG 12. DEBTORS AND CREDITORS COLLECTION PERIOD

20 15 10 5 0 2005- 2006- 2007- 20082006 2007 2008 2009 DTR (in times) CTR (in times)

79 3.7.2 Creditors Turnover Ratio

It represents credit payment and bills payable to creditors. Creditors turnover indicates the number of times the value of creditors turnover each year. Through this ratio the firm can reduce its requirement of current assets by relying on suppliers credit. Credit purchases Creditors Turnover Ratio = __________________ Avg. Accounts payable TNPL ;s Statement of creditors turnover ratio and credit payment period for the period 05-06 to 08-09 Table No.33
Years/Particulars CTR (in times) Payment period (in days) 2005-2006 12.05 27.26 2006-2007 17.25 20.65 2007-2008 14.53 24.96 2008-2009 18.95 22

Data Analysis From the above table it can be analyses that the highest CTR was recorded in the year 05-06 to 08-09, and the lowest payment period was also recorded during the same period.

80

Data Interpretation Thus a higher CTR and a lower payment period signifies that the company s creditors are being paid promptly, thus this enhances the credit worthiness of the company.

FIG.13 RECEIVABLES TO WORKING CAPITAL

Ratio 0.7 0.65 0.6 0.55 0.5 0.45 2005-2006-2007-20082006 2007 2008 2009

Ratio

81 3.7.2 Receivables To Working Capital Receivable Receivables To Working Capital = ______________ Working Capital

Table No.34
Years Ratio 2004-2005 0.59 2005-2006 0.55 2006-2007 0.66 2007-2008 0.63

Data Analysis The receivables form one of the major portions of current assets. Credit has to be given to parties to boost sales but too much credit will lead to unproductive blockage of funds. The receivables have been decreasing from the beginning except for the year 0506. Data Interpretation

82 The sundry debtors during the year 02-03 and 07-08 alone has increased by 16750.89 lakhs and 16751.79 lakhs respectively.

83 3.7.4 Receivables to Gross Current Assets Receivables Receivables to Gross Current Assets = Gross Current Assets ____________________

Table No.35
Years Ratio 2004-2005 0.30 2005-2006 0.32 2006-2007 0.28 2002-2008 0.25

Data Analysis Receivables are those money that are receivables by the company from its various dealers, customers and government. They include debtors who own the company money and arise out of credit sales. Data Interpretation The rising share of receivables during the year 06-07 was due to the increase in the doubtful debts and good debts received later.

84 3.9 OPERATING CYCLE ANALYSIS The operating cycle refers to the length of time between the firms paying cash for materials, entering the production process and inflow of cash from debtors. Thus there is a complete cycle where in cash gets converted into raw materials, work in progress, finished goods debtors and finally cash again.

In 2007-2008 the total operating cycle lasted for 177 days. The average raw materials inventory as maintained at Rs.3156.74 lakhs and the company held at an average of 133 days stock in raw materials stage.

The second stage is the work in process stage where the semi- finished goods are converted into finished goods. The average cost of production was at Rs.54.26 lakhs The final stage is the finished goods stage. This is the duration of days of stock that is on the shelf. During 2002-2003 the co. had no finished goods having shelf life. In 2003-2004 the operating cycle shot up to 222days showing that there was a delay in realizing the cash that enter the manufacturing process. The raw materials storage period stood at 88 days, the debtors collection period stood at 150 days. While the creditors payment period stood at 27 days and there was no amount of finished goods. In 2003-2004, the operating cycle lasted for 201 days. The average raw material inventory was maintained at RS. 3655.98 lakhs and the company held at an average 80 days of stock in raw materials stage. The average work in process period decreased to

85

Rs391.14 and the finished goods during this period was at RS 228.05 (closing stock of finished goods). In 2006-2007, the net operating cycle decreased to173 days from 201 days this was mainly because of the improvement in the debt collection period that came down to121 days. Finally during the year 2007-2008 the gross and not operating cycle fell down to 166 and 146 days respectively. There has been a further improvement in the debt collection efforts that has been reduced to l86 days. Thus, the operating cycle has decreased over the years, this has been mainly due to the efforts made to decrease the debtors collection period. The finished goods inventory management has shown a positive trend. Only during the Period 2006-2007 there was a stock for about Rs.114.02 lying at its warehouse. The Company achieved aero, stock as on 31.03.2008 The raw materials period has also come down that shows improved management. The Work in process is found to be consistent over the years.

86 3.10 FUND FLOW ANALYSIS

A fund flow statement is a valuable to identify the sources and application of funds, this statement measures the inflows and outflows of networking capital and explains the financial consequences of business operations. Fund Flow Analysis of TNPL for the year 2007-2008 During the year 2007-2008 there was a decrease n the networking capital to 1905.25 lakhs, mainly due to the reduction in the sundry debtors amount and also cash and bank balances were reduced to 935.55 lakhs during the year. The funds from operations were 6356.76 lakhs and the depreciation amount increased to 4732.31 lakhs during the year.

Table No.36

Rs. In Lakhs Profit Available for appropriation Add : Depreciation Operating Profit 1624.45 4732.31 6356.76

87 Fund Flow statement of TNPL for the year ended 2006-2007 Table No.37

Sources Operating profit (FFO) Reserves & Surplus Secured Loans Unsecured Loans Deferred tax

In lakhs 6937.78 57063.20 48805.95 6437.95 18835.00 138079.88

Application Net fixed assets Investments Net current assets

In Lakhs 128360.99 1715.42 8003.47

138079.88

88

TNPLs Statement showing changes in working capital for the year ended 2007-2008

Table No.38

31.03.2008 Current Assets Inventories Sundry Debtors Cash and Bank Balances Loans and Advances A 14726.46 9856.46 2304.42 12164.11 39051.45

31.3.2007 15638.41 10533.06 1900.21 8719.98 36790.98

LESS : Current Liabilities Provisions B Net Working Capital A - B

23450.66 7597.32 31047.98 8003.47

20855.25 4976.87 25832.12 10958.86

89

90

Findings

CHAPTER 4 FINDINGS

1. The study shows that the company follows an overall aggressive working capital

91

policy, which given a package of high returns and high risk to the company. 2. The company s net working capital shows a declining trend during the recent 3. This was mainly due to the decline in its sales, where it just recorded a 0.39%

increase in sales during 04-05, that had no significant effect to the company. Even during the years 2005-2006, and 2006-2007 it had only 7-8% increase in sales, this was low when compared to the year 04-05 where it had 42.31% increase in sales. 4. The current ratio and acid test ratios of the company are more than the ideal ratios required, mainly because of increase in sundry debtors and sales for the company in the year 2005. 5. Working capital turnover ratio has increase over the recent years and this has increased the company s ROCE or its over al profitability 6. The current assets turnover ratio reflects an efficient utilization of current assets. 7. The gross profit and net profit of the company recorded the highest during the companys expansion stage (i.e. 2003-2004) then went down due to recession in the market.

92 8. The companys inventory consists of mainly raw materials and spare parts. 9. It has a unique record of achieving zero stock level for the past nine years continuously. 10. correlation reflects a direct, positive and non-linear relationship between working capital and sales. 11. The company takes a longer duration for its collection of debts I e. (more than 3065 days) hence there is an increase in the duration of its operating cycle.

93

94

suggestions

95

Suggestions
The company has to improve the net working capital as it shows a declining trend. This declining trend was mainly due to the decline export and domestic sales which had only 0.39%; increase during 04-05. Thus in order to improve its sales position the company could have adopted the following polices. To improve domestic sales; Company should have undertaken researches to develop new products and to meet customer satisfaction. Continuous process and product improvement. To improve its export sales. The quality of output could have improved to achieve world Standard. Thus by adopting the above policies the company can achieve higher soles target and withstand any future market fluctuations. Locking up of the companys funds in the form of sundry debtors can be avoided of the company goes in for securitization of its book debts. The company can realize cash immediately by selling its assets to a special vehicle.

96 Now days banking intermediaries like the, ICICI, city bank act as special vehicles in funding companies. Securitization of book debts will further strengthen the companys liquidity position, and the funds generated can be used for creation of further assets, this will increase companys turnover. The company has to reduce its duration of operating cycle. This can be reduced by reducing its debt collection period where in it has crossed more than 100 days in collection of its debts. Thus the company should restrict its Collection period to maximum of 64 days. It should go in for a detail analysis of its debtors before sales is made.

Conclusion

97

Conclusion

A proper working capital is an absolute necessity for the success of any Organization. The present study was undertaken to study and analyses the existing

98 system of working capital followed by the company and to give suggestion.

It analyses the various aspects of cash, receivables and inventory Management. The study also undertakes to establish cause and effect relationship between variables.

Various crucial areas that needs attention of the management were analyses And suggestions were given to improve performance.

99

100

BIBLIOGRAPHY

1. 2.

Financial Management theory and practice, Prasanna Chandra... The Management Accountant - ICWAI Publications, Calcutta, 1996

3. 4.

Financial Management, Pandey I.M. Management Accounting, Maheswari, S.N.

5. 6.

Management Accounting, Sharma and Shashi K. Gupta. Financial Management and Policy, James C. Van Horne.

101