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GTUs Enrollment No: 097690592017
A
PROJECT REPORT ON
A Studyof Working Capital ManagementAt
INDIAN RAYON(A Unit of Adit ya Bir la Nuv o LTD.)
Submitted By:
Nikunj D. Patoliya (B-41)
MBA PROGRAMME 2009-2011 (SEMESTER II)
In partial fulfillment of the requirements for Summer Internship Programme
for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
SHRI JAIRAMBHAI PATEL INSTITUTE OF BUSINESS
MANAGEMENT AND COMPUTER APPLICATIONS (NICM-MBA)
Submitted to
GUJARAT TECHNOLOGICAL UNIVERSITY,
AHMEDABA
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Declaration
This project report entitled Study of Working Capital Management has been
submitted to Gujarat Technological University, Ahmedabad in partial fulfillment
for the award of degree of Master of Business Administration. I/ We, the
undersigned hereby declare that this report has been completed by me/us under
the guidance of Ms. Shraddha Mehtaand Ms. Bansi Patel(Faculty Member,
Shri Jairambhai Patel Institute of Business Management & Computer
Applications, Gandhinagar.)
The report is entirely the result of my/our own efforts and has not been submittedeither in part or whole to any other institute or university for any degree.
Name(s) of the Student with Signature/s: Nikunj D. Patoliya
GTUs Enrollment No/s : 097690592017
Date: 24/07/2010
Place: Gandhinagar
Name and Signature of the Faculty Guide: Ms. Bansi Patel
Date:
Place: Gandhinagar
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Shri Jairambhai Patel Institute of Business
Management and Computer Applications(Formerly known as National Institute of Cooperative Management),Approved by AICTE, New Delhi and Affiliated with Gujarat University
Opposite Amusement Park, Indroda Circle, Gandhinagar - 382 007Phone: 079 23213043, 37 - 38 - 39 Fax : 079 23213036Web: www.nicm.org.in E mail: [email protected]
http://www.nicm.org.in/mailto:[email protected]:[email protected]://www.nicm.org.in/ -
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PREFACE
The golden opportunity for any management student is to know about the actual
managerial work of any industry. Practice makes man perfect. In this perspective it is
the necessity of practical training for every MBA student to support and to expand the
deep sense of practical management work.
The aim and purpose behind this industrial training is to lead the students to get more
efficiently skills and the knowledge of real managerial work/practices which may help
them to become a successful manager.
Management field is like a coin. It has two sides one is theoretical and another is practical
management approach. Both are very necessary aspects to learn for management
students. As a part of practical approach, industrial training is very important for the
management students.
In our university, for all the MBA students the industrial training of 45 days and project
report work are compulsory to undergo as a part of study during the summer vacation
after completion of 2nd semester.
As a summer trainee I have visited Indian Rayon (A unit of Aditya Birla Nuvo Ltd.)
Veraval Gujarat. It was great opportunity for me to explore such a big and vibrant
company. And I tried my level best to make this training most successful. I got very
cordial support from all the departments employees who shared their working experience
with me, as such a way this training period has become a precious reminiscence for me.
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ACKNOWLEDGEMENT
I am thankful to the management of Indian Rayon (An unit of Aditya Birla Nuvo Ltd.)
Veraval, Gujarat Who permitted me for doing the summer project training within and
exposure of functioning of big corporate for the period of 45 days.
A project of this nature calls for intellectual nourishment and professional help from
many people. I therefore, deeply express my gratitude to all the professors of my college
and special Ms. Bansi Patel who guided me and even helped me in completing my
project.
I would like to thank Mr. P. Narsimharao, Sr.Vice President (HR), for providing me this
opportunity to learn the basic nitty-grittys of management in the prestigious company of
Indian Rayon.
I am also thankful to Miss Shraddha Mehta (Training Manager) who allowed me to carry
out my project and guided whenever required. I am also thankful to Mr.J.V.Dave
(Librarian) for his cooperation to provide relevant books as well as journals that made my
task smooth.
I finally express my gratitude to all those who directly or indirectly rendered the
assistance, guidance and support for the project undertaken by me in the company.
Last but not the least, I am greatly indebted to my God, my parents, my family members
and my friends without whose blessing and guidance I think I could not have reached this
moment in my life.
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EXECUTIVE SUMMARY
This research work analyzes the effect of working capital management on firm
profitability. In accordance with this aim, to consider statistically significant relationships
between firm profitability and the components of cash conversion cycle at length, a
sample consisting of the company working capital analysis has been included. Empirical
findings showed that growth in sales, average collection period and average payments
period affect firm positively; while inventory period affects firm profitability negatively.
Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's short-
term assets and its short-term liabilities. The goal of working capital management is to
ensure that the firm is able to continue its operations and that it has sufficient cash flow to
satisfy both maturing short-term debt and upcoming operational expenses.
In this research work, the researcher will consider in chapter one.the introduction of
the study which will in turn considers the following topics: The background of the study,
scope of the study, the objective of the study, limitation of the study. Chapter two focuses
on the literature review; this chapter is where the researcher extracts materials from
various books, magazines, news papers and internet resources
Chapter three focuses on research methodology adopted for study. Chapter six focuses on
the project profile; this chapter is where the researcher uses the theoretical knowledge of
working capital management for study of organizational practices. In chapter seven, the
researcher compares working capital with different years while chapter eight is ratio
analysis and presentation. The findings, suggestion, and conclusion are in last part of the
project.
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TABLE OF CONTENTS
Title Page noDECLARATION I
CERTIFICATE FROM THE ORGANISTION IICERTIFICATE FROM THE INSTITUTE III
PREFACE IV
ACKNOWLEDGEMENT V
EXECUTIVE SUMMARY VI
CHAPTER 1
INTRODUCTION OF THE STUDY
1.1 Title of The Study & Objective of The Study1.2 Scope of The Study1.3 Limitation of The Study
1
234
CHAPTER 2
LITERATURE REVIEW 5
CHAPTER 3
RESEARCH METHODOLOGY 7
CHAPTER 4
INTRODUCTION TO ADITYA BIRLA GROUP
4.1 Introduction
4.2 4.3 Aditya Birla Group in India
4.4 History of Aditya Birla Group4.5 Vision, Mission and value of The Company4.6 Companies of Aditya Birla Group
4.6.1 Hindalco4.6.2 Grasim4.6.3 UltraTech4.6.4 Aditya BirlaNuvo
4.7 Milestones
9
101112
1316171819202123
CHAPTER 5
INTRODUCTION TO INDIAN RAYON
5.1 Introduction to Indian Rayon5.2 History and Development5.3 Present Management Team5.4 company Profile5.5 Products of Indian Rayon5.6 World class Manufacturing5.7 Kaizen
26
27282931323334
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CHAPTER 6
PROJECT PROFILE
4.1 Introduction to Working Capital Management4.2 Concept of Working Capital
4.3 Factors Influencing Working Capital Requirement4.4 Issue in Working Capital Management4.5 Management Functions in Working Capital
35
3637
394041
CHAPTER7
WORKING CAPITAL COMPARISION FOR THE
FINANCIAL YEARS
5.1 2006-07 & 2007-085.2 2007-08 & 2008-095.3 2008-09 & 2009-10
45
464850
CHAPTER 8
RATIO ANALYSIS 52
SWOT ANALYSIS 63
FINDINGS & CONCLUSIONS 66
RECOMMENDATIONS/SUGGESTIONS 68
BIBILIOGRAPHY/ REFERENCES 69
ANNEXURES 70
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LIST OF FIGURES
Figure no Figure name Page no1 Working Capital turnover 53
2 Current Assets Turnover 54
3 Current Ratio 55
4 Quick Ratio 56
5 Debtors Turnover Ratio 57
6 Average collection Period 58
7 Net Profit Ratio 59
8 Inventory Turnover Ratio 60
9 Creditor turnover ratio 61
10 Average payment period 62
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LIST OF TABLES
Table no Table name Page no
1 2006-07 & 2007-08 46
2 2007-08 & 2008-09 48
3 2008-09 & 2009-10 50
4 BALANCE SHEET OF
2005-06 TO 2009-10
70
5 PROFIT & LOSS OF
2005-06 TO 2009-10
71
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CHAPTER 1INTRODUCTIONOF THE STUDY
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INTRODUCTION OF THE PROJECT
TITLE OF STUDY
A Study of Working Capital Management at Indian Rayon, A Unit of Aditya Birla Nuvo
Ltd., Veraval.
OBJECTIVE OF STUDY
The concept of Working Capital management is as older as the human understand to do
business. How organizations can works without having Working Capital through they
had spent on the fixed capital? This gives importance of the finance manager needs to
take the decision in this routine work life pertaining to manage Working Capital.
The objective of the study is to focus on the very much important function of the finance
department. Under the head of Working Capital management, the decision related to
receivables, cash, debtors and inventory management are taken for the effectiveproduction and finance management. The main objective of the study of Working Capital
Management bifurcated in to sub objective like:
Receivable Management
Debtors Management
Cash Management
Inventory Management
The various ratios given at the end of the report and their analysis helps the reader in
understanding the importance of the Working Capital and effect of the change in it.
SCOPE OF THE STUDY
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As it is mentioned earlier that the management of the Working Capital requires a great
sense of understanding because the excess Working Capital leads to less profitability and
ineffective use of the capital, while the inadequate Working Capital drags the company
under the danger of liquidity.
Thus in other words, the Working Capital management means to optimize between the
profitability and liquidity. Many company works with excess Working Capital. But in
case of Indian Rayon, the Working Capital is just above the required. This can be
predicted from the current ratio of the company, which should be near to 2:1 is general.
But for the company current ratio was 3.26:1 in the FY 2005-2006 which further reduced
to 2.21:1 in FY 2009-2010.
This shows that the company has aggressive approach toward the management of
Working Capital, which further creates the scope for the study.
LIMITATION OF THE STUDY
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As we know every study has some limitation. The main limitation of this study is
classified in three categories.
Limitation From Research Side:
Time Limitation: There are many scope of improvement in the existing workingcapital management system like duplication of data at both finance and
management information system department, format of the data which differs
from department to department. But the study has limited time to analysis.
Knowledge Limitation: The study conductor is not aware about the particularapproach and organizational politics and practices.
Analysis Limitation: Some data which is presented in one way and it is analyzedin the other way and come to certain other conclusion or interpreted in wrong
manner might lead to wrong concept. The emphases are put to overcome these
limitations.
Data Limitation: Indian Rayon is a subsidiary company of Aditya Birla NuvoLtd. So accounting department of Indian rayon does not provide the Annual
Report of the Indian rayon. So study of working capital management is to be
made based on the data of Aditya birla Nuvo Ltd.
Limitation of the Respondent: Time Limitation: The respondent (staff of finance and accounting department)
are busy in their schedule of the work load. Sometime they are not free to answer
the questions.
Knowledge Limitation: During the study, some staff members are came acrosswhich are not aware about the working capital management system, some are
found to be not aware fully about the usage of the computer except what they
need in daily application.
Limitation of Environment: Improper time of the study. Lack of understanding between the communicators.
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CHAPTER 2
LITERATURE REVIEW
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LITERATURE REVIEW
Financial, Cost and Management Accounting by Dr. P. Periasamy.(Page no.
233 to 297)
The all information relating to ratio of the study is taken from this book.
Ratio Analysis is necessary to establish the relationship between two accountingfigures to highlight the significant information to the management or users who cananalyse the business situation and to monitor their performance in a meaningful way.For study of working capital management, the calculation of ratio is necessary. Itfacilitates the accounting information to be summarized and simplified in a requiredform. It helps the management to take decision in certain condition.
Financial Management by I.M. pandey (page no. 577 to 667)
All theoretical information relating to working capital management is taken from thisbook.
Theoretical information like concept of working capital, management of receivable,cash management, inventory management and working capital finance is necessary tostudy the working capital of any organization. It helps the researcher in makingproject. Without these information researcher is baseless.
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CHAPTER 3
RESEARCH METHODOLOGY
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RESEARCH METHODOLOGY
DATA COLLECTION:
The various data have been collected from the accounting and finance department of the
organization. Another information and data of last five years have been extracted from
the annual report of the company.
DATA DESCRIPTION:
This report contains data description based on the theoretical concept and for the
description methods have used which contains table and graphs.
RESEARCH TOOLS:
The Working Capital Management for last five years i.e. FY 2005-06 to FY 2009-10 are
used for calculating the ratio and hence interpreting the financial position of the
organization during that period of time the annual reports of the Indian Rayon are also
used as a tool.
STEPS TAKEN FOR THE STUDY
In the very first step the discussion with the finance manager and other staff member in
the finance department was held to know about the financial position of the company,
past history and coming future planning of the finance department and company as a
whole.
The next step was the collection of the data related to the Working Capital. Under this
step data regarding the current liabilities and current assets, status in various years, sourceof finance etc. were collected.
After the collection of the data, the analysis of the data and various ratios were found and
analyzed in depth.
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CHAPTER 4
INTRODUCTION TO ADITYABIRLA GROUP
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INTRODUCTION TO ADITYA BIRLA GROUP
The Aditya Birla Group is Indias first truly multinational corporation. A US $29.2billion corporation, the Aditya Birla Group is in the league of fortune 500. It is anchored
by extraordinary force of 130,000 employees, belonging to 30 different nationalities. In
India, the Group has been adjudged The Best Employer in India and among the top 20 in
Asia by the Hewitt-Economic Times and Wall Street Journal study 2007. Over 50
percent of its revenues flow from its overseas operations.
The Group operates in 25 countries India, UK, Germany, Hungary, Brazil, Italy, France,
Luxembourg, Switzerland, Australia, USA, Canada, Egypt, China, Thailand, Laos,
Indonesia, Philippines, Dubai, Singapore, Myanmar, Bangladesh, Malaysia and Korea.
The Group consists of four main companies, which operate in various industry sectors
through subsidiaries, joint ventures, etc. These are HINDALCO, GRASIM, ADITYA
BIRLA NUVO and ULTRATECH CEMENT.
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GLOBALLY THE ADITYA BIRLA GROUP
A metals powerhouse, among the world's most cost-efficient aluminum and
copper producers. Hindalco-Novelis is the largest aluminum rolling company. It is
one of the three biggest producers of primary aluminum in Asia, with the largest
single location copper smelter.
No.1 in viscose staple fiber.
The fourth largest producer of insulators.
The fourth largest producer of carbon black.
The 11th largest cement producer globally, the seventh largest in Asia and the
second largest in India.
Among the world's top 15 BPO companies and among India's top four.
Among the best energy efficient fertilizer plants.
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IN INDIA
A premier branded garments player.
The second largest player in viscose filament yarn.
The second largest in the chlor-alkali sector.
Among the top five mobile telephony companies.
A leading player in life insurance and asset management.
Among the top three supermarket chains in the retail business. Beyond business:
The Aditya Birla Group is working in 3700 villages.
Reaching out to seven million people annually through the Aditya Birla Centre for
Community Initiatives and Rural development, spearheaded by Mrs. Rajashree
Birla.
Focusing on: health care, education, sustainable livelihood, infrastructure and
espousing social causes.
Running 41 schools and 18 hospitals.
Rock solid in fundamentals, the Aditya Birla Group nurtures a culture where
success does not come in the way of the need to keep learning afresh, to keep
experimenting.
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HISTORY OF ADITYA BIRLA GROUP
The roots of the Aditya Birla Group date back to the 19 th century in the picturesque town
of pilani, set amidst the Rajasthan desert. It was here that Seth Shiv Narayan Birla started
trading in cotton, laying the foundation for the House of Birlas.
Through Indias arduous times of the 1850s, the Birla business expanded rapidly. In the
early part of the 20th century, Groups founding father, Ghanshyamdas Birla, set up
industries in critical sectors such as textiles and fibers, aluminum, cement and chemicals.
As a close confident of Mahatma Gandhi, he played an active role in Indian freedom
struggle. He represented India at the first and second round-table conference in London,
along with Gandhiji. It was at Birla House in Delhi that the luminaries of the Indianfreedom struggle often met to plot the downfall of the British Raj.
Ghanshyamdas Birla found no contradiction in pursuing business goals with the
dedication of a saint, emerging as one of the foremost industrialists of pre-independence
India. The principals by which he lived were soaked up by his grandson, Aditya Vikram
Birlas, Groups legendary leader.
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Aditya Vikram Birla:
A formidable force in Indian industry, Mr. Aditya Birla dared to dream of setting up a
global business empire at the age of 24. he was first to put Indian business on the world
map, as far back as 1969, long before globalization become a buzzword in India.
In the then vibrant and free market South East Asian countries, he ventured to set up
world class production bases. He had foreseen the winds of change and staked the future
of his business on a competitive, free market driven economy order. He put Indian
business on the globe, 22 years before economics liberalization was formally introduced
by the former Minister, Dr. Manmohan Singh. He set up 19 companies outside India, in
Thailand, Malaysia, Indonesia, the Philippines and Egypt.
Under his stewardship, his companies rose to be the worlds largest producer of viscose
staple fiber, the largest refiner of palm oil, the third largest producer of insulators and the
sixth largest producer of carbon black. In India, they attained the status of the largest
single producer of viscose filament yarn, apart from being a producer of cement, grey
cement and rayon grade pulp. The Group is also the largest producer of aluminum in the
private sector, the lowest first cost producers in the world and the only producer of linen
in the textile industry in India.
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At the time of his untimely demise, the Groups revenues crossed Rs.8000crore globally,
with asset of over Rs.9000crore, comprising of 55 benchmark quality plants, an
employees strength of 75,000 and a shareholder community of 600,000.
In this time, his success was unmatched by any other industrial in India.
Under the leadership of our Chairman, Mr. Kumar Mangalam Birla, the Group has
sustained and established a leadership position in its key businesses through continuous
value-creation. Spearheaded by Grasim, Hindalco, Aditya Birla Nuvo, Indo Gulf
Fertilizers and companies in Thailand, Malaysia, Indonesia, the Philippines and Egypt,
the Aditya Birla Group is a leader in a swathe of products- viscose staple fiber,
aluminum, cement, copper, carbon black, palm oil, insulators, garments. And with
successful forays into financial services, telecom, software and BPO, the group is today
one of Asias most diversified business group.
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VISION, MISSION AND VALUES
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COMPANIES OF ADITYA BIRLA GROUP
Aluminu
Copper
VSF
Cement
Chemical
Textiles
Manufacturin
Teleco
Garment
Insurance
Asset
Distribution
Brokin
BP
Cement
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HINDALCO
Hindalco Industries Limited, the metals flagship company of the Aditya Birla Group, is
an industry leader in aluminum and copper. A metals powerhouse with consolidated
turnover of Rs.600, 128 million (US$15 billion), Hindalco is the worlds largest
aluminum rolling company and one of the biggest producers of primary aluminum in
Asia. Its smelter is the worlds largest custom smelter at a single location.
Established in 1958, Hindalco commissioned its aluminum facility at Renukoot in
Eastern U.P. in 1962. Later acquisitions and mergers, with Indal, Birla Copper and the
Nifty and Mt.Gordon copper mines in Australia, strengthened the companys position in
value-added alumina, aluminum and copper products, with vertical integration through
access to captive copper concentrates.
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GRASIM
Grasim industries Limited, a flagship company of the Aditya Birla Group, ranks among
Indias largest private sector companies, with consolidated net turnover of Rs.184billion
and a consolidated net profit of Rs. Billion (FY2009). Grasim was incorporated on 25
August1947,exatly10 days after India achieved independence.
Starting as a textiles manufacturer in 1948, today Grasims businesses comprise viscose
staple fiber (VSF), cement, chemicals and textiles. Its core businesses are VSF and
cement, which contribute to over 90 percent of its revenues and operating profits.
The Aditya Birla Group is the worlds largest producer of VSF, commanding a 24
percent global market share. Grasim, with an aggregate capacity of 3,33,975 tpa has aglobal market share of 11 percent. It is also the second largest producer of caustic soda
(which is used in the production of VSF) in India.
In cement, Grasim along with its subsidiary Ultra Tech Cement Ltd. has a capacity of
41.6 million tpa and is a leading cement player in India. In July 2004, Grasim acquired a
majority stake and management control in Ultra Tech Cement Limited. One of the largest
of its kind in the cement sector, this acquisition catapulted the Aditya Birla Group to the
top of the league in India.
Grasims products include viscose staple fiber (VSF), grey cement, white cement,
chemicals, sponge iron and textiles.
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ULTRATECH
UltraTech is Indias largest exporter of cement clinker. The companys production
facilities are spread across five integrated plants, five grinding units, and three terminals-
two in India and one in Sri Lanka. All the plant s have ISO 9001 certification, and all but
one have ISO 14001 certification, while to of the plants have already received OSHAS
18001 certification the process is underway for the remaining three the company expert
over 2.5 million tones per annum, which is about 30 percent of the countrys total
experts. The export market comprises of countries around the Indian Ocean Africa,
Europe and the Middle East. Export is a thrust area in the companys strategy for growth.
UltraTech Cement Limited has an annual capacity of 18.2 million tones. It manufactures
and markets Ordinary Portland cement, Portland Blast furnace slag cement and Portland
Pozzalana cement. It also manufactures ready mix concrete (RMC).
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ADITYA BIRLA NUVO
Aditya Birla Nuvo Ltd is a diversified conglomerate and the platform that has launched
many new businesses for Indias premier business house, the Aditya Birla Group. Aditya
Birla Nuvo has a balanced portfolio of traditional and age businesses under its fold,
ranging from textiles to life insurance.
The razor sharp focus on each business has made it a leading player in most segments,
including viscose filament yarn, carbon black, branded garments, agri business, textiles
and insulators. Over the past few years, Aditya Birla Nuvo, through its subsidiaries and
joint ventures, has made successful forays into life insurance, telecom, business process
outsourcing (BPO), IT services, asset management and financial services.
Powered by an intellectual capital of over 37,000 employees and an optimum mix of
revenue and profit streams, the company is in a strong position to invest in high growth
businesses to maximize long-term shareholders gains.
As a leading player, Aditya Birla Nuvo ranks as:
Indias second largest producer of viscose filament yarn (VFY).
The countrys largest premium branded Apparel Company.
The second largest producer of carbon black in India.
Largest manufacturer of linen fabric in India.
Among the most energy efficient fertilizer plants.
Indias largest and the worlds fourth largest producer of insulators.
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ADITYA BIRLA NUVO : A UNIQUE CONGLOMERATE
Represent Subsidiaries
Represent JVS
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MILESTONES
2009
In recognition of work that truly exemplifies the highest values of society and
corporate leadership for social responsibility and sustainable development
initiatives, the Reader's Digest Pegasus Star Award has been conferred on
Hindalco. Mrs. Rajashree Birla who spearheads all the Group's social projects
received this much coveted award on behalf of Hindalco from Mr. Arun Jaitley,
MP, Rajya Sabha, on 21 January 2009 in Delhi.
2008
The President of India, Mrs. Pratibha Patil conferred the much coveted Rotary
International Polio Eradication Champion Award on Mrs. Rajashree Birla in an
elegant function at the Rashtrapati Bhavan (Delhi), attended by the Chairman,
select Rotarians and WHO officials.
2007
Hindalco awarded the CII - Sorabji Green Business Centre "National Award for
Excellence in Water Management 2007".
In May 2007, Novelis became a Hindalco subsidiary with the completion of the
acquisition process. The transaction makes Hindalco the world's largest aluminum
rolling company and one of the biggest producers of primary aluminum in Asia,
as well as being India's leading copper producer.
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2006
Hindalco in a joint venture with Almex USA Inc.
TransWorks Information Services announces success of bid to acquire Minacs
Worldwide.
Grasim Industries Limited, India; Thai Rayon Public Company Limited
Thailand and P.T. Indo Bharat Rayon, Indonesia form a JV with Hubei Jing
Wei Chemical Fibre Company, China, for VSF
.
Hindalco awarded the Greentech Safety Silver Award for its outstanding
safety performance during 2005-06.
2005
Indian Rayon re-christened as Aditya Birla Nuvo.
Aditya Birla Group to set up a world-class aluminum project in Orissa.
The Aditya Birla Group signs a framework agreement to acquire St AnneNackawic Pulp Mill, Canada.
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2004
Completion of the implementation process to demerge the cement business of
L&T and completion of open offer by Grasim, with the latter acquiringcontrolling stake in the newly formed company UltraTech.
Grasim, Nagda, received the FICCI Annual Award 2003-2004 in recognition
of corporate initiative in rural development.
Bihar Caustic and Chemicals Ltd. Rehla, Jharkhand, has received the FICCI
Annual Award 2003-2004 in recognition of corporate initiative in family
welfare.
Hindalco receives India CFO Award 2004 for excellence in finance in a large
corporate.
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CHAPTER 5
INTRODUCTION TO INDIANRAYON
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INTRODUCTION TO INDIAN RAYON
Indian Rayon, the VFY unit of Aditya Birla Nuvo, is a major player in the Indian viscose
filament yarn business. The unit enjoys a 30 per cent domestic market share, making it
the second largest producer of viscose filament yarn in India.
Branded 'Ray One', the viscose filament yarn is available in more than 400 shades. The
yarn comes in a wide array of colors, including natural whites. It ranges from the purest
tints, through medium tones to vibrant deep shades in fine to coarse deniers ranging from
75 to 1200.
With a capacity of 16,400 tones per annum (tpa), Indian Rayon is the first in the country
to adopt the most advanced VFY technology with 88 pot spinning machines (PSY) and
17 continuous spinning machines on parallel yarn. It also accounts for 50 per cent of
VFY exports from India.
Located at Veraval in Gujarat, the VFY plant is the first in Aditya Birla Nuvo to be
accredited with the ISO 9001 and the ISO 14001 certification. It also has the OHSAS18001 and OEKO Tex certification.
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HISTORY AND DEVELOPMENT
The late Prime Minister shree Lal Bahadur Shastri laid the foundation stone of Indian
Rayon and industries Ltd. It was incorporated on the 26th September 1956 under the
company act of 1956 and the company was getting the commencement certificate on 13 th
Feb. 1958.
The inauguration of the company was done by an American ambassador Mr. H.H.
Galbreth on 13th April 1963 and on the same day company took its trial production.
Shree Morarji Vaidya one of the leading industrialist of Gujarat with a view tomanufacture viscose filament yarn (VFY) in collaboration with von-kohorn international
of USA started this organization.
Once a sick company and virtually on the verge of closure was taken over by Shree
Aditya Vikram Birla in 1966. Who believed consolidation, expansion and diversification,
because of his believed and sincerity toward work the company has not only turned
around but has also made up strong market position today. By 1975 the Jayshree Textiles
has merged with Indian Rayon. The Indian Rayon is public Ltd. Company.
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PRESENT MANEGEMENT TEAM
MR.KUMAR MANGLEM BIRLA Chairman
BORD OF DIRECTORS.
Mrs. Rajashree Birla
Mr. B. L. Shah
Mr. P. Murari
Mr. B. R. Gupta
Ms.Tarjani Vakil
Mr. S. C. Bhargava
Mr. G. P. Gupta
Dr. Rakesh Jain
Mr. K. K. Maheshwari
Dr. Bharat K. Singh
Mr. Arun Maira
Mr. Pranab Barua
Mr. H. J. Vaidya
Managing director
Dr. Bharat K. Singh
Joint Managing director
Dr. Rakesh Jain
Chief financial officer
Mr. Sushil Agarwal
Business Joint Managing director
Dr. Rakesh Jain
Chief financial officer
Mr. Sushil Agarwal
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Business heads
Mr. K. K. Maheshwari (viscose filament yarn)
Mr. Pranab Barua (garments, textiles)
Dr. Rakes Jain (carbon black)
Dr. Bharat K. Singh (fertilizers, insulators, software and BPO)
Mr. Ajay Srinivasan (financial services)
Mr. Sanjeev Aga (telecom)
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COMPANY PROFILE
VISION
To be preferred choice of customers in premium segment of viscose filament
yarn global market and benchmarked chlor alkali producer while remaining
committed to the interests of all stakeholders.
MISSION
To produce viscose filament yarn to meet the expectations of customers in
premium segment.
To achieve minimum cost of production through innovation, development and
involvement of employees and vendors.
To maintain clean, safe and pollution free environment.
COMPANY POLICY
We are committed to be the preferred choice of customers while taking care of the
interests of all stakes holders. We also commit to abide by applicable legal and other
requirements and ensure continual improvements in all spheres of activities. We will
adopt world class manufacturing practices and maintain high morale of the employees.
We will achieve this by:
Meeting customers expectations for quality and services in premium segment.
Adopting eco-efficient technology to maintain pollution free environment.
Preventing occupational health and safety hazard by adopting safe work
practices.
Respecting employees right and providing healthy working environment.
Compliance of all applicable legal requirements.
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PRODUCTS OF INDIAN RAYON
Name of The Final Product End User of Final Products
Viscose Filament Yarn Apparel Home Furnishing
Slipovers
Industrial Users
Carbon Disulphide Rubber Chemicals
Agro Chemicals
Pesticides
Pharma And Viscose
Sodium Sulphate Glass Industries
Paper
Textiles
Dyes And Gum
Sulphuric Acid Fertilizers
Intermediates
Viscose
Dyes & Chemicals
Caustic Acid Paper & Alumina
Viscose & Fibre
Soaps, Detergents And Drugs
Liquid Chlorine Organic & Inorganic Chemicals
Papers & PVC
Hydraulic Acid DM Water Plant
Phosphoric Acid Calcium Chloride
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WORLD CLASS MANUFACTURING
The economy is integrated to the global economy and industry is facing global
competition. It is therefore, necessary to improve performance so IR & IL co. adopt
WCM model to improve performance and fitting with global competition.
The following characteristics of WCM are used to fulfill the
customer expectations.
Products of high quality.
Products at the right price.
Product with the enhanced features.
Product in a wide variety.
Products delivered in time, in fact short time.
Products delivered with shorter lead times.
Flexibility in fulfilling the demand for the product.
The above listed performance measures are external to the manufacturing system but are
vital for the success of the organization. Indian Rayon Co. follows WCM excellence
model for competitive advantage as we seen in above diagram.
WCM POLICY followed by company
To maximize equipment effectiveness
Achieve zero breakdowns, zero defects, and zero accident and eco-friendly
environment through innovative methods with total involvement of our
employees and b continuous up gradation of technology. This will lead us to
excellence and perfection in all spheres of management, to be globally.
Competitive and preferred choice of customers.
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KAIZEN
Kaizen is a continuous improvement activity to be undertaken by all the employment
to bring about positive changes in the process, systems, working condition, health,and employment and is an important attempt toward achieving zero loss, zero
accident, zero abnormality etc. Striving for ZERO concept is essential in todays
environment for gaining competitive edge in any business situation. This is a
participative approach to tap the creative blocks of each individual and also to
inculcate a sense of ownership to the members.
The scheme titled promotion of kaizen culture and award is being made with a view
to bring in the continuous improvement culture way of inspiring and encouraging
employees for developing a mindset for identification of improvement areas,
improvement actions and execution of action.
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CHAPTER 6
PROJECT PROFILE
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INTRODUCTION TO WORKING CAPITAL
MANAGEMENT
Working capital is concerned with management of current asset. It is and important and
Integral part of financial management as short-term survival is prerequisite for long-term
Success. Working capital to a company is like the blood to human body. It is concern
with short term financial decision,
Working capital is defined as the excess of current assets over current assets over current
liabilities
I.e. WCM = CURRENT ASSETS CURRENT LIABILITIES
The key difference between long term financial management and short term financial
management is in the term of the timing of cash. All elements of Working Capital are
quick moving in nature and there for require constant monitoring for proper management,
the efficient Working capital management is necessary to maintain a balance of liquidity
and profitability. Therefore a Finance Manager should give at most care in management
of working capital.
MATERIAL,
LABOUR,EXPENCES
RECEIVABLE
CASH
WORKIN
PROGRES
FINISHED
GOODS
SALES
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CONCEPT OF WORKING CAPITAL
There are two concept of Working Capital
I. Gross Working CapitalII. Net Working Capital
GROSS WORKING CAPITAL
Simply called as Working Capital, refers to the firms investment in current assets.
Current assets are the assets which can be converted into cash within an accounting (or
operating cycle) and include cash, Short-term securities, debtors, bills receivable andstock (inventory).
NET WORKING CAPITAL
It refers to the difference between current assets and current liabilities. Current liabilities
are those claims of outsiders, which are expected to mature to payment with in
accounting year and include creditors, bills payable and outstanding expenses. NetWorking Capital can be positive and negative. A positive Net Working Capital will arise
when current assets excess current liabilities and vise-versa.
The two concepts of Working Capital- Gross and net-are not exclusive, rather they have
equaled significant from management point of view.
ASSESSMENT OF THE WORKING CAPITAL
The assessment of the Working Capital in the Indian Rayon is done by the Finance
department with consultation with the management staff of the company and on the
companys previous years experience. This helps to maintain efficiently fund for
operation of organization.
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NEED FOR WORKING CAPITAL
The need for Working Capital to run day to day business activities can not be
overemphasized; we will hardly find a business firm which dose not requires any amountof Working Capital. Indeed firm differs in their requirement of Working Capital. We
know that firms aim at maximizing the Endeavour to maximize shareholders` wealth; a
firm should earn sufficient returns from its operations. Earning steady amount of profit
require successful sales activity. The firm has to invest enough funds in current assets
needed because sales do not convert into cash instantaneously. There is always an
operating cycle involve in the conversion of sales into cash.
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FACTORS INFLUENCING WORKING CAPITAL
REQUIREMENT
There is no set of riles or formals to determine the Working Capital requirement of the
firms. Therefore, an analysis of relevant factor should be made in order to determine totalinvestment in Working Capital.
Nature of business
The Rayon divisions is a manufacturing unit so it require a large amount of workingcapital for uninterrupted production process
Technology
In Rayon division, the technology use for production is labour intensive so its increase
the requirement of working capital.
Manufacturing Cycle
The Organization has long manufacturing cycle of seven days. This long manufacturingcycle means a large tie up of funds in inventories hence the working capital requirementsis higher.
Credit Policy
The credit policy of the firms affects the working capital by influencing the level of bookdepth. The rayon divisions allows a merely 3 days of credit period and if the payments isnot made the high rate of interest is charged.
Banking facilities
The rayon Divisions uses the latest banking facilities like cash management services(CMS) which helps in maintaining almost zero bank balance.
Business Fluctuations
The product manufactured by Rayon has got demand through the year. So there is noseasonal or cyclical fluctuation in its demands.
Operating Efficiency
The operating efficiency of the firm relates to the optimum utilizations of resource atminimum cost. Better utilizations of resource improves profitability thus helps inreleasing the pressure on working capital
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ISSUE IN WORKING CAPITAL MANAGENT
Working Capital refers to the administration of all component of Working Capital i.e.cash, marketable securities, debtors (receivables) and stock (inventories) and creditors
(payables). The financial manager must determine levels and composition of currentassets. He must ensure that right sources are trapped to finance current assets, and thatcurrent liabilities are paid in time.
There are many aspect of Working Capital management, which makes it an importantfunction of the financial management.
Time:- Working Capital requires much of financial managerial time.
Investment:- Working Capital represents a large portion of the total investment in
the assets.
Criticality:- Working Capital management has great significance for all firm butit is very critical for small firms.
Growth:- the need for Working Capital is directly related to the firms growth.
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MANAGEMENT FUNCTION IN WORKING CAPITAL
CASH MANAGEMENT
Generally any organization holds the cash for transaction motive, precaution motive
speculative motive, and compensating motive.
The Company holds the cash only for the transaction motive. It holds the cash for
soothing the day-to-day operation only. If there is surplus of cash in the Co. it is
transferred to the CFD while if there is deficit of the cash in the organization, it borrows
it from the CFD and also decision regarding the investment of cash in to marketable
security is done through the CFD only.
Cash collection
Company operation in various geographical area of the country. It tries to speed up the
cash collection by decentralization with the help of ten cash collection centers all over the
India.
Cash disbursements
The disbursement is one through centralized system by the organization. The payment of
the bill will be made from the central account and from the head office. So the Co. can
enjoy the transit time delay using the factories.
Optimum cash balance
The Company keeps a maximum level of cash balance worth and average payment for
three days. If cash is more than its maximum level than the cash if transferred to the CFD
and if cash is less than the requirement at that time cash is borrowed from the CFD.
Company manages its in a manner that enables the firm to remain in liquidity position at
its best.
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MANAGEMENT OF RECEIVABLE
The management of receivable is basically concerned with the old customers and wining
the new ones by collecting a regulating the cost management of receivables also known
as trade receivables or customers or debtors receivables.
It means when firm make ordinary sales on credit and payment has not been received yet.
Such management of receivables IRIL grants the credit term to its customers for 15 days.
However, in exceptional cases it is increased to certain extent. The purchaser sends bank
drafts on expiry of credit period.
The receivables arise out of three features:
It involves an element of risk, which should be carefully analyzes
It is based on economic value.
It implies future management of receivable.
Management of receivables concerned with retaining the old customers and wining newby controlling and regulating the costs. Indian Rayon grants the credit form to its
customers for 15 days.
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INVENTORY MANAGEMENT
The assessment of the working capital in the Company is done by the CFD with the
consultation with the management staff of the Co. and on the basis of the Co. previous
year experience. This helps to maintain efficiently fund for operation of the organization.
Inventory refers to the stockpile of the product a firm is offering for sale and the
components that make up the product.
The Company is the manufacturing organization, so being manufacturing organization it
needs a large among of the inventories for the smoothing of business operation. TheCompany invests nearly 48 to 50 percent of total current assets in the inventories.
In the Company the inventory is maintain by finding the actual requirement and the
analyzing material, which is scared or not easily meet at the proper time. Then after the
Co. decides the optimum level for each inventory based on the requirement. But because
Co. has a good image to the supplier, it maintains the three days stock inventories for
most of the goods even though the industry standard is seen days.
.
In Company there is a special storage dept. and separate inventory management force,
which perform certain function for efficient management of inventories in the company.
It maintains sufficient stock of raw materials in period of short supply and anticipates
price change. It helps sales dept. by maintaining sufficient finished goods inventories for
smooth sales operation.
Cost of inventory is compared on a weighted average or FIFO basis. For the inventoriesof stores and spares the organization uses the MUSIC 3D system (multi unit selective
inventory control) of inventory management.
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CREDIT STANDERD
As per the industrial standard for Rayon, the organization runs well on the track ofaverage collection period. But because of the core competition in the chemical market the
average collection period increased and reach near to the 50 to 55 days, so it canconclude that organization investment in receivable is not high.
The customers are paying their obligation to the organization in a time. The default rate isnearly zero is the organization.Besides all above the organization also evaluate its customers financial condition,character and capacity and thats why the company has never incurred the bad debt in itsentire history.The collection of fund is done by HDFC Bank, which plays an agents role. The averagecollection period for the account receivables is fall between 21 to 27 days.
FINANCING WORKING CAPITAL
External funds available for a period of one year or less is called short- term funds areused to finance Working Capital. To most significant sources of finance of WorkingCapital are; trade credit and bank borrowings. The use of trade credit has been increasingover years in India. Trade credit as ratio of current assets is about 40 percent. Bankborrowing is the next important source of Working Capital finance. Before seventies,bank credit was liberally available to firms. It became a restricted resource in 18s and 19sbecause of the change in the government policy; bank were required to follow thegovernment prescribed norms in financing Working Capital requirement of firms. Nowthere are no government norms, and banks are free to take business in granting finance
for Working Capital.
Two other short-term sources of Working Capital finance which have recently developedin India are: (1) factoring of receivables and (2) commercial paper.
BANK FINANCE FOR WORKING CAPITAL
Banks are the main institutional resource of Working Capital finance in India. A bankconsiders a firms sales and production plans and the desirable levels of current assets indetermining its Working Capital requirements. The amount approved by bank for the
firms Working Capital is called credit limit. Credit limit is the maximum funds, which afirm can obtain from the banking system. In the cash of firms with seasonal businessbanks may fix separate limit for the peak level credit requirement and normal, non-peaklevel credit requirement indicating the period during which the separate limits will beutilized by the borrower. In practice, banks do not land 100 percent of the credit limit;they deduct margin requirement i.e. 30 percent so bank will land only up to 70 percent ofthe value of the assets. This implies that the security of banks landing should bemaintained even if the assets values falls by 30 percent.
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CHAPTER 7WORKING CAPITAL
COMPARISION FOR THEFINANCIAL YEARS
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WORKING CAPITAL COMPARISION FOR THE
FINANCIAL YEAR
2006-07 & 2007-2008
(Rs. In Crore)
Current
assets
2007-2008 2006-2007 Increase Decrease
Interest 0.82 0.15 0.67 -
inventory 776.60 475.26 301.34 -
Sundry Debtors 760.98 595.99 164.99 -
Cash & Bank 97.15 22.74 74.41 -Loan &Advances
476.50 332.18 144.32 -
(A) 2112.05 1426.32 685.73 -
Current
Liabilities
Acceptance 33.00 11.04 21.26 -
SundryCreditors 331.28 234.10 97.18 -
Advances 22.26 15.34 6.92 -
Fund 2.28 2.19 0.09 -
Others 147.54 109.24 38.30 -
Interest 30.53 20.41 10.12 -
Provision 133.48 59.65 73.83 -
(B) 700.37 453.38 246.99 -
Working
Capital
(A-B)
1411.68 972.94 438.74 -
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Analysis & Interpretation
From the working capital statement comparison given above some of the factrevealed are as under:
Current assets increased in the year 2007-08 by Rs.685.73crore.
Current liabilities also increased in the year 2007-08 by Rs.246.99crore.
The net working capital increased by Rs.438.74crore in the year 2007-08.
Inventories are higher by Rs.301.34crore largely due to higher raw materialinventory in Carbon Black business and finished goods inventory in Garments
business.
Debtors and other receivables are up by Rs.164.99crore, due to higherreceivables in Garments, Carbon Black and Fertilizes business
. Creditors and other Liabilities are increased by Rs.135.48crore.
The merger of insulators manufacturing subsidiary also led to higherinventory and debtors.
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2007-08 & 2008-09
(Rs. In Crore)
Current
assets
2008-09 2007-2008 Increase Decrease
Interest - 0.82 - 0.82
inventory 747.60 776.60 - 28.00
Sundry Debtors 887.23 760.98 126.25 -
Cash & Bank 89.81 97.15 - 7.34
Loan &Advances
532.57 476.50 56.07 -
(A) 2257.21 2112.05 145.16 -
Current
Liabilities
Acceptance 28.02 33.00 - 4.98
SundryCreditors
463.94 331.28 132.66 -
Advances 39.31 22.26 17.05 -
Fund 2.40 2.28 0.12 -
Others 75.74 147.54 - 71.80
Interest 66.57 30.53 36.04 -
Provision 96.44 133.48 - 37.04
(B) 773.48 700.37 73.11 -
WorkingCapital
(A-B)
1483.73 1411.68 72.05 -
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Analysis & Interpretation
From the working capital statement comparison given above some of the fact
revealed are as under:
Current assets increased in the year 2008-09 by Rs.145.16crore.
Current liabilities also increased in the year 2008-09 by Rs.73.11crore.
The net working capital increased by Rs.72.05crore in the year 2008-09.
Inventories are reduced by Rs.29crore due to companys policy toward safeside because of less demand and higher cost of raw material.
Debtors are higher by Rs.126.25crore because of competition and economiccrises that leads to more credit time.
Creditors have been increased by Rs.132.66crore and other liabilities havebeen deceased by Rs.71.80crore.
Loans & Advances are higher by Rs.56.07crore in order to take advantage ofvarious tax policies and made payment for various license renewal.
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2008-09 &2009-10
(Rs. In Crore)
Currentassets
2009-2010 2008-2009 Increase Decrease
Interest - - - -
Inventory 876.34 747.60 128.74 -
Sundry Debtors 693.35 887.23 - 193.88
Cash & Bank 14.31 89.81 - 75.50
Loan &Advances
655.23 532.57 122.66 -
(A) 2239.23 2257.21 - 17.98
Current
Liabilities
Acceptance 47.90 28.02 19.88 -
SundryCreditors
641.36 463.94 177.42 -
Advances 56.64 39.31 17.33 -Fund 2.51 2.40 0.11 -
Others 88.21 75.74 12.47 -
Interest 59.72 66.57 - 6.85
Provision 118.26 96.44 21.82 -
(B) 1014.60 773.48 241.12 -
Working
Capital
(A-B)
1224.63 1483.73 - 259.10
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Analysis & Interpretation
From the working capital statement comparison given above some of the fact
revealed are as under:
Current assets decreased in the year 2009-10 by Rs.17.98crore.
Current liabilities also increased in the year 2009-10 by Rs.241.12crore.
The net working capital decreased by Rs.259.10crore in the year 2009-10.
Debtors are decreased by Rs.193.88crore because company wants toreduce the chances of bad debts (Current year Rs.63.65crore & Previousyear Rs.89.61crore) by allowing less credit to their customers.
Cash & Bank balance also reduced by Rs.75.50crore.
Creditors are increased from Rs.463.94 to 641.36crore. It indicates thatsuppliers provide more credit facility because of growing competition.
Provision for proposed dividend is increased by Rs.13.88crore. It indicatesthat company wants to increase its market price by providing moredividends to its existing shareholder.
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CHAPTER 8RATIO ANALYSIS
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Working Capital Turnover
Working Capital assets ratio highlights the effective utilization of working capital withregard to sales. This ratio represents the firm liquidity position. It establishes relationshipbetween cost of sales and net working capital.
SalesWCTO = ----------------------------
Working Capital
(Rs. In Crore)
Year Sales Working
Capital
Ratio
2005-2006 2786.39 1127.57 2.47
2006-2007 3577.89 972.94 3.68
2007-2008 4137.53 1411.68 2.93
2008-2009 4902.42 1483.73 3.30
2009-2010 4860.86 1224.61 3.97
Analysis & Interpretation
From the above graph it is shown that the ratio is decreased in the year 2006-07 to2007-08. It shows that the firm has to face the shortage of working capital to meet itsday to day business activity unsatisfactorily.
It is also shown that the ratio is significantly increased from the year 2007-08 to2009-10. It indicates that company improves its utilization capacity of workingcapital, i.e., a firm can repay its fix liabilities out of its working capital.
Ratio
0
0.5
1
1.52
2.5
3
3.5
4
4.5
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio
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Current Assets Turnover
Current assets turnover ratio highlights the effective utilization of current assets withregard to sales. This ratio represents the firm liquidity position. It establishes relationshipbetween cost of sales and Current assets.
SalesCurrent Assets Turnover = ----------------------------
Current Assets(Rs. In Crore)
Year Sales Current Assets Ratio2005-2006 2786.39 1626.27 1.71
2006-2007 3577.89 1426.32 2.51
2007-2008 4137.53 2112.05 1.96
2008-2009 4902.42 2257.21 2.17
2009-2010 4860.86 2239.21 2.17
Analysis & Interpretation
From the above graph it is shown that the ratio is decreased in the year 2006-07 to2007-08. It shows that the firm has to face the shortage of current assets to meet itsday to day business activity unsatisfactorily.
It is also shown that the ratio is significantly increased from the year 2007-08 to2009-10. It indicates that company improves its utilization capacity of current assets,i.e., a firm can repay its fix liabilities out of its working capital.
Ratio
0
0.5
1
1.5
2
2.5
3
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio
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Current Ratio
The ratio helps in studying the structure of the current assets and current liabilities of acompany with the objective of assessing its capacity to discharge its day to dayobligation. Generally, a company needs to posses adequate level of current assets over its
current liabilities to be able to do so. This ability enables it to attract cheaper credit andputs the suppliers and institutions in a more comfortable position. It helps them tounderstand the likely extent of short term default risk associated with the company.
Current AssetsCurrent Ratio = ------------------------------------
Current Liabilities
(Rs. In Crore)
Year Current Assets Current
Liabilities
Ratio
2005-2006 1626.27 498.70 3.26
2006-2007 1426.32 453.38 3.15
2007-2008 2112.05 700.37 3.02
2008-2009 2257.21 773.48 2.92
2009-2010 2239.21 1014.60 2.21
Analysis & Interpretation
The ideal current ratio is 2:1 and from the above graph we can say that the liquidityposition of the company is good but it is continuously declining so company shouldtake necessary steps to rebuild the situation.
Current position of the company is protected against the current creditors so companycan fulfill its obligations easily.
Ratio
0
0.5
1
1.5
2
2.5
3
3.5
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio
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Debtors Turnover Ratio
Debtors turnover ratio indicates the number oftimes the receivable are turned over inbusiness during a particular year. In other words, it represents how quickly the debtorsare converted into cash. It is use to measure the liquidity position of a concern. This ratio
establishes the relationship between receivables and sales.
Net SalesDebtors Turnover Ratio = -----------------------
Debtors(Rs. In Crore)
Year Sales Debtors Ratio2005-2006 2786.39 415.44 6.71
2006-2007 3577.89 595.99 6.00
2007-2008 4137.53 760.98 5.44
2008-2009 4902.42 887.23 5.532009-2010 4860.86 693.33 7.01
Analysis & Interpretation
Debtors turnover ratio decreases from year 2005-06 to2008-09 and then it increasedin the year 2009-10. It means company has taken many steps to improve efficiency ofcredit policy by tighten the terms and condition of sales.
Company has reduced the credit limit by allowing discount to its debtors. By allowingdiscount company has decreased the probability of bad debts.
Ratio
0
1
2
3
4
5
6
7
8
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio
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Average collection Period
The ratio helps analysts understand the credit period extended by a company to itscustomers via-a-via the credit enjoyed from its suppliers. A company extending a shorter
and enjoying a longer credit period stands to gain. As mentioned earlier, a successfulcompany as manifest in it RONW will be able to attract quality customers at termfavorable to it.
DebtorsAverage collection Period = ----------------- * 360
Sales(Rs. In Crore)
Year Debtors Sales ACP In Days2005-2006 415.44 2786.39 53.67
2006-2007 595.99 3577.89 59.97
2007-2008 760.98 4137.53 66.21
2008-2009 887.23 4902.42 65.152009-2010 693.33 4860.86 51.35
Analysis & Interpretation
From the above graph we can see that the collection period increase from year 2005-06 to 2007-08 and it decreases from year 2007-08 to 2009-10. So it means thatcompany has taken many steps to improve efficiency of credit policy.
Company has also improved and reduced the chances of bad debt.
ACP In Days
0
10
20
30
40
50
60
70
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
ACP In Days
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Net Profit Ratio
Net profit ratio is also termed as Sales Margin Ratio or Profit Margin Ratio or Net Profitto Sales Ratio. This ratio reveals the firms overall efficiency in operating the business.Net profit ratio is used to measure the relationship between net profit and sales. This is
the best measure of profitability and liquidity.
Net AssetsNet Profit Ratio = ------------------------
Sales(Rs. In Crore)
Year Net Profit Sales Ratio (%)2005-2006 186.90 2786.39 6.71
2006-2007 225.00 3577.89 6.29
2007-2008 243.10 4137.53 5.88
2008-2009 137.40 4902.42 2.812009-2010 283.40 4860.86 5.83
Analysis & Interpretation
The net profit ratio is decreased from year 2005-06 to 2008-09 but it is increased in2009-10. So it indicates that the overall efficiency of the business is not good.Company should try to increase the efficiency so that company can earn more profit.
It also shows the managerial inefficiency to use a firms resources to generate incomeon its invested capital.
Ratio (%)
0
1
2
34
5
6
7
8
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio (%)
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Inventory Turnover Ratio
Inventories mean stock of raw materials, work in progress and finished goods. This ratiois used to measure whether the investment in stock in trade is effectively utilized or not.
It reveals the relationship between sales and cost of good sold and average inventory at acost price or average inventory at a selling price.
SalesInventory Turnover Ratio = -----------------------------
Inventory at cost(Rs. In Crore)
Year Sales Inventory at
cost
Ratio
2005-2006 2786.39 526.30 5.29
2006-2007 3577.89 475.30 7.532007-2008 4137.53 776.60 5.33
2008-2009 4902.42 747.60 6.60
2009-2010 4860.86 876.34 5.55
Analysis & Interpretation
Inventory turnover ratio is fluctuating during the last five years. So it indicates thatthe operational efficiency of the business concern is not proper.
Ratio
0
1
2
3
4
5
6
7
8
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio
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Creditor turnover ratio
Creditor turnover ratio is also called as payable turnover ratio or creditors velocity. Thecredit purchases are recorded in the accounts of buying companies as creditor to accounts
payable. It indicates the number of times with which the payment is made to the supplierin respect of credit purchase.
Net PurchaseCreditor turnover ratio = ------------------------------------------------
Avg. Creditors +Avg. Acceptance(Rs. In Crore)
Year Net Purchase Avg. Creditors
+Avg.
Acceptance
Ratio
2005-2006 1447.60 228.98 6.32
2006-2007 1840.40 274.41 6.71
2007-2008 2131.30 304.08 7.01
2008-2009 2564.70 427.49 6.00
2009-2010 2391.20 589.89 4.05
Analysis & Interpretation
The creditor turnover ratio of the company decreased in the last two years. So itindicates that the payment of creditors are not paid in time.
A low average payment period indicates enhancing the creditworthiness of thecompany.
Ratio
0
1
2
3
4
5
6
7
8
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio
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Average payment period
Average payment period ratio indicates the time period in which the firm can makepayment to its creditors. It establishes the relationship between creditors and purchase. Itis also useful to measures the efficiency of firms payment policy.
Avg. Creditors +Avg. AcceptanceAverage payment period = ------------------------------------------- * 360
Net Purchase(Rs. In Crore)
Year Avg. Creditors
+Avg.
Acceptance
Net Purchase Ratio (In days)
2005-2006 228.98 1447.60 56.95
2006-2007 274.41 1840.40 53.65
2007-2008 304.08 2131.30 51.36
2008-2009 427.49 2564.70 60.00
2009-2010 589.89 2391.20 88.89
Analysis & Interpretation
From the above graph its shows that the average payment period is decreased in theyear 2005-06 to 2007-08. it means the creditors allow company less credit limit tomake payment or company is highly efficient to make payment.
But from 2007-08 to 2009-10 average payment period is increases it means creditorsallow us more credit limit because of making timely payment by the company.
Ratio (In days)
0
10
20
30
40
5060
70
80
90
100
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio (In days)
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SWOT ANALYSIS
The overall evaluation of division like strength, weakness, opportunity and threats iscalled SWOT Analysis.
STRENGTH
Yarn produce here is of high quality then management always trys to increase
the quality of yarn in order to fulfill their potential customer and new ones. Total
produced items wasted are being sold; this shows the efficiency of sales activity.
Better pacing, carriage and transportation system with all modern equipment and
good after sales service.
Regular meeting and seminars are conducted in the entire department in order to
find our loopholes and solve the same.
Division also have continuous spinning yarn department in which the modem
technology is used for the spinning the yarn and it is adopted from Germany.
Divisions have domestic as well as export market and for this they are doing the
Internet marketing in order to find new markets.
Division has WCM (World Class Manufacturing) cell in which they look out for
better way of manufacturing.
ISO 9002 for the better quality of the production carries division.
Division is certified by ISO 14001 for the good environment management system,
for their division has hoti-culture department in order to look to the surrounding
environment.
Honored by Safety Award.
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WEAKNESS:
Cost of production is more due to existence of very old technology installed in
this division.
Many process steps and process is more sensitive to normal process variations
Division is unable to pay more attention toward proper human resource
management.
Location away from consuming centers.
Bigger process cycle/ higher process stock.
OPPORTUNITY
Division should find new market area for its products specially chemicals
More research activity should be done, as there is chance of finding new markets
.
VFY use for certain textile items is specific and indispensable
.
Quality has more weight age in international market. Indian Rayon Pot Spinning
Yarn is next to Asahi Japan and better than Chinese and Russian Yarn used in
international market.
Biggest opportunity, when opening up of global market when MFA expires in
2005. Quota restriction will go which will boost the export of Yarn directly and
though Textile in Worlds two biggest market Europe and US.
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THREATS
Government policies are the main hurdles of the divisions performance.
Emergence of cotton threads made the market share of Rayon Yarn low.
Fashion changes are also basic threats for such division.
The Viscose Process is highly polluting. The basic raw material (pulp) is again
pollution prone.
Challenges Ahead
The Rayon division along with the industry is facing the followingchallenges.
Comparatively poor quality.
Unregulated dumping of the products from china.
Higher cost per kg. Of production.
Sustaining sales volume.
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CONCLUSION
Any change in Working Capital will have an effect on businesss cash flow. A positivechange Working Capital indicates that the business had paid out cash e.g. in purchasing
or converting inventory, paying creditors etc. Hence an increase in Working Capital will
have a negative effect the business cash flow holding. However a negative change in
Working Capital indicates lower fund to pay off short term liabilities (Current Liabilities)
Managing Working Capital is one of the pioneers and role playing part of the company.
Aditya Birla Nuvo Ltd. Manages its Working Capital very efficiently for its diversified
business. Each and every component of Working Capital is dealt with expertise and
experience of the finance and accounting department. The producer is very for estimating
Working Capital requirement; predetermined norms are applied wherever they are
applicable Mainly Working Capital management is the function 0f finance department
But many other department s like production, purchase and marketing are also involved
in this procedure indirectly. Thus the effect from all departments of various units helps
company to manage its Working Capital in a systematic manner. Being the part and unit
of ABNL, Indian Rayon also follows the main company norms and terms for calculation
of Working Capital.
Hence I was able to relate what I had read in the book and learnt in the class room. It is
essential for a person to know about the sources, application and need of Working Capital
For business in real life if one is going to specialized in the filled of finance and going to
work for a company or as entrepreneur.
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RECOMMENDATIONS
Net Working Capital is continuously increasing as compared to earlier years. The
company should maintain this situation because the greater the margin, the betterwill be the liquidity of the firm.
The company should maintain the low level of creditors because the company canpay them easily whenever required.
The company should try to increase its productivity to full capacity so thatcompany can get the benefit of economies of scale and produce products at lowerrate.
The company should maintain a proper inventory management system, so theunnecessary blockage of production can be avoided.
The company must have adequate cash and bank balance to face any situations.The company has low cash and bank balance in the year 2009-10
Company should install new power plant or it should renovate existing powerplant so that it can generate more electricity from the existing plant. By doing socompany can reduce the cost of manufacturing.
Company should maintain the goodwill so that it can get more credit limit from itscreditors.
Company should follow strict policy so that it will decrease chances of bad debts.
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BIBLIOGRAPHY
In order to prepare this report the data, information and knowledge have been extractedfrom the following:
Annual reports of financial years from 2005-06 from 2008-09
Financial Management by I.M. pandey
Facts and figures of Birla group publication
Financial Statement of ABNL.
Financial, Cost and Management Accounting by Dr. P. Periasamy.
Financial Accounting for Management by Ambrish Gupta.
WEB REFRENCES:
WWW.adityabirla.com
WWW.indianrayon.com
WWW.adityabirlanuvo.co.in
SERCH ENGINE: GOOGLE
http://www.adityabirla.com/http://www.indianrayon.com/http://www.adityabirlanuvo.co.in/http://www.adityabirlanuvo.co.in/http://www.indianrayon.com/http://www.adityabirla.com/ -
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PROFIT & LOSS ACCOUNT -STANDALONE
(Rs. In crore)
PARTICULAR 2009-10 2008-09 2007-08 2006-07 2005-06
Income from Operations 4986.0 5001.0 4166.4 3585.0 2786.4
Less: Excise Duty 158.5 214.9 213.3 157.4 144.3
Net Income from Operations 4827.5 4786.2 3953.1 3427.5 2642.1
Other Income 70.8 32.0 12.7 37.6 23.4
Total Income 4898.3 4818.2 3965.8 3465.1 2665.5
(Increase)/Decrease in Stocks 5.1 (21.7) (83.7) (45.5) (47.3)
Cost of Materials 2391.2 2564.7 2131.3 1840.4 1447.6
Salaries, Wages and EmployeeBenefits
347.7 287.9 258.2 193.2 164.1
Manufacturing, Selling and OtherExpenses
1319.8 1401.6 1026.1 873.1 657.5
Interest and Other Finance Expenses(Net)
334.1 257.4 179.0 171.2 55.8
Total Expenses 4397.9 4489.9 3510.9 3032.4 2277.9
Profit before Depreciation/
Amortisation and Exceptional items
500.4 328.3 454.9 432.6 387.6
Depreciation/Amortisation 180.1 166.0 141.1 120.3 111.8
Profit before Exceptional items and
Tax
320.3 162.3 313.8 312.3 275.8
Exceptional Gain/(Loss) - - 0.7 (1.2) (4.0)
Profit after Exceptional items 320.3 162.3 314.6 311.1 271.8
Provision for Current Tax 62.5 77.0 78.1 98.8 93.0
Provision for Deferred Tax (21.4) (21.1) 25.2 15.2 (6.9)
Provision for Fringe Benefit Tax - 4.1 3.9 3.4 4.3