working capital nikunj

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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


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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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.


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


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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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.


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


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


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


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


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


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


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


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


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


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

working capital nikunj

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