A Project Report On
“THE STUDY OF WORKING CAPITAL MANAGEMENT” Prepared at:
ATUL LIMITED
Project Report On A member of Lalbhai Group
(Aromatics Division)
The Study of Working Capital Management Of
Atul Ltd
The Study of Working Capital Management Of
Atul Ltd
A member of Lalbhai Group
Our Mission “We are a chemical company committed to creating creating wealth wealth for for all all our stakeholders. We will strive for leadership in our our chosen products and markets by providing high quality products and services to our our customers. We will seek profitable growth by innovative application of science and technology. We will pursue excellence in all that we undertake and take steps to continuously continuousl y improve. continuously We will take responsible responsible care care of the environment around us and improve the quality of life in the communities we operate in.”
Board of Directors The Board of Directors of Atul Ltd consists of eminent industrialists and professionals who’s Chairman is Arvind Lalbhai. Sunil S Lalbhai is the MD & CEO, Samveg Lalbhai is the MD and Jagdish L Shah is the Executive Director. Board of Directors Name
Status
Occupation
Mr A N Lalbhai
Nonexecutive Chairman
Chairman, Arvind Mills Ltd
Mr S S Lalbhai
Managing Director & CEO
Mr J L Shah
Executive Director
Mr N N Wadia
Independent Nonexecutive Director
Mr G S Patel
Independent Former NonChairman Unit executive Trust of India Director
Dr S S Baijal
Independent Nonexecutive Director
Mr B S Mehta
Independent Partner Bansi S NonMehta & Co executive Director
Mr H S Shah
Independent Former
Chairman Bombay Dyeing & Manufacturing Co Ltd
Former Chairman & CEO ICI Companies in India
Nonexecutive Director
Mr S A Lalbhai
Managing Director
Mr S M Datta
Independent Nonexecutive Director
Mr K Aparajithan
Independent Nonexecutive Director
Mr R A Shah (Alternate Director)
Independent Nonexecutive Director
Chairman & Managing Director Indian Petrochemicals Corporation Ltd
Former Chairman Hindustan Lever Ltd
Sr Partner of M/s Crawford Bayley & Co., Mumbai
INDEX
Sr. No
Description
1
Chemical industry Outlook
2
Over view of Atul Ltd Over vie w of Aromatic Division Human Resource Department Production Department
3
4
5 6 7 8 9
Marketing Department Finance Department Quality Department Objective
Of
The
Study
10
Working capital Management
11
Inventory Management
12
Cash Management
13
Receivable Management
14
Working Capital Finance
15
Findings
16
Recommendation
17
Bibliography
18
Balance Sheet
Chemical Industry Outlook •
The Indian Chemical Industry has grown at a CAGR of 8% during the period from 2001 to 2005. The industry in India is fragmented with few large companies. There are over 6,600 chemical manufacturers & capacity utilization of Indian plants is lower at 70%, when compared to that of China and Japan where it is higher at 85-90%.
•
The sector is a cyclical, capital-intensive where pricing power of the players is under constant threat. Several bilateral Free Trade Agreements (FTAs) with various ASEAN countries have been concluded or are under negotiations. These are aimed at phasing out trade barriers to create a regime of free trade and this may increase the pricing pressure on the Indian Chemical Industry.
•
The bulk chemicals business segment continues to be cyclic in nature. However, the automobile and electronic sectors are witnessing growth and this affords an opportunity for the newer intermediaries' business segment and Indian epoxy market is also growing rapidly.
•
The key success factors pertaining to the industry are economies of scale, product quality and reliability and development of new products and application processes.
Industry analysis The Chemical industry constitutes an important segment of the chemical industry in India. The Indian Chemical industry is today totally self-sufficient with a majority of its inputs manufactured locally. India is currently producing all varieties of synthetic Chemicals and intermediates and has a small presence in the natural Chemical. The subcontinent has emerged as a global supplier of Chemicals and dye intermediates, particularly for reactive, acid, vat and direct dyes. The market for Chemical is dependent on textiles, in particular demand for polyester and cotton determines the demand for certain types of Chemicals. The textile industry is currently buoyant and the market is growing steadily. There is a shift in the usage of polyester and polyester blended fabrics and as a result demand for disperse dyes are at a peak.
Market Size and Major Players The market size of the Indian Chemical industry is INR141 billion including the exports of INR52 billion in 2004-05. The exports doubled from INR26 billion 20000'l to INR52 billion in 2004-05. By 2010, the exports are expected to reach INR121 billion. India currently produces 1,30,000 tonnes and 75% of the production is exported to 15 countries like: the USA, Germany, Netherlands, Italy, UK, Spain, Turkey, Switzerland, Indonesia, Korea, Hong Kong, Thailand, Singapore, Japan and Taiwan. The per capita consumption in India is very low 50gm compared to the world average of 400 gm. Textile, cotton and polyester consume more dye compared to the other fabrics and in turn, the growth of disperse, direct and reactive dyes is expected to increase due to the usage of these intermediates in cotton and polyester. By 2010, the contribution of India in the Global Chemical market is expected to reach 810% with an increase of 20% per annum. The major players in the organized sector are Atul Products, Jaysynth Dyechem, Meghmani Organics, Colortex, Sudarshan Chemicals, Colour Chem, Ciba Speciality, BASF, Clariant India, IDI and Metrochem. The Indian companies account for 6% of the world dye production.
Opportunities:-
• Constant technology up gradation to provide value added products: Technology is the key to manufacturing and the Indian industry is fragmented with very few players handling the organized sector that is expected to grow. • Enhanced quality of products at reduced prices: The Indian manufacturers have to concentrate on the quality of products at competitive prices in order to compete with leading countries like China, Japan, Indonesia and HongKong. The developed countries production share in the market has reduced from 65% to 50% and is expected to further reduce in the future. The adoption of technology will increase the quality of products and production. • Improve economies of scale: Due to five decades of expertise in the Chemicals industry, players operating in the field must adopt economies of scale to compete with other countries.
• • • •
Product and service differentiation Develop world class Infrastructure International trade procedures to be implemented Build Indian brand image overseas
• Developed countries are looking at outsourcing dyes from developing countries due to more and more production facilities are being shifted to Asian countries like India and China. The key success factors pertaining to the industry are:–
• •
Economies of Scale Products quality and reliability
•
Development of new products and application processes
Background of the company Atul Limited, incorporated in the year 1947 by Mr. Kasturbhai Lalbhai in technical collaboration with American Cyanamid of USA, is engaged in manufacturing of Chemicals, agro chemicals, intermediates, polymers, 'Aromatics, Pharmaceuticals, bulk drugs and specialty chemicals. It is one of the oldest chemical company in the country. The plant of AL is located at Atul in an area of 1243 acres. At present, the company is manufacturing more than 300 products which are mainly used in various industries viz. agriculture, fragrance & flavours, tyre, textiles, paper, Pharmaceuticals, aerospace, construction, paints etc. The Company has mainly six activities viz. Agrochemicals, Aromatics, Bulk Chemicals & Intermediates, Colours, Pharmaceuticals & Intermediates, and Polymers, functioning independently as profit center.
Executive Summary Management •
Atul Ltd. belongs to the Lalbhai Group. The company is managed by a team of professionals headed by Mr. Sunil S Lalbhai, who is the Managing Director & CEO of the company. Mr. Sunil Lalbhai has been associated with the chemical industry for over two decades and has guided the company through the structural changes that the chemical industry has undergone during this period.
•
The senior management management includes four Presidents Presidents holding professional professional degrees degrees in chemical engineering. The management has been able to proactively change the product mix of the company over years and have been able to sustain the growth of the company during the lean periods that the chemical industry has passed through during the last decade.
•
The promoters are professional and are forward looking and are likely to lead the company to achieve the budgeted results.
•
The company has successfully successfully absorbed absorbed technical know-how know-how through its various various joint ventures and has been able to carry on the respective businesses profitably
Business Model and Competitive Analysis •
Atul Ltd. is a pioneer in the Chemicals industry and has over five decades of experience in the chemicals industry, which has helped the company to sustain itself through several business cycles. The Company has focused on R&D in order to develop new products and applications and has diversified its product portfolio away from Chemicals over the years. Chemicals now contribute only 33% to the turnover of the company.
•
•
•
The company is now in the process of moving up the value chain in each of its business lines. The company has acquired technology for manufacturing phosgene-based agrochemicals where the margins are high. It plans to focus on formul formulati ations ons in agroch agrochemi emicals cals where where the margin marginss are even even better better.. It has commenced manufacturing Chemicals with higher margins including vat, reactive and disperse dyes. The Company has integrated facilities with in-house generation of power, which enables it to reduce its cost of production. It has built built its brand name name throug through h consis consisten tentt quality quality of produc products, ts, reliab reliable le delivery schedules, good technical service support and post sales service. It has set up a wide marketing network and has set up subsidiaries in foreign countries in order to export to those countries. The company is well placed in terms of technology as it has absorbed the technology from the world leaders through its joint ventures.
Financial Analysis •
•
The net sales of the company have grown at a CAGR of around 11 % over the last three years, with exports growing growing at a CAGR of around 13% over the same period. After a downturn in performance in 2003-04, the company has shown consistency in its performance and is likely to maintain the improvement trend in the coming years. The Company has shown significant improvement in operating profit during FY06 mainly driven by improved performance of Aromatics and Bulk Chemicals and intermediates division mainly due to growth in volume and better efficiencies. The The perfor performan mance ce of Polym Polymers ers improv improved ed due to introd introduct uction ion of value value added added products. products. However, the profitabilit profitability y of Agrochemica Agrochemicals ls and Colours Colours division division showed showed declin declinee mainly mainly due to high high costs costs and pressu pressure re on sellin selling g prices prices respectively. As per first 9 months financial for FY07, the operating margins of the company are in line with the estimates as well as the industry average and are likely to follow the same trend.
Risks and Mitigates •
The Company is in the business of Chemicals. Prices of some of these chemicals are cyclical and remain low for long periods. The Company constantly keeps taking up improvement projects pr ojects to mitigate the impact of such movem movements ents in in prices. prices.
• Export Exports, s, which which consti constitut tutee more more than than 50% of the company company's 's turnov turnover er has the inherent risk of fluctuations in the exchange rates. Company is renegotiating with its overseas buyers based in Europe for future sales to be billed in Euro instead of USD. The company is also hedging its USD by cross currency swaps to reduce further losses on account of Rupee appreciation. • Product Obsolescence The company has established a state-of-the-art R&D center and is progressively increasing its R&D budget. The company through product divers diversifi ificati cations ons and increa increased sed depend dependenc encee on R&D propo proposes ses to mitiga mitigate te the produc productt obsole obsolesce scence nce risk. risk. The compan company y had already already introd introduce uced d variou variouss new products in the market and is in the process of expanding the capacities of those products and introducing some more specialized products.
Management Analysis The company is managed by a team of professionals headed by Mr. Sunil S Lalbhai, who is the Managing Director & CEO of the company. Mr. Sunil Lalbhai has been associated with the chemical industry for over two decades and has guided the company through the structural changes that the chemical industry has undergone undergone during this period. The senior senior management management includes includes four Presidents holdin holding g profes professio sional nal degrees degrees in chemical chemical engine engineerin ering. g. They They have have been been able able to proactively proactively change the product mix of the company over years and have been able to sustain the growth of the company during the lean periods that the chemical industry has passed through during the last decade. The company has successfully absorbed absorbed technical technical know-how through its various various joint ventures and has been able to carry on the respective businesses profitably even after the overseas partners sold their stake to AL and have exited these JVs. The senior management has initiated a number of steps to improve profitability. The company has started manufacturing Vat dyes, where the margins are higher than the other types of dyes like azo and sulphur dyes. The company introduced introduced various new products products viz. Resorcinol, Resorcinol, DDS, Dapsone, etc to reduce its dependence on the colours division which was earlier major contributor to the turnover of the company. The management is focused on the chemical business and it appears to have a good understanding of the business and has successfully carried out the demerger and consolidation of various businesses during the last few years. The promoters are professional and are forward looking and are likely to lead the company to achieve the budgeted results.
Infrastructure at Atul
Atul Ltd has made significant contributions to the development of infrastructure in Atul and nearby villages. The Company has already built over 1000 houses, 2 schools, a medical centre, a sports complex, an open air theatre and a community centre. Atul Ltd is self-sufficient in its requirement of electricity achieved through three state-of-the-art captive power plants. The Company is also in the process of renewing its fifty year water agreement with the government of Gujarat.
Captive Power Generation:Atul Complex is self sufficient in meeting continuous and uninterrupted steam demand for all its chemical manufacturing processes and it also meets more than 95% of electricity demand for its housing colonies. At Atul Complex, there are three captive power plants consisting of coal/oil fired boilers and turbo generator sets having capacity ranging from 2 MW to 18 MW. Over and above this, diesel generator sets have been installed so as to facilitate the start up from total black out All boilers and power generation sets have been designed to meet the stringent pollution norms as fixed by Gujarat Pollution Control Board.
Effluent Treatment:The industrial effluent is fully treated in a well-designed state of art effluent treatment plant. The industrial effluent is discharged through a 4 km underground pipeline for ultimate disposal into the estuarine zone of river Par. The domestic effluent is treated and disposed off in a Septic Tank / Soak Pit system. Development efforts to minimize the generation or to recycle / reuse the effluent are a continuous process at Atul Limited. Only after exhausting all these
options, the wastewater is taken to Central Effluent Treatment Plant (CETP). This CETP designed by Degremont (India) Ltd., has a capacity to treat 20,000 m3/day .
Treatment Storage Disposal Facility (TSDF):Atul has developed a site for disposal of solid wastes by land filling. The site was selected on the basis of a technical Environment Impact Assessment (EIA) study done by National Productivity Council (NPC). NPC also has given the detailed design of the site. On the basis of this technical EIA and the design, site for TSDF was approved by the state level committee and Gujarat Pollution Control Board.
Snapshot of Facilities The dimensions of the infrastructure facilities at Atul Ltd's manufacturing sites at Atul and Ankleshwar are given below.
Description
Units of Measurement
Atul Site
Ankleswar Site
Land Area
Acres
1250
33
Effluent Drainage System
Kilometres
65
GIDC drainage system
Effluent Treatment Plants
Cubic Metres/Day
30000
2500
Incinerators
Numbers
4
NIL
Captive Power Plant (installed capacity)
Megawatts
29
2.4
Electricity Consumption
Million Units/Month
13
1
Steam Generation (installed capacity)
Metric Ton/hour
217
32
Water Storage
Cubic Metres 2 1450 million
Housing
Houses
1100
36
Research & Development The primary thrust of Atul’s Research & Development efforts is to develop products and processes that are efficient, safe and environmentally friendly; and which cater to demands of global and domestic customers. Process and product improvement are also key activities of the R&D group. In order to respond quickly to market demands, every business unit (Agrochemicals, Aromatics, Bulk Chemicals and Intermediates, Colors, Pharmaceutical Intermediates, and Polymers) has its own Research & Development team. The central Research & Development group provides common facilities like pilot plant, certain analytical instruments, technical library etc. Our entire Research & Development team consists of Doctorates and Graduates. We subscribe to several Indian and international journals and magazines. We are well equipped with analytical instruments such as HPTLC, GCMS, DSC, atomic absorption spectrophotometer, HPLC and GC. We have established links with certain CSIR laboratories like IICT, Hyderabad; NCL,
Pune; and CSMCRI, Bhavnagar with the primary purpose of technology transfer and sponsored research programmes. During 2004-05, the Research & Development team developed approximately 70 processes and the Company commercialized ~ 40 processes. Close to 30 processes were improved with respect to raw material and utility usage, batch cycle time and waste reduction. Several new methods of analysis (Wet Chemistry, HPLC, GC) were developed. Atul spends close to 1% of its sales value on Research & Development. During 2004-05 goods worth Rs 100 crores of sales values were manufactured based on processes developed in our Research & Development laboratories.
Aromatic Division:Aromatics the erstwhile Gujarat Aromatics Ltd., a company under financial stress, was taken over by AL in 1985 and was formed as aromatics division of AL. It is one of the largest manufacturers of Cresols and their derivatives in India. These products are used in the manufacture of flavors, fragrances, cosmetics (sunscreen lotions), bulk drugs and antioxidants. The Para-cresol capacity at AL is 10,000 tpa and the company is planning to increase it to 15,000 tpa. The world requirement for Para-cresols and its derivatives is 50,000 tpa and AL already has 20% share of it. Aromatics Division is one of the world’s largest manufacturers of Para anisic aldehyde, Para cresol and Para anisic alcohol, supplying its products to diverse industries, including cosmetics, flavours and fragrances, bulk drugs, dye intermediates; and plant and animal micro-nutrients. The Division's manufacturing site is located at Ankleshwar in Gujarat, about 350 km north of Mumbai. The Division has always laid great emphasis on innovation. The state-ofthe-art cost-effective processes, scientific research, ingenious technology and detailed market knowledge form the basis for the Division’s success. Aromatic has strengthened its global competitiveness through process innovation and has developed new tools to gauge customers’ needs. Through collaborations with universities and research institutes, the Division gets access to new knowledge and technology constantly.
A brief summary of various products and their respective applications is as follows:
Product. Group
Application
p-Cresol, o-Cresol
Antioxidants, Agrochemicals, Bulk drugs, Resins
p-Cresidine Dye intermediates p-Anisic aldehyde, p-Anisyl Bulk drugs, Cosmetics alcohol p-Anisyl acetate
acetate,
p-Cresyl Electroplating
p-Cresyl methyl ether
Flavour & Fragrances
p-Methoxyacetophenone Manganese sulfate
Agrochemicalsm, Animal feed
Manganese carbonate
Ceramics
Sodium Sulfite
Paper
Departments in Atul Company’s Aromatic Division are as follows:HRD Dept
Quality Dept
Marketin g Dept
Finance Dept
Productio n Dept
Human Resource Department In the modern world, it is not possible for an existence of any business organization without personnel department. Personnel department works like a “Heart in the body of organization.” It is the most important area of any business organization. Personnel management is an art of getting thing work done through other people. In any firm, we can find the priority of personnel department. Personnel department is an internal part of an organization. Personnel management generally deals with planning, organization, directing and controlling the function of producing, maintaining development and utilizing work force of the business enterprise to help for achievement of the objectives. The management of man is very important in any organization. Management means to get work done through the people personnel management totally covers this definition because enterprise runs by the people as it is righting says that manage your men, men will manage your work. Men are a heart of unit and make organization living. The success of unit mainly depends on the personnel functioning in the organization. It is very important branch of knowledge most of the progressive organization having separate department appointing the expert as a personnel manager. The success of any organization depends upon workers and therefore it is considered as mind your men and men will the other entire thing. Obtaining involves such activities as recruitment selection, manpower, planning while maintaining involves performance appraisal, employee’s grievance, employees status factor with respect to wages, hours, working conditions and relation among labor and manager.
Objectives
• •
•
• •
To manage the personnel effectively To ensure motivated and committed workforce for the organization To maintain harmonious relation between the employee and the organization To provide effective services to other departments, etc. To provide training & development to enhance promotional, behavioral and human skills.
ORGANOGRAM OF PERSONAL DEPARTMENT
M.P.KULKARNI (V.P HR)
JAYESH PATEL (LAOUR WELFARE)
S.S. KOKLE (G.M) TRN & DEVLOP
ASHITOSH JANI (RECRUITMENT & SELECTION)
SANJAY SONI (HR MANAGER AEROMATIC DIVISION)
JAYESH PATEL (ASST MNG HR)
MONISHA SINGH (Performance appraisal )
TIME KEEPING OFFICE (TKO):ATUL LTD. Has a very effective time keeping system. The TKO is situated at the main gate of the company and is responsible for maintaining the Muster Roll ovary department and for every shift. The TKO consists of three staff members, two for attendance recording and one for special purpose. The attendance recording system (ARS) is fully computerized, where each permanent employee is given Punch Card, which needs to be punched while. “In Coming and Out going” by each and every staff workers, staff members and management members except the managing director. The card is detailed with employee name, date of joining, employee number, blood group and a code for punching. For the attendance of temporary and trainee workers the company has attendance taking card which is operated manually. The special purpose activity includes record of PF, distribution of uniform, shoes, etc. Superannuation, Gratuity and clearance form.
The TKO maintains various records like: • • • • • • • • •
Level Record Promotion Record Registration & Recruitment Record Overtime Record Employee history Record Absenteeism Record Early Going and Late Coming Report Positive/negative Report All types of forms like advance Salary leave Travel Allowance, Medical Loans etc.
Advantages of attendance Recording System: •
• •
As the system is fully computerized, the chances of mistakes are less or nil as compared to manual work. Serves as a basis of fixing wages and salaries. High rate of absenteeism on the part of workers can be known at the correct time and reported to concerned department.
HUMAN RESOURCE PLANNING: (HRP) “Manpower planning is process of determining and ensuring that the organization will have an adequate number of qualified personnel.”
THE COMPANY FOLLOWS TWO APPROCHES OF HRP (1) Top down approach
In case of Top down Approach the Top Management makes the study of Human Resource Planning mostly for the expansion of business. Over here uncertainty for the business like retirement, old age, ill heath etc of the employees are predicted before hand and planning regarding manpower is done. Such plans can be -Short Term: for next 2 years -Medium Term: between 2 to 5 year -Long Term: more than 5 year’s
(2) Bottom up Approach
Over here the lower level people gives feedback to the top level. The lower level discusses with the top level regarding the manpower plans and the top level tries to fill up the vacancies. Both this method re used in ATUL LTD, but the Bottom up Approach is given more importance than the Top Down.
PERFORMANCE APPRAISAL:Performance appraisal is the process of evaluating the employee’s performance on the jobs in the terms of the requirements of the job. ATUL LTD goes for an effective performance Appraisal system, as this is the time to remind that only hard work without achieving corresponding results cannot improve the balance sheet of the company, nor can it contribute towards the company’s GUIDELINES suggested for the success of review meeting (meeting conducted before performance appraisal Programme)
• • • • • •
Fix the meeting in advance Create a relaxed friendly atmosphere Be prepared to listen, appraise also has a point of view Avoid interruption and arguments; have patience Keep contents of meeting Confidential Do not promise any promotion, financial incentives or any rewards
The right framework to the whole process of appraisal is the corrective implementation of Performance Management System (PMS) and the Individual Development Meetings (IDM’s) the company uses both traditional as well as the modern methods of Appraising.
TRADITIONAL METHOD:1) Forced distribution method
The rating provides by the Appraiser to the Appraise is based on the major contribution and the appraiser. In the company, the baring is on the major contribution and the quality of the same. The appraiser while rating the same The appraiser while rating uses the following rating criteria:
RATING INDICATORS:In results do not meet the goals at all and are below acceptable standards (Improvement needed) S results fall slightly below basic goals, but not are in unacceptable category, scope for higher (satisfactory) contribution G results meet required achievements levels and on few occasions even exceed them. (Good) VG results fully meet and at several times exceed sets goals and that appraise had to counter difficulties in (very good) achieving the goals/actions E In general, results consistently far exceed goals in spite of difficult environmental factors, the (excellent) appraise always operates at high performance level.
2) CRITICAL INCIDENTS:The Company uses critical incidents Method where the workers performance is appraised in terms of some events that occur in the performance of the Rate’s job. But is missed out in the appraisal form. The appraiser keeps a records and increments.
MANAGEMENT BY OBJECTIVE METHOD:For appraising the High Officials, the company uses the MBO technique. Over here, the management first sets the overall objectives of the company and later they communicate those goals to the Officials. Then a good amount of Discussion
takes place between the management and the Officials regarding the Objective setup before and also the ways and methods of measuring employees. This discussion leads to adoption of either the received or the same or completely changed objectives, with the will of both the parties. This is Joint Goal Setting between the Manager and the Subordinate. Lastly, the employees would try to achieve their objectives within the given period and also feedback to the manger about their Goal Progress. This method minimized the External control and maximizes Internal Motivation.
Performance Appraisal leads to Grade change • Monetary reward and even • Double increments. •
CANTEEN ADMINSTRATION:Labor Contractors are Private authorities who bring labor on temporary basis. They are given a P.F. code and insurance Policy if they bring 9 or below 9 employees. But license is needed for bringing more than 9 employees. If a contractor brings more than 9 employees without any license, he would be charged penalty or terminated. Even though the Contractor Administration 12% is contributed by the employee and other12% by the Contractor which is reimbursed y the company later. The Contractors are benefited as they get 25% of the wage from the company as commission, from which 10% is profit and 15% is the Labor liability.
GENERAL SERVICES:It includes:-
Postal Services Ticket Reservation Reception etc Courier Services.
COLONY MAINTENANCE:Housing Facility is given to all the permanent employees of the company on the basis of their position in the organization. The rates of the Houses are provided at a subsidized amount and the the usually deducted from the Salary of the employees. employees. The Major Facilities in this Colony are recreational facilities for families and library. Schools, parks etc for children.
INTERNAL CUSTORMER SATISFACTION:According to ATUL LTD employees are the first customer of the company, and if they are satisfied, everything will go on the right path. If the employees are not satisfied. It will adversely affect the productively. Internal Internal customers customers refer to the employees employees of the company. company. ATUL LTD gives gives more emphasis emphasis on internal internal Customer Satisfactio Satisfaction. n. It is the First Company in South South Gujarat, who looks after this concept. The personnel department department gives a form to the employees for their feedback with respect to 1) 2) 3) 4) 5)
Job Satisfaction Satisfaction Working Working Condition Condition Housing Housing Facilities Facilities Wages & Salary (timin (timing g of payment payment)) Other Facilities like Parking, Canteen, Medical, Safely etc.
Form the above form, if the employees of the company are dissatisfied, then the Personnel manager personally meets that particular employee and discuss regarding the matter. If he finds that his point needs to be taken into consideration, then further action may be taken. INDUSTRIAL RELATIONS:-
Industrial relation continues to be harmonies with the company sharpening its focus on productivity productivity and discipline. The name of the single single Trade Union Prevailing Prevailing in this this comp compan any y is the the “Cib “Cibatu atull Kamg Kamgha harr sang sangh. h.”” This This Union Union alwa always ys gives gives constructiv constructivee ideas to the management whenever whenever they need for. But sometimes sometimes they resist to ideas suggested by the Company when they are against the worker interest. In this company it is generally observed that the problems and grievances are solved through mutual understanding. There are no single day strike observed in the Company since its first day WELFARE ACTIVITIES:-
Uniform & shoes ATIL LTD provided provided to its employe employees es every year. For the fire and security security department department employees employees fire proof uniforms are given Company provides provides different different types of Shoes to its workers and office staff, for the protection of workers feet against hazardous and flammable chemicals.
In ATUL ATUL LTD, LTD, the the trans transpo port rt and and trave traveli ling ng sect sectio ion n is work workin ing g unde underr he personnel Department, The function of this department are as under :Transport facilities like Rail & Air booking • Hotel Booking • Transport Facility, Guest House Accommodation, Lunch and Dinner • Arrangement for the visitors and guest. Transportation of goods within the Factory Premises. • Emerge Emergency ncy Transp Transport ort facility facility in case case of disast disaster er or acciden accidentt either either in the • factory premises or in the colonies.
Recruitment Process Recruitment Process MPP
Approved Establishment Form JD/JS Skill Set Guidelines/ Standard Drafts/ Moderation
Advertisements / Consultants/ Web Site/
Not Shortlisted
Shortlisted
Standard Drafts / Policies
Not Shortlisted
Shortlisted
Interviews Up to Div. Unit HR Final Interviews Corp.HR
Not Accepted
Offer
- Salary matching - Offer letter
Accepted
- Info. on policies - Medical tests - Appointment letter Joining formalities
Responsibility of;
Joining
Check List
Div. / Unit HR & Corp. HR Corp. HR (Sr / Sensitive positions) Div. / Unit HR with consultation to Corp. HR
Induction
Standard Induction policy for all level • Ensure all benefits are delivered In constant contact till confirmation •
RECRUITMENT:“Recruitment is the process of searching for prospective employees and stimulating them to apply for the job in the organization”.
COMPANY’S SOURCES OF RECRUITMENT:•
•
INTERNAL SOURCES - Transfer - Promotion EXTERNAL SOURCES -Campus Recruitment - Placement Consultant -Employment Exchange - Labor Contractors - Advertising Agencies -Web site -Consultant
INTERNAL SOURCES:The Company gives more emphasis on the Internal Sources rather than External. It believes in the policy of “First Preference to Existing Employees”, so as to motivate the employees and reduce the cost. The two sources of Internal Recruitment used by the company are -Transfer – “Transfer involves the shifting of an employee from one job to another, one department to another or one shift to another.
TRANSFER POLICY:As the Company has two units ATUL LTD PPSITE and ATUL LTD at East, so transfer is a good source of filling vacancies with employees from overstaff units/departments/shifts to another. Promotions – The Company believes in promotion as the best source, but it is a bit rigid. It believes in Merit basis promotion rather than seniority. But when the seniors are really capable as compared to the new employee, the senior Employee is given the first chance of promotion.
PROMOTION POLICY:•
•
•
•
The Company encourages automatic promotion at all the levels of the Organization, but under certain circumstances. Whenever a particular employee remains in a particular grade for a state period of time, he is promoted to a job of higher grade. Promotion other than the grade promotion takes place only when a higher level post is vacant. To fill up the vacancies form within the Company as far as possible (only eligible employees), on basis of Performance Appraisal System. In certain cases when a particular employee has some outstanding skills which is required for higher level post is to be promoted.
EXTERNAL SOURCES:-
Campus Recruitment:The main External Source of Recruitment for this company is through Educational Institutions. According to them this source not only brings new blood in the Organization, but also innovative ideas, technical knowledge and fresh talents. The students are first taken as Management trainees and later they are grouped into 4, according to their performance. - Permanent at job - Extended Promotion - Probation - Terminated - Placement Consultants For Recruiting technical, Professional and Managerial Personnel, the Company goes for Placement. Placement Consultant are privatized and saves the Company’s time in receiving and screening of applications. There are many Placement Consultants for this company. One of them is SEARCH Consultant.
EMPLOYMENT EXCHANGE:Employment Exchange’s run by the Government is regarded as a good source of recruitment for Unskilled and Skilled Operative jobs. The company has compulsion to give notification of vacancies to this exchange. Thus the Employment Exchange brings the Employer in contact with the job seeker, but the Company need not compulsorily provide that job to the employee, who is been sent by the Employment Exchange.
LABOR CONTRACTOR:The company finds a Labor Contractor, who brings worker on temporary basis. The norms and procedure regarding labor Contractor are to be followed by the Contractor as mentioned in the Contract Administration. (As above)
ADVERTISING AGENCY:When the Company is unable to get suitable Candidates from the above Sources, it goes for Advertising Agency. The company gives last preference to this source because it brings in flood of response and many a times from quite unsuitable candidates.
NOTE: The pattern of Interview remains the same for all the employees, but a slight change takes place depending upon the type of job. In case of Higher Level Jobs, before giving the Appointment Letter the Interviewee is taken to the Managing Director and if the Managing Director finds the Candidate suitable, he is appointed or else is discarded. In case of Technical Field, the Candidate is first interviewed by the personnel Manager and later by the Concerned Department Head to check his technical knowledge.
INDUCTION After an employee is selected for this Company, he is induced by giving a friendly welcome Induction is done according to the ISO 9001 policy. A staff member form the Personnel Department or the personnel manager himself takes the new employee to the Concerned department and introduce him to his new environment (Rule and Regulations. Superiors, Fellow Employees etc)
WAGE & SALARY STRUCTURE:Wages and salary system is also managed by this Department. The Employees satisfaction is the top priority of the company, which is reflected by the Healthy wage and Salary structure designed over here. The company follows the Minimum Wage Rate Policy, fixed by the Government. But in practical use they pay more than the rate fixed in the above policy. It includes the following concepts. Shifts and Working Hours – Timing at ATUL LTD (AEROMATIC DIVISION) for General Shift is 8:00 hrs to 17:00 hrs on all working days. Lunch time is from 12:00 to 13:00 hrs. There
are no shifts for Management Cadre. But as the Company goes for Round the Clock Production,
There are three other shifts for workers; 1. shift Leave Structure – Weekly off – In an Employee is at the Office, the Weekly Off is on Sunday. If at Branch Office, the Weekly Off is on Saturday and Sunday. Paid Holiday – The Employee are entitled to 8 paid Holidays during the Calendar Year, which the Management declares in the month of January. Privilege leave – Privilege Leave is available @ 30 days per Calendar Year which is credited @ 2.5 per month is credited after completion of one month. Sick Leave – 9 days sick leaves are available per annum and credited on 1 January every year. During the first year of Employment, however this leave benefit will be available on pro-rata basis. Accumulated Sick Leave can be encased at the time of retirement and death only, which can be up to a maximum 72 days. Casual Leave-9 days Casual leave is available per annum and credited on 1 st Jan every Year. During the first year of Employment, however this leave benefit will be available on pro-rate basis. Since casual leave benefit cannot be carried to the next year, at the end of the Calendar Year the outstanding Leave balance will automatically be encased and included in the salary of the subsequent month. Special Leave- the Managing director under exceptional circumstance will have the discretion to grant any additional leave, termed as Special Leave to Individual. Such Leave will normally believe without pay, unless it is for the benefit of the company. Other leaves – Maternity leave, leave after Resignation, Compensatory leave, Unauthorized Absence etc.
Employee turnover and absenteeism Rate :– The Employee Turnover Rate in ATUL LTD (Aeromatic division) is around 3%. The Absenteeism rate is around 2%. Most of the employees remain absent because of some Social or Physical Reasons.
TRAINNING PROCESS:-
Types of Training:The company goes for house training for both external and internal training. The company mostly prepares to go for off the job (external training). In house training includes training by supervision, whereas Lectures and Seminars are the part of External Training. Training Policy:1. 7 man days of training and development programme of all the employee is compulsory Training Process:1.
2.
The Training Need Identification process is carried out in October and November every year. Training Calendar:The Training Calendar is prepared at the end of the year.
3.
Nomination:The names, training details and time schedules for each and every employee is nominated by his immediate superior. Each department head is very much familiar with the strength and weaknesses of the Employee of his office department. As a result he is the best person to suggest the names of trainee.
4.
Training Program:Over here the planned training programs are actually being implemented in the company
5.
Feed back:Feed back about the program is given by the Trainee to the personal department by filling up Questionnaire which gives us the idea whether the training program was excellent, good, average, satisfactory, or poor.
6.
Evaluation:The concerned department head evaluates the performance of the Trainees in terms of effective or not effective. The Company Surveys into each and every department. The departmental heads has to give details regarding increasing the jobs of each employee and if needed they need to be trained regarding increasing productivity and skill, reducing accident. Bifurcations are made according to the management Trainees, staff, Staff Workers etc and also on the basis of are of Training like Basic Programme, ISO Training etc.
INTRODUCTION
Production is the creation of the goods & services. Major emphasis is on the creation of goods. Manufacturing production is the systematic step-by-step conversation of raw materials through creation of form utility in goods. Producing goods is an interact & complex process Goods on the shelves, ready to sell do not just happened they are the end results of much careful thought & planning. The job of production management is to weave together those factors (man, material, and machinery) for those sole purposes of economical delivery of quality goods to customer. Production management deals with decision-making Related to production processes, so that resulting goods or services is produced according to the expectations, in the amount end by the cost. Production management is associated with two broad areas of activity, the design & control of the product system”. Thus in a broader sense production management concerned with co-ordination of management men, material, method, machine & money in manufacturing goods. In a narrow sense it means planning, scheduling & controlling the flow of materials to a plant. Where as in Atul Aeromatic division the production process is undertaken very carefully as they produce chemicals which has to meet the exact configuration which the customers need as the slightest variation in the combination would bring a greater change in the final product which would not match the standards of the customer requirements so the production or the manufacturing process at Atul is undertaken with extra caution as the chemical they produce cant very even 0.01 % than the requirement of the customers or the whole batch would be rejected and which would be a great loss to the company.
PRODUCT PROFILE:Key Products Name:• • • • • •
Para Cresol 99% Para Anisic Aldehyde Para Anisyl Alcohol Para Cresidine Ortho Cresol Para Cresyl Methyl Ether
Perfumery Grades Name:• • • •
Para Anisic Aldehyde Para Anisyl Alcohol Para Cresyl Methyl Ether Para Cresol
Inorganics Name:• • •
Manganese Sulphate Powder Sodium Sulphite Liquid Sulphur Dioxide
PRODUCTION PROCESS:The ATUL (Aeromatic division) has to mainly offer in the market, the major of use of the product are Aroma products, Drugs, Dyes intermediate, Antioxidents, manufacturing of soaps etc. 1. PARA CRESOL 99 Para cresol plant is the main plant in this division as it not only covers the major part of their sales percentage compared to the other products The capacity of the plant is 11000 Mt/tones and 900 Mt/tones also serves as the major raw material for the other products like Para cresidine and which is also used as the raw material for the production of Para Anisic Aldehyde and Para Anisic Acid .
2. PARA ANISIC ALDEHYDE The plant of PAA also has the latest technology of the plant of the production process the capacity of the plant is 500 Mt/tones per month
3. PARA ANISIC ACID During the process of production of para anisic aldehyde during the washing process the waste is extracted from PAA and when the waste is treated by the distillatation process than the Para anisic acid is obtained through the process.
4. PARA CRESIDINE The plant present at Atul for PC has the capacity of 45 Mt. tones per month, its geneally used for manufacturing of Dyes.
5. ORTHO CRESOL OC is generally obtained by the cresol mixture, by the process of decolorizing of the orthophenol obtained through the floronation process and the product obtained is ortho cresol.
MANGANESE SULPHATE POWDER SODIUM SULPHITE LIQUID SULPHUR DIOXIDE These are the bi products which are obtained while the the various chemicals stated above.
production process of
The production site of ATUL (Aeromatic division) is at GIDC Ankleshwar, the plant work 24 hours in shift it has been employed with more than 250 workers totaling both the employees the permanent employees and also the daily contract workers. The major demand or the challenging market for ATUL (aeromatic division) Is the forign market, from the total sale of aeromatc division atul the 70% is from the export business. As the company enjoys monopoly production in the India there are no competitiors in the domestic market The major competitiors in the forign market are the manufacturers from China, as they are able to produce the same product at cheaper rate sometime s due to the various factors like Political influence, cost of raw material, etc.
THE PRODUCTION PROCESS CHART PARA CRESOL 99 AND ORTHOCRESOL
RAWMATERIAL TOLUENE,SO3,SO2, ACETIC ACID
SULPHONATION BY CAUSTIC SODA FUSION PROCESS
SEPRATION PROCESS
BI-PRODUCT SODIUM SULPHATE
BI-PRODUCT MAGNESIUM SULPHATE
ACIDFICATION
DISTILLATION
CRESOL MIXTURE SEPERATION
ORTHO CRESOL
PARA CRESOL-99
PARA ANISIC ALDEHYDE & PARA ANISIC ACID
RAW MATERIAL PARA CRESYL METHYL ETHER METHILATION
OXIDATION
WASHING
BI –PRODUCT BY CAUSTIC WASH
AND BY DISTILATION PURE PARA ANISIC ACID DISTILATION PROCESS
PARA ANISIC ALDEHYDE
PARA CRESIDINE
NITRATION
METIALATION
REDUCTION
DISTILATION
PARA CRESIDINE
INTRODUCTION The marketing has changed greater in the present day world. The marketing has developed many activities to satisfy the needs wants of a group of customers. Entering into 21 st century. Marketing has become one of the important criteria for a company product or services to sell in state, national and international level. After world war 2nd, the development in the field of science and technology, social and political, economical and other relative regions have changed tremendously and brought new dimensions in marketing. So as marketing gained momentum in the development of new markets and new avenues of selling a wide range of goods and services that has changed and development to meet the consumer need at right time. Marketing is a set of human activities directed, facilitating and consummating exchange. It is change of products and the transaction is to satisfy that human needs and wants. Human effort, Finance, Management constitutes the primary sources in marketing. The marketing mix covering products, price, promotion and distribution (place) strategies will be implemented to accomplish the object of customer satisfaction and profitability.
FUNCTIONS:There are two types of function in sales and marketing department.
ROUTINE FUNCTION:1.
Receiving inquiry from the customer.
2.
Sending quotation to the customer.
3.
Receiving order from the customer.
4.
Concern production department for special requirement.
5.
Prepare schedule for the production department.
6.
This department has a job of preparing invoices, bank letter, side draft, credit note, sales certificate etc.
7.
They consult the customer and ask about the ‘C’ from. If out side of state.
8.
They keep in touch continuously with their sales representative or argent.
9.
Dispatching goods to customer.
10. Receiving payments and maintain payment details. 11. They prepare advertisement about the product and give it into the different business media. 12. They send reminder to the customer.
SPECIFIC FUNCTION:-
1.
This department gives suggestion to make improvement in systems to the management whenever required.
2. They perform personnel follow up to production department for preparing order in time. 3. They understand the special requirement of the customers and try their level best to satisfy them. 4. They established personnel contacts with their customers as well as agents. 5. They always try to provide letter service to the customer.
PRICING:Price is the only element in the marketing mix that creates sale revenue, the other elements are cost. Company is using the most commonly used strategy and i.e. the skimming pricing strategy. The company is also using differential price strategy that involves ago. Indifferenciating its price arose different market segment. The company sets its price from the given points.
Selecting the pricing objective. Determining demand. Estimating cost. Analyzing competitions costs prices and offers. Selecting price method. Selecting the final price. Impact of global market.
MARKETING RESEARCH:In the worlds of Phillip Kotler “marketing research is a systematic problem analysis model building feat finding for the purpose of improve decision marking and control in the marketing of goods and services. As the company is engaged in the Chemical business it needs the market research. They are using the produces, which covers the following points.
Problem formulation Data collection
Marketing sample Data evaluation Interpreting data Report preparation
The main object behind this is that it finds out for company. Where are his customers? What they willing to pay for it? what is the Impact and use of technology? They are researching leaps it’s use in reducing and minimizing all marketing costs particularly selling advertising and distribution cost.
DOCUMENTS:1. Inquiry letter 2. Quotation 3. Order 4. Schedule 5. Transport receipt 6. Invoice 7. Bank letter 8. ‘C’ form 9. Side draft 10. Payment Details 11. Circular 12. Advertisement
INQUIRY LETTER:The purpose of inquiry for buyer is to find out the cheapest and best source of purchase of goods required. Inquiry contains products, name, price, quality, quantity, discount rate, delivery period and other terms and conditions. Inquiry received by this department is kept in inquiry register.
QUOTATION:The main purpose of the quotation is to give ideas to customer about the under mentioned matters.
Mode and terms of payment.
Place and time of delivery.
Method of transport.
Changes of sales tax, octroi, freight and insurance.
Packing and forwarding changes.
Quotation signed by the proprietor in charge.
ORDER:Customer sends orders either through phone, fax, E-media or through letter. Order received by this department is records in order register. There are three types of order: 1. 2. 3.
New order Repeated order Regular order
SCHEDULE:This department transfers information about the order to the production department in schedule. They also indicate the time limit for the production department. The manager of the company signs schedule.
TRANSPORT RECEIPT:The transport corporation prepares transport receipt. The two copy of this receipt are prepared (1) Consignee copy, which is, sends to the customer with goods. (2) Consignor copy, which is kept in record of this department.
INVOICE:Invoice is prepared at the time of dispatching of goods. This department prepares three copies of invoice. Original copy is sent to the customer. Second copy is for transport. Third is for excise records.
BANK LETTER:This department to the bank drafts bank letters. The mode of payment is described in it. Transport receipt & invoice is attached with the bank letter.
“C” FORM:“C” Form is a government-approved form for registration of customers firm. If customer has “C” Form he bound to pay 4% as a Sales tax & in other situation he has to pay sales tax as per the product.
SIDE DRAFT:The sales & marketing department & sends prepare side draft to the customer. After acceptance from customer, it is valid up to the mentioned time. It means customer is bound to pay to bank after this time limit.
PAYMENT DETAILS:In payments details this is a record of incoming payment for particular time period. In payment details customer’s name, mode of payment received, amount of payment & customer’s account number are mentioned.
CIRCULAR:Circular is mainly send to the customer for marketing purpose. Circular contains the information about the new changes made by the company or by the government.
ADVERTISEMENT:The main purpose of advertisement is providing information to the customer & improves the sale. It gives the brief idea about the company & product, which is very much helpful in competitive market. Advertisement is published into the different media at the particular time limit.
COMMUNICATON:The marketing communication process has five major competent i.e. sender, message, receiver, response and feedback. The sender is itself the Hi-tech. Which sends message through advertisement. This advertisement reaches the message to the receiver or audience about the product by buying the Hi-tech. This is than feedback to the company.
THE MARKETING COMMUNICATION PROCESS:
FINANCE DEPARTMENT SUMMERY
Introduction
Organization
Relationship with order departments particularly Marketing, Personnel, Production
Costing / Control system
Treasury operation
Computerized system of accounts
MIS reports generation
Accounting policies
Study of final account of the organization
INTRODUCTION Finance plays a major role in determining the position of a company. A person not trained in finance management of a company may face N number of problems which may affect the day to day functioning of his company. A person not having knowledge of finance my not be able to the exact suitable return on his investment, account and finance walk parallel but as compare to account finance is a waste subject.
A person trained in Finance is able to take financial decision wisely and quickly which gives better return on investment and have a better chance to survive and compete.
A business house must necessary keep a systematic record of what happens from day to day, so that it can know where it stands & where it will go in future. A systematic record of the daily invents of a business leading to presentation of a complete financial picture is known as accounting.
Financial account includes trading account, profit & loss account and balance sheets.
Trading account is a part of profit & loss account. It indicates the earning capacity of the enterprise. Balance sheet indicates financial position of the enterprise.
In broad sense financial accounting system refers to:
1. 2. 3.
Recording of transaction in journal or its subsidiary books. To post them ledger and data store in to computer. To prepare final account.
The financial picture mostly have two parts, one showing how much profit has been earn or loss suffered and other sowing assets & liabilities and a proprietor’s interest in the firm. A firm constantly enters into transaction with out siders. A transaction may be defined as an action & reaction having monitory implication of one firm in relation to another firm.
In other words accounting defined as, “The Art of recording, classifying & summarizing in a manner and it terms of money transaction and events which are, in part at least, of a financial character & interpreting the result thereof”.
FUNCTION Functions of accounting department are as under:
ROUTINE FUNCTIONS 1. This department examines the challan in respect of payment. 2. This department handles the income tax and sales tax cases. 3. This department collects the vouchers from the various departments. 4. They note the entries in the sales return book on the basis of credit note & the entire of stock register. 5. This department makes casting and posting from sales return register to ledger. 6. They fill up the sales and income tax return per month. 7. They checked whether the income tax department has given a correct order for payment of tax in advance. 8. This department handles the all transaction with bank. 9. They prepare the daybook, ledger, trial balance, manufacturing and profit & loss account and the final balance sheet . 10. They collect the “C Form” from the customer this department also allocates the total salary to the personnel department per month.
SPECIFIC FUNCTION 1. This department submits monthly report to G.M. 2. This department makes necessary recommendation for change in system and in procedure to the management. 3. They ensure that the funds are raised economically and used in the most efficient manner. 4. Communicating the result. Accounting is to communicate the result obtained from arranging of data to interested parties like proprietors. 5. Protecting proprietors of the business. Accounting has to design such a system of accounting as will protect its assets from an unjustified and unwanted use. Company said nothing write about its finance company. So that I can’t write about finance department.
Orgaonogram of Finance Department President (Dr Hariharan)
GM Finance
Manager (Costing) (S.M Behani)
(Ashok Modi)
Manager (Accounts) (M.D. Gupta)
(H .M .Shah)
Raghu Desai
Chetan Joshi
Antana Matha
INTRODUCTION The Quality Control department at ATUL (Aeromatic Division) is at Ankleshwar production site where they have to check and certify the various aspects in the chemical produced and also verify the chemicals which are brought into the plant as the raw materials. Mr. V.K.Srivastav (QC dept manager), Mr. Sharad Desai (asst manager), Mr. K.B.Prajapati (chemist) these are some of the person who are responsible for the quality check activity in Atul Aeromatic division These process are done according to the ISO standards which can be explained in steps as the Quality check process are mainly done between these three process ;
1. Raw material check: All the raw material entering into the Aeromatic plant are been checked randomly from their lot sizes before they are allowed to be stored. The raw materials checked are if according to the specification which are required by the company then they allow them to enter the plant or let them store it or else they are been send back to the suppliers. 2. In-process check : As Aeromatic plants should produce the chemicals in exact specification required by the customers so before very lot is been produced their contents are been checked before the next batch is been processed so that their products can meet the exact requirement.
3. Dispatch process: The goods before they are been dispatch to the customers are been verified once again that the dispatch goods are the same goods which are meeting the requirement of the customers and are if checked ok then a Certificate of Analysis is attached to the vouchers through which the customers could know the goods are of exact specification as they ordered.
Some of the experiments which is undertaken for the Quality check are , GAS COMOTOGRAPY SPECIFICATION its for purity, HYPER PERFORMANCE LIQUID COMOTOGRAPH, ULTRA VIOLET testing, LOVI BALL testing, weight balance , melting point etc.
PART - 2
Working capital Management Introduction:Working capital management involves the relationship between a firm’s short term asset and its long term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has the ability to both maturing short term debt and upcoming operations expenses. The management of working capital involves managing inventories, accounts receivables and payable and cash. Working capital is consent with making sure we have exactly the right amount of money and lines of credit available to the business at a time.
Meaning:Working capital refers to the cash a business requires for day-to-day operations or more specifically, for financing the conversion of raw material into finish goods, which the company sells for payment. The better the company manage its working capital, the less the company needs to borrow. Even companies with cash surpluses need to manage working capital to ensure that those surpluses are invested in ways that will generate suitable return for investors.
Objectives:-
•
The basic objectives of working capital management are:Optimist the level of investment in C.A. and reduction in C.L. • It should maintain the marginal ratio in C.A and should note is not more then the cost of capital employed to finance the C.A.
Definition: “The management of short term asset and short run resource is said to be working capital management or current asset management ’’ There are two concept of working capital 1. Gross working capital 2. Net working capital
1.
Gross working capital
It refers to the firm’s investment in current assets . Current assets are the assets which can be converted into cash within an accounting year or operating cycle and it includes cash, short-term securities, debtors, bills receivables and inventory. It focuses on two aspect of current asset management : How to optimize investment in current assets ? How should current asset be financed ? Investment in current asset should be judge adequately, not more not less, to the need of the business firm. Excessive investment in current assets should be avoided because it impairs the firm’s profitability, as idle firm investment earn nothing. Inadequate amount of working capital can threaten the solvency of the firm because of its inability to meets its current obligations .
NET WORKING CAPITAL:It refers to the difference between current asset and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within the current year and include creditor s, bills payable and outstanding expenses. It is a qualitative concept. It indicates the liquidity policy of the firm and suggests the extent to which working capital needs to be financed by permanent source of funds. Current asset should be sufficiently in excess of current liabilities to constitute a buffer or margin for maturing obligations within the ordinary operating cycle of a business. Symbolically working capital is denoted as, WC=CA-CL
Where, CA=Current Asset CL=Current Liability
NEED FOR WORKING CAPITAL:-
Mainly the working capital is needed for day-to-day activities of a firm. Every firm aims at maximizing the worth of its shareholders. In its strive to do so, a firm should earn sufficient return from its operation. The firm has to invest enough fund in current assets for generating sales. Current assets are needed because sales do not get converted into cash instantaneously.
DETERMINATION OF WORKING CAPITAL:Any firm should nither have too much nor too little working capital. The total working capital required is determined by a wide variety of factors. These factors are: 1) General Nature of Business: The working capital requirement of an enterprise is basically related to the nature of business. The two factors are: The cash nature of business i.e. cash sale. • Sales of services rather then commodities. • The proportion of current asset measures the relative requirements of working capital of various industries. 2) Production cycle: Another factor, which has a bearing on working capital is the production cycle. The term production cycle involves the time involved in manufacturing of goods. It covers the time span between the procurement of raw material and completion of manufacturing process leading to the production of finish goods. To sustain such activities the need for capital is obvious. The larger the time span, the larger will be the tied-up fund and therefore the larger is the working capital needed and vice-versa. 3) Business cycle: The working capital Requirements are also determined by the nature of business cycle. Business fluctuation lead to cyclical and seasonal changes, which in turn cause a shift in working capital position. The variation in business condition may be in two direction. Upward phase i.e. Boom condition • Downward phase i.e. Recession condition •
4) Production policy: The quantity of working capital is also determined by praduction policy. In some business the demand for product is seasonal. During the slack season, the firm have to maintain there working force physical facilities without adequate production and sales. When peek period arrive the firm has to operate at cull capacity to meet demand.
There for the production policy has to be made on individual setting of each enterprise and the magnitude and dimension of the working capital problem will accordingly vary.
5) Credit policy: The credit policy relating to sales and purchase also affect the working capital. Credit policy influence the requirement of the working capital in two ways, 1. Through credit terms granted by the firm to its customers/buyers of goods. 2. Credit terms available to the firms from its creditors. Thus working capital requirement of the business are affected by the terms of purchase and sales and the role given to credit by the company in its dealing with creditor and debtors. 6) Growth with expansion: As the company grows it is logical to expect that a larger amount of working capital is required. It is difficult to determine precisely the relationship between the growth in the volume of business of a company and the increase in working capital. Other things being equal growing industry require more working capital then those that are static.
PLANING OF WORKING CAPITAL:What do you mean by planning of working capital? Planning of working capital means fixing a proportional amount of funds for the entire period to carry business of the firm smoothly and effectively.
INTRADUCTION TO PLANING OF WORKING CAPITAL:-
Basically planning of working capital aims at smooth and efficient flow of the regular operating cycle i.e. right from the procurement of raw material to sale of finish goods. Planning of working capital is done according to the need and necessity of the firm. Basically the planning of working capital is done to achieve the goal of the firm. Planning of working capital differ firm one organization to another because the rules and regulations, companies strategies would be different from one another. Thus before planning working capital one has to be vary well acquainted with the firm position. It has also to see that the working capital that has planned is sufficient to meet the liabilities of the firm. Thus planning of working capital plays a very critical role or it’s the pare that has to be performed by the accounts department of the firm because they are the person who are responsible for handling the finance of the firm. Thus planning of
working capital has to be done vary carefully by analyzing each and every small and big thing of firms.
PLANNING OF WORKING CAPITAL AT ATUL LTD. In Atul Ltd, working capital planning is done by the finance Manager. The working capital planning is done on four occasions ie. Yearly, Monthly, Weekly and Daily basis. First the total working capital requirement is assessed on yearly basis. On the basis of yearly planning, the company approaches its bankers for increase or modifications in the working capital facilities. Then the company makes the monthly working capital planning. This is done to meet the working capital requirement of the coming month. Then the company makes a working capital planning for the immediate week. Up to this level the working capital planning is done by the finance manager. Then, on every evening he makes the financial requirement of the next day and assign the execution of those works to the Accountant and officers. The data required for planning in Atul Ltd Are as follows.
Yearly projected sales The data is given by Managing Director and Marketing Manager to the Finance Manager. Expansion plan of management. These data is given by the Managing Director and Directors.
Monthly projected sales. This data is given by marketing manager to the Finance Manager
Monthly estimated purchase . This data is given by Production Manager to the Finance Manager.
Monthly estimated salary, power bill , repair and maintenance and other direct and indirect expenses. This data is given by Production Manager to the Finance Manager
Monthly estimated money receivable from debtors. This data is given by Accountants to the Finance Manager.
Monthly estimated money payables to creditors. This data is given by Accountants to the Finance Manager.
If there are much deviation in the financial requirements during the year due to unexpected receipt of goods purchase orders and increase in sales or change in credit terms, the yearly working capital requirement is reviewed and modified. Accordingly monthly working capital planning is also changed.
PROCUREMENT PROCIDIRE OF WORKING CAPITAL:The company requires certain amount of capital for day-to-day transaction. The company fulfills its need for working capital from its internal factors such as receivables from the debtors, advances etc. The other sources from which company acquire working capital are: • • • •
Bank loan Cash credit Borrowing from financial institution Trade credit
OPERATING CYCLE The operating cycle is also known as cast to cash cycle, is duration required to convert sales after the conversion of resources into inventories, into cash. The various phases of operating cycle can be depicted as given bellow.
Cash
Collection
Purchases
Accounts Receivab le
Raw material Inventory
Work in progress Inventory
Sales
Finished goods Inventory
Sound financial management of a company involves matching the sources and uses of cash so that the obligations come due as assets and mature into cash.
Net Operating Cycle
Gross Operating Cycle (I )
Payable Deferral Period (II)
Inventory Consumption Period (1)
Debtor Consumption Period (2)
Raw material Consumption Period (A)
Work in Progress Consumption Period (B)
Finish Good Consumption Period (C)
CALCULATION OF OPERATING CYCLE OF ATUL LIMITED 1) Inventory consumption period :-
A) Raw material consumption period :Raw material consumption = Raw material inventory X 360 Period Raw material consumed
2005-2006 Raw material inventory -Rs. 4016.71 Raw material consumed- Rs. 42163.12 Raw material consumption = Raw material inventory X 360 Period Raw material consumed
= 4016.71 X 360 42163.12 = 34.2957 2004-2005 Raw material inventory - Rs. 3790.23 Raw material consumed - Rs. 34826.37 Raw material consumption = Raw material inventory X 360 Period Raw material consumed
= 3790.23 X 360 34826.37 = 39.17 2002-2003 Raw material inventory - Rs. 2738.51 Raw material consumed - Rs. 25144.18 Raw material consumption = Raw material inventory X 360 Period Raw material consumed
= 2738.51 X 360 25144.18 = 39.208 2001-2002 Raw material inventory - Rs. 2690.71 Raw material consumed – Rs. 22752.41 Raw material consumption = Raw material inventory X 360 Period Raw material consumed
= 2690.71 X 360 22752.41 = 42.57 B) Work in Progress Conversion Period :-
Work in Progress Conversion = Work in progress inventory X 360 Period
cost of production
2005-2006 Work in progress inventory –Rs. 6221.20 Cost of production - Rs. 72681.835 Work in Progress Conversion = Work in progress inventory X 360 Period
cost of production
= 6221.20 X 360 72681.835 = 30.814 2004-2005 Work in progress inventory – Rs. 5107.03 Cost of production - Rs. 61931.826 Work in Progress Conversion = Work in progress inventory X 360 Period
cost of production
= 5107.03 X 360 61931.826 = 29.69 2003-2004 Work in progress inventory –Rs. 5782.57 Cost of production -Rs. 52600.755 Work in Progress Conversion = Work in progress inventory X 360 Period
cost of production
= 5782.57 X 360 52600.755 = 39.57
2002-2003 Work in progress inventory –Rs. 6965.84 Cost of production - Rs. 51454.172 Work in Progress Conversion = Work in progress inventory X 360 Period
cost of production = 6965.84 X 360
51454.172 = 48.73661
C) Finish goods consumption period :-
Finish goods consumption = Finish goods inventory X 360 Period
Cost of goods sold
2005-2006 Finish goods inventory – Rs. 6955.05 Cost of goods sold - Rs. 80768.59 Finish goods consumption = Finish goods inventory X 360 Period
Cost of goods sold
= 6955.05 X 360 80768.59 = 30.99 2004-2005 Finish goods inventory – Rs. 5187.04 Cost of goods sold - Rs. 69134.80 Finish goods consumption = Finish goods inventory X 360 Period
Cost of goods sold
= 5187.04 X 360 69134.80 = 27.01 2003-2004 Finish goods inventory –Rs. 4928.05 Cost of goods sold - Rs. 59663.69 Finish goods consumption = Finish goods inventory X 360 Period
Cost of goods sold = 4928.05 X 360 59663.69 = 29.73
2002-2003 Finish goods inventory – Rs. 6226.43 Cost of goods sold - RS. 61843.65 Finish goods consumption = Finish goods inventory X 360 Period Cost of goods sold
=6226.43 X 360 61843.65 = 36.24
1) Inventory consumption period = Raw material consumption period + Work in Progress Conversion Period + Finish goods consumption period
2005-2006 Inventory consumption period = A + B + C = 34.2957 + 30.814 + 30.99 = 96.0997 Days 2004-2005 Inventory consumption period = A + B + C = 39.17 + 29.69 + 27.01 = 95.87 Days 2003-2004 Inventory consumption period = A + B + C = 39.208 + 39.57 + 29.73 = 108.508 Days 2002-2003 Inventory consumption period = A + B + C = 42.57 + 48.7366 + 36.24 = 127.5466 Days
Inventory Consumption Preiod 140
Raw Material consumption period
120 s y 100 a D 80 f o 60 o N 40
Work in Progress Finish Goods Consumption Period
20 0 20052006
20042005
20032004
Yesr
20022003
Inventory Consumption Period
2) Debtors conversion period :-
Debtors conversion period = Debtors X 360 Credit sales
2005-2006 Debtors - Rs. 22236.82 Credit sales - Rs. 83043.20 Debtors conversion period = Debtors X 360 Credit sales = 22236.82 X 360 83043.20 = 96.398 = 96 Days (Approximate)
2004-2005 Debtors - Rs. 20263.13 Credit sales - Rs. 69938.69
Debtors conversion period = Debtors X 360 Credit sales = 20263.13 X 360 69938.69 = 104.30 = 104 Days (Approximate)
2003-2004 Debtors - Rs. 18613.66 Credit sales - Rs. 59397.69 Debtors conversion period = Debtors X 360 Credit sales = 18613.66 X 360 59397.69 = 112.81 = 113 Days (Approximate)
2002-2003 Debtors - Rs. 17497.29 Credit sales - Rs. 64436.62 Debtors conversion period = Debtors X 360 Credit sales = 17497.29 X 360 64436.62 = 97.755 =98 Days (Approximate)
i) Gross operating cycle = Inventory conversion period + Debtors conversion period
2005-2006 Gross operating cycle = Inventory conversion period + Debtors conversion period = 96.0997 + 96.398 = 192.4977
2004-2005 Gross operating cycle = Inventory conversion period + Debtors conversion period = 95.87 + 104.30 = 200.17
2003-2004 Gross operating cycle = Inventory conversion period + Debtors conversion period = 108.508 + 112.81 = 221.318
2002-2003 Gross operating cycle = Inventory conversion period + Debtors conversion period = 127.5466 + 97.755 = 225.3016
ii) Payable Deferral Period = Creditors X 360
Credit purchase
2005-2006 Creditors = 13885.56 Credit purchase= 42391.64 Payable Deferral Period = Creditors X 360 Credit purchase = 13885.56 X 360 42391.34 = 117.92
2004-2005 Creditors = 13371.34 Credit purchase= 36030.52 Payable Deferral Period = Creditors X 360 Credit purchase = 13371.34 X 360 36030.52 = 133.60
2003-2004 Creditors =11288.20 Credit purchase= 24974.11 Payable Deferral Period = Creditors X 360 Credit purchase = 11288.20 X 360 24974.11 = 162.7185
2002-2003 Creditors = 11583.99 Credit purchase= 25205.38
Payable Deferral Period = Creditors X 360 Credit purchase = 11583.99 X 360 25205.38 = 165.45
Net Operating cycle= Gross Operating Cycle+ Payable Deferral Period
2005-2006 Gross operating cycle= 192.49
Payable Deferral Period= 117.9195 Net Operating cycle= Gross Operating Cycle+ Payable Deferral Period = 192.49 + 117.9195 = 310.40
2004-2005 Gross operating cycle= 200.17
Payable Deferral Period= 133.60 Net Operating cycle= Gross Operating Cycle+ Payable Deferral Period = 200.17+ 133.60 = 333.77
2003-2004 Gross operating cycle= 221.318
Payable Deferral Period= 162.718 Net Operating cycle= Gross Operating Cycle+ Payable Deferral Period = 221.318+ 162.718 = 384.036
2002-2003 Gross operating cycle= 225.3016
Payable Deferral Period= 165.45 Net Operating cycle= Gross Operating Cycle+ Payable Deferral Period = 225.3016 + 165.45 = 390.7516
Net Operating Cy
s y a D f o o N
50 0 40 0 30 0 20 0 10 0 0
Net Operati Cycle
06 005 004 003 0 2 2 2 2 54320 0 0 0 20 20 20 20 Ye a
Calculation of Net Working Capital of ATUL LTD. (Rs in Lacs) Sources of Funds
2005-06
2004-05
2003-04
2002-03
Inventories
20927.58
17122.15
16318.41
18370.41
Sundry Debtors, Unsecured
22236.82
20819.11
18613.66
17497.29
Cash & Bank Balance
1379.18
1425.04
1069.16
874.88
Others
20.80
75.24
138.31
135.78
Loan &advances
6259.92
6252.76
7671.06
7453.62
(A) Total Current Asset
50824.30
45694.32
43810.66
44331.98
Liabilities
17440.93
15809.26
13431.35
12268.47
Provisions
3334.76
3130.82
1796.33
2285.19
(B) Total Current Liability
20775.69
18940.08
15227.68
14553.66
Net Working Capital(A-B)
30048.61
26754.24
28582.98
32078.01
Estimates of Current Asset
Estimated Current Liability
Net Working capital 31000
s c 30000 a 29000 L n i 28000 t 27000 m26000 A
Net Working capital
25000
20
-2 05
6 00
5 00
4 00
20
20
20
-2 04
-2 03
-2 02
3 00
Year
INVENTRY MANAGEMENT
Inventory constitutes the most important part of current asset. On an average, inventory are 60% of current asset in Public limited companies in India. Because of the large size of the inventory maintained by the firms, a considerable amount of fund is required to be committed to them. It is therefore absolutely imperative to manage inventory efficiently and effectively in order to avoid unnecessary investment.
The term inventory refers to the stock pile of products as firm is offering for sales and the component that make up the products . Raw Material Work in progress Finished goods
The Raw material inventories contain the items that are purchased by the firm from others and are converted into finished goods through manufacturing process.
The work in progress inventory consist of items that are purchased by the firm from others and are converted into finished goods through manufacturing process.
Work in progress inventories consist of items currently being used in production process. They are normally semi-finished goods that are at various stage of production in multi stage production process.
Finish goods represent final of completed products available for sole. The inventory of such goods consists items that have been produced but are yet to be sold.
OBJECTIVES OF INVENTRY MANAGEMENT The basic responsibility of the financial manager is to make sure that the firms cash flows are managed efficiently. Efficient management of inventory should ultimately result in the maximization of the owner’s wealth. The objectives of inventory management consist of two counterbalancing parts: 1. To minimize investments in inventory 2. To meet the demand of the product by efficiently organizing the production and sales operation.
SIGNIFICANCE OF INVENTRY Inventory constitutes in every business concern the most significant pert of working capital current asset. Inventory in Indian industries constitute more than 60% of current assets. About 40% to 60% of the cost of product contains material cost .
NEED TO HOLDING INVENTORY
The managing inventory arises only when the company hold inventories. Managing inventories involve tying up of the company’s funds and incurrence of storage and handling coat .
1. Transaction motives:It emphasizes the need to maintain inventories to facilitate smooth production and sales operation.
2. Precautionary motive:It necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and others .
3. Speculative Motive:It influences the decision to increase or reduce inventory level to take advantage of price fluctuation.
INVENTRY RELATED COST An inventory system consist of the following cost 1. ORDERING COST It include the following costs. Ordering cost • Handling of issued transaction • Cost of administration •
2. HOLDING COST It include the following cost Cost of blocking • Cost of insurance • Storage cost • Cost of obsolence • Determination cost •
3. STOCK OUT COST It include the following cost
• • • •
Lost sales Back lagging Penalty cost Loss of goods
FACTORS DETERMINING LEVEL OF INVENTRY 1. Type and nature of business: The nature and quantity required for raw material different from firm to firm. Because it is depending on type of firm. 2. Anticipated sales volume: If anticipated sales volume is high then the level of inventory is also high. 3. Price level variation / availability of funds: If the price of raw material decrease and if company is capable to buy in bulk, then the level of inventory will be high in company. 4. Demand of finish goods: If the demand of finish good is high then the level of inventory is also high. So that the company can meet the demand. 5. Production process: The level of inventory also depends on production process. If there is continuous production process, then the requirement of the raw material will be high and vice-versa.
Inventory management technology
ABC ANALYSIS: It is also known as selective inventory management technique. It is the analyses tabulation and classification of characteristics of item being carried out.
In inventory the comprehensive classification of item being carried inventory in terms of deciding value stand financial control of inventory. “A” class items are very costly. So regularly received by the up level supervisors and are issued by only authorized person signature. “B” class items are less supervised in comparison of “A” class items and cheap or not very cheap or not very costly. “C” class items are vary supervised and are known as regularly consumption items and are very cheap.
Main Raw materials of Atul Ltd • • • • • • • • • • • • •
Toluene Phenol Sulfur Methanol Others Imported Indigenous Dyestuffs Intermediates Manganese Sulphate Oleum 25% Sulpheuric Acid 98% Oleum 65%
Packaging Materials of Atul Ltd.
M.S. Drums Plastic Bags Fiber Drums
• • •
Finish Goods of Atul Ltd. Atul Ltd manufactures many products the product manufacture by Atul Ltd are Cresol , Toluidines , Sodium Sulphite , Sodium Sulphate and many more other products there are as many as 42 product.
Inventory Management in Atul Ltd. (Rs in lakh)
Inventories Raw material
42163.12 6221.20 41948.36 5107.03 9472.53 52.27
Work-in-progress Finish goods Store Power, Fuel, Water Packaging Material
Inventory at Atul 45000
c 40000 a 35000 L 30000 in 25000 t 20000 m 15000 A 10000
Series1
5000 0
s ri a res od tore Wa e t o g a S el, M Pr o sh G u w i n r,f g i i n i e Ra ork F w ka Po a c W Component
Classification Of Inventory In Atul Ltd. Raw materials Raw materials
Units
Qty
Rate
Toluene
MT
9498
30002.20
(Rs in Lacs) 2846.99
Phenol
MT
5558
54470.89
3040.71
Sulfur
MT
26931
5246.62
1412.87
Methanol
MT
6621
15646.73
1035.97
Other
MT
33826.58
Imported
MT
16834.67
Indigenous
MT
25328.45
Dyestuffs
MT
326
Intermediates
MT
1147
Manganese Sulphate
MT
336
221782.2 0 137709.6 7 13616.07
Total
723.01 1579.53 45.75
86674.53
ABC Analysis of Raw Material Raw Material
Units
Amount
Other
MT
Indigenous
MT
Imported
MT
Phenol Toluene Intermediates Sulfur Methanol Dyestuff Manganese Sulphate
MT MT MT MT MT MT MT
33826.5 8 25328.4 5 16834.6 7 3040.71 2846.99 1579.53 1412.87 1035.97 723.01 45.75
%of total cost 39.027
Categor y
29.22
A
19.42
A
3.50 3.28 1.822 1.63 1.19 0.834 0.0528
B B C C C C C
A
Total
86674.5 3
100
The value of Indigenous, Imported and other Raw Material is higher and has blocked other raw material. So they have A category. Phenol and Toluene lies in B category. Finally other product having lower value lies in C category.
Raw materials Analyses Toluene
(Rs in Lacs) 1%
2% 0%
3% 4% 2% 1%
Phenol Sulfur Methanol
29%
Other Imported 39%
Indigenous Dyestuffs
19%
Intermediates Manganese Sulphate
FINISH GOODS Class of Goods Cresol Sodium Sulphite p-Anisaldehyde p- Anisyl alchohol p-Cresidin Anisole Dyes & Dye imtermediates (a&b) Caustic/Chlorine Chemicals Pharmaceuticals Sulpha Drug & intermediates Bulk Drugs & Drug intermediat PHIM UF/MF/PF dicyandiamide resines Epoxy resins Hardener & auxilialiaries Farmaldehyde Polyminoamide resins & their intermediates Sulphanilic Acid Sulpha bulk drugs for export other Ancamine
MT 392 552 135 38 9 8 727 819 2280 1 5 13 14 2 250 129 114 15 1 85 3
Rs in Lacs 334.57 26.12 280.07 88.92 16.32 8.34 804.79 60.05 1270.10 2.70 14.38 80.16 78.91 1.55 327.74 189.78 10.16 24.98 .18 193.75 212.09 11.11
Class of Goods
MT
Rs in Lacs
% of Tota l Coat
Categor y
Cresol
392
334.57
8
B
Sodium Sulphite
552
26.12
1
C
p-Anisaldehyde
135
280.07
7
B
p- Anisyl alchohol
38
88.92
2
C
p-Cresidin
9
16.32
0
C
Anisole
8
8.34
0
C
Dyes & Dye imtermediates (a&b)
727
804.79
20
A
Caustic/Chlorine
819
60.05
1
C
Chemicals
228 0 1
1270.1 0 2.70
31
A
0
C
Sulpha Drug & intermediates
5
14.38
0
C
Bulk Drugs & Drug intermediat
13
80.16
2
C
PHIM
14
78.91
2
C
UF/MF/PF dicyandiamide resines
2
1.55
0
C
Epoxy resins
250
327.74
8
B
Hardener & auxilialiaries
129
189.78
5
C
Farmaldehyde
114
10.16
0
C
Polyminoamide resins & their intermediates
15
24.98
1
C
Sulphanilic Acid
1
.18
0
C
Sulpha bulk drugs for export
85
193.75
5
C
212.09
5
C
11.11
0
C
Pharmaceuticals
other Ancamine
3
ABC Analysis of Finish Goods
R sinLacs 5% 0%
1%
1% 5%
0%
7% 8%
0 %
2%
5%
0% 0%
8% 0% 2%
20%
2% 0% 1% 0%
31%
Finish Goods Cresol Sodium Sulphite p-Anisaldehyde p- Anisyl alchohol p-Cresidin Anisole Dyes & Dye imtermediates (a&b) Caustic/Chlorine Chemicals Pharmaceuticals Sulpha Drug & intermediates Bulk Drugs & Drug intermediat PHIM UF/MF/PF dicyandiamide resines Epoxy resins Hardener & auxilialiaries Farmaldehyde Polyminoamide resins & their intermediates Sulphanilic Acid Sulpha bulk drugs for export other Ancamine
Method of inventory valuation in Atul Ltd. At Atul Ltd FIFO method is used, ie FIRST IN FIRST OUT .
Level of inventory at Atul Ltd. Maximum level= 2month’s Maximum level represents the beyond which the stock is hand is not allowed to exceed.
Minimum level=15day’s Minimum level represents the beyond which the stock is hand is not allowed to Fall.
Analysis of inventory holding in Atul Ltd. (2005-06) 42163.12 6221.20 41948.36 5107.03 9472.55 52.27
Inventories Raw material Work in progress Finish Goods Store Power, Fuel And Water Packaging Material
(2005-06)
Inventory Analysis
(2004-05)
45000 40000 35000 t 30000 n u 25000 o m20000 A 15000 10000 5000 0 Raw material
Work in progress
Finish Goods
Store Inventory
Power, Fuel And Water
Packaging Material
(2004-05) 34826.37 5107.03 36244.80 5728.16 7684.69 45.39
CASH MANAGEMENT Cash management is one of the key area of working capital management. Apart from the fact that it is the most liquid currency assets, cash is the common denominator to which all the current assets be reduced because the other major liquid assets that is receivables and inventory get converted into cash. This underlines the significance of cash management. Cash in the important current asset for the operations of business. Cash is the basic input needed to keep the business running on a continuous basis. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remain idle, without contributing any thing towards the firms profitability. Thus the major function of the Finance manager is to maintain sound cash position. Cash is the money which the firm can utilize immediately without any restriction. Cash management is concerned with the management of :Cash flow into and out of the firm. Cash flow within the firm. Cash balance held by the firm at a point of time by financing deficit or investing surplus cash.
Motives for holding cash The term cash with reference to cash management is used in two senses. In a normal sense, it means currency which is accepted as cash. The broad view of cash also include near cash assets cash balance in bank.
The four primary motives for maintaining cash balances • • • •
Transaction motive Precautionary motive Speculative motive Compensating motive
1. Transaction motive: Transaction motive refers to the holding of cash to meet cash requirement to finance the transaction, which the firm carries on in the ordinary business. Example : cash payment to be made for purchase, wages, operating expenses, financial charges like taxes.
“The requirement of cash balance to meet routine cash needs is known as the transaction motive and such motive refers to the holding of cash to meet anticipated obligation whose timing is not perfectly synchronized with cash receipts.” 2. Precautionary motive:
The cash balances held in reserve for random and unforeseen fluctuations in cash flow are called as Precautionary motive. Many time cash is required in order to overcome some unforced requirements. Usually there is always same minimum balance maintained for this purpose. 3. Speculative motive:
It refers to the desire of the firm to take advantage of opportunity which present themselves at unexpected moments and which are typically outside the normal cause of business. Many times the opportunity may be available due to a fall or rise in raw material price. The company should explore such circumstances. 4. Compensating motive: Usually the clients are required to maintain a minimum balance of cash at bank. Since this balance cannot be utilize by the firm for transactions purposes, the bank themselves can use the amount to earn a return. Such balances are “Compensating Balance.”
Objectives for cash management The basic objectives of cash management are; 1. To meet the cash disbursement needs 2. To minimize funds committed to cash balances. While cash serves this function it evolves in an opportunity cast. The liquidity provided by cash holding is at the expenses of profit by forcing alternative investment opportunities. Hence, an optimum cash balance should be maintained taking into account the profitability.
Cash management technique There are some specific technique and processes for speedy collection of receivables from costumers and slowing disbursements. • • •
Speed cash collections Prompt payment by costumer Early conversion of payment into cash
Cash management techniques at ATUL LTD The firm prepares cash budget to determine the net cash inflow or outflow so that the firm is enabled to arrange for finances. Cash budget is helping the firm to manage it cash position.
RECEIVABLE MANAGEMENT The term receivable is defined as “Debt owned to the firm by customer arising from sales of goods or service in the ordinary course of business” When a firm makes an ordinary sale of goods on services and does not receive payment, the firm grants trade credit and creates account receivable, which could be collected in the future. Receivable management is also trade credit management. Firm now days also enjoy the benefit of Negative Working capital. Here they enjoy the benefit of gating various Products, Raw material and other things on credit for manufacturing of final product. Here this benefit received by the firm is on the basis of good will and bargaining strength of the company. Negative Working capital adds to a larger benefit then expected by the creditor. For these reason now day’s companies have started to raise the payment period to it creditor.
Major costs:
The major categories of costs associated with the extension of credit and account receivables are; 1. Collection cost 2. Capital cost 3. Delinquency cont 4. Default cost
1. Collection cost:
Collection cost are administration cost incurred in collecting the receivable from the customers to whom credit sales have been made. 2. Capital cost:
The increase level in assets. They have to be finance there by involving the cost there is a time leg between the sales of goods to and payment by the costumer. 3. Delinquency cost:
This cost arises out of the failure of the costumer to meet there obligation when payment on credit period. Such costs are called delinquency cost. 4. Default cost:
Finally the firm may not be able to recover the over-dues because of the inability of cost associated with credit sales and account receivables.
Credit policy The credit policy related to sales and purchase also affect working capital. The credit policy influences the requirement of working capital in two ways. 1. Through credit terms granted by the firm to its customer buyers of good. 2. Credit terms available to the firm from its creditors. The, credit policy is a framework to determine weather to extend credit to a costumer and how much credit to be extended to the costumer. The broad dimensions of credit policy of a firm are credit standards and credit analysis.
Credit policy at ATUL LTD
The firm is granting credit to its customers for the following reasons:
1. To achieve growth in sales
If the firm sells goods on credit, it will generally be in a position to sell more goods then if it insisted on cash payment. This is because many costumers are either not prepared or not in a position to pay in cash when they purchase the goods. 2. To increase profit
Increase in sales result in high profit for the firm not only because of increase in volume of sales but also because the firm charges a higher margin of profit on credit sales as compared to cash sales.
3. To meet competition
A firm has to resort to granting credit its competitors were granting credit facilities. In order to avoid loss of sales the firm has to resort to grant credit facilities.
Receivable management at ATUL LTD
At ATUL LED Receivable form approximately 35% of current assets. Hence the company accords high importance to the management of receivables. The credit policy varies from 15 days to 90 days depending on costumers. On every 15 days and last day of the month the company prepares the receivables list this list show the total receivable, receivable which are due and due date of each bill. This list is prepared by the accounting department. The accounts department co-ordinates with the marketing department for collection of receivables. The total receivable is classified on the basis of: • • •
Amount involved Risk involved Future business relations
On the basis of amount involved the receivable are classified into High value, Medium value and low value. High value receivables are managed by the Finance manager. Medium value receivables are managed by the subordinate of the Marketing manager and Finance manager. Low value receivables are managed by the clerks in the Accounting department. On the basis of risk involved, the company categorizes the receivable into high risk, moderate risk and normal risk. In case of high risk receivables the company the adequate insurance through Export Credit Guarantee Corporation of India in case of exports and in the case of domestic sales the company fixed credit period with the baking of post dates cheques or assurance from receivable sources. High risk category is directly managed by the directors of the company. In case of moderate risk receivables, the Marketing Manager and Finance manager follow up the debtors filling in the category. In case of normal business risk receivables, the subordinate of the Marketing Manager and Finance manager follow up the debtors filling in the category. On the basis of the future prospects of the costumers the receivables are classified into fast growing companies, study growing companies and stagnant companies. The terms of credit in case of fast growing companies are fixed on the basis of the latest date available. Director of the company manage this category. In case of steady growing companies, the Marketing Manager and Finance Manager follow up the debtors falling in the category. In case of stagnant companies, the subordinates of the Marketing Manager and Finance Manager follow up the debtors falling in this category.
Working capital finance Bank finance for working capital Banks are the main institutional source of working capital finance in India. After trade credit, bank credit is the most important source of financing working capital requirements of the firm in India. A bank considers a firm’s sales and production plans and the desired level of current assets in determining its working capital requirement. Forms of bank finance 1. Overdraft Under the overdraft facility, the borrower is allowed to withdraw funds in excess of balance in his current account up to certain specified limit during the specified period. Though the overdrawn is repayable on demand, they generally continue for a longer period by annual renewal of the limits. 2. Cash credit Cash credit facility is similar to the overdraft management. The barrower is allowed to withdraw funds up to certain sanctioned credit limit. He does not require the entire amount at once. He can periodically withdraw to the extent of his requirement and repay by depositing surplus funds in his cash credit account. Interest is payable on the amount actually utilized by the borrower. 3. Bills Purchasing or Discounting Under the purchase or discounting of bills, a borrower can obtain credit from bank against its bills. The bank purchase or discount the borrower bills, bank holds bills as security for credit. When bill is discounted, the borrower is paid the discount amount bill i.e The full amount of the bill minus the discount charged by the bank. The bank collects the full amount on maturity. 4. Working capital loan A borrower may sometime require temporary working capital in excess of sanctioned credit limit to meet unforeseen expenses. Banks provide such accommodation through demand lone account. The borrower is required to pay higher rate of interest about the normal rate of interest on such additional credit.
FINDINGS Raw material stock as on 31/3/06 show the raw material holding period is 34 days as compare to 39 days on 31/3/05 , 31/3/04 , 42 days on 31/3/03 .During the year the average holding time was 30 days but due the year ending the company had export order which were to be executed by the first half of April-07 . Due to the decrease in inventory consumption period, the gross operating cycle period has also decrease. The net working capital requirement of the company has increased in 2005-06 • The Firm CA and CL has increase in 2005-06 and the ratio of CA is higher • then increase CL .the increase in CA is decrease to increase in inventory. (Compared to 2004- 2005, 2003-2004.)
Inventory Management The values of imported, indigenous and other raw material are high and these raw materials has block 19.42%, 29.22%. 39.03%.Hence it has been category as A. The reason of high value of this raw material is as they are imported and the availability of raw material is not regular. The value of finish products of Dye and Dye intermediates (a&b), chemicals are highest in finish goods inventory and these finish goods have blocked 51% of the total value of finished goods inventory. Hence it has been categorized in A category. The reason of high stock value of this finish Goods is that this material is scheduled to be dispatched in Second week of April. Hence it is seen as a higher value finish goods inventory as on 30 March 2006.
Cash Management The company’s maintain a cash balance of Rs.150 Lacs. In order to meet the daily requirements of miscellaneous cash purchases and for emergences like accident. The company prepares the cash budget and forecast its requirements. If there is any deficit then it borrows and if there is any surplus then it repays.
Working capital The company finance its working capital through its internal accruals. It is also making use of financial instruments like Overdraft, Cash credit, Bill Purchase, Export packing credit foreign bill Purchase/Discount. It makes use of such instrument in order to be safe due to export dealing of vary high values.
RECOMMENDATION Working Capital The Company has high internal accruals. Hence it Should not go for working capital loan. It should try to reduce it inventory consumption period and Debtors collection period. It should try to reduce it Current Asset.
Inventory Management The Company should implement inventory management technique efficiently as there working capital amount is mostly blocked in inventory and above 50% of the amount is blocked in Inventory. If inventory holding is reduce there will be more Working Capital.
Receivable Management The Company has to maintain against schedule in order to keep a proper track of the receivables. This schedule helps in finding out the payment which have gone beyond the credit limit. It would also help the management in taking proper action to recover the payments. The company should also maintain Collective Experience Matrix which will show how efficient the collection in collecting the receivables. In the diagram it there in an increase in the debtors then it shows the inefficiency of the collection department.
Cash Management
