SOURCES, APPLICATION AND NEEDS OF WORKING CAPITAL

SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL

INTRODUCTION TO PROJECT

The project has been done on Sources, Application and Needs of working capital in

current business scenario at INDIAN RAYON (A unit of ADITYA BIRLA NUVO

LTD.). The project has been conducted specially at finance and accounts department of

INDIAN RAYON. The day to day or general information are provided on INDIAN

RAYON but core data analysis was done on ADITYA BIRLA NUVO LTD.

STANDALONE’s balance sheet’s figures.

This topic was selected by me because of criticalities involved in managing the working

capital and its components. I selected this topic to learn all the concepts related to

working capital. I chose INDIAN RAYON for this purpose as it is a successful

manufacturing concern which manufactures Viscose Filament Yarn, Caustic Soda

and Other Chemicals and supplies it products to various customers related to textile

sector, chemicals sector, detergent sectors etc. INDIAN RAYON is the oldest and

flagship unit of ADITYA BIRLA NUVO LTD.

Every business needs investment to procure fixed assets, which remain in use for a

longer period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed

Capital’. Business also needs funds for short-term purposes to finance current

operation. Investment in short term assets like cash, inventories, debtors etc., is called

‘Short-term Funds’ or ‘Working Capital’. The ‘Working Capital’ can be categorized, as

funds needed for carrying out day-to-day operations of the business smoothly. The

management of the working capital is equally important as the management of long-

term financial investment.

This project contains all the concepts which are considered by the manufacturing

organizations. I have tried to deal with all the concepts and have learnt many important

concepts and tips. Along with it I learnt how such concepts and tips works in ERP

system like SAP and how it is used by such units for maintaining their accounts and

reports.

Globsyn Business School - Ahmadabad 3


INTRODUCTION

OF

ADITYA BIRLA GROUP



Great legends are not only born for survival of themselves but for the survival of other

individuals on this earth, epitomizing the philosophy of its legendary leader – the Late

Shri. Aditya Vikram Birla a man who made a difference. A man Rooted in Indian

values, yet global in visions, rock solid in fundamentals. Nurturing a culture where

success does not come in the way of the need to keep learning afresh, to keep

innovating, and to keep experimenting.

Group is considered as one of the largest and successful business houses from India

under the leadership and vision of Mr. Kumar Mangalam Birla currently. It includes

flagship companies like Hindalco Industries Ltd, Grasim Industries Ltd, Aditya

Birla Nuvo ltd, Indian Rayon, Idea, Ultra Tech, Essel mining, Birla global finance,

Higi industries, Bihar caustic Ltd, Aditya Birla Minacs, Birla Sun Life, Peter England,

Van Hussen, More ( a retail Chain) etc. A diversified product portfolio along with

major stack holding in market of that product such as Viscose filament yarn (VFY),

Aluminum, Chemicals, Carbon black, Sponge iron, Textiles, Insurance, retail, Cement,

Telecommunication, Financial services & solution, Branded garments, Minerals etc.

From over 53 years, the Aditya Birla Group has continuously offered total customer

solutions through its quality product and services. It enjoys leadership positions in key

business with strong competitive edge. The group has generated revenue of worth $ 28

Billion and has 14, 78,988 shareholders. More than 1, 00,000 efficient people working

for them in 25 countries. Today Aditya Birla group’s companies are considered in

fortune 500 and they are considered as best employer in India and among top 20 in

Asia.

They work not only in India but globally in other countries such as UK, Germany,

Hungary, Brazil, Italy, France, USA, Switzerland, Luxembourg, Canada, Egypt, China,

Thailand, Australia, Laos, Indonesia, Philippines, Dubai, Singapore, Myanmar,

Bangladesh, Vietnam, Malaysia, and Korea.



Group’s VISON

“TO BE A PREMIUM GLOBAL CONGLOMERATE WITH A CLEAR FOCUS ON

EACH BUSINESS.”

Group’s MISSION

“TO DELIVER SUPERIOR VALUE TO OUR CUSTOMERS, SHAREHOLDERS,

EMPLOYES AND SOCIETY AT LARGE.”

Core values of Group

INTEGRITY

COMMITMENT

PASSION

SEAMLESSNESS

SPEED

Achievement of the Group

The world’s no.1 in viscose staple fiber.

The world’s largest single location world scale copper smelter.

The world’s no.1 in insulators.

Globally 4th largest producer of Carbon black and 2nd in India.

The world’s 11th largest producer of cement globally, 7th largest in Asia, 2nd in

India and the largest in a single geography.

Hindalco, from its fold, is a Fortune 500 company by producing aluminum and

copper with most cost-efficient in the world.

Among the world’s top 15 BPO companies and among India’s top 3

A premier branded garments player in India. Like Van Hussein, Peter England

The 2nd largest player in Viscose Filament yarn in India



The 2nd largest player in Caustic soda in India.

Among top 5 mobiles telephony companies.

A leading player in private sector of Life Insurance and Asset management.

Among the best energy efficient fertilizer plant.

The best employer in India and among the top 20 in Asia etc.

Beyond Business

Working in 3700 villages.

Reaching out to 7 million people annually through the Aditya Birla Centre for

Community Initiatives and Rural Development, spearheaded by Mrs. Rajashree

Birla.

Focus area are: health care, education, sustainable livelihood, infrastructure and

espousing social causes.

Currently running 41 schools and 18 hospitals at various places in India.

Transcending the conventional barriers of business to send out a message that

“We Care”.



VARIOUS COMPANIES OF THE GROUP

HINDALCO INDUSTRIES LTD.

The metals flagship company of the Aditya Birla Group is an industry leader in

aluminum and copper. A metals powerhouse with a consolidated turnover of Rs.600,

128 million (US$ 15 billion), places it in the Fortune 500 league. Hindalco is the

world's largest aluminum rolling company and one of the biggest producers of primary

aluminum in Asia. Its copper smelter is the world's largest custom smelter at a single

location. Novelis under its fold Hindalco ranks among the global top five aluminum

majors, as an integrated producer with low-cost alumina and aluminum facilities

combined with high-end rolling capabilities and a global footprint in 12 countries

outside India.

GRASIM INDUSTRIES LTD.

A flagship company of the Aditya Birla Group ranks among India's largest private

sector companies, with consolidated net turnover of Rs.184 billion and a consolidated

net profit of Rs.29 billion (FY2009). Starting as a textiles manufacturer in 1948, today



Grasim's businesses comprise viscose staple fiber (VSF), cement, chemicals and

textiles. Its core businesses are VSF and cement, which contribute to over 90 per cent of

its revenues and operating profits. The Aditya Birla Group is the world’s largest

producer of VSF, commanding a 24 per cent global market share and 11 per cent of

global market share. It is also the second largest producer of caustic soda (which is used

in the production of VSF) in India. Its registered office is in Nagda (M.P.).

ULTRATECH

They are the India's largest exporter of cement clinker. The company's production

facilities are spread across five integrated plants, five grinding units, and three terminals

— two in India and one in Sri Lanka. All the plants have ISO 9001 certification, and all

but one have ISO 14001 certification. While two of the plants have already received

OSHAS 18001 certification, the process is underway for the remaining three. The

company exports over 2.5 million tons per annum, which is about 30 per cent of the

country's total exports.

ADITYA BIRLA NUVO LTD.

Aditya Birla Nuvo Ltd. is a major player in all its key businesses – viscose filament

yarn, garments, carbon black, textiles, telecommunication and insulators. The company

has also established its presence in the life insurance, Information Technology (IT) and

BPO sectors. This group is perfect blend of old and new business of Aditya Birla group.

Its flagship unit and the oldest unit is Indian Rayon. Aditya Birla Nuvo Ltd. is new

name given to Indian Rayon & Industries Ltd. in 2006 its registered office is in Veraval

(Gujarat).



JOINT VENTURES

Company Partner Key products / services

Birla Sun Life Insurance Company Ltd.

Sun Life (Canada) Insurance Solutions

Tanfac Industries Ltd.TIDCO (Tamil Nadu Industrial Development Corporation)

Fluorine Chemicals

Birla Sun Life Asset Management Company Ltd.

Sun Life (Canada) Mutual Funds

Birla Sun Life Distribution Company Ltd.

Sun Life (Canada)Investment Planning Services

INTERNATIONAL COMPANIES

The Aditya Birla Group, seen today as India's first truly global corporation, has a

significant presence in various countries and has recently forayed into China and

Australia.

Country Company Products / services

Thailand

Thai Rayon Viscose Staple Fiber (VSF)

Indo Thai Synthetics Spun and Fancy Yarns

Century Textiles Fabrics

Thai Acrylic Fiber Acrylic Fiber

Thai Carbon Black Carbon Black

Aditya Birla Chemicals

(Thailand) Ltd.

Sodium Phosphates, Specialty Phosphates,

Epoxy Resins (bis-a and bis-f), Diluents,

Curing agents and Allied products, Sodium

Sulphite, Sodium Metasulphite, Sodium

bisulphate, Caustic Soda, Chlorine



Thai PeroxideHydrogen Peroxide, Per Acetic Acid,

Calcium Peroxide

Philippines

Indo Phil Textile Mills Yarns

Indo Phil Cotton Mills Yarns

Indo Phil Acrylic Mfg. Corp. Yarns

Indonesia

PT Indo Bharat Rayon Viscose Staple Fiber (VSF)

PT Elegant Textile Industry Yarns

PT Sunrise Bumi Textiles Yarns

PT Indo Liberty Textiles Yarns

PT Indo Raya Kimia Carbon Disulphide

Malaysia

Pan Century Edible OilsRefined Palm Oil, Palm Olein, Stearin and

PFAD

Pan Century Oleo chemicals Fatty Acids, Glycerin

Egypt

Alexandria Carbon Black

Company S.A.ECarbon Black

Alexandria Fiber Company

S.A.EAcrylic Fiber

ChinaLiaoning Birla Carbon Co.

Ltd.Carbon Black

Canada

AV Cell Inc.Softwood/ Hardwood Pulp (for VSF

manufacture)

AV Nackawic Inc. Dissolving Pulp (for VSF manufacture)

Australia Aditya Birla Minerals Ltd Copper



BREIF INTRODUCTION

OF

ADITYA BIRLA NUVO LTD.



Aditya Birla Nuvo Ltd., is a diversified conglomerate of businesses as diverse as rayon

production (Unit –Indian Rayon) to Business Process Outsourcing (Unit – Tran works

Ltd.). It is a leading player in the following businesses:

Viscose Filament Yarn (VFY) : Branded as 'Ray One', Aditya Birla Nuvo offers

more than 900 shades of yarn. Aditya Birla Nuvo has a 35 per cent market share and it is

the second largest producer of VFY in India. With a capacity of 16,400 tons per

annum (TPA), it also accounts for 33 per cent of VFY exports from India. It has natural

whites as well as a wide array of colors, ranging from purest tints through medium tones

to vibrant deep shades; in fine to coarse deniers ranging from 75 to 900. Located at

Veraval in Gujarat, VFY plant is the first in Aditya Birla Nuvo Ltd. to be accredited

with the ISO 9002 and ISO 14001, certifications. As a part of its backward integration

process, it has a 91,250 (TPA) caustic soda plant and 34.5 MW co-generation thermal

power plant supplies uninterrupted power.

Garments : Madura Garments, Aditya Birla Nuvo's garments division, is a market

leader in branded apparel. It offers a wide range of ready-to-wear clothes to cater to every

market segment. Its power brands are Van Heusen, Louis Philippe and Allen Solly. Its

popular brands are Peter England, and its youth brand is San Francisco.

Carbon Black : The Aditya Birla Group produces 6, 20,000 metric (TPA) of carbon

black, making it the world's fourth, and India's second largest producer of carbon

black. In India, carbon black is produced by the company at Renukoot in Uttar Pradesh

and at Gummidipoondi, near Chennai, in Tamil Nadu. The combined capacity is 170,000

(TPA).



Textiles : Jaya Shree Textiles, an Aditya Birla Nuvo's textile division, is a leading player

in the domestic flax and worsted yarn markets. It also enjoys a strong international

presence, with over 50 per cent of its revenues coming from exports. This division is

increasing wool-combing capacity from 4,000 (TPA) to 8,000 (TPA) at a capex of Rs.

35.9 Crore.

Insulators : Birla NGK Insulators Pvt. Ltd is India's largest and the world's third largest

manufacturer of insulators, with a production capacity of 36,000 tons per annum (TPA).

In August 2002, the insulators business was de-merged from Aditya Birla Nuvo Ltd. to

form a joint venture company called Birla NGK Insulators Pvt. Ltd. with NGK Insulators

Ltd. of Japan to usher in a new era in insulator manufacturing and bring about an

improvement in the reliability and quality of power supply in India.

Insurance : Birla Sun Life Insurance Company Ltd (BSLI) is a joint venture between

the Aditya Birla Group and Sun Life Financial of Canada, a leading international

financial services organization. Aditya Birla Nuvo holds a 74 per cent stake in this

subsidiary. Birla Sun Life Insurance offers a wide range of insurance solutions, and is

India's second largest insurance company in the private sector.

IT services : Aditya Birla Nuvo Ltd. entered the IT services sector with the acquisition

of PSI Data Systems in June 2001. PSI develops customized software solutions for

businesses and specializes in the insurance, banking and financial services sectors.



BPO : Aditya Birla Nuvo Ltd. entered the business process outsourcing (BPO) sector in

June 2003 with the acquisition of TransWorks, a leading Indian ITES / BPO company.

With delivery centers in Mumbai and Bangalore, TransWorks services clients in North

America and Europe, including many of the top 100 companies in the Fortune 500.

Fertilizers : Indo-Gulf Fertilizers enjoys a leadership position in the nitrogenous

fertilizer sector supported by a strong distribution and customer service network. In

February 2004, its Shaktiman urea brand was relaunched as Birla Shaktiman in order to

leverage the group's strength. Its marketing areas include Uttar Pradesh, Bihar, Jharkhand

and West Bengal, which together account for over 40 per cent of the total urea

consumption in India.

Telecom : Idea Cellular Ltd. is one of the leading cellular operator in India with 16.2%

market share in 11 circles under commercial operations. It has more than 24 million

subscribers’ users of its services. The brand ambassador of Idea is Mr. Abhishek Bahchan

and has a famous tag line as “What an Idea Sir ji”.



ADITYA BIRLA NUVO’s BUSINESS PORTFOLIO

Represents Subsidiaries

Represents JV’s / Associates

(*) JV with Sunlife Financial, Canada


Growth Businesses Value Businesses

Financial Services

BPOTelecomGarments IT Services

Contract Exports

Apparel Retail

Rayon

Capital Market Insurance Advisory

Distribution*

Carbon Black

Asset Management*

Insulators

Life Insurance*

Textiles Fertiliser


ADITYA BIRLA NUVO’s REVENUE COMPOSITION

Aditya Birla Nuvo Limited has crossed USD $ 3 billion mark during the year in

revenue. Growth was of 17 % from Rs. 12,134 Crores in the 2007-08 year to Rs.

14,200.4 Crores in the 2008-09 year. Life Insurance, Telecom, Fertilizers businesses

were the major contributors to the revenues growth of the company. The share of

growth businesses falls to 73% from 75% in previous year.

FY 2007-08

FY 2008-09



MILESTONES

Aditya Birla Nuvo traces its origins to a modest beginning with the acquisition of

Indian Rayon Corporation Limited, a viscose filament yarn manufacturing unit, in

1963.

1956 : Indian Rayon Corporation Ltd is incorporated.

1963 : Indian Rayon's viscose filament yarn plant at Veraval goes on stream.

1966 : The Birla’s acquire Indian Rayon Corporation Ltd.

From year 2000 onwards :

2000 : Indian Rayon acquires Madura Garments, taking the Aditya Birla Group to the

top of the league in the branded apparels sector.

2001 : Life insurance joint venture — Birla Sun Life Insurance Company commences

operations in March Indian Rayon acquires PSI Data Systems.

2002 : Insulators business hived into a separate subsidiary, effective from 1 August

2002.

2003 : Joint venture with NGK of Japan – Birla NGK Insulators Pvt. Ltd – launched on

6 February 2003. Entered into a business process outsourcing (BPO), with the

acquisition of Trans Works, a leading Indian ITES / BPO company.

2004 : Brownfield expansion of 40,000 TPA completed at Hi-Tech Carbon,

Gummidipundi, taking total capacity to 1,60,000 TPA.



2005 to 2007: A new identity

Indian Rayon's new identity as Aditya Birla Nuvo marks the transformation of a

manufacturing company into a premium conglomerate with diversified businesses. Its

tagline of strong foundation, energized growth reflects the company's thrust on growth

and creation of value.

2005 : Indian Rayon rechristened as Aditya Birla Nuvo Ltd. and mergers of Indo Gulf

Fertilisers Limited and Birla Global Finance Limited with the company, effective from

1 September 2005. By virtue of the merger, Birla Sun Life Asset Management and Birla

Sun Life Distribution, leading players in high growth Asset Management and Wealth

Management industry came into the company's fold. ABNL increased its stake from 4.3

% to 20.7 % in Idea Cellular Limited, a company which is in the high growth telecom

sector.

2006 : Increased stake from 20.7 per cent to 35.7 per cent in Idea Cellular Limited,

Acquired Minacs, and leading Canadian BPO Company in August 2006. Insulators JV

with NGK terminated mutually in November 2006. Caustic soda capacity was increased

by 65 TPD taking total capacity to 225 TPD. 18 mw power plant commissioned in

September 2006 in the Rayon division. The chlor alkali and chlorine derivatives

businesses of Aditya Birla Nuvo, Bihar Caustic and Grasim become a single SBU.

2007 : Wholly owned subsidiary "Aditya Birla Insulators Ltd." merged into Aditya

Birla Nuvo Ltd. w.e.f. 1 April 2007 and raised Rs. 777 Crores through rights issue of

equity shares. Brownfield expansion of 60,000 TPA completed at Hi-Tech Carbon,

Gummidipundi, taking total capacity to 2,30,000 TPA



BREIF INTRODUCTION

OF

INDIAN RAYON UNIT



HISTORY AND DEVELOPMENT

The late Prime Minister Shree Lal Bhadur Shastri laid the foundation stone of Indian

Rayon Corporation ltd. It was incorporated on 26th September, 1956 under the

company’s act of 1956 and company was getting the commencement certificate on 13th

February, 1958.

The inauguration of the company was done by an American ambassador Mr. H.H.

Galberth on 13th April, 1963 and on the same day company took its trail production.

Shree Morarji Vaidya on of the leading industrialist of Gujarat of that time with a

view manufacture Viscose Filament Yarn (VFY) in collaboration with von-kohorn

international of USA started this organization.

Once a sick company and virtually on the verge of closure was taken over by late Shree

Aditya Vikram Birla in 1966 and it was named as INDIAN RAYON &

INDUSTRIES Ltd., who believed consolidation, expansion and diversification,

because of his beliefs and sincerity toward work this company has not only turned

around but has also made up strong market position today. By 1975 the JAYSHREE

TEXTILES has merged with INDIAN RAYON.

LOCATION

Indian Rayon unit is located at VERAVAL, in district of Junagadh on NH-8 approx.

185 Km from Rajkot. The place is 1 meter above sea level. The eternal land which is

popularly known as ‘Prabhas Kshetra’ is out ridge of Veraval, which has religious

radius of approx. 5.5 km envelopes Lord Somnath Temple, The Bhalka Tirth and

Triveni.



PROFILE OF THE UNIT

The Rayon plant located at Veraval is an ISO 9002 and ISO 14001 certified plant. The

main product of the rayon plant is viscose filament yarn apart from chemicals like

Sulphuric acid, Carbon-di sulphide, which are both consumed in-house and sodium

sulphate, which is a by- product.

The total production is as follows:

Pot Spun Yarn : 41.5 TPD

Continuous Spun Yarn : 5.00 TPD

Exports constitute about 17% of total turnover. The total production till 31st march 2008

was 16,400 MT.

INDIAN RAYON Company is public ltd. Company. It comes under Aditya Birla Nuvo

Group which is among one of the groups of Aditya Birla group. It is a large scale

industry; it is a capital oriented unit because heavy automatic machineries are required

to produce yarn. It is also labor oriented unit as the man power is equally required to

execute the work. By seeing the heavy capital investment, large scale of employees,

longer production cycle and installation of heavy and costly machineries it can be said

that it is heavy capital industry. The work of unit is divided into 42 departments.



Vision

To be preferred choice of customer in premium segment of Viscose Filament Yarn

global market and benchmarked chlor alkali producer while remaining committed to the

interests of all stakeholders.

Mission

To produce viscose filament yarn to meet the expectation of customers in premium

segment.

To achieve minimum cost of production through innovation, development &

involvement of employees and vendors.

To maintain clean, safe and pollution free environment.

INDIAN RAYON unit is situated in Veraval and its registered office is also in Veraval

in its factory premises. Along with viscose filament yarn plant, Rayon has power plant,

caustic plant and other chemicals plant in its premises.

POWER PLANT

To meet the power and steam requirement of the Rayon & Caustic plant, the company

has set up a 16.5 MW thermal plant with the state of art technology. As the

international trends in fuel and power management goes strongly in direction of

producing pollution free power, two CFBC (Circulating Fluidized Bed Combustion)

types boiler have been installed. The CBFC boilers are considered to be most efficient

and environment friendly boilers and it provides excellent combustion and emission

characteristics and is flexible in using different combination of fuel. To meet the future

power requirement of the Rayon & Caustic plant, another power plant of 20 MW is

proposed. This plant will also be based on the same CFBC technology. Currently output

is of 34.5 MW.



CAUSTIC PLANT

Caustic soda being one of the major inputs for producing Rayon a modern membrane

cell technology cholr-alkali plant has been installed and commissioned in the year 1997.

The caustic plant is integrated with power plant & Rayon plant. Caustic soda plant is

highly power intensive & integration with power plant provides multiple advantages.

The plant caters to the requirements of Rayon plant as well as nearby market. The plant

produces:

160 Tons of caustic soda lye (Rayon grade quality) per day

75 Tons caustic soda flakes per day

Liquid chlorine (80% of caustic soda flakes) in addition to other by-products like

Hydraulic acid, Sodium Hypo & compressed Hydrogen gas.

The total production was of 82,125 MT till dated 31st March, 2008

Company also gives important weight age to the health and safety of its workers &

employees. The necessary organizational set up such as safety department and

committees to promote the awareness. They also believe and have sense of taking care

of our environment. Therefore they strictly follow with the relevant rules and

regulations. Make efficient use of available resources, adopted eco friendly

technologies, safe, clean and healthy work practice.

OTHER CHEMICALS

Other than this, as an effort of backward integration, the unit has a Carbon disulphide

plant with capacity 27.5 TPD, which is a raw material in Viscose production. The unit

also has a plant of Sulphuric Acid with capacity of 100 TPD. The acid is used in the

process of spinning the yarn- the spin bath and also in drying process. The process used

is DCDA (Double conversion double absorption process).The unit also has a by-

product, Sodium Sulphide, with capacity of 28 TPD.



PRODUCTS OF INDIAN RAYON

Name of the

final productEnd user of final product Raw material

Viscose

Filament Yarn

Apparel, home furnishings, slipovers, industrial uses

Pulp, caustic soda, acid, carbon di sulphide, zinc

Carbon

Disulphide

Rubber chemicals, agro chemicals, pesticides, pharma, viscose

Charcoal

Sulphuric AcidFertilizers, intermediates, viscose, dyes, chemicals

Sulphur

Caustic Acid lye

Paper, alumina, viscose, fibers, soaps & detergents, demineralization dyes & intermediates and other chemicals

Salt

Liquid ChlorineOrganic & inorganic chemicals, paper, HCL, PVC, CPW etc.

By-product

Hydraulic AcidDM water plant, pickling of steel, phosphoric acid, synthetic rutile, Ossian, DCP, Calcium chloride

By-product

Sodium Sulphate

Glass industries, paper, textiles, dyes, gum

By-product



AUTHORISED PERSONS FOR INDIAN RAYON

DESIGNATION NAME

Chair Man Mr. Kumar Mangalam Birla

Managing Director Dr. Bharat Singh

Business Director Mr. K.K. Maheshwari

Chief Financial Officer & whole Time

Director

Mr. Adesh Gupta

Company Secretary Mr. Devendra Bhandari

President Mr. Rahul Mohnot

Joint President Mr. D.P. Modani (F&C)

Joint President Mr. K.D. Jhosi (Marketing)

Senior Vice President Mr. P.N. Rao (H.R.)

General Manager (F&A) Mr. Sudhir Maheshwari



SWOT ANALYSIS OF INDIAN RAYON

SWOT analysis shows the strength, weakness, opportunities and threats to company.

SWOT analysis is done for and by every company. Indian Rayon to have its SWOT

analysis which is as follows:

STRENGTH

Company produce high quality yarn then also management always tries to increase

the quality of yarn in order to fulfill their potential customer’s satisfaction level.

Total produced items plus wastage are being fully sold by company which shows

their efficiency of sales activity.

This has helped them to secure 2nd position in Indian market for VFY.

Better packaging, carriage and transportation system with all modern equipments

and good after sales services.

Regular seminars and meeting are conducted in entire department in order to find

their loopholes and solution for the same.

Division also has continuous Spinning Yarn Equipments in which the modern

technology is used for spinning yarn. It is imported from Germany.

Division has domestic as well as export market and for this they are doing online

marketing in order to find new market.

Division also has World Class Manufacturing (WCM) cell, which looks out for

better ways of manufacturing.



Indian Rayon is certified by ISO 9002 & ISO 14001 which shows the sign of

better quality production and environment concern for its surroundings.

The most important thing is that they have good and healthy working atmosphere

in company and they provide ample no. of opportunities for everyone to satisfy

their job desire.

WEAKNESS

Locations of depots (Consuming Centers) are far away from factory. Hence

transportation cost and time duration is increases in inventories.

Bigger process cycle causes higher stock of raw materials.

Many process steps and process are more sensitive to normal process variations

and small error causes the big amount of wastage of material.

Being highly labor intensive unit, HR department is always under pressure and

many times fails to meet expectations of various departments and employees.

OPPORTUNITIES

Division should find new market area for its products especially in chemicals.

More research activity should be done as there are chances of getting new market.

VYF use for certain textile items and indispensable. Hence they can make more

textiles unit as their customers.



Quality has more weight age in international market and Indian Rayon’s Pot

Spinning Yarn is next to Asahi Japan and better than Chinese & Russian Yarn.

Hence there are opportunities for grabbing market share.

Biggest opportunity for Indian Rayon was of opening up of global market. MFA

expires in 2005 which lead to demolishing of quota restrictions. This boosted the

export of yarn directly as world’s biggest textile market is of Europe and USA.

THREATS

Government policies are the main hurdles of division’s performance.

Emergence of cotton threads made the market share of rayon yarn low.

Change in fashion is also a biggest threat for division.

The main raw material is wood pulp and due to strict rules by various government

for forest cutting has made raw material costly and also shortage many time.

Unregulated dumping of the products from China at lower cost has reduced the

market share.



OBJECTIVE OF THE PROJECT

Management as a profession can’t be taught merely in the four walls of classrooms.

Only theoretical knowledge is not sufficient to build competitive managers. Practical

knowledge of the business environment is equally important.

The INDIAN RAYON is founded on the strengths of strong foundation and

commitment beyond business.

This report attempts to show the study of the financial management done by INDIAN

RAYON a unit of ADITYA BIRLA NUVO Ltd. for Sources, Applications & Needs

of Working Capital in current business scenario.

This report enables me to have an overall view of INDIAN RAYON regarding finance.

I am pleased by taking training at India’s one of the best Viscose Filaments Yarn,

Caustic Soda & Other Chemicals manufacturing company along with most efficient

administrative management in area of Finance, Marketing and H.R.

Here the main motto was to gain experience of working in corporate world with all

short of medium and to develop more skill, and to apply all the theoretical knowledge

which was taken in the class room at Globsyn Business School and also provided me a

chance to take knowledge and experience of working in environment of SAP (ERP

SYSTEM) used by INDIAN RAYON for their usage in terms of latest technology and

MIS in company.



RESEARCH METHODOLOGY

&

LIMITATIONS AND PROBLEMS

FACED



General Information

The research work to be carried out here is actually a study work conducted at

Indian Rayon and Industries Ltd., Veraval in finance & accounting department on

the topic of the comparative study of financial performance of Indian Rayon since

2005. The various data collected through method of discussion and no

questionnaire is designed for the purpose of the study. The information about the

design of sampling is given as under.

Sampling

As discussing above, no questionnaire requires being prepared during the study

and the selection of the sampling is an easy task compare to other research work.

Starting from the officer level to the general manager almost all 25 staff members

were asked the different question related to the project topic.

Research Tools

The financial performance of the last five years i.e. from F.Y. 2005 - 06 to 2009 –

10 are used for calculating the ratio and hence interpreting the financial position of

the organization during that period of time. The annual reports of Indian Rayon &

Aditya Birla Nuvo Ltd. are also used as a research tool.

PRIMARY DATA

The primary data has been collected from experts, officials and employees

working in INDIAN RAYON (A UNIT OF ADITYA BIRLA NUVO LTD.).

SECONDARY DATA

For secondary data, I have referred books related to working capital management.



I have collected some data from the journals related to the YARN industries.

Informations will be taken from the books and audited records of ADITYA

BIRLA NUVO LTD. or INDIAN RAYON & INDUSTRIES LTD.

I will collect informations from ABNL or IR&IL annual reports and different

manuals referred by them.

Books like Aditya Kiran (an in built group magazine) will also used for knowing

various facts and figures about group and its work for social causes and on

humanitarian ground.

Various web sites will also be considered and taken data from there along with

intranet of INDIAN RAYON UNIT.

LIMITATIONS AND PROBLEMS FACED

Annual reports consist of Aditya Birla Nuvo ltd. which includes various other

units, subsidiaries, joint venture’s of different sectors in it. Hence no individual

financial statement was available of Indian Rayon unit for analysis.

Data analysis is done of Aditya Birla Nuvo Ltd. group’s of companies or Indian

Rayon & Industries Ltd. up till 2005 -06 companies. No individual account of

Indian Rayon unit was available for analysis.



Various information regarding unit is not shared in the report due to maintaining

secrecy of the company and following their terms and regulation.

In practical training only Indian Rayon’s accounts was used to gain the

knowledge.

Various information regarding unit was also not shared with trainee by company

due to their rules, regulation and policies.

Working Capital is wider concept and it requires more time for learning each and

every aspect of it. Hence there was time constraint too.

Busy schedule of company guide and other authorized persons of the company

made delay and provided less portion of their time for trainee students.

Unfamiliarity with culture and department of the company was also becoming a

hurdle for producing efficient output for trainee.

Trainee had less time for practicing regarding the learning of SAP at the time of

training.



INTRODUCTON

OF

WORKING CAPITAL



There are two concepts of working capital

Gross Working Capital

Net Working Capital

Gross Working Capital :- Simply called as working capital, 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 include cash. Short-term

securities, debtors, bills receivables and stock (Inventory).

Net Working Capital :- It refers to the difference between current assets and current

liabilities. Current liabilities are those claims of outsiders, which are expected to mature

to payment within an accounting year and include creditors, bills payable and

outstanding expenses. Net working capital can be positive and negative. A positive

working capital will arise when current assets excess current liabilities and vice – versa.

The concept of working capital – gross and net – are not exclusive, rather they have

equal significance from management view point.

Focusing on Management of Current Assets

The gross working capital concepts focuses attention on two aspects of current assets

management: (A) How to optimize investment in current assets? (B) How should

current assets be financed?

The considered of the level of investment in current assets should avoid to danger

points – excessive and inadequate investment in current assets. Investment in current

assets should be just adequate, not more than less, to needs of the business firm.

Excessive investment in current assets should be avoided because it impairs firm’s

profitability, as idle investment earns nothing. On the other hand, inadequate amount of



working capital can threaten the solvency of the firm because of its inability to meet its

current obligations. It should be realizing that the working capital needs of the firm

might be fluctuating with changing business activity. This may cause excess or shortage

of working capital frequently. The management should be too prompt to initiate an

action and current imbalances.

Another aspect of the gross working capital points in the need of arranging funds to

finance current assets. Whenever needs for working capital arise due to do the

increasing level of business activity or for any other reason, arrangement should be

made quickly. Similarly, if suddenly some surplus fund arises, then they should not be

allowed to remain idle, but should be invested in short term securities. Thus financial

manager should have knowledge of source of working capital fund as well as

investment avenues where idle fund may be temporarily invested.

Focusing on Liquidity Management

Net working capital, begin the difference between current assets and current liabilities,

is a qualitative concept. It (A) indicates the liquidity position of the firm and (B)

Suggest the extent to which working capital needs may be finance by permanent

sources of funds. Current assets should be sufficiently in excess of current liabilities to

constitute a margin or buffer to maturing obligations within the ordinary operation

cycle of a business. In order to protect their interest, short-term creditors always like a

company to maintain current assets at a higher level than current liabilities. However,

the quality of current assets should be considered in determinate the level of current

assets vice-versa current liabilities. A weak liquidity position poses a threat to solvency

of the company and makes it unsafe and unsound. A negative working capital means a

negative liquidity, and may prove to be harmful for the company.

Excessive liquidity is also bad. It may be due to mismanagement of current assets

therefore, prompt and timely action should be taken by management to improve and

current the imbalance in the liquidity position of the firm.



Net working capital concept also covers the question of judicious mix of long-term and

short-term funds for financing current assets. For every firm, there is a minimum

amount of net working capital, which is permanent. Therefore, a portion of the working

capital should be financed with permanent sources of funds such as owner’s capital,

debentures, long-term debts, preference capital or retained earnings. Management must,

therefore decide the extent to which current assets should be financed with equity

capital or borrowed capital.

In summary, it may be emphasized that both gross and net concepts of working capital

are equally important for the efficient management of working capital. There is no

precious way to determine the exact amount of gross, or net, working capital for any

firm. The data and problems of each company should be analyzed to determine the

amount of working capital. There is no special rule as to how current assets should be

financed. It is not feasible in practice to finance current assets by short-term sources

only. Keeping in view the constraints of the individual company, a judicious mix of

long-term finances should be invested in current assets. Since current asset involves

cost of funds, they should be put to productive use.



WORKING CAPITAL

AND

MANAGEMENT



Working capital is concerned with management of current asset. It is an important and

integral part of financial management as short term survival is prerequisite for long

term success.

The divisional management of IR&IL Co. (Indian Rayon & Industries ltd.) or ABNL

(Aditya Birla Nuvo Ltd.) manages the working capital within the board frame work laid

by and with consultation of Corporation Finance Division (CFD). Decision regarding

the utilization of the current assets is made in accordance with the policy of company.

Working capital management or short term financial management is concerned with

decision relating to current assets and current liabilities.

WCM = Current Assets (CA) – Current Liabilities (CL)

The key difference between long-term finance management and short-term financial

management is in term of timing cash. While long- term financial decision like buying

capital equipments or issuing debentures involves cash flows over extended period of

time i.e. more than one to five years or even more while short term financial decision

typically involve cash flows within a year or within the operating cycle of the firm.

WCM is management for the short- term which is critical to the firm. Managers spent

about 70% in managing for the short- term capital.

The operating cycle can be said to be at eh heart of the need for working capital.


Cash

Receivable

Inventory


The management of the finances of a business / organization in order to achieve

financial objective.

Taking a commercial business as the most common organizational structure, the key

objectives of financial management would be to:

Create wealth for business

Generate cash and

Provide an adequate return on investments bearing in mind the risks that the

business is taking and the resources invested.

There are three key elements to the process of financial management:

FINANCIAL PLANNING : Management need to ensure that enough funding is

available at the right time to meet the needs of the business. In short term, funding may

be needed to invest in equipment and stocks, pay employees and fund sales made on

credit. In the medium and long term, funding may be required for significant additions

to the productive capacity of the business or to make acquisitions.

FINANCIAL CONTROL : Financial control is a critically important activity to

help the business ensure that the business is meeting its objectives.

FINANCIAL DECISION-MAKING : A key financing decision is whether profits

earned by the business should be retained rather than distributed to shareholders via

dividends. If dividends are too high, the business may be starved of funding to reinvest

in growing revenues and profits further.



ORGANIZATIONAL STRUCTURE OF

FINANCE DEPARTMENT


Business Director

President (Rayon Division)

(Rayon Division)

Joint President (Finance & Comm.)

GM Finance

Sr. Manager (A/C)

Deputy Manager Cash

Deputy Manager Creditor

Deputy Manager Salary

OfficerOfficer

Officer Officer

Officer Officer


ISSUES & FACTORS

INFLUENCING

FOR WORKING CAPITAL



ISSUES IN WORKING CAPITAL

Working Capital refers to the administration of all components of working capital-cash,

marketable securities, debtors (receivable) and stock (inventories) and creditors

(payables). The financial manager must determine levels and composition of current

assets. He must that right sources are trapped to finance current assets, and that current

liabilities are paid in time.

There are many aspects of working capital management, which make it an important

function of the financial manager.

Time :- working capital management requires much of the financial manager time.

Investment :- working capital represents a large portion of the total investment in

assets.

Critically :- working capital management has great significance for all firms but it is

very critical for small firms.

Growth :- the need for working capital is directly related to the firm’s growth.



FACTORS INFLUENCING WORKING CAPITAL

There is not set of rules or formula to determine the working capital requirement of the

firms. Therefore, an analysis of relevant factor should be made in order to determine

total investment in working capital.

The main factors are:

1. Nature of Enterprise

The nature and the working capital requirements of an enterprise are interlinked. While

a manufacturing industry has a long cycle of operation of the working capital, the same

would be short in an enterprise involved in providing services. The amount required

also varies as per the nature; an enterprise involved in production would require more

working capital than a service sector enterprise.

IR&IL is a manufacturing organization, because of which it requires lot of funds to be

blocked in raw materials for the production of VYF & Chemicals. The cycle of

operations at INDIAN RAYON is quite long and thus it needs large amount of working

capital. 40% of total funds are invested in raw materials.

2. Manufacturing/Production Policy

Each enterprise in the manufacturing sector has its own production policy, some follow

the policy of uniform production even if the demand varies from time to time, and

others may follow the principle of 'demand-based production' in which production is

based on the demand during that particular phase of time. Accordingly, the working

capital requirements vary for both of them.



IR&IL follows continuous production policy. The plants are operated 24 hours in

different shifts. Demand factor is not considered here as the VFY and chemicals are

sold by its marketing department. As the production continues for 24 hours, the

investment in raw material inventories is very high as interruption in production causes

increase in cost of production because of high set up cost of plants even need of raw

material for power plant is always in demand for the same.

3. Operations

The requirement of working capital fluctuates for seasonal business. The working

capital needs of such businesses may increase considerably during the busy season and

decrease during the slack season. Ice creams and cold drinks have a great demand

during summers, while in winters the sales are negligible.

As INDIAN RAYON has policy of continuous production, it does not have to consider

seasonal factors for its working capital requirements. Its working capital does not vary

with seasons.

4. Market Condition

If there is high competition in the chosen product category, then one shall need to offer

sops like credit, immediate delivery of goods etc. for which the working capital

requirement will be high. Otherwise, if there is no competition or less competition in

the market then the working capital requirements will be low.

IR&IL does not have to depend on market conditions as VYF & chemicals like

Chlorine and Caustic Soda are always considered essential for textile and for various

manufacturing unit. So there is not much competition in this industry. Secondly IR&IL



manufactures both the products of different categories, while sales is handled by its

marketing department efficiently.

5. Availability of Raw Material

If raw material is readily available then one need not maintain a large stock of the same,

thereby reducing the working capital investment in raw material stock. On the other

hand, if raw material is not readily available then a large inventory/stock needs to be

maintained, thereby calling for substantial investment in the same raw materials are

very important aspect for arriving at working capital requirements at IR&IL because of

two reasons mainly. First IR&IL follows continues production policy so the raw

materials are used in very large quantum and second the raw materials like Wood Pulp,

Caustic Soda Flicks for VFY and Common Salt of low magnesium for Caustic Soda,

Coals for power plants and many others and most of the raw materials are imported

from foreign countries which takes around two months as lead time. Thus it requires

large amount of working capital.

6. Growth and Expansion

Growth and expansion in the volume of business results is enhancement of working

capital requirement. As business grows and expands, it needs a larger amount of

working capital. Normally, the need for increased working capital funds precedes

growth in business activities.

Indian Rayon or ABNL has grown incredibly since its inception. Because of high

growth it needs large amount of working capital as the operations are handled at very

large scale. Indian Rayon has expanded its operations through investing in many other

important projects which compel them to invest immensely in working capital.



7. Price Level Changes

Generally, rising price level requires a higher investment in the working capital. With

increasing prices, the same level of current assets needs enhanced investment. The price

level changes in raw materials hit very hard to Indian Rayon as the major investments

are being done in raw materials. Most of the materials are imported for outside India

which involves risk of exchange rate fluctuations thus it needs high amount of working

capital.

8. Manufacturing Cycle

The manufacturing cycle starts with the purchase of raw material and is completed with

the production of finished goods. If the manufacturing cycle involves a longer period,

the need for working capital would be more. At times, business needs to estimate the

requirement of working capital.

Manufacturing cycle affects a lot on working capital requirements at Indian Rayon as

the cycle takes lot of time to convert raw material into finished goods. It takes around 7

to 8 days to complete one process of converting raw material into final product.

Purchase of raw material takes as long time as two months. Therefore it is very

necessary for Indian Rayon to invest sufficient amount in working capital.

At times, business needs to estimate the requirement of working capital in advance for

proper control and management. The factors discussed above influence the quantum of

working capital in the business. The assessment of working capital requirement is made

keeping these factors in view. Each constituent of working capital retains its form for a

certain period and that holding period is determined by the factors discussed above.



9. Technology:

In Rayon Division, the technology used for production process is labor intensive in

VFY and Caustic Soda and also heavy machinery in power plant along with VFY,

chemicals and Caustic Soda. So it increases the requirement of working capital.

10. Credit Policy:

The credit policy of the firm affects working capital by influencing the level of the book

debts. The Rayon division allows merely 3 days of credit period to its customers and if

the payment is not made, the high rate of interest is charged i.e. around 18 %. But for

special customer they provide credit of around 1 month too.

11. Banking Facility:

The Rayon Division uses the latest banking facility like Cash Management Services

(CMS) which help in maintaining almost Zero Bank Balance and facility like at par

cheque, Cash credit Service, Letter Credit, Fixed deposits, Over Draft facility, Working

Capital loans, e-banking, Bill discounting facility etc. ABNL or Indian Rayon has major

account and deals it’s transaction with HDFC bank, HSBC bank, and State Bank of

India.

12. Business Fluctuation:



The Operating Efficiency of the firm relates to the optimum utilization of resources at

minimum costs. Better utilization of resources improves profitability and thus helps in

releasing the pressure on working capital.

ASSESMENT FOR THE SORUCES

AND

APPLICATION FOR WORKING

CAPITAL



The assessment of the working capital in the ABNL’s unit is done by the CFD with the

consultation with the management staff of the Co. and on the basis of the Co.’s previous

year experience. This helps to maintain efficiently fund for operation of the

organization. There are main four components which plays vital role for it which are as

follows:

INVENTORY

RECIEVABLE (UGAI), (DEBTORS)

CASH MANAGEMENT

PAYABLES (CREDITORS)

INVENTORY

Inventory includes all types of stocks. For effective working capital management,

inventory needs to be managed effectively. The level of inventory should be such that

the total cost of ordering and holding inventory is the least. Simultaneously, stock out

costs should also be minimized. Business, therefore, should fix the minimum safety

stock level, re-order level and ordering quantity so that the inventory cost is reduced

and its management becomes efficient.



Following are the types of inventory, which the company generally holds.

1 Raw Material:-

A raw material is the goods, which are required to produce the product of the firm.

Raw materials are the basic input of the production which is converted into finished

goods after manufacturing process.

2 Goods in Production Process:-

These are the goods or inventories, which are under the production process, in

other words we can say goods in process or semi finished goods. They represent the

products that need more work before they become finished goods for sale.

3 Finished Goods:-

Finished goods inventory are those which are completely manufactured and ready

for sale. Stock of raw material or work in progress facilitates production, while

stock of finished goods is required for smooth marketing operations.

4 Stock Of Stores Materials :-

Stock of store materials includes spare and tools. Spares means the parts of the

machinery and tools are equipment, which are provided to the employees to the

firm. These materials do not directly enter into production but they are essential for

production process.

NEEDS FOR HOLDING INVENTORY:-

Mainly there are two motives of holding inventories.

1. Transaction motive :-



A transaction motive emphasizes the need to maintain inventories to facilitate

smooth production operation

2. Precautionary motive:-

Precautionary motive necessitates holding of inventories to guard against the risk

of unpredictable changes in demand and supplies forces and other factors.

TECHNIQUES OF INVENTORY MANAGEMENT:-

1. ABC ANALYSIS :- In ABC analysis, the entire goods in stores are divided into

three categories A, B, and C. it is the most effective way of the inventory

management. Most of the firms are adopting this technique. That is why ABC is

also known as ALWAYS BETTER CONTROL. How the goods are divided into

three categories is mentioned below:

“A” category goods:- A category goods are high value goods, which incurred

maximum cost of the total inventory cost. In Indian Rayon those goods are of “A”

category which costs more than Rs.50,000.

“B” category goods:- “B” category goods are those, which costs between Rs.10,000/-

to Rs.50,000/-.

“C” category goods:- “C” category goods involves goods which costs below

Rs.10,000/-.

2. FSN ANALYSIS :- In FSN technique all goods are categorizes into three

categories. Fast moving goods, slow moving goods and non moving goods. The

rules of the FSN analysis may vary according to company’s norms. The norms of

FSN analysis at Indian Rayon are mentioned below.



Fast Moving Goods: Fast moving goods are those, which are used within three

months.

Slow Moving Goods: Slow moving goods are those, which are used between

three to six months.

Non Moving Goods: Non moving goods are those, which are used since in above

six months.

Inventory Valuation System at INDIAN RAYON (IR&IL)

The IR&IL Co. is the manufacturing organization, so being manufacturing

organization it needs a large among of the inventories for smoothing of business

operation. The Co. invests nearly 75 to 80 percent of total current assets in the

inventories.

In the IR&IL Co. the inventory is maintain by finding the actual requirement and

analyzing material, which is scared or not easily meet at the proper time. The after the

Co. decides the optimum level for each inventory based on requirement. But because

Co. has a good image to the supplier, it maintains the three days stock inventories for

most of the goods even though the industry standard is seven days.

In IR&IL Co. there is special storage dept. and separate inventory management force

which perform certain functions for efficient management of inventories in the

company. It maintains sufficient stock of raw materials in period of short supply and

anticipates price change. It helps sales dept. by maintaining sufficient finished goods

inventories for smooth sales operation.

The company is maintaining proper records of inventory. No material discrepancies have been

noticed on physical verification of stocks as compared to book records.

Inventories Rs. In Crores

Finished Goods 288.72


SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL Stores & Spares 77.94

Raw Materials 320.71

Packing Materials 3.89

Work – in – Progress 56.04

Waste / Scrap 0.30

Inventory Turnover Ratio = NET SALES Inventory

= 4687.57 747.60

= 6.27 times

Cost of inventory is compared on a weighted average or FIFO basis. For the

inventories of stores and spares the organization uses the Music 3D system (Multi Unit

Selective Inventory Control) of inventory management.

(Note : The above figures are of ABNL Standalone’s balance sheet, which includes INDIAN RAYON in it.)

RECEIVABLES (UGAI), (DEBTORS)

The term receivable is defined as debt owed to the firm by customers arising from sale

of goods or services in the ordinary course of business. IR&IL Co. sells its products to

the industries. So it needs to grant credit to its buyer.

Given a choice, every business would prefer selling its produce on cash basis. However,

due to factors like trade policies, prevailing marketing conditions, etc., businesses are

compelled to sell their goods on credit. In certain circumstances, a business may

deliberately extend credit as a strategy of increasing sales. Extending credit means

creating a current asset in the form of ‘Debtors’ or ‘Accounts Receivable’. Investment



in this type of current assets needs proper and effective management as it gives rise to

costs such as:

i. Cost of Carrying Receivable (Payment Of Interest Etc.)

ii. Cost of Bad Debt Losses

Thus the objective of any management policy pertaining to accounts receivables would

be to ensure that the benefits arising due to the receivables are more than the cost

incurred for receivables and the gap between benefit and cost increases resulting in

increased profits. An effective control of receivables helps a great deal in properly

managing it.

Each business should project expected sales and expected investment in receivables

based on various factors, which influence the working capital requirement. A business

should continuously try to monitor the credit days and see that the average credit

offered to clients is not crossing the budgeted period. Otherwise, the requirement of

investment in the working capital would increase and, as a result, activities may get

squeezed. This may lead to cash crisis.

Receivables treated as marketing tool to aid the sale of goods as well as use for

protecting the customers from the competitor and attract the new customers and thereby

profit.

Credit Standards

As per the industrial standard for Rayon, the organization runs well on the track of

Average collection period. But due to core competition in the chemical market the avg.

collection period increased and reached near to the 25 to 30 days, so it can conclude

that organization investment in receivable is not very high.

The customers are paying its obligation to the organization in time. The default rate is

nearly zero in the organization. Beside all above the organization also evaluate their



customer’s financial condition, character and capacity and that’s why the Co. has never

incurred the bed debt in its entire history.

The collection of the fund is done by HDFC bank, which plays an agent role for them.

The avg. collection period for the account receivables is between 21 to 27 days, or as

per the deal. Late payments by customer are penalized by putting interest on

outstanding amount. Interest rate is of 18 % for late payment on the left amount.

Receivable (UGAI) Management at INDIAN RAYON: - Receivable

management in IR&IL is big component to be considered with respect to working

capital requirements. It does sale its production directly in the market. Indian Rayon is

manufacturing unit which dispatch it’s partly production to various centers or depot

made by company and also deals directly from factory. Though VFY marketing office

is in Mumbai but the key function are done from Veraval where as for Caustic Soda and

Chemicals marketing heads are in factory compound itself.

At IR&IL, receivables have their fair amount of share in current assets. Current assets

shown in books of IR&IL or ABNL most of the times represent high balance or upward

balance as one of the main component of current assets which is deal here. Hence this

implies as liquidity for Indian Rayon unit.

CASH MANAGEMENT

Cash is the most liquid current asset. It is of vital importance to the daily operations of

business. While the proportion of assets held in the form of cash is very small, its

efficient management is crucial to the solvency of the business. Therefore, planning

cash and controlling its use are very important tasks. Cash budgeting is a useful device

for this purpose.

Cash Budget



Cash budget basically incorporates estimates of future inflows and outflows of cash

over a projected short period of time which may usually be a year, a half or a quarter

year. Effective cash management is facilitated if the cash budget is further broken down

into month, week or even on daily basis.

There are two components of cash budget (i) cash inflows and (ii) cash outflows.

The main sources for these flows are given here under:

Cash Inflows

(a) Cash sales

(b) Cash received from debtors

(c) Cash received from loans, deposits, etc.

Cash Management at INDIAN RAYON :- Cash management is an important

aspect which is dealt with maximum care at INDIAN RAYON. Cash management does

not only involve management of cash transactions but also of bank transactions. Here

cash and bank aspects of cash management have been discussed separately.

Cash Section:- Cash is the most important asset for any organization but at the same

time a least productive one. At INDIAN RAYON, very few transactions are made in

cash, value of which is not more than Rs.15,000.

Main Cash Expenditures at INDIAN RAYON:

1. Tour advances to its employees.

2. Other miscellaneous expenses.

Main Cash Receipts at INDIAN RAYON:

1. Employee’s dues

2. Scrap sale

Documents for Any Cash Transaction:



1. Cash receipt voucher

2. Cash payment voucher with approval of authorized officer.

Other Policies Regarding Cash Management:

INDIAN RAYON maintains cash balance of Rs.1,00,000 for every day

transactions with cashier.

Petty cash of Rs.5000 has been approved to 7 to 8 employees for specified

purposes.

The authorized officers verify hard cash with cash balance at regular interval of

15 days.

Bank Section:

INDIAN RAYON is largely dependent on banks as it makes all its transactions through

bank. IR&IL or ABNL’s manages its bank transactions in a very proper and systematic

way. Mainly it deals through its current account with HDFC Bank. INDIAN RAYON

has got bank credit of RS. 31 Crores, all the transactions which are of routine nature are

paid through this bank credit. These transactions include following;

Statutory dues

Custom duties

Freight

Day to Day expenses

The above all payments are done through cheques. Regular payments for these

transactions are very essential as the legal implications are involved with some the

above transactions.

Other policies regarding managing bank transactions:



INDIAN RAYON has another account with UBI Bank & SBI Bank. These

accounts are also used for freight and other payments purpose.

It also has its account in HSBC Bank

Post dated and pre dated cheques are mainly not accepted by INDIAN RAYON.

Demand drafts on local banks are accepted to avoid clearing charges.

LC that is LETTER OF CREDIT is also has been provided by bank to INDIAN

RAYON.

Bank charges 0.6 % commission on bank guarantee.

Bank charges 9% interest on the amount spent by INDIAN RAYON from its bank

limit and also charges 15% interest on bank overdraft.

MANAGING PAYABLES (CREDITORS)

Creditors are a vital part of effective cash management and should be managed

carefully to enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function can create

liquidity problems. Consider the following:

Who authorizes purchasing in your company - is it tightly managed or spread

among a number of (junior) people?

Are purchase quantities geared to demand forecasts?

Do you use order quantities which take account of stock-holding and purchasing

costs?

Do you know the cost to the company of carrying stock?

Do you have alternative sources of supply? If not, get quotes from major

suppliers and shop around for the best discounts, credit terms, and reduce

dependence on a single supplier.

How many of your suppliers have a returns policy?



Are you in a position to pass on cost increases quickly through price increases to

your customers?

If a supplier of goods or services lets you down can you charge back the cost of

the delay?

Can you arrange (with confidence!) to have delivery of supplies staggered or on

a just-in-time basis?

Payables Management at INDIAN RAYON:-

Payables management is one of the most appropriate procedures at INDIAN RAYON.

Payables management is dealt by Creditors department in Finance and Accounts

department along with coordination and help of purchase department, work bills section

as the payables mainly involve credit purchases of raw materials and other contractual

works being undertaken by contractors at INDIAN RAYON.

Policies Regarding Payables At INDIAN RAYON:-

Different terms of purchases are defined in NIT.

Generally, INDIAN RAYON gets period of 30 days to meet its obligations with regards

to its creditors and payables.

The raw materials like Wood pulp, Sulphur, are imported from foreign countries.

Because of which the investment in inventories is quite high which ultimately leads to

high amount of payables and they also requires a good amount of Common Salt and

Coal to run their plant as per requirement.



All Payables are paid by the Head Office i.e. from Veraval and also recorded here only.

NEEDS OF AND RESOURCES

OF

FINANCE FOR WORKING CAPITAL



NEEDS OF WORKING CAPITAL

The need for working capital to run day to day business activities cannot be

overemphasized; we will hardly find a business firm which does not requires any

amount of working capital. Indeed firm differs in their requirement of the working

capital. We know that firms aim at maximizing the endeavor to maximize shareholders

wealth; a firm should earn sufficient returns from its operations. Earnings a steady

amount of profit require successful sales activity. The firm has to invest enough funds

in current assets are needed because sales o not convert into cash instantaneously. There

is always an operating cycle involved in the conversion of sales into cash.

Balanced Working Capital Position

The firm should maintain a sound working capital position. It should have adequate

working capital to run its business operations. Both excessive as well as inadequate

working capital positions are dangerous from the firm’s point of view. Excessive



working capital means holding costs and idle funds which earn no profits for the firm.

Paucity of working capital not only impairs the firm’s profitability but also results in

production interruptions and inefficiencies and sales disruptions.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

Implementation of operating plans may become difficult and consequently the

profit goals may not be achieved.

Cash crisis may emerge due to paucity of working funds.

Optimum capacity utilization of fixed assets may not be achieved due to non-

availability of the working capital.

Growth may be stunted. It may become difficult for the enterprise to undertake

profitable projects due to non-availability of working capital.

The business may fail to honor its commitment in time, thereby adversely

affecting its credibility. This situation may lead to business closure.

The business may be compelled to buy raw materials on credit and sell finished

goods on cash. In the process it may end up with increasing cost of purchases and

reducing selling prices by offering discounts. Both these situations would affect

profitability adversely.

Non-availability of stocks due to non-availability of funds may result in

production stoppage.

CONSEQUENCES OF OVER ASSESSMENT OFWORKING CAPITAL

Excess of working capital may result in unnecessary accumulation of inventories.



It may lead to offer too liberal credit terms to buyers and very poor recovery

system and cash management.

It may make management complacent leading to its inefficiency.

Over-investment in working capital makes capital less productive and may reduce

return on investment.

RESOURCES OF FINANCE FOR WORKING CAPITAL

External funds available for a period of one year or less are called short-term funds.

Such funds are used for financing working capital. Two most significant short-term

sources of finance of working capita are trade credit and bank borrowing. The use of

trade credit has been increasing over years in India. Trade credit as a ratio of current

assets is about 40%. Bank borrowing is the next important source of working capital

finance. Before seventies, bank credit was liberally available to firms. It became a

restricted resource in eighties and nineties due to the changes in the government

policies; banks required to follow the government prescribed norms in financing

working capital requirement of firms. Now there are no such government norms and

banks are free to take business in granting finance for working capital.

Two other short-term sources of working capital finance which have recently developed

in India are: (1) factoring of receivables and (2) commercials paper.

Bank Finance for working Capital



Banks are the main institutional sources of working capital finance in India. After trade

credit requirements bank considers a firm’s sale and production plans and the desirable

levels of current assets in determining its working capital requirements. The amount

approved by the bank for the firm’s working capital is called credit limits. Credit limits

is the maximum funds, which a firm can obtain from a banking system. In the case of

firms with seasonal business banks may fix separate limits for the peak level credit

requirement and normal, non-peak level credit requirement indicating the period during

which the separate limits will be utilized by the borrower. In practice, bank does not

lend 100% of the credit limit; they deduct margin requirement min. of 30% and will

lend up to 70% of the value of assets. A firm can draw funds from its bank within the

max. Credit limit sanctioned. It can draw funds in the following norms: (a) overdrafts,

(b) cash credit, (C) bills purchasing or discounting, and (d) working capital loan.

FUND FLOW STATEMENT



Meaning of Fund

Funds may means of changes in financial resources, arising from changes in working

capital items and from financing and investing activities of the enterprise, which may

only involve non - current items.

Fund Flow Statement

The statement of changes in financial position, prepared to determine only the sources

and uses of working capital between dates of two balance sheets, is known as the funds

flow statement.

As historical analysis, the statement of changes in working capital reveals to

management the way in which working capital was obtained. With this insight,

management can prepare the estimates of the working capital flows. A statement



reporting the changes in working capital is useful in addition to the financial statements.

A projected statement of changes in working capital is immensely useful in the firm’s

long-range planning.

The working capital flow of fund arises when the net effect of a transaction is to

increase or decrease the amount of working capital.

The concept of working capital flow may be summarized as follows:

The net working capital increases or decreases when a transaction involves a

current account and a non-current account.

The net working capital remains unaffected when a transaction involves only

current accounts.

The net working capital remains unaffected when a transaction involves only

non-current accounts.

Statement of Changes in Financial Position from 31/3/2008 to 31/3/2009

(All Figures in Rs. Crores)

Liabilities 2007-08 2008-09 difference Source/Application

Share capital 95.01 95.01 - Source

Share Warrants 377.41 377.41 - Source

Reserves and Surplus 3551.32 3649.24 97.92 Source

Differed Tax Liabilities 200.31 180.24 (20.07) Application

Secured Loans 1856.72 2217.07 360.35 Source

Unsecured Loans 886.70 2282.14 1395.44 Source


SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL Current liabilities and

Provisions

700.37 773.48 73.11 Source

Assets : 2007-08 2008-09 difference Source/Application

Fixed assets ( Net Block) 1430.89 1476.21 45.32 Application

Capital WIP 70.73 128.78 58.05 Application

Investments 4054.17 5712.39 1658.22 Application

Inventories 776.60 747.60 (29.00) Source

Debtors 760.98 887.23 126.25 Application

Cash and Bank 97.15 89.81 (7.34) Application

Loans and Advances 476.50 532.57 56.07 Application

Interest Accrued on Investments 0.82 - (0.82) Source

FUND FLOW STATEMENT ON WORKING CAPITAL BASIS

(All Figures in Rs. Crores)

Sources Amount Uses Amount

Share capital - Fixed assets 45.32

Share Warrants - Capital WIP 58.05

Reserves and Surplus 97.92 Investments 1658.22

Secured loans 360.35 Inventories (29.00)



Unsecured Loans 1395.44 Debtors 126.25

Current liabilities &

provisions

73.11 Cash and Bank (7.34)

Differed tax liability (20.07) Loans and Advance 56.07

- - Interest Accrued on

Investments

(0.82)

Total 1609.75 Total 1609.75



USE OF WORKING CAPITAL IN BUSINESS

The typical uses of working capital are as follows:

1. Adjusted net loss from operations.

2. Purchase of non-current assets:

Purchase of long-term investments like shares, bond / debentures etc.

Purchase of tangible fixed assets, like land, building, plant, machinery,

equipment etc.

Purchase of intangible fixed assets, like goodwill, patents, copyrights etc.

3. Repayment of long-term debt (debentures or bonds) and short-term debt (bank

borrowing).

4. Redemption of redeemable preference shares.

5. Payment of cash dividend.

6. Payment of taxes and various other expenses.

7. Payment of other liabilities which are hidden but their payment plays crucial role

in production cycle and also in working capital cycle.

8. Provide more R&D options and wider scope as resources are more available in

terms of money for company.

9. To reduce one’s liabilities by paying them from making working capital profit.

10. To keep control on providing credit to its debtor or customer.

11. To keep control on operational expenses and to know the requirement of capital

for inventory.



DATA ANALYSIS

OF

WORKING CAPITAL STATEMENTS

ANALYSIS OF THE WORKING CAPITAL STATEMENT



The working capital statement for the last six financial years and the comparison

between two successive years are given in details as under. Along with the comparison

the reasons for the changes in working capital is also given here under.

Working Capital Statement comparison for the year 2003-04 and 2004-05

(All Figures are in Rs. Crores)

Particulars 31-03-04 31-03-05 Increase Decrease

Current Assets, Loan & Advance:

Inventories 276.91 355 78.09

Sundry Debtors 186.41 260.90 74.49

Cash & Bank Balance 13.27 9.41 3.86

Loan & Advances 93.50 103.88 10.38

TOTAL (A) 570.09 729.19 162.96 3.86

Less:- Current Liabilities & Provisions:

Acceptance 14.21 7.22 6.99

Sundry Creditors 133.73 147.06 13.33

Advances from Customers 3.91 7.97 4.06

Investors and Education and Protection fund

0.00 1.64 1.64

Interest Accrued but not due on loan

1.01 2.15 1.14

Other Liabilities 57.91 62.54 4.63

Provisions 38.40 37.94 0.46

TOTAL(B) 249.17 266.52 7.45 24.80

Working Capital (A - B) 320.92 462.67 170.41 28.66

Increase in Working Capital

141.75

Total 170.41 170.41

ANALYSIS & INTERPRETATION



From the working capital statement comparison for the year ended on 31 st March, 2004

and 31st March, 2005 given above some of the fact revealed are as under.

The current assets increase in the latter year by Rs. 159.10 Crores.

The current liabilities increase in the latter year by Rs.17.35 Crores.

The reasons behind the increase in current assets are as follows:

Increase in debtors due to high competition in the market. Hence company is

giving more credit to its customer as per needs of its segment through its various

units for Rs.74.49 Crores. Hence it caused a more application of funds for IR&IL

working capital.

Increase in inventory of Rs.78.09 Crores is to meet the demand and requirements

of its customers and also the increased capacity of various units respectively for

IR&IL. For example Indian Rayon unit got expansion of power plant for more

production of 20 MW and in Textile units expansion and installation of more

machinery to produce more Linen Fabrics caused more inventory of storage of

raw materials etc.

Decrease in Cash and bank balance was due to the fund used for expansion and

renovation of various units and due to such reasons cash balance decreased and it

was used more by Rs. 3.86 Crores. Hence IR&IL had to made more availability

of fund for such application occurred in working capital.

The reasons for the increase in current liabilities are given as.



Increase in creditors for IR&IL are due to expansion of various plants or units and

hence requirement of such plants or units increased in terms of raw materials and

various other services. Hence to fulfill such needs, more materials were purchased

and creditors also provided good deal by giving more credit days for making better

relations with IR&IL units respectively. Therefore amount increased by Rs 13.33

Crores and also become source of fund for working capital.

Trust of creditors on organization and group leads to interest accrued but not due

to loans. These interests have increased in the latter year by Rs. 4.06 Crores.

To make deal final and for guarantee purpose advance are taken from customer’s

by various units of IR&IL. Such advance also generate source of fund for

working capital and it provides more liquidity to company needs of short – term

fund, various units of IR&IL has taken more advance of Rs. 4.06 Crores in latter

year.

IR&IL’s various unit accepted money as “Acceptance” from customers,

creditors, outsiders. Such funds work as sources for working capital and they are

one kind of short – term loans. But this year such loan decreased by Rs. 6.99

Crores as they were paid off and in spite of being source they became as more

application of fund for working capital.

Due to all the above affect the net working capital increased by Rs.141.75 Crores.

(PLEASE NOTE: Above & rests of data analysis have been done upon Aditya Birla Nuvo Ltd. presently or

on Indian Rayon & Industries Ltd. previously, but not on INDIAN RAYON UNIT alone. Here Balances are

taken of Nuvo’s STANDALONE’S business figures which includes INDIAN RAYON unit figures in it.)



SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL (All the Figures in Crores)



Inventories 355 526.33 171.33

Sundry Debtors 260.90 415.44 154.54


Interest Accursed on Investment

0.00 0.00

Loan & Advances 103.88 664.18 560.30

TOTAL (A) 729.19 1626.27 897.08

Less:- Current Liabilities & Provision

Acceptance 7.22 37.80 30.58



2.15 9.70 7.55

Advance from customers 7.97 11.18 3.21

Investors and Education and Protection Fund

1.64 2.29 0.65


Provisions 37.94 73.92 35.98

TOTAL (B) 266.52 498.70 232.18


Increase in working capital

664.90

Total 897.08 897.08





and 31st March, 2006 given above some of the facts revealed are as under.


The current liabilities increase in the latter year by Rs. 232.18 Crores.


Mergers and Acquisitions took place in the latter year and various other units got

merged in this company.

Indian Rayon & Industries Ltd. up till 2004-05 changed and made Aditya Birla

Nuvo Ltd. in 2005-06 and more units were added to it. Hence more addition to

current assets.

Increase in inventory caused from the above effect by Rs. 171.33 Crores.

Increase in debtors due to competition in market from other players and also the

above factors caused the more amount of money by Rs. 154.54 Crores.

ABNL made more advance payments for taxes and for various other legal

procedure amount for getting work done quickly. They also made partial amount

of deal to its creditor for getting their deals final for various units. This caused

them to generate more funds as application of working capital increased by

Rs.560.30 Crores.

The reasons for increase in current liabilities are as follows:



Increase in creditors is due to mergers and acquisition of more units in the

company and also more credit days given by creditors to increase their business

with various units of their area respectively of ABNL’s diversified business

portfolio by Rs. 118.82 Crores.

Trust of creditors on the name of the organization and group leads to interest

accrued but not due on loans. These interests have increased in latter year by Rs.

7.55 Crores. Such amount are small but always bring sources of funds for

working capital for various units of ABNL OR IRIL

Indian Rayon & Industries Ltd. up till 2004-05 changed and made Aditya Birla

Nuvo Ltd. in 2005-06 and more companies were added to it. Hence due to it more

addition to current liabilities.

ABNL also accepted more amounts of money as “Acceptance” from its

customers, creditors and outsiders as a short – term loans for its various units.

Such loans are always useful for any business as the generate sources of fund at

very less expense. Hence the generation was of Rs.30.58 Crores more in latter

year.

Due to above effect of mergers and acquisitions of various units the provision and

other liabilities also increased Rs. 35.98 Crores and Rs. 35.39 Crores

respectively. Hence they are also generating source of fund for working capital for

various units of ABNL or IRIL.

Due to all above affect the net working capital increased by Rs. 664.90 Crores.



SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL (All the figures are in Rs. Crores)



Inventories 526.33 475.26 51.07

Sundry Debtors 415.44 595.99 180.11


Interest accrued on Investment

0.00 0.15 0.15

Loan & Advances 664.18 332.18 332

TOTAL (A) 1626.27 1426.32 182.68 383.07

Less:- Current Liabilities & Provision:

Acceptance 37.80 11.04 26.76


Advances from Customers 11.18 15.34 4.16

Interest accrued but not due on loan

9.70 20.41 10.71


2.29 2.19 0.10


Provision 73.92 59.65 14.27

TOTAL (B) 498.70 451.97 72.91 26.18


Decrease in working capital

153.66

Total 409.25





and 31st March, 2007 given above some of the facts revealed are as under:

The current assets decrease in the latter year by Rs. 200.39 Crores.

The current liabilities decrease in the latter year by Rs. 46.73 Crores.

The reasons behind the decrease in current assets are as follows:

Increase in debtors is due to competition in market from various other players of

their segments and Chinese dumping in various businesses has affected all the

units and business of ABNL. Being a diversified business portfolio company has

to maintain its customer and market share. Hence it brought increase in debtor’s

amount by Rs. 180.11 Crores.

Decrease in inventory due to less demand of products in various field and

incremental in cost of raw materials for various units has caused the reduction of

Rs. 51.07 Crores from previous year and it worked as a source for working capital.

Decrease in loans & advances due to no need seen by ABNL’s various units for

making advance payments for taxes and creditors as market was not as demanding

from previous year. Hence the amount made free by them was Rs. 332 Crores and

also increased their source of working capital in huge amount.

The reasons behind the decrease in current liabilities are as follows:



Decrease in creditors due to less production and demand of product in market for

various units and being not so demanding market creditors also provided less

credit days for various items and which caused the reduction of Rs. 31.78 Crores

and it also decreased the sources of working capital for various units of ABNL.


accrued but not due on loans. This interest amount had increased in latter year by

Rs. 10.17 Crores.

ABNL’s various unit accepted money as “Acceptance” from customers, creditors,

outsiders. Such funds work as sources for working capital and they are one kind of

short – term loans. But this year such loan decreased by Rs. 26.76 Crores as they

were paid off and in spite of being source they became as more application of fund

for working capital.

Due to above all affect net working capital decreased by Rs. 153.66 Crores.



Working Capital Statement comparison for the year 2006-07 to 2007-08

(All the figures are in Crores)



Inventories 475.26 776.60 301.34

Sundry Debtors 595.99 760.98 164.99



0.15 0.82 0.67

Loan & Advances 332.18 476.50 144.32

TOTAL (A) 1426.32 2112.05 685.73

Less:- Current Liabilities & Provision:

Acceptance 11.04 33.00 21.96


Advances from customers 15.34 22.26 6.92

Interest accrued but not due on loan

20.41 30.53 10.12


2.192.28

0.09


Provisions 59.65 133.48 73.83

TOTAL (B) 451.97 700.37 248.40

Working Capital (A – B) 974.35 1411.68 685.73 248.40

Increase in working capital

437.33

Total 685.73 685.73




From the working capital statement comparison for the year ended 31st March, 2007

and 31st March, 2008 given above some of the facts revealed are as under




ABNL’s various unit’s production capacity was increased and hence production

increased for various products. Inventories increased by Rs. 301.34 Crores which

is the main reason due to expansions of production capacity of plant for various

units of ABNL. For example expansion took place in Indian Rayon this year.

Due to competition in the market ABNL have given more credit to its debtor’s

around Rs. 164.99 Crores for various products like VFY, Black Carbon, and

Fertilisers etc.

ABNL’s various units had made payments to its creditors a partial amount of

actual deal in advance to procure and make their deal confirm for their units

respectively. They also made advance payments for various taxes to get huddle

free trade in market and for export which caused ABNL to arrange more amounts

of Rs. 144.32 Crores for its various units.



The reasons behind increase in current liabilities are as follows:

Increase in production capacity had made more creditors for ABNL’s units in

latter year by Rs. 97.18 Crores for providing raw materials and services for

various units.


accrued but not due on loans. This interest amount had increased in latter year by

Rs. 10.12 Crores.

ABNL’s various units had accepted money in form of “Acceptance” from various

customers, creditors and outsiders. Due to this effect the rise of Rs. 21.96 Crores

in current liabilities has occurred and it worked as source of working capital for

ABNL’s various units. It is also one kind of short – term loan taken from market.

Due to above all affect net working capital increased by Rs. 437.33 Crores.




(All Figures are in Rs. Crores)


Current Assets, Loan & Advances:

Inventories 776.60 747.60 29.00

Sundry Debtors 760.98 887.23 126.25



0.82 - 0.82

Loan & Advances 476.50 532.57 56.07

TOTAL (A) 2112.05 2257.21 182.32 37.16

Less:- Current Liabilities & Provision

Acceptance 33.00 28.02 4.98

Sundry Creditors 331.28 465 133.72

Advances From Customers 22.26 39.31 17.05


30.53 66.57 36.04


2.282.34 0.06


Provisions 133.48 96.44 37.04

TOTAL (B) 700.37 773.48 113.82 186.87


Increase in Working Capital

72.11

Total 296.14 296.14





and 31st March, 2009 given above some of the facts revealed are as under:



The reasons behind the decrease in current assets are given as:

Increase in debtors due to competition for ABNL’s various units and crisis in

economy and to sustain business with customers more credit time was given to

debtors. Due it the increase in amount is of Rs. 126.25 Crores.

Decrease in inventories is due to keeping safer side. Less demand and increase in

cost of various raw materials also played vital role, which cost reduction of around

Rs. 29 Crores overall for ABNL’s Various unit as whole

Increase in loans and advance given in order to take benefit of various tax policies

and made payments for various licenses renewal and also for acquiring new ones

which made effect of Rs. 56.07 Crores for ABNL’s various units. It has worked

as more of application in working capital.

Decrease in cash balance was for the above reasons and also due to less credit

available for company in market for its credit due economy meltdown and bad

position of market along with it various unit’s modernization for better

performances. Hence due to this effect cash balance reduced by Rs. 7.34 Crores

in latter year and it worked as application of fund in working capital.



The reasons for the increase in current liabilities are given as:


accrued but not due on loans. But in latter year it has increased by Rs. 36.04

Crores.

Increase in creditors because of sustaining their customer’s in this low demand

market. This has caused more days of credit and increased the amount by

Rs.133.72 Crores for ABNL’s and its various units. Such effect has worked as

useful source of working capital for the company.

Due to reduction in production and keeping the market scenario in mind, IR&IL

or ABNL has decreased its other liabilities by Rs. 71.80 Crores. Hence it caused

an effect of application in working capital.

Seeing demand and production the provisions for taxed has also decreased by Rs.

37.04 Crores.

Due to all the above affect the net working capital increased by Rs. 72.11 Crores.



RATIO ANALYSIS

AND

INTERPRETATION



Ratio analysis helps in finding out the company’s position in the industry in which it is

working. It also helps in identifying the strengths and weakness of the organization

when compared with other organization of the same industry. So, for the financial

analysts keeping record of the ratio and tracking them lighten their way of taking

decision. The Various ratios and there analysis for the “INDIAN RAYON &

INDUSTRIES LTD. (IR&IL)” previously known or “ADITYA BIRLA NUVO

LTD. (ABNL)” known now for the financial years 2004-05, 2005-06, 2006-07, 2007-

08, 2008-09 i.e. for 5 years are calculated and compared here under. Here the purpose

of finding and analyzing ratio is to compare the activities of company during different

financial years and to know the efficiencies of finance department of the company and

its management. It also gives the knowledge how this ratio’s are helpful for decision

making and to know the strength and stability on a company not only for ABNL but for

any company.

Working capital Ratio helps in meeting or indicating the ability of a business concern in

meeting its current obligation as well as its efficiency in managing the current assets for

generation of sales. They are divided into three categories which are as follows:

Liquidity Ratio : It consist of Current Ratio and Quick Ratio.

Efficiency Ratio : It consists of Working Capital to Sales, Inventor y Turnover

Ratio, and Current Assets Turnover Ratio.

Structural Ratio : It consists of Current Assets to total net Assets, Composition

of Current Assets, Debtor Turnover Ratio, Debtors Collection period, Creditors

Payment Period.

Ratio’s like Return on Investment, Return on Equity, Cash Ratio also plays vital role in

decision making and also indicates the strength of company financial wise and it also

shows how efficient company is.



CURRENT RATIO

The current ratio is a measure of the firm’s short-terms solvency. It indicates the availability of current assets in rupees for every one rupees of current liability. Current ratio is defined as a ratio of the current assets to the current liabilities. Mathematically it is given as.

Current Ratio = Current Assets Current Liabilities

Year 31/03/05 31/03/06 31/03/07 31/03/08 31/03/09

Current Assets

729.19 1626.27 1426.32 2112.05 2257.21

Current Liability

266.52 498.70 451.97 700.37 773.48

Current Ratio

2.74 3.26 3.16 3.02 2.92

ANALYSIS & INTERPRETATION :

As mentioned above, it shows the relationship between C.A. & C.L. according to measure the ideal ratio is of 2:1 and min. required should be 1.33:1 for banks. Here we can see that ratio is fluctuating every year and not gone down below 2:1 at any point and the max. was 3.26:1 in 2005-06 financial year, up till 2008 -09 analyses for last five years. Currently the ratio is of 2.92:1 and which has reduced from previous year but still far from min. level. Hence it can be said that IR&IL have kept close watched on their current ratio and tried to maintained their efficiency in working capital management as well as of company among its shareholders.



QUICK RATIO

Quick ratio establishes the relationship between quick assets and current liabilities. Generally it is used as a measure of company’s ability to meet its current obligation. Mathematically it is given by

Quick Ratio = Current Assets – Inventories Current Liabilities

Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Quick Assets

374.19 1099.94 951.06 1335.45 1369.98

Quick Liabilities

266.52 498.70 451.97 700.37 773.48

Quick Ratio 1.40 2.21 2.10 1.91 1.77


It can be seen that quick ratio is also fluctuating with year changing. The ideal ratio is considered of 1:1. IR&IL or ABNL is efficient and have sufficient fund to meet its current liability at any point. The lowest was at 1.4:1 in 2004–05 financial year and had highest ratio of 2.21:1 in 2005-06 financial year in last five years. Currently the ratio is of 1.77:1 and it is on reducing side from previous years.



DEBT TO EQUITY RATIO

It is the ratio which indicates the relationship between loan funds and net worth or share holder funds of the company, which is known as ‘gearing’. This ratio helps in controlling debt, which is a part of working capital management. This ratio also helps the stockholder in taking the decision of investment. Mathematically it is given as

Debt to Equity Ratio = Loan Funds Share holder fund

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Loan Funds 493.03 1563.57 2831.83 2743.42 4499.31

Share holder fund

1354.06 2207.61 3124.55 4023.74 4121.66

D. E. Ratio 0.36 0.71 0.90 0.68 1.10


By seeing the above facts and figure it can be said that by time spend the ratio have jumped from 0.36 to 1.10 and it has shifted company from low gearing to high gearing and it can reap the benefit of trading on equity. ABNL’s long-term solvency is more satisfactory. All the ratio of the respective year was well within the accepted norm of 2:1.



LONG-TERM DEBT TO EQUITY RATIO

It is ratio of long-term debt to the net worth. This ratio would be of more interest to the

contributories of long-term finance to the firm, as the ratio gives a factual idea of the

assets available to meet long-term liabilities. It gives the idea about long term debt like

long-term loans, debenture, bonds etc. Mathematically it is given by

Long-term debt to Equity = Long-term Debt Net Worth

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

L.T. Debt 493.03 1084.21 2071.62 1856.72 2217.07

N.W. 1354.06 2207.61 3124.55 4023.74 4121.66

Ratio 0.36 0.49 0.66 0.46 0.54


This ratio also has same trend as debt to equity ratio had. In earlier years the ratio was

low and latter on it increased sharply. Hence by seeing the above figures it can be said

the ABNL is sound and secured along with better position in terms of financial

conditions. Though graph is showing fluctuation in ratio’s every year as the current

position is of 0.54 and it has increased from last year of 0.46.



TOTAL ASSETS TURNOVER RATIO

It shows the part of the total asset turnover ratio in single financial year. It focuses on

the effectiveness and efficiency of management in taking decision and using available

resources. Mathematically it is given by

Total Asset Turnover Ratio = Net Sales Total Assets

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Net Sales 1860.62 2642.50 3420.47 3924.21 4786.58

T.A. 1972.61 3938.88 6130.46 6967.47 8801.11

TATR 0.94 0.67 0.55 0.56 0.54


Every year Finance Department of IR&IL from 2004 – 05 have shown their efficiency

in controlling ratio and to make it ideal for the company. In early stage IR&IL was

showing over trading of total assets. But as times spend ABNL came with improved

and efficient result by coming towards 0.54 by 2008 – 09. This shows the caliber and

efficiency of Finance department of the company and there concern for the needs

working capital.



TIME INTEREST EARNED RATIO

The amount of interest paid by the company should be compared with the operating

profit before interest, depreciation and tax. It shows how many times interest charges

are covered by funds that are available for payment of interest. Mathematically it is

given as

Time Interest Earned Ratio = PBI, Dep. & Tax. Interest

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Profit 264.15 443.39 603.78 634.85 585.70

Interest 18.73 55.79 171.16 179.02 257.4

Ratio 14.10 7.95 3.53 3.55 2.28


By seeing the above figures it can be said that IR&IL was conservative in using debt in

2004 to 06. But from 2006 – 07 company started to use debt and the ratio come down

up to 2.28 in last five years. An interest cover of more than 7 times is regarded as safe

which was up till 2005 – 06. ABNL has used more debt and raised fund as the ratio has

reached around 2.28 and has gone below 7 times currently. Cover of 2 times is min for

any company considered by financial institutions.

OPERATING EXPEENSE RATIO



Operating profit is after deducting operating expenses from the gross profit. The

operating profit ratio is given by the between operating profit and net sales. It means

amount of operating profit for sales worth one rupee. It is calculated in average.

Mathematically it is given as

Operating Expense Ratio = COGS + Operating Expenses *100 Net Sales

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

COGS + Expenses

1625.27 2277.89 3032.35 3510.87 4398.49

Net Sales 1870.56 2665.43 3464.98 3965.80 4786.18

O.P. Ratio 86.89% 85.50% 87.51% 88.51% 91.90%


ABNL min. expense is in between 85.00% to 90.00% from last four years. But from

last three years the graph has shown up trends due to increase in price of fuel, raw

materials, and transportation for various units. Old unit’s maintenance expenses are also

adding up the sum for e.g. Maintenances charges are quite high for Indian Rayon Unit.

High expenses by growth businesses have also increased the operating expense ratio.

Currently it is 91.90 % for 2008 – 09.

NET PROFIT RATIO



Similar to gross profit ratio, the net profit ratio will show the amount of net profit for

the sales worth amount of 1 rupee. The net profit ratio shows the profitability of the

organization. Mathematically it is given as

Net Profit Ratio = 100% - Operating Ratio

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Operating Ratio

86.89% 85.50% 87.51% 88.51% 91.90%

N.P. Ratio 13.11% 14.50% 12.49% 11.49% 8.10%


It can be analyzed from above chart that net profit had declined in recent years. All the

effects are due to Chinese industries dumping have restricted Indian companies profit

and adverse effect of it can be seen on ABNL too. As profit of 14.50 % in the year

2005 – 06 have come down to 8.10% in 2008 – 09. Hike in the prices of fuel and raw

materials have reduced the profit margin in current status. Inefficient performances of

growth business like Birla sun life insurance occurred loss are also reducing profit for

ABNL. Current melt down and economy crisis has also played crucial role on ABNL’s

diversified business.

FIXED ASSETS TURNOVER RATIO



It shows the relationship between the fixed assets and the net sales. It gives the amount

of net sales in rupee of fixed assets. Mathematically it is given as

Fixed Assets Turnover Ratio = _Net Sales Fixed Assets

Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Net Sales 1860.62 2642.50 3420.47 3924.21 4687.58

F.A. 810.28 1135.52 1308.13 1501.62 1604.99

Ratio 2.30 2.33 2.61 2.61 2.92


It can be seen from the figures that management of ABNL has tried to improve every

year for the better usage of fixed assets. It can be seen that the graph have shown

upward sign only, no downfall have been recorded in last five years. Hence it shows the

efficiency of finance department of ABNL. Currently the ratio is of 2.92:1 and in last

five years graph is on up trend for ABNL and its various units.

CASH FLOW MARGIN RATIO



It gives the idea about the cash flow with respect to the net sales of the organization.

This ratio focuses on the effectiveness of the finance department in handling the cash.

Cash profit is net profit + deprecation. Mathematically it is given as

Cash Flow Margin Ratio = Cash Profit Net Sales

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Cash Profit

777.21 1635.67 1773.87 1923.96 1951.38

Net Sales 1860.62 2642.50 3420.47 3924.21 4687.58

Ratio 0.42 0.62 0.52 0.49 0.42


The cash flow margin has fluctuated from year to year. It can be seen from above

figures that in 2005 – 06 financial year it was around 0.62 which came down up to 0.42

in 2008 – 09 financial year. The reasons are increase in cost of everything, high

inflation, increase in cost of labor, maintenances charges etc. Than to ABNL’s finance

department had tried to maintain their efficiency by not reducing the graph very steeply.

They bounced back from downfall from 0.42 to 0.62 in 2005 – 06 financial year.

CASH RETURN ON ASSETS RATIO



It is quite similar to the above ratio. The only change is that here the cash from the

operating activities are compared with the total assets of organization. The effectiveness

is measurement of cash management compares to the total assets of the company. Here

cash from operating activities is net profit + deprecation. Mathematically it is given as

Cash Return on Assets Ratio = Cash from Operating Activities Total Assets

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Cash Profit

777.21 1635.67 1773.87 1923.96 1951.38

Total Assets

1972.61 3938.88 6130.46 6967.47 8801.11

Ratio 0.39 0.42 0.29 0.28 0.22


Graphs of Cash return on assets ratio of ABNL have steeply fallen down from the

financial year 2005 – 06 to 2008 – 09. It can be seen that it has gone down from 0.42 to

0.22 and there is constant downfall no sign of improvement is seen. It may due to

inefficiency of growth business performance as per their investment.

RETURN ON EQUITY (%)



The return on equity shows the amount of net profit with respect to the net worth of the

company. Here net worth contains the total amount of share holder’s fund i.e. equity

share capital + reserves and surplus. This ratio helps in comparing the performance of

the company for two or more financial year and also shows strength of the company in

returns to its share holder. Mathematically it is give as

Return on Equity Ratio = Net PAT * 100 Net Worth

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

PAT 113.28 186.93 224.97 243.07 137.43

Net Worth 1354.06 2207.61 3124.55 4023.74 4121.66

Ratio 8.37% 8.47% 7.20% 6.04% 3.33%




Well it can be seen that ABNL’s performance has fallen down from previous years. The

reasons are Chinese dumping, changes in government policies, increase in various cost

of raw materials, transportation, fuel cost etc. for various units. Even market conditions

have affected the business of ABNL too, as growth business requires heavy capital

investments and then to they are not able to perform well due to economy crisis, for ex.

Birla Sun Life Insurance which is always in need of heavy investments than to it

showed losses in the current year. Though ABNL’s didn’t have good performance from

last two financial years, still they have good support and faith of share holders and they

have stability to survive in worse to worse conditions with support of Aditya Birla

Group. Currently the ratio has come down from 8.47% in 2005 – 06 to 3.33% in 2008

– 09.

RETURN ON INVESTMENTS (%)



The return on investment shows the amount of net profit earned by the company with

respect to total amount invested as assets. It shows the profitability of the company and

measures effectiveness of decision making of the finance manager and also shows

stability of the company. It is also known as ROACE. Mathematically it is given as

Return on Investment Ratio = PBIT * 100Total Assets

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

PBIT 183.46 331.59 483.47 492.85 419.71

Total Assets

1972.61 3938.88 6130.46 6967.47 8801.11

Ratio 09.30% 08.42% 07.87% 07.07% 04.77%




From the above figures and graph it can be said that profit of ABNL have decreased

and it has sharply fallen down. The reasons are highly competitive market with high

cost of materials, labor, transport etc. along with Chinese dumping and unfavorable

government policies, poor condition of market and economy has also played a vital role

for such poor performance. Reduction in profit margin of ABNL’s so that it can sale its

product at more cheaper and competitive rate in market from others to sustain its

customers. Poor performance of Growth Business unit’s and also losses occurred by

them are one of the cause in reduction of ROACE from previous years as it has come

down to 4.77% in 2008 – 09 from 9.30% in 2004 – 05 which is around 49 % reduction

in profit.



WORKING CAPITAL TURNOVER RATIO

This ratio indicates the extent of working capital turned over in achieving sales of the

firm. It also shows how efficiently firm or finance manager of a company is using

capital or resources effectively for meeting the requirement of working capital.

Working Capital Turnover Ratio = Net Sales Working Capital

Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Net Sales 1860.62 2642.50 3420.47 3924.21 4687.58

Working Capital

462.67 1127.57 974.35 1411.68 1483.73

WCT Ratio

4.02 2.34 3.51 2.78 3.16




From the above figures and graph it can be said that IR&IL’s or ABNL’s various units

finance managers and their departments have shown their efficiency and their work

from time to time, though working capital turnover ratio graph has shown fluctuating

figures from year to year. It shows how much concern of finance department has for

working capital, they have managed working capital were effectively for every unit of

ABNL. They have reduced the working capital ratio as rest of the capital can be used

for other purposes but keeping themselves on the safer side not on the edge. ABNL has

used working capital as per their needs and almost accurate estimation and never

blocked the fund unnecessarily. They have never gone below 2:1 ratio up till date from

last 5 years. Hence it shows the strength and stability of the IR&IL or ABNL for usage

and allocation of funds for its diversified business portfolio. Currently the ratio is of

3.16:1 in 2008 – 09 from 4.02 in 2004 – 05.



DEBTOR’S COLLECTION PERIOD

Debtor’s collection period indicates days required to collect amount of credit sales from

debtors. This represents the number of days; the funds are blocked in debtors for a firm

sells goods for cash and credit. Credit is used as a marketing tool by a number of

companies. So a firm must manage its credit policy well.

Debtors Collection Period = Debtors * 365 Sales

Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Debtors 260.90 415.44 595.99 760.98 887.23

Sales 1860.62 2642.50 3420.47 3924.21 4687.58

DCP Days 51 57 64 71 69




ABNL’s has extended its collection period more in terms of days as per the need of

market in recent trends for various units of its diversified business. From above graph it

can be seen that as the year passed days also increased and ABNL’s needs of working

capital also increased due to blocking money for around 71 days from 51 days

previously, but currently it is 69 days in 2008 – 09. Then to they have very low bad

debts. Finance & Accounts department has worked very crucially on the extension of

debtor’s collection period along with marketing department. Hence the application of

funds for working capital is mainly done on this part along with inventories. The

average collection period or UGAI period is of 30 days given by ABNL’s various units

to its premium and major customers.

(Note: - As the figure of credit sales was not available, it has been assumed here that all the

sales are credit sales.)



CREDITOR’S DEFERRAL PERIOD

Creditor’s deferral period indicates the duration for which the suppliers provide credit

facility. This duration should be long enough so that company can convert the raw

material into finished goods and sell it in the market. Because the main source of

revenue for any organization is its sales. Purchase is equal to Raw Material Consumption +

Closing Stock of Raw Material-Opening Stock of Raw Material. Hence the days are:

Creditors Collection Period = Creditors * 365 Purchase

Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Creditors 147.06 265.88 234.10 331.28 465

Purchase 1065.76 1561.97 1730.89 2319.38 2280.87

CCP Days 51 62 49 52 74




The average deferral period of creditors is 30 days which represents its strong liquidity

position to pay its obligations within 45 days for various units of ABNL. This ratio has

gone down up till 49 days in 2006 – 07 year. In this year it is 74 days currently in 2008

- 09 which shows the creditability of ABNL’s in market and its strong position financial

wise. The fluctuation is due to changes in trends of market and creditor’s policy for

giving credit and per agreement dead. Such credit from creditor’s works as a use full

source of working capital for ABNL and it reduce burden for that year. It also reflects

the reputation of ABNL’s various units holds in market as creditors provide more

service by lending more days of credit to make more healthy terms and relation with

ABNL’s units for having business.

(Note: - As the figure of credit purchase was not available, it has been assumed here that total

purchases are credit purchase.)



INVENTORY TURNOVER RATIO

The Inventory Turnover ratio indicates the movement of average stock holding of each

item of material in relation of its consumption during accounting period. Average stock

is equal to opening stock + closing stock divided by 2 for that year. Calculated days are

as follows:

Inventory Turnover Ratio = Average Stock * 365 Cost of Material

Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Avg. Stock 315.96 440.67 500.80 625.93 762.10

Cost of Material

995.74 1447.57 1840.36 2131.25 2322.01

ITR(Days) 116 111 99 107 113




It can be said that ABNL or IR&IL on an average has inventory turnover within 100

days in its various units all together of different business portfolio. ABNL has high

intensive manufacturing units like fertilisers, VFY, Caustic Soda, Carbon Black,

Textiles, power plant (for own units only) etc. which work 24 *7 for whole year. The

raw material required for various products are imported from foreign countries which

require min. 2 months after giving order for procurement. Hence to not get in short fall

of materials ABNL’s graph shows the turnover of 99 days in 2006 – 07 to 113 days in

2008 – 09. The graphs shows the fluctuation which shows that ABNL always tries to

minimize its days and always try to block its fund as less as it can be possible and to

minimize the application of funds for working capital. They always keep in mind and

work accordingly so that they never get shortfall of materials and do not suffer loss by

shutting down plants or various units due to such reasons.



ESTIMATION FOR NEEDS

OF

WORKING CAPITAL

The most appropriate method of calculated the working capital needs of a firm is the

concept of operating cycle. However, a number of other methods may be used to

determine working capital needs in practice. We shall illustrate here three approaches

which have been successfully applied in practice.

Current assets holding period: to determine working capital requirements on the

basis of average holding period of current assets and related them to costs based on the



company’s experience in the previous years. This method is essentially based on the

operating cycle concept.

Ratio or Percentage of sales: It is a traditional and simple method of determining

the level of working capital and its components. In this method working capital is

determined on the basis of past experience. If over the years the relationship may be

taken as a base for determining the working capital for future.

Ratio of fixed investment: To estimate working capital requirements as a percentage

of fixed investment.

Regression analysis method: It is useful statistical technique applied for forecasting

working capital relationship between sales and working capital and its various

components in the past years. The method of least squares is used in this regard.

ESTIMATION OF WORKING CAPITAL REQUIERMENT AT

ADITYA BIRLA NUVO LTD. VARIOUS UNIT

Working capital requirement estimation is dealt with proper care and cautions. Working

capital requirement fixation is done with respect ABNL various units like (INDIAN

RAYON). Some important aspects of working capital like sales and debtors are



considered here as these matters are to be taken care of by INDIAN RAYON office

itself. INDIAN RAYON sends its working capital estimation to ABNL’s office situated

in Mumbai on quarterly basis. Then ABNL’s office collects working capital estimations

of its every unit and merges them and then provides funds to individual units. The main

aspect of working capital in INDIAN RAYON is its raw materials used in production of

VYF, Power, and Caustic Soda. While estimating its working capital needs, the main

aspect to be focused on is the funds blocked in raw materials. Working capital blocked

in raw materials is estimated on the basis of the production budget for the year. From

production budget it comes to know what quantity of raw materials will be needed to

meet production targets. Then the lead time for every raw material is decided. Thus the

unit comes to know for how many days they will have to hold inventory of raw

materials. The minimum quantity needed is then multiplied to its rates and thus the unit

arrives at its working capital requirement for its production. Then the firm deducts the

funds of creditors for raw materials.

The other current assets and current liabilities are taken from its monthly balance sheet

and are shown with 10%variation for next quarter’s estimations. Hence it can be said

that ABNL uses percentage or ratio of Sales method generally for estimation of

working capital for its various units. Calculation of estimation ratio of sales for 2009 –

10 F.Y. is practically shown by taking ABNL’s Standalone balance sheet’s figure

which includes INDIAN RAYON unit in it.

CALCULTION OF PERCENTAGE OR RATIO OF SALES

METHOD FOR ABNL VARIOUS UNITS

(All the Figures in Crores)

Particulars

% of Sales

Based on

2008-09

Actual Sales

2008-09

Estimation

at 5%

Growth

Estimation

at 10%

Growth

Estimation

at 15%

Growth

Sales 100 % 4786.58 5025.90 5265.24 5504.57


SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL Current Assets

Inventories 16 % 747.60 784.98 822.36 859.74

Sundry

Debtors18 % 887.23 931.59 976 1020.31

Cash & Bank

Balance 2 % 89.81 94.30 98.79 103.28

Loan &

Advances11 % 532.57 564.44 585.83 612.46

Total CA (A) 47 % 2257.21 2370.07 2482.93 2595.79

Current Liab

& Provisions

Liabilities 14 % 677.04 710.89 744.74 767.10

Provisions 2 % 96.44 101.26 106.08 110.91

Total CL (B) 16 % 773.48 812.15 850.83 889.50

W/C (A-B) 31 % 1483.73 1557.91 1623.10 1706.30

Hence when sales are of Rs. 5504.57 Crores the estimated requirement of working

capital will increase by Rs. 1706.30 Crores in upcoming year for ABNL’s various

units.



IMPORTANCE

OF

MIS SYSTEM (SAP) FOR ACCOUNTING

INTRODUCTION OF SAP

As a composite application, SAP Product Definition accesses and unifies data from a

full spectrum of enterprise resources, including document management systems,

customer relationship management (CRM) systems, project management systems, and

desktop applications such as Microsoft Office – creating new, cross-functional business

processes focused on optimizing front-end product definition.



Leveraging the powerful capabilities of the SAP Net Weaver technology platform, SAP

Product Definition seamlessly integrates with both third-party and SAP solutions – and

lowers your total cost of ownership. The full form of SAP is system application and

product.

SAP Business Objects offers a broad portfolio of tools and applications that are

designed to help you optimize business performance by connecting people, information

and businesses across business networks.

SOLUTIONS FOR LARGE ENTERPRISES

SAP Business Objects intelligence platform :– Leverage a single platform to connect

all people to all information, providing a unified view of the business.

SAP Business Objects GRC solutions :– Promote corporate accountability by

unifying corporate strategy, control initiatives, opportunity discovery and loss

mitigation across the extended enterprise.

SAP Business Objects EPM solutions :– Capitalize on the value of your corporate

data, enabling your organization to become more agile and competitive by providing

organizational alignment, visibility and greater confidence.

SOLUTIONS FOR SMALL BUSINESSES & MID-SIZED COMPANIES

SAP Business Objects Edge Series :– Benefit from a connected, interactive and open

business intelligence solution for mid-sized companies.

Crystal Reports :– Leverage a complete report management solution for small

companies.

Exclusive :– Leverage dynamic and customizable data visualization software.


http://www.sap.com/asia/solutions/sapbusinessobjects/sme/reporting/index.epx

http://www.sap.com/asia/solutions/sapbusinessobjects/sme/edgeseries/index.epx

http://www.sap.com/asia/solutions/sapbusinessobjects/large/enterprise-performance-management/index.epx

http://www.sap.com/solutions/sapbusinessobjects/large/governance-risk-compliance/index.epx

http://www.sap.com/asia/solutions/sapbusinessobjects/large/intelligenceplatform/index.epx


USE OF SAP FOR VARIOUS DEPARTMENTS

Finance

Automate time-consuming tasks – and outperform the competition in controlling

risk and streamlining financial reporting and compliance.

Human Resources

Attract top talent and manage a borderless global workforce that extends beyond

any company, region, and industry boundaries.

Information Technology

Streamline operations and facilitate innovation across the company.

Product Development

Foster continuous innovation and deliver the right products and services faster with

superior quality and at competitive prices.

Operations

Deliver products and services more profitably at the right cost, quality, quantity,

date, and location.

Supply Chain

Better respond to dynamic market conditions across any business network to

maximize profitability.

Manufacturing

Maximize the return on my organization's assets.

Sales

Maximize revenues in every selling opportunity and develop a long-term

relationship with customers.



Marketing

Coordinate efforts that result in effective marketing campaigns, profitable

promotions, and satisfied customers.

Service

Competitive advantage through superior and differentiated customer service.

Cash is the lifeblood of any business. Today's tough credit environment brings a

renewed focus on cash flow and liquidity. It needs the best practices to manage a

company’s receivables and collections, customer credit risks, and global liquidity and

also managing inherent cash flow risks to protect the profit margins of company.

SAP provides market-leading software and services to help companies to make better

customer trade credit risk decisions, accelerate dispute resolutions, manage collections

intelligently, improve insight and control over company liquidity, and electronically

integrate billing and payment processes with company’s financial institutions.

Solutions for Optimizing Working Capital

SAP's financial management solutions feature a fully integrated set of process-

collaboration applications to improve any dispute and collections processes, trade

credit, and cash and inventory management. As a result, company can optimize working

capital through multiple strategies – each of which can be independently achieved

based on the needs of organization.

MIS SYSTEM IN INDIAN RAYON UNIT

The SAP implementation project at Indian Rayon's viscose filament yarn and chlor-

alkali plants was launched in October 2005 and the implementation went live in April

2006. It covered finance, controlling, sales and distribution, materials, quality,



production and maintenance modules of SAP at Veraval and 14 sales offices and

depots. Subsequently, the division has implemented Business Intelligence Warehouse

(SAP BW) in January 2007. Besides covering usual features, the division has to its

credit implementation of special features like profit center accounting, funds

management, budgetary control, segment profitability under CO-PA module etc., some

of which are for the first time in the Aditya Birla Group. The implementation at Indian

Rayon was a complex process due to its vast range of filament yarn products (13,000

product codes), highly integrated multi-stage processing in series of value-adding

activities and captive plants for manufacture of various input chemicals and utilities.

But the dedicated and comprehensive implementation team, along with PWC, its

implementation partner, made it possible within six months. It created 170 cost centres

and 37 profit centers in SAP. The division also adopted UNSPSC coding (United

Nations Standard Products and Services Codes) for materials, which enabled scientific

classification of all kinds of materials, particularly maintenance spares and

consumables.

ORGANIZATION STRUCTURE OF VARIOUS DEPARTMENTS

FINANCE AND CONTROLLING



SALES AND DISTRIBUTION

AREA WISE SALES OFFICE


RAYON UNIT


MATERIALS MANAGEMENT

Purchase Organization

Plants

Storage

Locations

All the departments or various section of INDIAN RAYON are inter linked with each

other and the single entry passed at one place can be seen at various places and has its


Surat Salem Delhi Mumbai Bangalore

Imports Local

Rayon Caustic Power Depots Mumbai Office

Main

Prod Stores

Reject

Scrap

Purchasing Groups


effect on whole account nor on that particular section. Suppose entry passed by Surat

depot or center will have effect on main units account as it is linked to it and not on

Surat’s account only. SAP plays vital role in today’s high tech world. It saves time and

wastage of various stationary. Top management can view the data easily and at any

point. It can be said that Single access to SAP enables information to be drilled down

across the cost centers as well as viewed across the business segments. The single

database permits information to be extracted for any cost centre or profit centre while

enabling easy solution for management review and actions.

It was a great pleasure and very value able learning asset which I got from this training

was to work in SAP environment. I learnt and operated SAP and also made various

report by taking help of it. This ERP system really has an edge on ORACLE and it is

really faster than ORACLE. I also used ORACLE and found the difference in both.

SAP has more advanced features and operating options which deal with the day to day

needs, it is friendly user and at a time multiple users can post entries and data in it from

various or different locations and SAP clubs and generate the accurate and perfect data

presentation required by operator. Learning of SAP in this training has added advantage

for my initial stage of career as it will provide me upper hand from other candidates for

having experience and knowledge of working in SAP.

INDIAN RAYON also won the prestigious SAP ACE 2007 award. The award honors

best run businesses that set global benchmarks in excellence. The award came in

recognition of Indian Rayon's excellent implementation of SAP in its Veraval plants

and 14 sales offices and depots. Among the 38 winners from various categories, Indian

Rayon won the award in chemicals sector. It was the first Aditya Birla Group company

to receive this award from SAP India, a subsidiary of SAP AG-Germany — world's

leading ERP solutions provider for customer excellence at New Delhi on 27 August

2007.



CONCLUSION

From the above report, I can conclude that at present peoples and connected companies

are 99% satisfied with Aditya Birla Nuvo Ltd. They are well known in market for their



business like Viscose Filament Yarn, Textiles, Chemicals, BPO, Insurance, Carbon

Black, Fertilisers, and Caustic Soda etc.

Any change in working capital will have an effect on business’s cash flows. A positive

change in working capital indicates that the business has paid out cash for e.g. in

purchasing or converting inventory, paying creditors etc. Hence an increase in working

capital will have a negative effect on the business’s cash holding. However a negative

change in working capital indicates lower funds to pay off short term liabilities (current

liabilities) which may have bad repercussions to the future of the company.

Managing Working Capital is one of the pioneer’s and role-playing part of the

company. Aditya Birla Nuvo Ltd. manages its working capital very efficiently for its

diversified business. Each & every component of working capital is dealt with expertise

and experience of the finance & accounting department. The procedure is very simple

for estimating working capital requirement. Predetermined norms are applied wherever

they are applicable. Mainly working capital management is the function of finance

department but many other departments like production, purchase & marketing are

involved in this procedure indirectly. Thus the effort from all the departments of

various units helps company to manage its working capital in a systematic manner.

Being the part and unit of ABNL’s, INDIAN RAYON also follows the main company

norms and terms for calculation for accounting of its working capital.

Hence this training helped me a lot to know the importance and function of working

capital and its component. Here I was able to relate what I had read in the books and

learnt in class rooms. It is essential for a person to know about the sources, application

and needs of working capital for business in real life if one will going to specialize in

the field of finance and going to work for a company or as entrepreneur. I also got a big

opportunity to work in SAP environment. I also got value able tips and guidance about

how to use SAP for increasing one’s performance, accuracy and speed towards work.



BIBLIOGRAPHY

Text References

Financial Management I.M. Panday



Financial Management Ravi .M. Kishor

Management Accounting and Financial Analysis

Board of Studies, The Institute of Charted Accountants of India

Journals :-

Annual Reports of Indian Rayon & Industries Ltd. and Aditya Birla Nuvo Ltd. for the

years :

IR&IL : 2003 – 04, 2004 – 05

ABNL : 2005 – 06, 2006 – 07, 2007 – 08, 2008 - 09

Web References :-

Intranet of Indian Rayon unit , www.adityabirla.com ,

www.adityabirlanuvo.com , www.fabriclink.com/History.htm ,

www.fibersource.com/f-tutor/history.htm , www.money.rediff.com ,

www.businessgyan.com, www.sap.india.com,

Google search engine, www.deliot.com,



ANNEXURE

(All figures are in Rs. Crores)Particulars 31-03-04 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09


SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL Inventories

Finished Goods 104.00 108.20 147.00 194.60 273.61 288.72Stores & Spares 13.91 17.78 35.91 46.71 80.91 77.94Raw Materials 133.26 201.27 298.87 197.83 365.16 320.71Packing Materials

1.75 2.06 8.70 2.68 3.36 3.89

Work – in – progress

23.57 25.47 35.32 33.00 53.48 56.04

Waste / Scrap 0.42 0.22 0.53 0.44 0.08 0.30TOTAL 276.91 355 526.33 475.26 776.60 747.60Sundry DebtorsDue for period exceeding six months

2.10 3.33 10.82 12.14 21.58 17.79

Others 184.31 257.57 404.62 583.85 739.40 869.44Total 186.41 260.90 415.44 595.99 760.98 887.23Cash & Bank BalancesCash in Hand 1.20 0.82 0.51 0.87 1.17 0.56Cheques in hand & Remittances in Transit

1.25 0.82 0.51 0.25 7.82 5.78

Balances with Scheduled Banks:Current Accounts

9.47 7.04 17.79 19.18 47.08 29.63

Current Accounts in respect of Rights Issue Refund order

----- ----- ----- 1.41 0.12 0.08

Deposit Account

1.31 0.71 1.48 1.03 40.96 53.76

Current Account – Standard

0.04 0.02 0.03 ---- ---- ----


SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL Chartered Bank (SCB), LondonTOTAL 13.27 9.41 20.32 22.74 97.15 89.81

Loans & AdvancesAdvances recoverable in cash

57.23 74.01 105.35 105.72 221.58 218.76

Loans against Collateral Securities

---- 292.56 74.06 ---

Deposits 26.57 18.32 242.11 125.62 222.23 199.57

Balance with Central Excise, Customs & Port Trust, etc.

9.70 11.55 24.16 26.78 32.69 58.01

Fertilisers Bonds

37.45

Tax (Provision) 18.78

TOTAL 93.50 103.88 664.18 332.18 476.50 532.57

Provision

Taxation 3.70 0.82 10.56 19.87 19.02 ----

Proposed Dividend

23.95 23.95 41.75 ---- 54.63 38.00

Corporate Tax Dividend

3.07 3.36 5.86 ----- 9.28 4.43

Retirement Benefits

7.68 9.81 15.75 39.78 50.55 54.01

TOTAL 38.40 37.94 73.92 59.65 133.48 96.44

Source on www.adityabirla.com & www.adityabirlanuvo.co.in

OR 2004 – 05 figures from Indian Rayon & Industries Ltd. annual reports and for rest of the years from Aditya Birla Nuvo Ltd. annual reports.


SOURCES, APPLICATION AND NEEDS OF WORKING CAPITAL

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