Professional Documents
Culture Documents
Project Report On
ATUL LIMITED
Project Report
On
A member of Lalbhai Group
(Aromatics Division)
The Study of Working Capital
Management
Of
Atul Ltd
A member of Lalbhai Group
Our Mission
Board of Directors
Name Status Occupation
Mr A N Lalbhai Non- Chairman,
executive Arvind Mills
Chairman Ltd
Mr S S Lalbhai Managing
Director &
CEO
Mr J L Shah Executive
Director
Mr N N Wadia Independent Chairman
Non- Bombay Dyeing
executive &
Director Manufacturing
Co Ltd
Mr G S Patel Independent Former
Non- Chairman Unit
executive Trust of India
Director
Dr S S Baijal Independent Former
Non- Chairman &
executive CEO ICI
Director Companies in
India
Mr B S Mehta Independent Partner Bansi S
Non- Mehta & Co
executive
Director
Mr H S Shah Independent Former
Non- Chairman &
executive Managing
Director Director Indian
Petrochemicals
Corporation Ltd
Mr S A Lalbhai Managing
Director
Sr. No Description
1 Chemical industry Outlook
2 Over view of Atul Ltd
3 Over vie w of Aromatic
Division
4 Human Resource
Department
5 Production Department
6 Marketing Department
7 Finance Department
8 Quality Department
9 Objective Of The Study
10 Working capital
Management
11 Inventory Management
12 Cash Management
13 Receivable Management
14 Working Capital Finance
15 Findings
16 Recommendation
17 Bibliography
18 Balance Sheet
Chemical Industry Outlook
• The Indian Chemical Industry has grown at a CAGR of 8% during the period from
2001 to 2005. The industry in India is fragmented with few large companies.
There are over 6,600 chemical manufacturers & capacity utilization of Indian
plants is lower at 70%, when compared to that of China and Japan where it is
higher at 85-90%.
• The key success factors pertaining to the industry are economies of scale, product
quality and reliability and development of new products and application
processes.
Industry analysis
The Chemical industry constitutes an important segment of the chemical industry
in India. The Indian Chemical industry is today totally self-sufficient with a majority
of its inputs manufactured locally. India is currently producing all varieties of
synthetic Chemicals and intermediates and has a small presence in the natural
Chemical. The subcontinent has emerged as a global supplier of Chemicals and dye
intermediates, particularly for reactive, acid, vat and direct dyes. The market for
Chemical is dependent on textiles, in particular demand for polyester and cotton
determines the demand for certain types of Chemicals. The textile industry is
currently buoyant and the market is growing steadily. There is a shift in the usage of
polyester and polyester blended fabrics and as a result demand for disperse dyes are at
a peak.
Market Size and Major Players
The market size of the Indian Chemical industry is INR141 billion including the
exports of INR52 billion in 2004-05. The exports doubled from INR26 billion 2000-
0'l to INR52 billion in 2004-05. By 2010, the exports are expected to reach INR121
billion. India currently produces 1,30,000 tonnes and 75% of the production is
exported to 15 countries like: the USA, Germany, Netherlands, Italy, UK, Spain,
Turkey, Switzerland, Indonesia, Korea, Hong Kong, Thailand, Singapore, Japan and
Taiwan. The per capita consumption in India is very low 50gm compared to the world
average of 400 gm. Textile, cotton and polyester consume more dye compared to the
other fabrics and in turn, the growth of disperse, direct and reactive dyes is expected
to increase due to the usage of these intermediates in cotton and polyester. By 2010,
the contribution of India in the Global Chemical market is expected to reach 8-
10% with an increase of 20% per annum.
The major players in the organized sector are Atul Products, Jaysynth Dyechem,
Meghmani Organics, Colortex, Sudarshan Chemicals, Colour Chem, Ciba Speciality,
BASF, Clariant India, IDI and Metrochem. The Indian companies account for 6% of
the world dye production.
Opportunities:-
• Economies of Scale
• Products quality and reliability
• Development of new products and application processes
Background of the company
• Atul Ltd. belongs to the Lalbhai Group. The company is managed by a team of
professionals headed by Mr. Sunil S Lalbhai, who is the Managing Director &
CEO of the company. Mr. Sunil Lalbhai has been associated with the chemical
industry for over two decades and has guided the company through the structural
changes that the chemical industry has undergone during this period.
• The promoters are professional and are forward looking and are likely to lead the
company to achieve the budgeted results.
• The company has successfully absorbed technical know-how through its various
joint ventures and has been able to carry on the respective businesses profitably
Financial Analysis
• The net sales of the company have grown at a CAGR of around 11 % over the
last three years, with exports growing at a CAGR of around 13% over the same
period. After a downturn in performance in 2003-04, the company has shown
consistency in its performance and is likely to maintain the improvement trend in
the coming years. The Company has shown significant improvement in operating
profit during FY06 mainly
driven by improved performance of Aromatics and Bulk Chemicals and
intermediates division mainly due to growth in volume and better efficiencies.
The performance of Polymers improved due to introduction of value added
products. However, the profitability of Agrochemicals and Colours division
showed decline mainly due to high costs and pressure on selling prices
respectively.
• As per first 9 months financial for FY07, the operating margins of the company
are in line with the estimates as well as the industry average and are likely to
follow the same trend.
Management Analysis
At Atul Complex, there are three captive power plants consisting of coal/oil
fired boilers and turbo generator sets having capacity ranging from 2 MW to 18
MW. Over and above this, diesel generator sets have been installed so as to
facilitate the start up from total black out
All boilers and power generation sets have been designed to meet the
stringent pollution norms as fixed by Gujarat Pollution Control Board.
Effluent Treatment:-
The industrial effluent is fully treated in a well-designed state of art effluent
treatment plant. The industrial effluent is discharged through a 4 km underground
pipeline for ultimate disposal into the estuarine zone of river Par. The domestic
effluent is treated and disposed off in a Septic Tank / Soak Pit system.
Atul has developed a site for disposal of solid wastes by land filling. The
site was selected on the basis of a technical Environment Impact Assessment
(EIA) study done by National Productivity Council (NPC). NPC also has given
the detailed design of the site. On the basis of this technical EIA and the design,
site for TSDF was approved by the state level committee and Gujarat Pollution
Control Board.
Snapshot of Facilities
The dimensions of the infrastructure facilities at Atul Ltd's manufacturing
sites at Atul and Ankleshwar are given below.
Process and product improvement are also key activities of the R&D group.
In order to respond quickly to market demands, every business unit
(Agrochemicals, Aromatics, Bulk Chemicals and Intermediates, Colors,
Pharmaceutical Intermediates, and Polymers) has its own Research &
Development team. The central Research & Development group provides
common facilities like pilot plant, certain analytical instruments, technical library
etc.
Aromatic Division:-
Aromatics the erstwhile Gujarat Aromatics Ltd., a company under financial
stress, was taken over by AL in 1985 and was formed as aromatics division of
AL. It is one of the largest manufacturers of Cresols and their derivatives in India.
These products are used in the manufacture of flavors, fragrances, cosmetics
(sunscreen lotions), bulk drugs and antioxidants. The Para-cresol capacity at AL
is 10,000 tpa and the company is planning to increase it to 15,000 tpa. The world
requirement for Para-cresols and its derivatives is 50,000 tpa and AL already has
20% share of it. Aromatics Division is one of the world’s largest manufacturers of
Para anisic aldehyde, Para cresol and Para anisic alcohol, supplying its products
to diverse industries, including cosmetics, flavours and fragrances, bulk drugs,
dye intermediates; and plant and animal micro-nutrients.
The Division has always laid great emphasis on innovation. The state-of-
the-art cost-effective processes, scientific research, ingenious technology and
detailed market knowledge form the basis for the Division’s success.
Marketin Productio
Quality
g n
Dept
Dept Dept
Finance
Dept
Human Resource Department
Objectives
M.P.KULKARNI
(V.P HR)
MONISHA
S.S. KOKLE ASHITOSH JANI SINGH
JAYESH PATEL (RECRUITMENT & (Performance
(G.M)
(LAOUR WELFARE) SELECTION)
TRN & DEVLOP appraisal )
SANJAY SONI
(HR MANAGER AEROMATIC DIVISION)
JAYESH PATEL
(ASST MNG HR)
TIME KEEPING OFFICE (TKO):-
ATUL LTD. Has a very effective time keeping system. The TKO is situated
at the main gate of the company and is responsible for maintaining the Muster Roll
ovary department and for every shift. The TKO consists of three staff members, two
for attendance recording and one for special purpose.
• Level Record
• Promotion Record
• Registration & Recruitment Record
• Overtime Record
• Employee history Record
• Absenteeism Record
• Early Going and Late Coming Report
• Positive/negative Report
• All types of forms like advance Salary leave Travel Allowance,
Medical Loans etc.
In case of Top down Approach the Top Management makes the study of
Human Resource Planning mostly for the expansion of business. Over here
uncertainty for the business like retirement, old age, ill heath etc of the employees are
predicted before hand and planning regarding manpower is done.
Such plans can be
-Short Term: for next 2 years
-Medium Term: between 2 to 5 year
-Long Term: more than 5 year’s
Over here the lower level people gives feedback to the top level. The lower
level discusses with the top level regarding the manpower plans and the top level tries
to fill up the vacancies.
Both this method re used in ATUL LTD, but the Bottom up Approach is given more
importance than the Top Down.
PERFORMANCE APPRAISAL:-
Performance appraisal is the process of evaluating the employee’s
performance on the jobs in the terms of the requirements of the job.
ATUL LTD goes for an effective performance Appraisal system, as this is the
time to remind that only hard work without achieving corresponding results cannot
improve the balance sheet of the company, nor can it contribute towards the
company’s
TRADITIONAL METHOD:-
1) Forced distribution method
The rating provides by the Appraiser to the Appraise is based on the major
contribution and the appraiser. In the company, the baring is on the major
contribution and the quality of the same. The appraiser while rating the same
The appraiser while rating uses the following rating criteria:
RATING INDICATORS:-
In results do not meet the goals at all and are below acceptable standards
(Improvement needed)
S results fall slightly below basic goals, but not are in unacceptable category,
scope for higher (satisfactory) contribution
(Good) VG results fully meet and at several times exceed sets goals and that
appraise had to counter difficulties in (very good) achieving the goals/actions
2) CRITICAL INCIDENTS:-
The Company uses critical incidents Method where the workers performance
is appraised in terms of some events that occur in the performance of the Rate’s job.
But is missed out in the appraisal form. The appraiser keeps a records and
increments.
MANAGEMENT BY OBJECTIVE METHOD:-
For appraising the High Officials, the company uses the MBO technique.
Over here, the management first sets the overall objectives of the company and later
they communicate those goals to the Officials. Then a good amount of Discussion
takes place between the management and the Officials regarding the Objective setup
before and also the ways and methods of measuring employees.
Lastly, the employees would try to achieve their objectives within the given
period and also feedback to the manger about their Goal Progress.
CANTEEN ADMINSTRATION:-
Labor Contractors are Private authorities who bring labor on temporary basis.
They are given a P.F. code and insurance Policy if they bring 9 or below 9 employees.
But license is needed for bringing more than 9 employees. If a contractor brings more
than 9 employees without any license, he would be charged penalty or terminated.
Even though the Contractor Administration 12% is contributed by the employee and
other12% by the Contractor which is reimbursed y the company later. The
Contractors are benefited as they get 25% of the wage from the company as
commission, from which 10% is profit and 15% is the Labor liability.
GENERAL SERVICES:-
It includes:-
- Postal Services
- Ticket Reservation
- Reception etc
- Courier Services.
COLONY MAINTENANCE:-
Housing Facility is given to all the permanent employees of the company on
the basis of their position in the organization. The rates of the Houses are provided at
a subsidized amount and the usually deducted from the Salary of the employees. The
Major Facilities in this Colony are recreational facilities for families and library.
Schools, parks etc for children.
Internal customers refer to the employees of the company. ATUL LTD gives
more emphasis on internal Customer Satisfaction. It is the First Company in South
Gujarat, who looks after this concept. The personnel department gives a form to the
employees for their feedback with respect to
1) Job Satisfaction
2) Working Condition
3) Housing Facilities
4) Wages & Salary (timing of payment)
5) Other Facilities like Parking, Canteen, Medical, Safely etc.
Form the above form, if the employees of the company are dissatisfied, then the
Personnel manager personally meets that particular employee and discuss regarding
the matter. If he finds that his point needs to be taken into consideration, then further
action may be taken.
INDUSTRIAL RELATIONS:-
In this company it is generally observed that the problems and grievances are
solved through mutual understanding. There are no single day strike observed in the
Company since its first day
WELFARE ACTIVITIES:-
ATIL LTD provided to its employees every year. For the fire and security
department employees fire proof uniforms are given Company provides different
types of Shoes to its workers and office staff, for the protection of workers feet
against hazardous and flammable chemicals.
In ATUL LTD, the transport and traveling section is working under he
personnel Department, The function of this department are as under :-
• Transport facilities like Rail & Air booking
• Hotel Booking
• Transport Facility, Guest House Accommodation, Lunch and Dinner
Arrangement for the visitors and guest.
• Transportation of goods within the Factory Premises.
• Emergency Transport facility in case of disaster or accident either in the
factory premises or in the colonies.
Recruitment Process
MPP
Advertisements /
Not Shortlisted Consultants/ Shortlisted
Web Site/
Standard Drafts / Policies
Up to Div. Unit HR
Final Interviews Corp.HR
- Salary matching
- Offer letter
- Info. on policies
- Medical tests
- Appointment letter
Joining formalities
INTERNAL SOURCES:-
The Company gives more emphasis on the Internal Sources rather than
External. It believes in the policy of “First Preference to Existing
Employees”, so as to motivate the employees and reduce the cost. The two
sources of Internal Recruitment used by the company are -Transfer –
“Transfer involves the shifting of an employee from one job to another, one
department to another or one shift to another.
TRANSFER POLICY:-
As the Company has two units ATUL LTD PPSITE and ATUL LTD at East,
so transfer is a good source of filling vacancies with employees from overstaff
units/departments/shifts to another.
EXTERNAL SOURCES:-
Campus Recruitment:-
The main External Source of Recruitment for this company is through
Educational Institutions. According to them this source not only brings new blood in
the Organization, but also innovative ideas, technical knowledge and fresh talents.
The students are first taken as Management trainees and later they are grouped into 4,
according to their performance.
EMPLOYMENT EXCHANGE:-
Employment Exchange’s run by the Government is regarded as a good source
of recruitment for Unskilled and Skilled Operative jobs. The company has
compulsion to give notification of vacancies to this exchange. Thus the Employment
Exchange brings the Employer in contact with the job seeker, but the Company need
not compulsorily provide that job to the employee, who is been sent by the
Employment Exchange.
LABOR CONTRACTOR:-
The company finds a Labor Contractor, who brings worker on temporary
basis. The norms and procedure regarding labor Contractor are to be followed by the
Contractor as mentioned in the Contract Administration. (As above)
ADVERTISING AGENCY:-
When the Company is unable to get suitable Candidates from the above
Sources, it goes for Advertising Agency. The company gives last preference to this
source because it brings in flood of response and many a times from quite unsuitable
candidates.
NOTE: The pattern of Interview remains the same for all the employees,
but a slight change takes place depending upon the type of job.
In case of Higher Level Jobs, before giving the Appointment Letter the
Interviewee is taken to the Managing Director and if the Managing Director finds the
Candidate suitable, he is appointed or else is discarded.
INDUCTION
After an employee is selected for this Company, he is induced by giving a
friendly welcome Induction is done according to the ISO 9001 policy. A staff
member form the Personnel Department or the personnel manager himself takes the
new employee to the Concerned department and introduce him to his new
environment (Rule and Regulations. Superiors, Fellow Employees etc)
Paid Holiday – The Employee are entitled to 8 paid Holidays during the Calendar
Year, which the Management declares in the month of January.
Privilege leave – Privilege Leave is available @ 30 days per Calendar Year which
is credited @ 2.5 per month is credited after completion of one month.
Sick Leave – 9 days sick leaves are available per annum and credited on 1 January
every year. During the first year of Employment, however this leave benefit will
be available on pro-rata basis. Accumulated Sick Leave can be encased at the
time of retirement and death only, which can be up to a maximum 72 days.
Casual Leave-9 days Casual leave is available per annum and credited on 1st Jan
every Year. During the first year of Employment, however this leave benefit will
be available on pro-rate basis. Since casual leave benefit cannot be carried to the
next year, at the end of the Calendar Year the outstanding Leave balance will
automatically be encased and included in the salary of the subsequent month.
Special Leave- the Managing director under exceptional circumstance will have
the discretion to grant any additional leave, termed as Special Leave to Individual.
Such Leave will normally believe without pay, unless it is for the benefit of the
company.
TRAINNING PROCESS:-
Types of Training:-
The company goes for house training for both external and internal training. The
company mostly prepares to go for off the job (external training). In house training
includes training by supervision, whereas Lectures and Seminars are the part of
External Training.
Training Policy:-
Training Process:-
2. Training Calendar:-
The Training Calendar is prepared at the end of the year.
3. Nomination:-
The names, training details and time schedules for each and every employee
is nominated by his immediate superior. Each department head is very much
familiar with the strength and weaknesses of the Employee of his office
department. As a result he is the best person to suggest the names of trainee.
4. Training Program:-
Over here the planned training programs are actually being implemented in
the company
5. Feed back:-
Feed back about the program is given by the Trainee to the personal
department by filling up Questionnaire which gives us the idea whether the
training program was excellent, good, average, satisfactory, or poor.
6. Evaluation:-
The concerned department head evaluates the performance of the Trainees in
terms of effective or not effective. The Company Surveys into each and every
department. The departmental heads has to give details regarding increasing
the jobs of each employee and if needed they need to be trained regarding
increasing productivity and skill, reducing accident. Bifurcations are made
according to the management Trainees, staff, Staff Workers etc and also on
the basis of are of Training like Basic Programme, ISO Training etc.
INTRODUCTION
Production is the creation of the goods & services. Major emphasis is on the
creation of goods. Manufacturing production is the systematic step-by-step
conversation of raw materials through creation of form utility in goods.
Producing goods is an interact & complex process Goods on the shelves, ready to
sell do not just happened they are the end results of much careful thought & planning.
The job of production management is to weave together those factors (man, material,
and machinery) for those sole purposes of economical delivery of quality goods to
customer.
Inorganics Name:-
1. PARA CRESOL 99
Para cresol plant is the main plant in this division as it not only covers
the major part of their sales percentage compared to the other products The
capacity of the plant is 11000 Mt/tones and 900 Mt/tones also serves as the
major raw material for the other products like Para cresidine and which is also
used as the raw material for the production of Para Anisic Aldehyde and Para
Anisic Acid .
The plant of PAA also has the latest technology of the plant of the
production process the capacity of the plant is 500 Mt/tones per month
4. PARA CRESIDINE
The plant present at Atul for PC has the capacity of 45 Mt. tones per
month, its geneally used for manufacturing of Dyes.
5. ORTHO CRESOL
These are the bi products which are obtained while the production process of
the various chemicals stated above.
The major demand or the challenging market for ATUL (aeromatic division)
Is the forign market, from the total sale of aeromatc division atul the 70% is from the
export business. As the company enjoys monopoly production in the India there are
no competitiors in the domestic market
The major competitiors in the forign market are the manufacturers from China,
as they are able to produce the same product at cheaper rate sometime s due to the
various factors like Political influence, cost of raw material, etc.
THE PRODUCTION
PROCESS CHART
PARA CRESOL 99 AND ORTHOCRESOL
RAWMATERIAL
TOLUENE,SO3,SO2,
ACETIC ACID
SULPHONATION BY
CAUSTIC SODA
FUSION PROCESS
SEPRATION PROCESS
BI-PRODUCT BI-PRODUCT
MAGNESIUM SULPHATE SODIUM SULPHATE
ACIDFICATION
DISTILLATION
CRESOL MIXTURE
SEPERATION
RAW MATERIAL
PARA CRESYL METHYL ETHER
METHILATION
OXIDATION
WASHING
BI –PRODUCT BY
CAUSTIC WASH
AND BY DISTILATION
PURE PARA ANISIC ACID
DISTILATION PROCESS
NITRATION
METIALATION
REDUCTION
DISTILATION
PARA CRESIDINE
INTRODUCTION
The marketing has changed greater in the present day world. The marketing
has developed many activities to satisfy the needs wants of a group of customers.
Entering into 21st century. Marketing has become one of the important criteria for a
company product or services to sell in state, national and international level. After
world war 2nd, the development in the field of science and technology, social and
political, economical and other relative regions have changed tremendously and
brought new dimensions in marketing. So as marketing gained momentum in the
development of new markets and new avenues of selling a wide range of goods and
services that has changed and development to meet the consumer need at right time.
FUNCTIONS:-
ROUTINE FUNCTION:-
6. This department has a job of preparing invoices, bank letter, side draft, credit
note, sales certificate etc.
7. They consult the customer and ask about the ‘C’ from. If out side of state.
11. They prepare advertisement about the product and give it into the different
business media.
PRICING:-
Price is the only element in the marketing mix that creates sale revenue, the
other elements are cost. Company is using the most commonly used strategy and i.e.
the skimming pricing strategy. The company is also using differential price strategy
that involves ago. Indifferenciating its price arose different market segment. The
company sets its price from the given points.
MARKETING RESEARCH:-
Problem formulation
Data collection
Marketing sample
Data evaluation
Interpreting data
Report preparation
The main object behind this is that it finds out for company. Where are his
customers? What they willing to pay for it? what is the Impact and use of
technology? They are researching leaps it’s use in reducing and minimizing all
marketing costs particularly selling advertising and distribution cost.
DOCUMENTS:-
1. Inquiry letter
2. Quotation
3. Order
4. Schedule
5. Transport receipt
6. Invoice
7. Bank letter
8. ‘C’ form
9. Side draft
10. Payment Details
11. Circular
12. Advertisement
INQUIRY LETTER:-
The purpose of inquiry for buyer is to find out the cheapest and best source of
purchase of goods required. Inquiry contains products, name, price, quality,
quantity, discount rate, delivery period and other terms and conditions. Inquiry
received by this department is kept in inquiry register.
QUOTATION:-
The main purpose of the quotation is to give ideas to customer about the under
mentioned matters.
ORDER:-
Customer sends orders either through phone, fax, E-media or through letter.
Order received by this department is records in order register. There are three
types of order:
1. New order
2. Repeated order
3. Regular order
SCHEDULE:-
TRANSPORT RECEIPT:-
The transport corporation prepares transport receipt. The two copy of this
receipt are prepared
(1) Consignee copy, which is, sends to the customer with goods.
(2) Consignor copy, which is kept in record of this department.
INVOICE:-
BANK LETTER:-
This department to the bank drafts bank letters. The mode of payment is
described in it. Transport receipt & invoice is attached with the bank letter.
“C” FORM:-
The sales & marketing department & sends prepare side draft to the customer.
After acceptance from customer, it is valid up to the mentioned time. It means
customer is bound to pay to bank after this time limit.
PAYMENT DETAILS:-
CIRCULAR:-
ADVERTISEMENT:-
COMMUNICATON:-
The marketing communication process has five major competent i.e. sender,
message, receiver, response and feedback. The sender is itself the Hi-tech. Which
sends message through advertisement. This advertisement reaches the message to
the receiver or audience about the product by buying the Hi-tech. This is than
feedback to the company.
THE MARKETING COMMUNICATION PROCESS:
FINANCE DEPARTMENT
SUMMERY
Introduction
Organization
Treasury operation
Accounting policies
Financial account includes trading account, profit & loss account and balance
sheets.
Trading account is a part of profit & loss account. It indicates the earning
capacity of the enterprise. Balance sheet indicates financial position of the enterprise.
The financial picture mostly have two parts, one showing how much profit
has been earn or loss suffered and other sowing assets & liabilities and a proprietor’s
interest in the firm. A firm constantly enters into transaction with out siders. A
transaction may be defined as an action & reaction having monitory implication of
one firm in relation to another firm.
In other words accounting defined as, “The Art of recording, classifying &
summarizing in a manner and it terms of money transaction and events which are, in
part at least, of a financial character & interpreting the result thereof”.
FUNCTION
ROUTINE FUNCTIONS
2. This department handles the income tax and sales tax cases.
4. They note the entries in the sales return book on the basis of credit note & the
entire of stock register.
5. This department makes casting and posting from sales return register to ledger.
6. They fill up the sales and income tax return per month.
7. They checked whether the income tax department has given a correct order for
payment of tax in advance.
9. They prepare the daybook, ledger, trial balance, manufacturing and profit &
loss account and the final balance sheet
.
10. They collect the “C Form” from the customer this department also allocates
the total salary to the personnel department per month.
SPECIFIC FUNCTION
3. They ensure that the funds are raised economically and used in the most
efficient manner.
Company said nothing write about its finance company. So that I can’t write
about finance department.
Orgaonogram of Finance
Department
President
(Dr Hariharan)
GM Finance
Manager Manager
(Costing) (Accounts)
(S.M Behani) (M.D. Gupta)
(H .M .Shah)
(Ashok Modi)
All the raw material entering into the Aeromatic plant are been checked
randomly from their lot sizes before they are allowed to be stored. The raw materials
checked are if according to the specification which are required by the company then
they allow them to enter the plant or let them store it or else they are been send back
to the suppliers.
2. In-process check:
3. Dispatch process:
The goods before they are been dispatch to the customers are been verified
once again that the dispatch goods are the same goods which are meeting the
requirement of the customers and are if checked ok then a Certificate of Analysis is
attached to the vouchers through which the customers could know the goods are of
exact specification as they ordered.
Some of the experiments which is undertaken for the Quality check are , GAS
COMOTOGRAPY SPECIFICATION its for purity, HYPER PERFORMANCE
LIQUID COMOTOGRAPH, ULTRA VIOLET testing, LOVI BALL testing, weight
balance , melting point etc.
PART - 2
Working capital
Management
Introduction:-
Meaning:-
Working capital refers to the cash a business requires for day-to-day operations
or more specifically, for financing the conversion of raw material into finish goods,
which the company sells for payment. The better the company manage its working
capital, the less the company needs to borrow. Even companies with cash surpluses
need to manage working capital to ensure that those surpluses are invested in ways
that will generate suitable return for investors.
Objectives:-
Definition: -
“The management of short term asset and short run resource is said to be
working capital management or current asset management ’’
It refers to the firm’s investment in current assets. Current assets are the
assets which can be converted into cash within an accounting year or operating cycle
and it includes cash, short-term securities, debtors, bills receivables and inventory.
Investment in current asset should be judge adequately, not more not less, to
the need of the business firm. Excessive investment in current assets should be
avoided because it impairs the firm’s profitability, as idle firm investment earn
nothing. Inadequate amount of working capital can threaten the solvency of the firm
because of its inability to meets its current obligations.
WC=CA-CL
Where,
CA=Current Asset
CL=Current Liability
Any firm should nither have too much nor too little working capital. The
total working capital required is determined by a wide variety of factors. These factors
are:
2) Production cycle:
To sustain such activities the need for capital is obvious. The larger the time
span, the larger will be the tied-up fund and therefore the larger is the working capital
needed and vice-versa.
3) Business cycle:
4) Production policy:
5) Credit policy:
The credit policy relating to sales and purchase also affect the working capital.
Credit policy influence the requirement of the working capital in two ways,
Thus working capital requirement of the business are affected by the terms of
purchase and sales and the role given to credit by the company in its dealing with
creditor and debtors.
Basically planning of working capital aims at smooth and efficient flow of the
regular operating cycle i.e. right from the procurement of raw material to sale of finish
goods. Planning of working capital is done according to the need and necessity of the
firm. Basically the planning of working capital is done to achieve the goal of the firm.
Thus planning of working capital plays a very critical role or it’s the pare that
has to be performed by the accounts department of the firm because they are the
person who are responsible for handling the finance of the firm. Thus planning of
working capital has to be done vary carefully by analyzing each and every small and
big thing of firms.
In Atul Ltd, working capital planning is done by the finance Manager. The
working capital planning is done on four occasions ie. Yearly, Monthly, Weekly and
Daily basis. First the total working capital requirement is assessed on yearly basis. On
the basis of yearly planning, the company approaches its bankers for increase or
modifications in the working capital facilities. Then the company makes the monthly
working capital planning. This is done to meet the working capital requirement of the
coming month. Then the company makes a working capital planning for the
immediate week. Up to this level the working capital planning is done by the finance
manager. Then, on every evening he makes the financial requirement of the next day
and assign the execution of those works to the Accountant and officers.
Monthly estimated salary, power bill , repair and maintenance and other direct
and indirect expenses.
This data is given by Production Manager to the Finance Manager
The company fulfills its need for working capital from its internal factors such
as receivables from the debtors, advances etc.
The other sources from which company acquire working capital are:
• Bank loan
• Cash credit
• Borrowing from financial institution
• Trade credit
OPERATING CYCLE
Cash
Collection Purchases
Accounts
Receivab
Raw material
le
Inventory
Work in progress
Sales Inventory
Finished goods
Inventory
2005-2006
Raw material inventory -Rs. 4016.71
Raw material consumed- Rs. 42163.12
Raw material consumption = Raw material inventory X 360
Period Raw material consumed
= 4016.71 X 360
42163.12
= 34.2957
2004-2005
Raw material inventory - Rs. 3790.23
Raw material consumed - Rs. 34826.37
Raw material consumption = Raw material inventory X 360
Period Raw material consumed
= 3790.23 X 360
34826.37
= 39.17
2002-2003
Raw material inventory - Rs. 2738.51
Raw material consumed - Rs. 25144.18
Raw material consumption = Raw material inventory X 360
Period Raw material consumed
= 2738.51 X 360
25144.18
= 39.208
2001-2002
Raw material inventory - Rs. 2690.71
Raw material consumed – Rs. 22752.41
Raw material consumption = Raw material inventory X 360
Period Raw material consumed
= 2690.71 X 360
22752.41
= 42.57
= 6221.20 X 360
72681.835
= 30.814
2004-2005
Work in progress inventory – Rs. 5107.03
Cost of production - Rs. 61931.826
Work in Progress Conversion = Work in progress inventory X 360
= 5107.03 X 360
61931.826
= 29.69
2003-2004
Work in progress inventory –Rs. 5782.57
Cost of production -Rs. 52600.755
Work in Progress Conversion = Work in progress inventory X 360
= 5782.57 X 360
52600.755
= 39.57
2002-2003
Work in progress inventory –Rs. 6965.84
Cost of production - Rs. 51454.172
Work in Progress Conversion = Work in progress inventory X 360
= 6965.84 X 360
51454.172
= 48.73661
2005-2006
Finish goods inventory – Rs. 6955.05
Cost of goods sold - Rs. 80768.59
Finish goods consumption = Finish goods inventory X 360
= 6955.05 X 360
80768.59
= 30.99
2004-2005
Finish goods inventory – Rs. 5187.04
Cost of goods sold - Rs. 69134.80
Finish goods consumption = Finish goods inventory X 360
= 5187.04 X 360
69134.80
= 27.01
2003-2004
Finish goods inventory –Rs. 4928.05
Cost of goods sold - Rs. 59663.69
= 4928.05 X 360
59663.69
= 29.73
2002-2003
Finish goods inventory – Rs. 6226.43
Cost of goods sold - RS. 61843.65
Finish goods consumption = Finish goods inventory X 360
Period Cost of goods sold
=6226.43 X 360
61843.65
= 36.24
1) Inventory consumption period = Raw material consumption period + Work in Progress
Conversion Period + Finish goods consumption period
2005-2006
Inventory consumption period = A + B + C
= 34.2957 + 30.814 + 30.99
= 96.0997 Days
2004-2005
Inventory consumption period = A + B + C
= 39.17 + 29.69 + 27.01
= 95.87 Days
2003-2004
Inventory consumption period = A + B + C
= 39.208 + 39.57 + 29.73
= 108.508 Days
2002-2003
Inventory consumption period = A + B + C
= 42.57 + 48.7366 + 36.24
= 127.5466 Days
100
80 Work in
60 Progress
40
Finish Goods
20
Consumption
0 Period
2005- 2004- 2003- 2002- Inventory
2006 2005 2004 2003 Consumption
Yesr Period
2) Debtors conversion period :-
Credit sales
2005-2006
Debtors - Rs. 22236.82
Credit sales - Rs. 83043.20
Debtors conversion period = Debtors X 360
Credit sales
= 22236.82 X 360
83043.20
= 96.398
= 96 Days (Approximate)
2004-2005
Debtors - Rs. 20263.13
Credit sales - Rs. 69938.69
2003-2004
Debtors - Rs. 18613.66
Credit sales - Rs. 59397.69
Debtors conversion period = Debtors X 360
Credit sales
= 18613.66 X 360
59397.69
= 112.81
= 113 Days (Approximate)
2002-2003
Debtors - Rs. 17497.29
Credit sales - Rs. 64436.62
Debtors conversion period = Debtors X 360
Credit sales
= 17497.29 X 360
64436.62
= 97.755
=98 Days (Approximate)
2005-2006
Gross operating cycle = Inventory conversion period + Debtors conversion period
= 96.0997 + 96.398
= 192.4977
2004-2005
Gross operating cycle = Inventory conversion period + Debtors conversion period
= 95.87 + 104.30
= 200.17
2003-2004
Gross operating cycle = Inventory conversion period + Debtors conversion period
= 108.508 + 112.81
= 221.318
2002-2003
Gross operating cycle = Inventory conversion period + Debtors conversion period
= 127.5466 + 97.755
= 225.3016
2005-2006
Creditors = 13885.56
Credit purchase
= 13885.56 X 360
42391.34
= 117.92
2004-2005
Creditors = 13371.34
Credit purchase
= 13371.34 X 360
36030.52
= 133.60
2003-2004
Creditors =11288.20
Credit purchase
= 11288.20 X 360
24974.11
= 162.7185
2002-2003
Creditors = 11583.99
Credit purchase
= 11583.99 X 360
25205.38
= 165.45
2005-2006
Gross operating cycle= 192.49
= 192.49 + 117.9195
= 310.40
2004-2005
Gross operating cycle= 200.17
= 200.17+ 133.60
= 333.77
2003-2004
Gross operating cycle= 221.318
= 221.318+ 162.718
= 384.036
2002-2003
Gross operating cycle= 225.3016
= 225.3016 + 165.45
= 390.7516
N et O perating Cy c le
500
400
No of Days
300 N et O perating
200 C y c le
100
0
20 006
20 005
20 004
3
00
-2
-2
-2
-2
05
04
03
02
20
Ye a r
Calculation of Net Working Capital of ATUL LTD.
(Rs in Lacs)
31000
Amt in Lacs
30000
29000 Net Working
28000
27000 capital
26000
25000
20 006
20 005
20 004
3
00
-2
-2
-2
-2
05
04
03
02
20
Year
INVENTRY MANAGEMENT
The term inventory refers to the stock pile of products as firm is offering for
sales and the component that make up the products .
Raw Material
Work in progress
Finished goods
The Raw material inventories contain the items that are purchased by the firm
from others and are converted into finished goods through manufacturing process.
The work in progress inventory consist of items that are purchased by the firm
from others and are converted into finished goods through manufacturing process.
Finish goods represent final of completed products available for sole. The
inventory of such goods consists items that have been produced but are yet to be sold.
SIGNIFICANCE OF INVENTRY
Inventory constitutes in every business concern the most significant pert of
working capital current asset. Inventory in Indian industries constitute more than 60%
of current assets. About 40% to 60% of the cost of product contains material cost.
1. Transaction motives:-
2. Precautionary motive:-
3. Speculative Motive:-
1. ORDERING COST
2. HOLDING COST
The nature and quantity required for raw material different from firm to firm.
Because it is depending on type of firm.
If anticipated sales volume is high then the level of inventory is also high.
If the price of raw material decrease and if company is capable to buy in bulk,
then the level of inventory will be high in company.
If the demand of finish good is high then the level of inventory is also high.
So that the company can meet the demand.
5. Production process:
ABC ANALYSIS:
It is also known as selective inventory management
technique. It is the analyses tabulation and classification of
characteristics of item being carried out.
In inventory the comprehensive classification of item
being carried inventory in terms of deciding value stand
financial control of inventory.
• Toluene
• Phenol
• Sulfur
• Methanol
• Others
• Imported
• Indigenous
• Dyestuffs
• Intermediates
• Manganese Sulphate
• Oleum 25%
• Sulpheuric Acid 98%
• Oleum 65%
45000
Amt in Lacs
40000
35000
30000
25000 Series1
20000
15000
10000
5000
0
er
l
ss
l
ia
ds
ia
at
,fu ore
er
re
er
oo
,W
at
og
at
t
G
M
el
M
Pr
ng
aw
is
in
er
in
gi
R
ow
ka
or
ac
W
Component
Classification Of Inventory In Atul Ltd.
Raw materials
Raw materials Units Qty Rate (Rs in
Lacs)
Toluene MT 9498 30002.20 2846.99
Phenol MT 5558 54470.89 3040.71
Sulfur MT 26931 5246.62 1412.87
Methanol MT 6621 15646.73 1035.97
Other MT 33826.58
Imported MT 16834.67
Indigenous MT 25328.45
Dyestuffs MT 326 221782.2 723.01
0
Intermediates MT 1147 137709.6 1579.53
7
Manganese Sulphate MT 336 13616.07 45.75
Total 86674.53
The value of Indigenous, Imported and other Raw Material is higher and has
blocked other raw material. So they have A category. Phenol and Toluene lies in B
category. Finally other product having lower value lies in C category.
5%
0% 1%
1% 7%
5% 0% 8%
0% 2%
5% 0%
0%
8%
0%
2% 20%
2%
0%
1%
0% 31%
Finish Goods
Cresol
Sodium Sulphite
p-Anisaldehyde
p- Anisyl alchohol
p-Cresidin
Anisole
Dyes & Dye imtermediates (a&b)
Caustic/Chlorine
Chemicals
Pharmaceuticals
Sulpha Drug & intermediates
Bulk Drugs & Drug intermediat
PHIM
UF/MF/PF dicyandiamide resines
Epoxy resins
Hardener & auxilialiaries
Farmaldehyde
Polyminoamide resins & their intermediates
Sulphanilic Acid
Sulpha bulk drugs for export
other
Ancamine
Method of inventory valuation in Atul Ltd.
At Atul Ltd FIFO method is used, ie FIRST IN FIRST OUT.
Maximum level represents the beyond which the stock is hand is not allowed
to exceed.
Minimum level=15day’s
Minimum level represents the beyond which the stock is hand is not allowed
to Fall.
(2005-06)
Inventory Analysis
(2004-05)
45000
40000
35000
30000
Amount
25000
20000
15000
10000
5000
0
Raw material Work in Finish Store Power, Fuel Packaging
progress Goods Inventory And Water Material
CASH MANAGEMENT
Cash management is one of the key area of working capital management.
Apart from the fact that it is the most liquid currency assets, cash is the common
denominator to which all the current assets be reduced because the other major liquid
assets that is receivables and inventory get converted into cash. This underlines the
significance of cash management.
Cash in the important current asset for the operations of business. Cash is the
basic input needed to keep the business running on a continuous basis. The firm
should keep sufficient cash, neither more nor less. Cash shortage will disrupt the
firm’s manufacturing operations while excessive cash will simply remain idle,
without contributing any thing towards the firms profitability. Thus the major
function of the Finance manager is to maintain sound cash position.
Cash is the money which the firm can utilize immediately without any restriction.
The term cash with reference to cash management is used in two senses. In a
normal sense, it means currency which is accepted as cash. The broad view of cash
also include near cash assets cash balance in bank.
• Transaction motive
• Precautionary motive
• Speculative motive
• Compensating motive
1. Transaction motive:
2. Precautionary motive:
The cash balances held in reserve for random and unforeseen fluctuations in
cash flow are called as Precautionary motive.
Many time cash is required in order to overcome some unforced requirements.
Usually there is always same minimum balance maintained for this purpose.
3. Speculative motive:
Many times the opportunity may be available due to a fall or rise in raw
material price. The company should explore such circumstances.
4. Compensating motive:
Usually the clients are required to maintain a minimum balance of cash at
bank. Since this balance cannot be utilize by the firm for transactions purposes, the
bank themselves can use the amount to earn a return. Such balances are
“Compensating Balance.”
While cash serves this function it evolves in an opportunity cast. The liquidity
provided by cash holding is at the expenses of profit by forcing alternative investment
opportunities. Hence, an optimum cash balance should be maintained taking into
account the profitability.
There are some specific technique and processes for speedy collection of
receivables from costumers and slowing disbursements.
The firm prepares cash budget to determine the net cash inflow or outflow so that the firm is
enabled to arrange for finances. Cash budget is helping the firm to manage it cash position.
RECEIVABLE
MANAGEMENT
The term receivable is defined as “Debt owned to the firm by customer arising
from sales of goods or service in the ordinary course of business”
When a firm makes an ordinary sale of goods on services and does not receive
payment, the firm grants trade credit and creates account receivable, which could be
collected in the future. Receivable management is also trade credit management.
Firm now days also enjoy the benefit of Negative Working capital. Here they
enjoy the benefit of gating various Products, Raw material and other things on credit
for manufacturing of final product. Here this benefit received by the firm is on the
basis of good will and bargaining strength of the company. Negative Working
capital adds to a larger benefit then expected by the creditor. For these reason now
day’s companies have started to raise the payment period to it creditor.
Major costs:
The major categories of costs associated with the extension of credit and account
receivables are;
1. Collection cost
2. Capital cost
3. Delinquency cont
4. Default cost
1. Collection cost:
2. Capital cost:
The increase level in assets. They have to be finance there by involving the
cost there is a time leg between the sales of goods to and payment by the costumer.
3. Delinquency cost:
This cost arises out of the failure of the costumer to meet there obligation
when payment on credit period. Such costs are called delinquency cost.
4. Default cost:
Finally the firm may not be able to recover the over-dues because of the
inability of cost associated with credit sales and account receivables.
Credit policy
The credit policy related to sales and purchase also affect working capital. The credit
policy influences the requirement of working capital in two ways.
1. Through credit terms granted by the firm to its customer buyers of good.
The firm is granting credit to its customers for the following reasons:
2. To increase profit
Increase in sales result in high profit for the firm not only because of
increase in volume of sales but also because the firm charges a higher
margin of profit on credit sales as compared to cash sales.
3. To meet competition
On every 15 days and last day of the month the company prepares the
receivables list this list show the total receivable, receivable which are due and due
date of each bill. This list is prepared by the accounting department.
• Amount involved
• Risk involved
• Future business relations
On the basis of amount involved the receivable are classified into High value,
Medium value and low value.
On the basis of risk involved, the company categorizes the receivable into high
risk, moderate risk and normal risk.
In case of high risk receivables the company the adequate insurance through
Export Credit Guarantee Corporation of India in case of exports and in the case of
domestic sales the company fixed credit period with the baking of post dates cheques
or assurance from receivable sources. High risk category is directly managed by the
directors of the company.
On the basis of the future prospects of the costumers the receivables are
classified into fast growing companies, study growing companies and stagnant
companies.
The terms of credit in case of fast growing companies are fixed on the basis of
the latest date available. Director of the company manage this category.
1. Overdraft
Under the overdraft facility, the borrower is allowed to withdraw funds in excess of
balance in his current account up to certain specified limit during the specified period.
Though the overdrawn is repayable on demand, they generally continue for a longer
period by annual renewal of the limits.
2. Cash credit
Cash credit facility is similar to the overdraft management. The barrower is allowed
to withdraw funds up to certain sanctioned credit limit. He does not require the entire
amount at once. He can periodically withdraw to the extent of his requirement and
repay by depositing surplus funds in his cash credit account. Interest is payable on the
amount actually utilized by the borrower.
Inventory Management
The values of imported, indigenous and other raw material are high and these raw
materials has block 19.42%, 29.22%. 39.03%.Hence it has been category as A. The
reason of high value of this raw material is as they are imported and the availability of
raw material is not regular.
The value of finish products of Dye and Dye intermediates (a&b), chemicals are
highest in finish goods inventory and these finish goods have blocked 51% of the total
value of finished goods inventory. Hence it has been categorized in A category.
The reason of high stock value of this finish Goods is that this material is scheduled to
be dispatched in Second week of April. Hence it is seen as a higher value finish goods
inventory as on 30 March 2006.
Cash Management
The company’s maintain a cash balance of Rs.150 Lacs. In order to meet the daily
requirements of miscellaneous cash purchases and for emergences like accident.
The company prepares the cash budget and forecast its requirements. If there is any
deficit then it borrows and if there is any surplus then it repays.
Working capital
The company finance its working capital through its internal accruals. It is also
making use of financial instruments like Overdraft, Cash credit, Bill Purchase, Export
packing credit foreign bill Purchase/Discount.
It makes use of such instrument in order to be safe due to export dealing of vary high
values.
RECOMMENDATION
Working Capital
The Company has high internal accruals. Hence it Should not go for working
capital loan. It should try to reduce it inventory consumption period and Debtors
collection period.
It should try to reduce it Current Asset.
Inventory Management
The Company should implement inventory management technique efficiently
as there working capital amount is mostly blocked in inventory and above 50% of the
amount is blocked in Inventory. If inventory holding is reduce there will be more
Working Capital.
Receivable Management
The Company has to maintain against schedule in order to keep a proper track
of the receivables. This schedule helps in finding out the payment which have gone
beyond the credit limit. It would also help the management in taking proper action to
recover the payments.
The company should also maintain Collective Experience Matrix which will
show how efficient the collection in collecting the receivables. In the diagram it there
in an increase in the debtors then it shows the inefficiency of the collection
department.
Cash Management
The company has got high interest accruals. Hence it should not borrow and
finance its activities from interest accrual. More over the company can also think of
investment in order to earn income on idle cash.
BIBLIOGRAPHY
• Khan and Jain, Financial Management Third Edition.
• www. Atulnet.com
• www.Atul.com