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Working Capital Management

“An Empirical Study of Working Capital Management of “Indian Farmer

Fertilizer Co-operative Limited (IFFCO)-Kandla”


Kunal Parekh
Marwadi Education Foundation‟s Group of Institutions, Rajkot.
Academic Year: 2010-11

Conducted at
Indian Farmer Fertilizer Co-Operative Ltd. (IFFCO)
Kandla, Kachchh (Gujarat)

Under the guidance of

Mr. Bhavik Panchasra,
Asst. Professor,
Faculty of Management,
Marwadi Education Foundation‟s Group of Institutions

Submitted to
Gujarat Technological University

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Student Declaration

I, the under signed Kunal Parekh, hereby declare that the research work presented
in this summer internship project is my own contribution and has been carried out under
the supervision of Mr. D.D.Pandya, Senior Manager (Accounts),Indian Farmer Fertilizer
Co-Operative Limited, Kandla.

This is an original contribution in every respect and has not been previously
submitted to any university for any degree.


Place: IFFCO, Kandla Kunal Parekh

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This project is a part of Masters of Business Administration Program, academic year

2009-2010 at Marvadi Education Foundation Group of Institutions, Rajkot. The project
gives us an opportunity to study different aspects of Industry. It also helps to understand the
Industrial Environment.

The Project is a base to understand the Working Capital Management followed by

Large Industries like Indian Farmers Fertilizer Cooperative Ltd. Such large organization
should have a good hold on their Working Capital so that it can survive and grow in the most
efficient way in today‟s competitive world and can satisfy various trends of Market demand.

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It was a great pleasure working at IFFCO-Kandla. I take this opportunity to extend my

gratitude towards all those persons who have directly or indirectly contributed to this project.

I am indebted to Dr. Chinnam Reddy (Dean, Head of Mgmt. Dept.) and Asst. Prof.
Bhavik Panchasra (internal guide), Mr.KSR Swami (Corporate Manager) of Marwadi Education
Foundation‟s Group of Institutions, who gave me an opportunity to undertake this project at
IFFCO-Kandla, and also for their help whenever needed.

I am thankful to Mr. L. Murugappan, Executive Director, IFFCO- Kandla unit, for

providing me this golden opportunity of getting trained at IFFCO-kandla. I am obelized to Mr.
A.E.Kadu, JGM (Technical Services) and Mr. H.H.Chauhan, Senior Manager (training) for
arranging my training format at IFFCO-Kandla

I would like to thank Mr. V.J. Mankodi, Joint General Manager (F&A) & Mr. D.D.
Pandya, Senior Manager (Accounts), for allowing me to carry out my project study and his
guidance and support during training period and also Mr. V.H.Ambwani Senior Manager
(Accounts), Mr. D.N. Joshi, Manager (F&A) for sharing their ideas with us. I would also thank
Mr. K.M. Patel & Mr. H.T.Bhambhani for their guidance throughout my training period and
F&A staff for their cooperation and supportive attitude.

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Chapter No. Particular Page No.

Declaration I
Preface II
Acknowledgement III
Index IV
List of Tables & Charts VII
Executive Summary 1
1 Working Capital Management 2-9

1.1 Introduction 3

1.2 Need of Working Capital 3

1.3 Gross Working Capital and Net Working Capital 4

1.4 Types of Working Capital 5

1.5 Determinants of Working Capital 6

1.6 Financing Working Capital 7

1.7 Working Capital Cycle 9

2 Industry Overview 10-16

2.1 Industry at Glance 11
2.2 Industry at Service for Farmers 11
2.3 Role of Government in Industry Development 13
2.4 Public, Private & Co-operative org. Industry 15
3 IFFCO Overview 17-47

3.1 History 18

3.2 Vision, Mission & Future Plans 20

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Chapter No. Particular Page No.

3.3 Achievements 21

3.4 Performance Comparison with Competitors 23

3.5 Subsidiaries & Associates 26

3.6 Corporate Social Responsibilities 27

3.7 SWOT Analysis 29

3.8 Units of IFFCO 30

3.9 IFFCO’s Products 35

3.10 IFFCO-Kandla at Glance 37

3.11 Organizational Setup 39

3.12 Various Departments 40

3.13 Financial Performance of IFFCO 45

4 Research Methodology 48-53

4.1 Objective of Study 49

4.2 Literature Reviewed 49

4.3 Data Collection 51

4.4 Hypothesis Establishment 52

4.5 Research Method 52

4.6 Scope of the Study 53

4.7 Limitations of the Study 53

5 Data Analysis & Interpretation 54-67

5.1 Working Capital Size 55

5.2 Current Assets Analysis 56

5.3 Current Liabilities Analysis 57

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Chapter No. Particular Page No.

5.4 Working Capital Changes 58

5.5 Sales Analysis 60

5.6 Trend Analysis of Working Capital & Sales 61

5.7 Degree of Correlation Between W.C. & Sales 66

6 Findings & Suggestion 68-70

6.1 Findings 69

6.2 Suggestion 70

Bibliography 71

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List of Tables & Charts

Sr. Figure & Description Page

No. Table No. No.
1 Figure 1 Working Capital Cycle 9
2 Figure 2 Comparison of IFFCO’s NPK (10:26:26) with 23
others Fertilizer Producers of India.
3 Figure 3 Comparison of IFFCO’s NPK (12:32:16) with 24
others Fertilizer Producers of India.
4 Figure 4 Comparison of IFFCO’s DAP (18:46:00) with 25
others Fertilizer Producers of India.
5 Figure 5 IFFCO’s Kandla Unit 30
6 Figure 6 IFFCO’s Phulpur Unit 31
7 Figure 7 IFFCO’s Kalol Unit 32
8 Figure 8 IFFCO’s Aonla Unit 33
9 Figure 9 IFFCO’s Paradeep Unit 34
10 Figure 10 IFFCO’s Products 35
11 Figure 11 IFFCO’s Marketing Territories 36
12 Figure 12 Organization Setup of IFFCO-Kandla 39
13 Table 1 Calculation of Working Capital Management of five 55
14 Table 2 States of Current Assets over five years 56
15 Figure 13 Graph showing Current Assets Changes over five 56
16 Table 3 States of Current Liabilities over five years 57
17 Figure 14 Graph showing Current Liabilities changes over 57
five years
18 Table 4 States of Working Capital over five years 59

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Sr. Figure & Description Page

No. Table No. No.
19 Figure 15 Graph showing Working Capital Changes over five 59
20 Table 5 States of Sales over five years 60
21 Figure 16 Graph showing Working Capital Changes over five 60
22 Table 6 Calculation of trend values of sales on the basis of 63
working capital values
23 Figure 17 Graph of comparison of actual & trend value of 64
sales on the basis of W.C
24 Table 7 Calculation of trend values of working capital on 65
the basis of sales values
25 Figure 18 Graph of comparison of actual & trend value of 65
working capital on the basis of sales
26 Table 8 Calculation of degree of correlation between 66
working capital & sales

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Indian Farmers Fertilizer Co-operative Limited (IFFCO) today is a leading player in
India‟s fertilizer industry and is making substantial contribution to the efforts Indian Government
to increase food grain production in the country. Indian Farmers Fertilizer Co-operative Limited,
popularly known as IFFCO emerged as a pioneer venture on the horizon of fertilizer production
and marketing with the objective of attaining self-sufficiency in food grain production. Now a
day there are more than 40,000 co-operative societies associated with IFFCO. They have
diversified their business in the field of insurance, power plant and raw material production.

IFFCO-Kandla unit is engaged in the production of mainly NPK, DAP. Solely Production
activities, ranging from procurement of raw material to packaging of finished product is carried
out here. The marketing activities, Distribution channels and warehousing, financial policies,
budgets, Long term business policies, action plans are determined through the corporate office,
Delhi only.

This report is a study of “Working Capital Management at IFFCO. It contains detailed

theoretical concepts regarding Working Capital Management. This report contains information
regarding the functioning of various sections of Finance & Accounts Department. Information
regarding IFFCO‟s financial performance of last five year is studied.

As being a research report, it contains research work, entitled Working Capital

Management and Its impact upon organization performance in terms of sales. The components of
working capital, current assets and liabilities and its change over five year period is studied,
factors affecting working capital are described. The optimum value of sales and working capital
are determined with the basis of each other through trend analysis. Correlation of sales and
working capital has been calculated which shows satisfactory results. Various charts and tables
assisting the research are prepared. At last the findings and suggestion for the company‟s
improvement are mentioned.

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Working Capital Management

1.1) Introduction
1.2) Need of working capital
1.3) Gross W.C. and Net W.C.
1.4) Types of working capital
1.5) Determinants of working capital
1.6) Financing Working Capital
1.7) Working Capital Cycle

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1.1 Introduction to Working Capital Management

Working capital management is concerned with the problems arise in attempting to

manage the current assets, the current liabilities and the inter relationship that exist between
them. The term current assets refers to those assets which in ordinary course of business can be,
or, will be, turned in to cash within one year without undergoing a diminution in value and
without disrupting the operation of the firm. The major current assets are cash, marketable
securities, account receivable and inventory. Current liabilities ware those liabilities which
intended at their inception to be paid in ordinary course of business, within a year, out of the
current assets or earnings of the concern. The basic current liabilities are account payable, bill
payable, bank over-draft, and outstanding expenses.
The goal of working capital management is to manage the firm‟s current assets
and current liabilities in such way that the satisfactory level of working capital is mentioned. The
current should be large enough to cover its current liabilities in order to ensure a reasonable
margin of the safety.
According to Guttmann & Dougall-

“Excess of current assets over current liabilities”.

According to Park & Gladson-

“The excess of current assets of a business (i.e. cash, accounts receivables, inventories)
over current items owned to employees and others (such as salaries & wages payable,
accounts payable, taxes owned to government)”.

1.2 Need of working capital management

The need for working capital gross or current assets cannot be over emphasized. As
already observed, the objective of financial decision making is to maximize the shareholders
wealth. To achieve this, it is necessary to generate sufficient profits can be earned will naturally

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depend upon the magnitude of the sales among other things but sales cannot convert into cash.
There is a need for working capital in the form of current assets to deal with the problem arising
out of lack of immediate realization of cash against goods sold. Therefore sufficient working
capital is necessary to sustain sales activity. Technically this is refers to operating or cash cycle.
If the company has certain amount of cash, it will be required for purchasing the raw material
may be available on credit basis. Then the company has to spend some amount for labor and
factory overhead to convert the raw material in work in progress, and ultimately finished goods.
These finished goods convert in to sales on credit basis in the form of sundry debtors. Sundry
debtors are converting into cash after expiry of credit period. Thus some amount of cash is
blocked in raw materials, WIP, finished goods, and sundry debtors and day to day cash
requirements. However some part of current assets may be financed by the current liabilities
also. The amount required to be invested in this current assets is always higher than the funds
available from current liabilities. This is the precise reason why the needs for working capital

1.3 Gross working capital and Net working capital

There are two concepts of working capital management

1. Gross working capital

Gross working capital refers to the firm‟s investment I current assets. Current assets are
the assets which can be convert in to cash within year includes cash, short term securities,
debtors, bills receivable and inventory.

2. Net working capital

Net working capital refers to the difference between current assets and current liabilities.
Current liabilities are those claims of outsiders which are expected to mature for payment within
an accounting year and include creditors, bills payable and outstanding expenses. Net working
capital can be positive or negative. Efficient working capital management requires that firms
should operate with some amount of net working capital, the exact amount varying from firm to
firm and depending, among other things; on the nature of industries.net working capital is

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necessary because the cash outflows and inflows do not coincide. The cash outflows resulting
from payment of current liabilities are relatively predictable. The cash inflow are however
difficult to predict. The more predictable the cash inflows are, the less net working capital will be

The concept of working capital was, first evolved by Karl Marx. Marx used the term
„variable capital‟ means outlays for payrolls advanced to workers before the completion of work.
He compared this with „constant capital‟ which according to him is nothing but „dead labor‟.
This „variable capital‟ is nothing wage fund which remains blocked in terms of financial
management, in work-in- process along with other operating expenses until it is released through
sale of finished goods. Although Marx did not mentioned that workers also gave credit to the
firm by accepting periodical payment of wages which funded a portioned of W.I.P, the concept
of working capital, as we understand today was embedded in his „variable capital‟.

1.4 Types of working capital

The operating cycle creates the need for current assets (working capital).However the
need does not come to an end after the cycle is completed to explain this continuing need of
current assets a destination should be drawn between permanent and temporary working capital.

1) Permanent working capital

The need for current assets arises, as already observed, because of the cash cycle. To
carry on business certain minimum level of working capital is necessary on continues and
uninterrupted basis. For all practical purpose, this requirement will have to be met permanent as
with other fixed assets. This requirement refers to as permanent or fixed working capital.
2) Temporary working capital
Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable, working capital. This portion of the required working capital is needed to
meet fluctuation in demand consequent upon changes in production and sales as result of
seasonal changes.

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1.5 Determinants of working capital

The amount of working capital depends upon the following factors.
1. Nature of business
Some businesses are such, due to their very nature, that their requirement of fixed capital
is more rather than working capital. These businesses sell services and not the commodities and
that too on cash basis. As such, no founds are blocked in piling inventories and also no funds are
blocked in receivables. E.g. public utility services like railways, infrastructure oriented project
etc. there requirement of working capital is less. On the other hand, there are some businesses
like trading activity, where requirement of fixed capital is less but more money is blocked in
inventories and debtors.

2. Length of production cycle

In some business like machine tools industry, the time gap between the acquisition of raw
material till the end of final production of finished products itself is quite high. As such amount
may be blocked either in raw material or work in progress or finished goods or even in debtors.
Naturally there need of working capital is high.

3. Size and growth of business

In very small company the working capital requirement is quit high due to high overhead,
higher buying and selling cost etc. as such medium size business positively has edge over the
small companies. But if the business start growing after certain limit, the working capital
requirements may adversely affect by the increasing size.

4. Business/ Trade cycle

If the company is the operating in the time of boom, the working capital requirement may
be more as the company may like to buy more raw material, may increase the production and
sales to take the benefit of favorable market, due to increase in the sales, there may more and
more amount of funds blocked in stock and debtors etc. similarly in the case of depressions also,
working capital may be high as the sales terms of value and quantity may be reducing, there may
be unnecessary piling up of stack without getting sold, the receivable may not be recovered in
time etc.

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5. Terms of purchase and sales

Sometime due to competition or custom, it may be necessary for the company to extend
more and more credit to customers, as result which more and more amount is locked up in
debtors or bills receivables which increase the working capital requirement. On the other hand, in
the case of purchase, if the credit is offered by suppliers of goods and services, a part of working
capital requirement may be financed by them, but it is necessary to purchase on cash basis, the
working capital requirement will be higher.

6. Profitability

The profitability of the business may be vary in each and every individual case, which is
in turn its depend on numerous factors, but high profitability will positively reduce the strain on
working capital requirement of the company, because the profits to the extent that they earned in
cash may be used to meet the working capital requirement of the company.

7) Operating efficiency

If the business is carried on more efficiently, it can operate in profits which may reduce
the strain on working capital; it may ensure proper utilization of existing resources by
eliminating the waste and improved coordination etc.

1.6 Financing Working Capital

Now let us understand the means to finance the working capital. Working capital or
current assets are those assets, which unlike fixed assets change their forms rapidly. Due to this
nature, they need to be financed through short-term funds. Short-term funds are also called
current liabilities. The following are the major sources of raising short-term funds:

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I. Supplier’s Credit

At times, business gets raw material on credit from the suppliers. The cost of raw
material is paid after some time, i.e. upon completion of the credit period. Thus, without having
an outflow of cash the business is in a position to use raw material and continue the activities.
The credit given by the suppliers of raw materials is for a short period and is considered current
liabilities. These funds should be used for creating current assets like stock of raw material, work
in process, finished goods, etc.

II. Bank Loan for Working Capital

This is a major source for raising short-term funds. Banks extend loans to businesses to
help them create necessary current assets so as to achieve the required business level. The loans
are available for creating the following current assets:

 Stock of Raw Materials

 Stock of Work in Process
 Stock of Finished Goods
 Debtors

Banks give short-term loans against these assets, keeping some security margin. The
advances given by banks against current assets are short-term in nature and banks have the right
to ask for immediate repayment if they consider doing so. Thus bank loans for creation of current
assets are also current liabilities.

III. Promoter’s Fund

It is advisable to finance a portion of current assets from the promoter‟s funds. They are
long-term funds and, therefore do not require immediate repayment. These funds increase the
liquidity of the business.

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1.7 Working Capital Cycle

Figure 1: Working Capital Cycle

Each component of working capital (namely inventory, receivables and payables) has two
dimensions TIME and MONEY. When it comes to managing working capital - TIME IS
MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from
debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels
relative to sales), the business will generate more cash or it will need to borrow less money to
fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have
additional free money available to support additional sales growth or investment. Similarly, if
you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit
limit; you effectively create free finance to help fund future sales.

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Overview of Fertilizer Industry

2.1) Industry at Glance

2.2) Industry in the Service of Farmers
2.3) Role of Government in Industry Development
2.4) Public, Private & Co-operative Companies in

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2.1 Industry at Glance

The Indian fertilizer industry has come a long way since the establishment of the first
superphosphate factory with a capacity of 6,400 tones P2O5 per annum at Ranipet (Tamil Nadu)
in 1906. The growth in fertilizer production and consumption remained very slow in the first 50
years due to lack of awareness about the benefits of fertilizer use. The Bengal Famine in 1943
and acute shortages of food immediately after the Second World War necessitated increasing
food grain production and consequently fertilizers consumption. The introduction of fertilizer
responsive HYVs (High Yielding Varieties) of wheat and rice in the mid-sixties proved to be a
turning point in Indian Agriculture. The expansion in area under irrigation and increasing
coverage of HYVs led to a remarkable growth in fertilizer use and crop production. India became
self-sufficient in food grain production and has emerged as the third largest producer and user of
chemical fertilizers in the world. Adoption of an imaginative and innovative approach by the
Government of India and the fertilizer industry also contributed significantly towards this
achievement. In the initial years, the farmers were reluctant to use fertilizers. The fertilizer
industry had to put in considerable efforts to convince farmers regarding the benefits of fertilizer
use in crop production. The fertilizer industry also improved the availability of fertilizers at the
farmer‟s door by strengthening its dealer network. Conscious of the fact that making fertilizer
available alone would not be enough to increase fertilizer consumption and keeping in view that
the industry conducted a large number of demonstrations at the farmers‟ fields.

2.2 Fertilizer Industry in the Service of Farmers

Today thousands of fertilizer demonstrations are conducted every year. Group

communication methods like field days, crop seminars, kisan melas, etc., are undertaken by the
industry to increase the level of awareness among farmers. Soil testing is a vital tool to assess the
fertility status of the soil and ensure balanced and efficient use of fertilizers. Accordingly, to
enable farmers to use fertilizers in balanced proportions, the industry has set up 40 soil testing
laboratories (28 static and 12 mobile) and more than 4 lakh soil samples are tested annually.
Intensive efforts are being made by the industry to make the farmers understand the need and
importance of soil testing. Due emphasis is also laid on conservation of natural resources through

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watershed development; farm level water management; soil conservation; forestation and soil
reclamation/ amendment.

The fertilizer industry introduced the concept of village adoption for overall socio-
economic development of the village way back in 1968 in Patrenahalli village in the state of
Karnataka. Since then village adoption has become a very effective mode of socio-economic
development and now hundreds of villages are being adopted by the industry every year. Besides
transfer of improved technology farmers are trained in scientific cultivation and post-harvest
technology. The fertilizer companies are encouraging farmers to go for crop diversification like
horticulture, floriculture and off-season vegetable cultivation to make farming a profitable
venture. Social services like empowerment of women, distribution of school bags to primary
school students, girl child‟s education, camps for medical and veterinary checkup, rural sports,
debates, entertainment, agri-club, hand pump installation, etc. are also provided for the benefit of
farmers and their families. The extension strategy adopted by the fertilizer industry has been
flexible and undergone change as demanded by the situation from time to time. In the beginning
of the era of planned development the emphasis was on creating awareness about fertilizers. The
focus shifted to enlarging the fertilizers consumption base during the 1970s and 1980s. The
distortion in the consumption ratio of N, P and K consequent to the decontrol of P and K
fertilizers in August, 1992 underlined the need for promoting balanced fertilizer use. Further,
with the depletion in soil fertility and emergence of multi-nutrient deficiencies, the extension
strategy shifted to promoting balanced, efficient and integrated use of plant nutrients to maintain
soil health. Fertilizer industry is very much aware that no single nutrient source, be it fertilizers,
bio-fertilizers or organic manure can meet the entire nutrient requirement of the crops, more so
with intensive and multiple cropping. As a consequence many fertilizer companies have also
gone in for production and marketing of bio-fertilizers and vermi-compost and emphasis the
combined use of all three categories of fertilizers as may be appropriate.

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2.3 Role of Government in the Development of Fertilizer Industry

 Fertilizer Industry Co-Ordination Committee (FICC)

 Background:

Chemical fertilizers have played a vital role in the success of India's green revolution and
consequent self - reliance in food grain production. The increase in fertilizer consumption has
contributed significantly to sustainable production of food grains in the country. Government of
India has been consistently pursuing policies conductive to increased availability and
consumption of fertilizers in the country. The Retention Price Cum Subsidy Scheme (RPS) for
indigenous nitrogenous fertilizer units was introduced by the Government of India in November
1977 to ensure a reasonable return on investment and to facilitate healthy development and
growth of fertilizer industry. The Scheme was later extended to phosphatic and other complex
fertilizers in February 1979 and Single Super Phosphate (SSP) in 1982. However, from August
1992, the Government has progressively decontrolled the prices and distribution of phosphatic
and other complex fertilizers. At present, farm gate price of Urea is controlled by the
Government whereas its distribution has been partially decontrolled from 1 April 2003.

The Retention Price Scheme stimulated indigenous production and consumption of

fertilizers in the country. However, for attaining greater internal efficiencies and global
competitiveness, unit specific approach of RPS has been replaced by a group based concession
scheme based on greater normative approach called the New Pricing Scheme 9NPS) from 1
April 2003. The Fertilizer Industry Coordination Committee (FICC) constituted on 1 December
1977 to administer and operate the Retention Price Scheme continues under the New Pricing
Scheme for administration of the scheme for urea.

 Scope & Functions:

1. To evolve the group concession rates including freight rates for units manufacturing
nitrogenous fertilizers;

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2. To maintain accounts, to make payments to and to recover amounts from fertilizer

3. To undertake costing and other technical functions.
4. To collect and analyse production data, costs and other information.
5. To review the group concession rates periodically and to make adjustments in these rates,
where necessary, with the prior concurrence of the Government.
6. To undertake the examination necessary for evolving group concession rates for future
pricing periods;
7. To undertake such other functions as the Government may entrust to the Committee from
time to time.

 Organisation:

The FICC Office comprises five Divisions i.e. Cost Evaluation Division, Inputs Division,
Finance & Accounts Division, Technical Division and Administration Division.

The Cost Evaluation Division works out the concession rates for the various urea
manufacturing units and revision there of depending upon the variations in the prices of inputs
from time to time. The Inputs Division undertakes an annual exercise for fixation of equated
freight for transportation of urea from plant gate to farmers. It is also responsible for allocation
of coal to different coal based urea manufacturing units in consultation with Ministry of Coal and
Ministry of Railways. The Finance & Accounts Division is responsible for payment of subsidy
and maintenance of accounts. The Technical Division looks after all technical matters such as
fixation of consumption norms, production levels, etc.

 Incentives for setting up Fertilizer Projects:

As per the Industrial Policy Resolution, no license is normally required for setting up or
expansion of existing fertilizer project. For setting up of a new or substantial expansion fertilizer
project as well as modernization/retrofitting of existing plants, benefits of import of equipment
against concessional customs duty and deemed export benefits are available as per customs
notification and the EXIM Policy for 1997-2002.

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2.4 Public Sector Companies in Indian Fertilizer Market

There are number of public sector companies in Indian Fertilizer Market Producing
complex fertilizers, ammonium sulphate, DAP, Calcium ammonium nitrate and urea. At Present,
there are nine public sector undertakings in the Indian fertilizer market and one cooperative
society. These under the supervision of the department of fertilizers of India of the 63 large units
producing fertilizers in India, 9 units are dedicated to the production of ammonium sulphate and
38 units produce urea. There are 79 small and medium scale units dedicated to the production of
single super phosphate. The Indian industries producing fertilizers have to total capacity of 56
lakh MT of phosphatic nutrient and 121 lakh MT of nitrogen

Some of the public sector undertakings in this Sector are mentioned below:

 Fertiliser Corporation of India Ltd. (FCIL)

 Hindustan Fertiliser Corporation Ltd. (HFC)
 Rashtriya Chemicals and Fertilisers Ltd. (RCF)
 National Fertilisers Ltd. (NFL)
 Projects and Development India Ltd. (PDIL)
 Madras Fertilisers Ltd. (MFL)

Private Companies in Indian Fertilizer Market:

A Number of Private companies in the Indian fertilizer market are engaged in production
of the agro-input. Most of the companies also engage in exporting fertilizers in the global
market, earning foreign capital from the business. The country stands at the third position among
the largest producers of the product in the world. India is also ranks among the highest
consumers of fertilizers. The growth in the business has also facilitated the agricultural industry
of India, which is dependent for its optimization on the fertilizer industry.

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Private Companies Producing Fertilizer in India

 Khaitan Chemicals and Fertilisers Ltd.

 Mangalore Chemicals
 Nagarjuna Fertilisers
 Zauri Chambal
 BFC Fertilisers
 Gujarat State Fertilisers & Chemicals Ltd.
 The Scientific Fertilisers Co. Pvt. Ltd.
 Coromandel Fertilisers
 Deepak Fertilisers and Petrochemicals Corporation Ltd.
 Aries Agro vet
 Devidayal Agro Chemicals

Cooperative Companies Producing Fertilizer in India:

Co-operation refers to an organization of individuals for achieving a common economic

objective by mutual help and collective efforts

 Indian Farmers Fertilisers Co-operative Ltd. (IFFCO)

 Krishak Bharati Co-operative Ltd. (KRIBHCO)

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Overview of Indian Farmer Fertilizer Co-
Operative Limited (IFFCO)
3.1 History
3.2 Vision, Mission & Future Plans
3.3 Achievements
3.4 Performance Comparison with Competitors
3.5 Subsidiaries & Associates
3.6 Corporate Social Responsibility
3.7 SWOT Analysis
3.8 Units of IFFCO
3.9 IFFCO’s Products
3.10 IFFCO-Kandla at Glance
3.11 Organizational Setup
3.12 Various Departments at IFFCO
3.13 Financial Performance of IFFCO

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3.1 Historical Overview

Indian Farmers Fertilizer Cooperative Limited (IFFCO) was established on November 3,

1967 as a multi -unit co-operative society engaged in production and distribution of fertilizers.
The byelaws of the society provide a broad framework for the activities of IFFCO as a co-
operative society. The main emphasis is on production and distribution of fertilizers. IFFCO
commissioned the Ammonia – urea complex at Kalol and the NPK/DAP plant at Kandla both in
the state of Gujarat in 1975. Ammonia-Urea unit at AONLA was commissioned in 1988. The
annual installed capacity of all the plants was 1.62 million tonnes of Urea and NPK/DAP
equivalent to 309 thousand tonnes of phosphate.

In 1993, IFFCO had drawn up a major expansion program of all the four plants under
overall aegis of IFFCO VISION 2000. The expansion projects at Aonla, Kalol and Phulpur have
been completed on schedule. The latest feather in the cap of IFFCO was completion of Kandla
Phase –II on 5th August 1999, which has heralded realisation of all the objectives set forth under
VISION -2000. As a result of these expansion projects IFFCO annual installed capacity has been
increased to 3.22 million tonnes of Urea and NPK/DAP .The distribution of IFFCO‟S fertilizer is
undertaken through 35000 co-operative societies.

The entire activities of distribution, sales and promotion are co-ordinated by marketing
central office at New Delhi assisted by the marketing offices in the field. In addition, essential
agro-inputs for crop production are made available to the farmers through the chain of 167
Farmers Service Centre (FSC). IFFCO obsessively nurtures its relations with farmers and
undertakes a large number of extension activities for their benefit every year.

At IFFCO, the thirst forever improving the services to the farmers and member co-
operatives is insatiable, commitment to quality is insurmountable and harnessing of mother
earth‟s bounty to drive hunger away from India in an ecologically sustainable manner is the
prime mission.

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Need of Establishment:

Agricultural Cooperatives had the widest infrastructure network, spreading up to village

level in India engaged in all kinds of activities from public distribution to fertilizer distribution.
Till Mid-sixties cooperatives in India had no production facility despite marketing 70% of
fertilizers. Government of India introduced multi-agency approach in fertilizer distribution in
1967. Private trade also entered fertilizer distribution. As the time passed by, private started
dominating the fertilizer distribution in India. Cooperatives were getting secondary preference in
fertilizer supplies against private trade. Cooperatives felt the need for their own fertilizer
manufacturing facility to have an assured and dependable source of supply.

Initiative for Setting up Fertilizer Plant in Co-Operative Sector:

National Cooperative Development Corporation (NCDC) initiated various steps for

setting fertilizer manufacturing facilities in cooperatives. Cooperative League of USA (CLUSA)
proposed to Government of India to set up a fertilizer plant in cooperative sector. USAID funded
a study Team in 1966 headed by Mr. Howard Gordon to study the feasibility of setting up a
fertilizer plant in cooperative sector in India. The Team recommended that a cooperative
fertilizer manufacturing facility in India was feasible. A high level delegation of following
institution visited New Delhi in April 1967. American Cooperative Fertilizer Units from the
Consortium of American Cooperatives (CLUSA). The Cooperative Fertilizer International (CFI).
Discussions held with various Ministries of Government of India, USAID and Indian
Cooperative Leaders recommended setting up fertilizer production facilities in cooperative sector
in India.

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3.2 Vision, Mission & Future Plans


To augment the incremental incomes of farmers by helping them to increase their crop
productivity through balanced use of energy efficient fertilizers; maintain the environmental
health; and to make cooperative societies economically and democratically strong for
professionalised services to the farming community to ensure an empowered rural India.


 To provide to farmers high quality fertilizers in right time and in adequate quantities with an
objective to increase crop productivity.
 To make plants energy efficient and continually review various schemes to conserve energy.
 Commitment to health, safety, environment and forestry development to enrich the quality of
community life.
 Commitment to social responsibilities for a strong social fabric.
 To institutionalise core values and create a culture of team building, empowerment and
innovation which would help in incremental growth of employees and enable achievement of
strategic objectives.
 Foster a culture of trust, openness and mutual concern to make working a stimulating and
challenging experience for stakeholders.
 Building a value driven organisation with an improved and responsive customer focus. A true
commitment to transparency, accountability and integrity in principle and practice.
 To acquire, assimilate and adopt reliable, efficient and cost effective technologies.
 Sourcing raw materials for production of phosphatic fertilizers at economical cost by entering
into Joint Ventures outside India.
 To ensure growth in core and non-core sectors.
 A true cooperative society committed for fostering cooperative movement in the country.

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Vision 2015

IFFCO successfully implemented its earlier Corporate Plans namely “VISION 2000”,
“MISSION 2005” and „VISION 2010‟ which resulted into becoming one of the largest producer
and marketer of Chemical Fertilizers by expansion of IFFCO‟s existing units, setting up joint
venture companies overseas and diversification into new sectors.

IFFCO has now visualized a comprehensive Plan entitled „VISION-2015‟ having

objectives of:-

 Production of fertilizers through expansion of existing units

 Setting up of additional fertilizer production facilities in India and abroad through joint
 Diversification into other profitable sectors
 Strengthening raw material sourcing through Strategic joint ventures
 Formulation of Strategic Alliances through IFFCO consort

3.3 Achievements of IFFCO

1. Safety Awards from the National Safety Council U.S.A.

 Perfect record Award for operating 7486565 employees hours without death or case
involving days away from work 13th November 1995 to 31st December. 1998.
 Industrial leader award exemplary safety achievement attained in the chemical and
allied products industry for the year 1998.
 Prefect record award for establishing a new best record for standard industrial
classification code: 2874 agricultural chemical for operating 9930227 employee hours
without a death on case involving days away from work from 30th November 1995 to
31st December 1999.

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 Industry leader award for exemplary safety achievement attained in the chemical and
allied products industry for the year 1996.

2. Safety Awards from the Government of India.

 Special commendation certificate from meritorious performance in industrial safety

during the year 1994 for achieving longest accident free period.

3. Safety Awards from Gujarat Safety Council.

 Certificate of honour in-group B, category for working three million men hour and
above without loss time accident for the year 1998.
 Runner up and certificate of honour in-group B category I for lowest disability injury
index for the year 1998.
 Certificate of Honour to Kandla and Kalol units for year 2003 from Gujarat Safety

4. Performance Awards from Fertilizer Association of India (FIA).

 Best overall performance award 1998-99, award for excellence in safety for the year
 Best overall performance runners up award 2003-04, from fertilizer association of

5. Award from Hewitt Associates.

 Best Managed Workforce Award for year 2004 from Hewitt Associates.

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3.4 Performance Comparison with Competitors

Comparison of IFFCO’S NPK (10:26:26) production with other fertilizer producers in




CFL Vijag
42% ZACL
TCL Haldia
Hindalco Ind. Dahej
GSFC Sikka-I
GFCL Kakinada

9% 5%

Figure 2: Comparison of IFFCO’s NPK (10:26:26) with others Fertilizer Producers of


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Comparison of IFFCO’s NPK (12:32:16) production with other fertilizer

producer in India.


3% 5%


5% TCL Haldia
Hindalco Ind. Dahej
GSFC Sikka-I


Figure 3: Comparison of IFFCO’s NPK (12:32:16) with others Fertilizer Producers of


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Comparison of IFFCO’s DAP (18:46:00) production with other fertilizer

producer in India.


23% IFFCO-Kandla
GSFC Baroda
16% ZIL Goa
SPIC Tuticorin

2% TCL Haldia
15% HIL-Dahej
6% GSFC-Sikka-II
2% GFCL Kakinada
10% 6%

Figure 4: Comparison of IFFCO’s DAP (18:46:00) with others Fertilizer Producers of


IFFCO-Kandla is the largest producer of NPK grades (10:26:26) and (12:32:16) in

India. Even it contributes the significant production of DAP (18:46:00) in India. According to
annual report of Department of Fertilizer, in financial year 2007-08 IFFCO-Kandla produces
8.408 lakh MT (i.e. 42% of total production in India) of NPK (10:26:26) and 6.91 lakh MT
(73%). While in this year DAP production is only 4.383 lakh MT (11%). The sole reason behind
less production is high prices of phosphoric acid. The price goes up to $ 2000 per MT in
international market.

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3.5 Subsidiaries and Associates

IFFCO‟s business portfolio has been steadily growing in tandem with the high growth
aspirations of the Society. In order to leverage on its core competency honed over the years, the
Society has been stepping up its investments in related businesses through various Joint Ventures
& Associate Companies.



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3.6 Corporate Social Responsibility

 IFFCO Kisan Sewa Trust (IKST)

To provide relief and rehabilitation to the victims in the event of natural calamities
such as floods, earthquakes, cyclones, landslides & drought etc.

IFFCO had always been in the forefront of activities for the rescue of victims of
natural calamities. Every year significant contributions, both monetary as well as in kind, are
made by IFFCO along with separate contribution made by IFFCO employee.
The death and devastation caused by the massive Earthquake in Gujarat, measuring
6.9 on Richter scale on Jan 26, 2001 followed by hundreds of tremors during Jan-Feb, 2001, has
shaken the conscience of the nation. IFFCO's Kalol and Kandla units have launched large scale
relief operations under the direct supervision of the Managing Director, who rushed to
Ahmedabad within hours of the news of earthquake. All the personnel of IFFCO responded to
the situation and devoted themselves during the next few months for the relief of victims.
Simultaneously, Kandla unit, which was partially damaged, was revived and production
commenced within a short time. The experience of Gujarat added a new dimension to the
activities of IFFCO. In a country like India, where natural calamities are a regular feature, it is
necessary to be prepared for such eventualities. In particular, the most vulnerable sections from
rural parts such as farmers require special attention. This has led to the creation of a Trust i.e.
Kisan Sewa Fund' which has been renamed as "IFFCO Kisan Sewa Trust"
A Relief Trust for the Welfare of the Victims of Natural Calamities.

Kisan Sewa Trust Fund was created out of contributions from:

IFFCO Rs 100 million
Employees of IFFCO Rs 10 million
Cooperative Societies and others Rs 90 million
TOTAL Rs 200 million

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Co-Operative Rural Development Trust (CORDET)


 Training Programs for farmers.

 Distribution of seeds, bio-fertilizers, IFFCO NPK/DAP, Horticulture plants, Caster seeds
and farm implementations to farmers at subsidized rates.
 Soil testing programs for land of farmers in nearby areas.
 General welfare activities for farmers.

IFFCO promoted Cooperative Rural Development Trust (CORDET) in the year 1979 to
provide education and training to farmers on various aspects of crop production, horticulture,
animal husbandry, farm machinery etc.Land for CORDET adjacent to Phulpur plant of IFFCO
was made available by Motilal Nehru Memorial Trust and CORDET has established Motilal
Nehru Farmers Training Institute at Phulpur. At CORDET, Phulpur the training programs are of
one-six week duration, while at CORDET, Kalol training programs of one-two week duration are
held on different aspect related to farm production. Besides facilities for seed production and soil
testing with an annual analyzing capacity of 25000 soil samples are set up. IFFCO‟s field staffs
collect the soil samples and forward them for its analysis. Farmers are communicated the results
and they are encouraged to apply nutrients based on soil test. At CORDET, Phulpur a bio-
fertilizer unit was established in 1996-97 with an annual capacity of 75 MT of different strains.

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3.6 SWOT Analysis


 Credibility in open market

 Effective and efficient management
 A wide spread marketing network
 A strong IT based network
 Healthy Relations among Management and Workers

 Government control over market

 Since it is cooperative societies not enjoyed company benefits
 Less sales promotion activities.

 Diversification in the power project

 ITGI have bright future
 Retail chain plan is established
 Backward integration to meet raw material demand.
Threats: - Totally depend on raw material availability

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3.8 Units of IFFCO

Kalol, Kandla, Phulpur, Aonla, Paradeep


Figure 5: IFFCO’s Kandla Unit


INVESTMENT : Rs. 24.26 Crore


INVESTMENT : Rs. 28.60 Crore


INVESTMENT : Rs. 205.30 Crore

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Figure 6: IFFCO’s Phulpur Unit


INVESTMENT : Rs. 205.2 Crore Phulpur - I


INVESTMENT : Rs.1190 Crore Phulpur – II


INVESTMENT : Rs.185.3 Crore

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Figure 7: IFFCO’s Kalol Unit


INVESTMENT : Rs. 71.23 Crore


INVESTMENT : Rs. 149.70 Crore

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Figure 8: IFFCO’s Aonla Unit


INVESTMENT : Rs. 651.6 Crore AONLA- I


INVESTMENT : Rs. 954.7 Crore AONLA- II


INVESTMENT : Rs.149.2 Crore

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Figure 9: IFFCO’s Paradeep Unit


INVESTMENT : Rs. 2237 Crore

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3.9 IFFCO’S Products

Figure 10: IFFCO’s Products

IFFCO urea is not merely a source of 46% of nutrient nitrogen for crops, but it is an
integral part of millions of farmers in India. A bag of IFFCO‟s urea is a constant source of
confidence and is a trusted companion for Indian farmers. When farmers buy IFFCO‟s urea, they
know that what they get is not just a product but a complete package of services.

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As far as Indian farmer is concerned, IFFCO's NPK/DAP is not just a source of crucial
nutrients N, P, K for the crops, but is an integral part of his/her quest for nurturing mother earth.
The bountiful crop that results from this care is an enough reason for the graceful bags of IFFCO
NPK/DAP bags to be an integral part of the farmer‟s family. The two grades of NPK produced
by IFFCO, 10:26:26 and 12:32:16, indicating the content of N, P, K proportion, are tailor made
to supply the exact composition required for replenishment of the soil and one grade of DAP
produced by IFFCO, 18:26:26, Indicating content of D, A, P proportion. The Indian farmer's
confidence and trust stems from the fact that IFFCO's NPK/DAP are merely a part of a complete
package of services, ably supported by a dedicated team of qualified personnel. More
importantly, they are aware, IFFCO is a cooperative society owned by farmers cooperatives.

 Marketing Territories of IFFCO

Figure 11: IFFCO’s Marketing Territories

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3.10 IFFCO-Kandla at Glance

Kandla Unit – Location

State : Gujarat, India

State Capital : Gandhinagar
District : Kachchh
Distance from New Delhi : Approx. 1100 kilometers by rail
Distance from Mumbai : Approx. 800 kilometers by rail
Nearest Airport : Kandla Airport, Near Gandhidham,and Bhuj
Airport 65 KM from Gandhidham.
Railway Station : Gandhidham ( 12 Km from plant and 3 Km
from IFFCO's township at Gandhidham)
and Kandla (3 Km from the plant)
Road : Adjacent to Kandla Port Trust on National
Highway 8-A , 365 Km. from Ahmedabad
Area under Plant : 70.61 Hectares
Area under Township : 79.65 Hectares
Temperature ( C ) : 47 (Max.) in summer to 7 (Min.) in winter.
Rainfall (mm) : Scarcity
Longitude : 70o 13'26" E
Latitude : 23o 00'00" N
Address : IFFCO, Kandla Unit, Post BoxNo.12,
Gandhidham - 370201, Kandla (Kachchh),
Gujarat, INDIA
Phones : 91-2836-270381,-270382,-270539 ,-270639,
FAX : 91-2836-270642, -270658, -270685.
Website : WWW.Iffco.nic.In
E-Mail : iffco_kandla@iffco.nic.in

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IFFCO‟s NPK plant is located on the water front adjacent to Kandla Port Trust Oil Jetty.
The plant was built at a cost of about Rs. 30 crores with two streams (called train A and train B)
and with the licensed capacity of 127000 tons of P2O5. This plant was designed by the M/s Door
Oliver-Inc., to produced three grade ok NPK based on DAP, the plant was commissioned on 26th
November, 1974 and its commercial production started on 1st January, 1975.

With increase in demand for complex fertilizers, the capacity of NPK has been doubled at
a cost of about Rs. 28.6 crores. Two more streams (train C and train D) had been added with the
increased licensed capacity from 127000 MT P2O5 to 260000 MT P2O5 per annum. The new
two streams are called Kandla Phase 2 was completed one month ahead of the projected
schedule. This is a rare phenomenon not only in India but in entire South East Asian region.
Kandla Phase 2 commissioned on4th June, 1981 with the production record for IFFCO. The
production of Kandla Phase 2 was started from 6th September, 1981.

IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla phase-II
NPK/DAP project conceptualized the setting up of two additional streams (train E and train F)
for manufacture of the same grades of NPK/DAP fertilizers with an annual production capacity
of 2,10,700 MTPA thus increasing the total capacity from 3,09,000 MTPA of P2O5 to 5,19,700
MTPA of P2O5. The actual cost of the project was Rs. 205.30 crores against a budgeted cost of
Rs. 212.20 crores.

The total annual production of the Kandla unit was 127000 MTPA as on 26th November,
1974 with two streams (train A and train B), which was increased by 182000 MTPA as on 6 th
September, 1981 by starting two more stream (train C and train D), which was further increase to
210700 MTPA as on 1999 by introducing two more streams (train E and train F). So currently
the total production capacity of the both plant at Kandla unit is 519700 MTPA. Currently all six
streams (train A, B, C, D, E and F) is working in its full-fledged capacity and giving its optimum

In 1974 when the Kandla Unit was started IFFCO was importing its raw material with
help of Kandla Port Trust Oil Jetty and currently Kandla unit has its own Oil Jetty.

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3.11 Organizational Setup

IFFCO today is a leading player in India‟s fertilizer industry and making substantial
contribution to the efforts of Indian Government to increase food grain production in the country.
One of the strongest parts in ownership of the IFFCO is in the hands of the Farmers who are the
part of Co-operative society who are holding the major share holder part in share capital of

IFFCO is the centralised organization; all the strategic decisions are taken by corporate
office situated at New Delhi. Purchase decision regarding raw material is also handled by the
head office.

Organizational Hierarchy

Executive Director

JGM-NPK JGM-P&A CM-MI CM-MII CM-F&A CM-Mtrls Vigilance Medical
PH/TPT (T/s)
Personnel Raw Mtrl Purchase
NPK I NPK II Proc Eng MechMaintI MM-II
PR Books
IR Workshop Stores
Utility Raw Mtrl II Gen.Eng Electri-II PayRoll
Electrical-I Inst -II
PH Admn Lab/R&D PurBills

Estate Fire&Safety Inst -I

TPT Insur
Guest House

Medical Civil

Time Office


Figure 12: Organization Setup at IFFCO-Kandla

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3.12 Various Departments at IFFCO-Kandla

The kandla unit has divided in major five departments they are as follows:-

 Production
 Maintenance
 Technical
 Materials
 Personnel and Administration
 Finance & Accounting

Under each department, there are sub- departments they are as follows:-

 NPK–1 and NPK–2

 Offsite K–1 AND K–2
 Bagging
 Transportation


 Instrumentation
 Mechanical
 Electrical


 Fire & Safety

 Training Centre
 Engineering Services
 Process Engineering Services
 System Section

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 Purchase
 Stores


 Personal Section
 Administration Section
 Welfare Section
 Estate (Township)


Finance is the lifeblood of the business. According to Howard and Upton, “Finance is
that administrative area or set of administrative function in the organization which relates with
the arrangement of cash & credit so that the organization may have the means to carry out of its
objective as possible.

Functions of Finance & Accounts Department

F & A Department Kandla Unit is controlled by Head of the Department i.e. Chief
Manager (F & A). His main function is to co-ordinate all activities related to F & A and report to
Head Office‟s F & A Department /Finance Director as well as Unit Head. F & A Department
Function Various type of activities as per the guidelines issued by Head Office, Purchase
Procedure, Service Rules, Powers of Officer etc.

At present to carry out all related activities, following four sectional heads report to the
Chief Manager (F & A) for work connected to their sections all the four sectional heads
independently report to Department Head. However in case of Department Head happens on tour
or leave, the next senior sectional head takes the charge of the department and other sectional
heads will report to him for all the work connected to their sections.

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 Pay Roll Section

 Raw Materials
 Miscellaneous Bills Section
 Works Bill Section
 Financial Concurrence
 Purchase Bills
 Books & Budgets

 Pay Roll Section

Pay Roll Section takes care of all the financial issues of employees in co-ordination with
Personnel & Administrative Department .Its function includes management of salaries, TA/DA,
loans and advances, misc payment related to employees, perks/other allowance payments etc.
Here records of each employee is maintained regarding basic pay ,leave enhancement, medical,
salary, increments, promotion based perks etc.

 Raw Material Section

Different types of Raw Materials that are required at IFFCO KANDLA Unit are

 P2o5 -Imported
 Ammonia -Imported & Indigenous
 Potash - Imported
 MAP -Imported
 Urea - Kalol
 Filler

Raw Material Section in F & A Department does the accounting of above mentioned raw
material which includes receipt of raw material which includes receipt of raw material
purchased, monthly consumption as the per the production Department and payment to the

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 Miscellaneous Bills Section

The miscellaneous jobs can be broadly divided into following categories.

 Passing of bills of miscellaneous nature

 Accounting of cash, Interest and advances for expenses
 Miscellaneous recoveries from outside agencies

Miscellaneous bills includes rates contract for service contract for A.C, water coolers,
weighing machine, franking machine, knitting of chairs etc. Other Miscellaneous bills includes
telephone, fax, service bills, advertisement bills electricity bills printing and block making bills
of travel agent, bills of canteen purchases etc., annual contract and hiring of taxi, motor etc. are
included in this.

 Work Bills Section

This section is entrusted with the task of checking and authentication of APF received
from various departments such as civil, plant and township etc. They have to keep record and
maintain account. They have to verify WRT measurement tax provision like TDS and other
deductions like EMD, security and penalty etc.

 Purchase Bills

In purchase bill, treatment is given to the bill on purchase of machinery and tool and
spares for accounting requirement and book keeping as well as record maintenance and tax
deduction and authentication of AFP on purchase of goods and services.

 Financial Concurrence

Financial Concurrence deals with cross checking and green signaling the requisition for
purchases made by various indent department of the unit. They check for the availability of
budget and ascertain its necessity and critically for regular and smooth operation of the plant and
activities of various departments

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Books & Budgeting

Books AND Budgets deals with revenue budget compilation, monitoring and control,
reconciliation of inter unit accounts, maintenance of books of account and submission of
monthly /quarterly/annual report, COP processing and attending internal/ statutory/tax auditors.

Environment Management (ISO 14001:2004)

IFFCO Kandla is an ISO 14001:2004 Certified Organization with an established

Environmental Management System (EMS). As a party to the EMS, you shall observe strict
compliance with our EMS Policy. Necessary documents are available for view on demand.
Queries, if any, can be addressed to Management Representative, EMS Implementation.

IFFCO Kandla has been certified as Environmental Standards ISO 14001:1996

company by M/S BVQI for the operational scope of "Manufacture of DAP and NPK Fertilizers"
with effect from 27th Nov'2000

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3.13 Financial performance of IFFCO (2008-09 & 2009-10)

Balance Sheet for the year ended at 31st March 2009 & 2010
(Fig. in Crore Rs.)
PARTICULARS SCH. AS AT 31.03.2010 AS AT 31.03.2009

Shareholders’ Funds:
Share Capital 1 426.24 426.28
Reserves and Surplus 2 3844.26 4270.50 3532.59 3958.87

Loan Funds:
Secured Loans 3 5032.93 7373.18
Unsecured Loans 4 6499.24 11532.17 5429.60 12802.78

Deferred Tax Liability (Net) 516.78 542.12

TOTAL 16319.45 17303.77

Fixed Assets:
Gross Block 9100.60 8808.00
Less: Accu. Dep./Amortisation 4276.32 3842.16
Net Block 5 4824.28 4965.84
Capital Work-in-Progress 6 333.00 5157.28 290.98 5256.82

Investment: 7 7531.28 7552.95

Current Assets, Loans and

Inventories 8 1302.25 1731.36
Sundry Debtors 9 68.08 407.23
Cash and Bank Balances 10 1075.31 69.63
Loans and Advances 11 3376.87 5464.77
5822.51 7672.99
Less: Current Liabilities and
Provisions: 1799.40 2860.18
Current Liabilities 12 392.22 322.71
Provisions 13 2191.62 3182.89

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Net Current Assets 3630.89 4490.10

Miscellaneous Expenditure
(to the extent not written off)
Voluntary Retirement Scheme Expenses 3.90
TOTAL 16319.45 17303.77

Profit & Loss Account for the year ended at 31st March 2009 & 2010
(Fig. in Crore Rs.)
31.03.2010 31.03.2009
Sales(Net of Discounts/Rebates) 7247.30 7387.70
Subsidy on Fertilizers 9561.27 16808.57 25545.60 32933.30
Other Revenue 14 841.55 499.00
Increase/(Decrease) in Stocks 15 (288.61) 280.51
17361.51 33712.81
Consumption of Raw Materials, Stores
and Others
Raw Materials 8714.44 13997.22
Stores and Spares 110.10 108.34
Chemicals and Catalysts 43.52 41.38
Packing Materials 204.49 200.39
Power, Fuel and Water 689.89 981.80
9762.44 15329.13
Less: Stock Transfer for Self
Consumption 253.42 9509.02 159.41 15169.72
Purchase of products for resale 4017.85 14539.23
Employee’ Remuneration and Benefits
Manufacturing, Administration, 16 702.12 595.96
Distribution and Other Expenses
Interest 17 1309.60 1481.91
Depreciation/Amortization 18 764.98 1023.20
Prior Period Adjustments (Net) 457.94 470.40
Deferred Revenue Exp. Written-off 19 28.82 (13.46)
(Voluntary Retirement Scheme
Expenses) 3.90 3.90

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16794.23 33270.86
Profit before Tax 567.28 441.95

Provision for Taxation

Current Tax 188.50 92.80
Fringe Benefit Tax - 8.02
Deferred Tax (25.35) 7.93
Earlier Years 3.03 166.18 (26.81) 81.94

Profit After Tax 401.10 360.01

Profit Transferred to :

Capital Repatriation Fund 0.47 0.47

Contribution towards Approved

Donations (under Income Tax Act, - 0.47 1.00 1.47

Net Profit as per Multi State

Cooperative Societies Act, 2002 400.63 358.54

Reserve Fund 120.19 107.56

Reserve Fund for Contingency 40.06 35.85
Reserve for C00perative Welfare Fund 1.75 1.75
Provision for contribution to Cooperative
Education Fund 4.01 3.59
Reserve for Donations 0.50 0.75
Provisions for Proposed Dividend 85.18 85.10
General Reserve 148.94 400.63 123.94 358.54
- -

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Research Methodology

4.1) Objectives of study

4.2) Literature Review
4.3) Data Collection
4.2) Hypothesis Establishment
4.4) Research Method
4.5) Scope of the Study
4.6) Limitations of the Study

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4.1 Objectives of study

Study of the working capital management is important because unless the working capital
is managed effectively, monitored efficiently planed properly and reviewed periodically at
regular intervals to remove bottlenecks if any the company cannot earn profits and increase its
turnover. With this primary objective of the study, the following further objectives are framed for
a depth analysis.

1. To study the working capital management of Indian Farmer Fertilizer Co-Operative

2. To study the level of current assets and current liabilities of the company.
3. To study the working capital components such as receivables accounts, cash
management, Inventory position.
4. To study the way and means of working capital finance of the Indian Farmer Fertilizer
Co-Operative Ltd.-Kandla
5. To estimate the working capital requirement of Indian Farmer Fertilizer Co-Operative

4.2 Literature Review

Research works on working capital management have been done in both public and private
sectors including Multinational Companies in India.

 “Trends in Working Capital Management and its Impact on Firms’ Performance:” An

Analysis of Mauritian Small Manufacturing Firms done by Kesseven Padachi published in
International Review of Business Research Papers Vo.2 No. 2. October 2006, Pp. 45 -58

A well designed and implemented working capital management is expected to contribute

positively to the creation of a firm‟s value The purpose of this paper is to examine the trends in
working capital management and its impact on firms‟ performance. The trend in working capital
needs and profitability of firms are examined to identify the causes for any significant
differences between the industries. The dependent variable, return on total assets is used as a

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measure of profitability and the relation between working capital management and corporate
profitability is investigated for a sample of 58 small manufacturing firms, using panel data
analysis for the period 1998 –2003. The regression results show that high investment in
inventories and receivables is associated with lower profitability. The key variables used in the
analysis are inventories days, accounts receivables days, accounts payable days and cash
conversion cycle. A strong significant relationship between working capital management and
profitability has been found in previous empirical work. An analysis of the liquidity, profitability
and operational efficiency of the five industries shows significant changes and how best practices
in the paper industry have contributed to performance. The findings also reveal an increasing
trend in the short-term component of working capital financing.

 International Review of Business Research Papers Vol.3 No.1. March 2007, Pp.279 - 300
Working Capital Management And Profitability – Case Of Pakistani Firms Abdul
Raheman* and Mohamed Nasr **

Working Capital Management has its effect on liquidity as well on profitability of the
firm. In this research, we have selected a sample of 94 Pakistani firms listed on Karachi Stock
Exchange for a period of 6 years from 1999 – 2004, we have studied the effect of different
variables of working capital management including the Average collection period, Inventory
turnover in days, Average payment period, Cash conversion cycle and Current ratio on the Net
operating profitability of Pakistani firms. Debt ratio, size of the firm (measured in terms of
natural logarithm of sales) and financial assets to total assets ratio have been used as control
variables. Pearson‟s correlation, and regression analysis (Pooled least square and general least
square with cross section weight models) are used for analysis. The results show that there is a
strong negative relationship between variables of the working capital management and
profitability of the firm. It means that as the cash conversion cycle increases it will lead to
decreasing profitability of the firm, and managers can create a positive value for the shareholders
by reducing the cash conversion cycle to a possible minimum level. We find that there is a
significant negative relationship between liquidity and profitability. We also find that there is a
positive relationship between size of the firm and its profitability. There is also a significant
negative relationship between debt used by the firm and its profitability.

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 Journal of Financial and Strategic Decisions Volume 11 Number 2 Fall on 2007,

WORKING CAPITAL POLICIES, Herbert J. Weinraub* and Sue Visscher*

This study looked at ten diverse industry groups over an extended time period to examine
the relative relationship between aggressive and conservative working capital practices. Results
strongly show that the industries had significantly different current asset management policies.
Additionally, the relative industry ranking of the aggressive/conservative asset policies exhibited
remarkable stability over time. Industry policies concerning relative aggressive/conservative
liability management were also significantly different. Interestingly, it is evident there is a high
and significant negative correlation between industry asset and liability policies. Relatively
aggressive working capital asset management seems balanced by relatively conservative working
capital financial management.

4.3 Data collection

There are two types of data collection methods available.
1. Primary data collection
2. Secondary data collection

1) Primary data collection

The primary data is that data which is collected fresh or first hand, and for first time
which is original in nature. Primary data can collect through personal interview, questionnaire
etc. to support the secondary data.

2) Secondary data collection

The secondary data are those which have already collected and stored. Secondary data
easily get those secondary data from records, journals, annual reports of the company etc. It will
save the time, money and efforts to collect the data. Secondary data also made available through
trade magazines, balance sheets, books etc.

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This project is based on primary data collected through personal interview of head of
finance & Account department, head of F & A department and other concerned staff member of
finance department. But primary data collection had limitations such as matter confidential
information thus project is based on secondary information collected through five years annual
report of the company, supported by various books and internet sites. The data collection was
aimed at study of working capital management of the company.

Data mainly collected from,

1. Annual Report of IFFCO 2005-06
2. Annual Report of IFFCO 2006-07
3. Annual Report of IFFCO 2007-08
4. Annual Report of IFFCO 2008-09
5. Annual Report of IFFCO 2009-10

4.4 Hypothesis

The following hypothesis is tested in the present study:

H 0: There is a positive correlation between working capital and sales of Indian Farmer
Fertilizer Co-Operative Limited.
H1: There is a negative correlation between working capital and sales of Indian Farmer
Fertilizer Co-Operative Limited.

4.5 Research Methodology

The sample of the study is IFFCO which is the largest Fertilizer Organization in India.
The study covers five years period from 2005-06 to 2009-2010. This study is based on both
secondary and primary data. Secondary data are the annual reports of the company and various
studies made available through library work. The primary data was collected through personal
interviews. Information was collected by visiting Finance & Account department and meeting

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officers and managers of concerned Sections. A particular interview schedule was used for the
purpose of interview.

The collected data have been tabulated, analyzed and interpreted with the help of
different statistical tools like percentages, average, trend analysis, correlation and significance
test, etc. Five hypotheses have been tested statistically to arrive at conclusion and policy

4.6 Scope of the Study

The scope of the study is identified after and during the study is conducted. The study of
working capital is based on tools like Trend Analysis, Ratio Analysis, working capital leverage,
operating cycle etc. Further the study is based on last 5 years Annual Reports of Indian Farmer
Fertilizer Co-Operative Limited. And even factors like competitor‟s analysis, industry analysis
were not considered while preparing this project.

4.7 Limitations of the study

Following limitations were encountered while preparing this project:

1) Limited data:-

This project has been completed with annual reports; it just constitutes one part of data
collection i.e. secondary. There were limitations for primary data collection because of
confidentiality and distortion of information because of personal interviews.

2) Limited period:-

This project is based on five year annual reports. Conclusions and recommendations are
based on such limited data. The trend of last five year may or may not reflect the real working
capital position of the company

3) Limited area:-

Also it was difficult to collect the data regarding the competitors and their financial
information. Industry figures were also difficult to get.

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Data Analysis & Interpretation

5.1) Working Capital Size

5.2) Current Assets Analysis
5.3) Current Liabilities Analysis
5.4) Working Capital Changes
5.5) Sales Analysis
5.6) Trend Analysis of Working Capital &
5.7) Degree of Correlation between Sales and
Working Capital

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5.1) Size of Working Capital

(Fig in Crore Rs)

Particulars 2005-06 2006-07 2007-08 2008-09 2009-10

(A) Current Assets

Inventories 1719.64 2283.94 1577.10 1731.36 1302.25

Sundry Debtors 474.41 361.68 413.76 407.23 68.08

Cash & Bank Balance 98.23 330.84 243.32 69.63 1075.31

Loans & Advances 2956.71 3095.51 3451.56 5464.77 3376.87

Total of (A) 5248.99 6071.97 5775.74 7672.99 5822.51

(B) Current Liabilities

Current Liabilities 1,249.01 1,028.47 1,048.49 2,860.18 1,799.40

Provisions 162.59 172.76 323.08 322.71 392.22

Total of (B) 1,411.60 1201.23 1371.57 3182.89 2191.62

Net Working Capital(A-B) 3,837.39 4,870.74 4404.17 4490.10 3630.89

Table 1: Calculation of Working Capital Management of five years

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5.2) Current Assets Analysis

Total assets are basically classified in two parts as fixed assets and current assets. Fixed
assets are in the nature of long term or life time for the organization. Current assets convert in the
cash in the period of one year. It means that current assets are liquid assets or assets which can
convert in to cash within a year.

(Fig in Crore Rs)

2005-06 2006-07 2007-08 2008-09 2009-10
5248 6071 5775 7672 5822
Asset Indices 100 115 110 146 110
Table 2: States of Current Assets over five years

Current Asset Indices


120% 115%
110% 111%





2005-06 2006-07 2007-08 2008-09 2009-10

Figure 13: Graph showing Current Assets Changes over five years

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5.3 Current liabilities Analysis

Current liabilities mean the liabilities which have to pay in current year. It includes
sundry creditor‟s means supplier whose payment is due but not paid yet, thus creditors
called as current liabilities. Current liabilities also include short term loan and provision
as tax provision. Current liabilities also includes bank overdraft. For some current assets
like bank overdrafts and short term loan, company has to pay interest thus the
management of current liabilities has importance.
(Fig. in Crore Rs.)
2005-06 2006-07 2007-08 2008-09 2009-10
Liabilities 1,411.60 1201.23 1371.57 3182.89 2191.62
Liabilities 100 85 97 225 155
Table 3: States of Current Liabilities over five years

Current Liabilities Indices




100% 97%
100% 85%


2005-06 2006-07 2007-08 2008-09 2009-10

Figure 14: Graph showing Current Liabilities changes over five years

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5.4) Working Capital Changes:

There are many reasons to changes in working capital as follows.

1. Changes in sales and operating expenses:-

The changes in sales and operating expenses may be due to three reasons.

 There may be long run trend of change e.g. The price of raw material say may constantly
raise necessity the holding of large inventory.
 Cyclical changes in economy dealing to ups and downs in business activity will influence
the level of working capital both permanent and temporary.
 Changes in seasonality in sales activities

2. Policy changes:-

The second major case of changes in the level of working capital is because of policy
changes initiated by management. The term current assets policy may be defined as the
relationship between current assets and sales volume.

3. Technology changes:-

The third major point if changes in working capital are changes in technology because
changes in technology to install that technology in our business more working capital is required

A change in operating expenses rise or full will have similar effects on the levels of
working following working capital statement is prepared on the base of balance sheet of last two

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(Fig in Crore Rs)

2005-06 2006-07 2007-08 2008-09 2009-10
Capital 3,837.39 4,870.74 4404.17 4490.10 3630.89

100 126 114 117 94
Indices (%)

Table 4: States of Working Capital changes over five years

W.C Indices
114% 117%

100% 94%





2005-06 2006-07 2007-08 2008-09 2009-10

Figure 15: Graph Showing Working Capital changes over five years

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5.5) Changes in Sales:

There are many factors, internal and external due to which fluctuation can be
seen in sales. Working Capital is one of it.

(Fig. in Crore Rs.)

2005-06 2006-07 2007-08 2008-09 2009-10

Sales 9942 10330 12162 32933 16808

Sales Indices
(%) 100 103 122 331 169

Table 5: States of sales over five years

Sales Indices
350% 331%




100% 103%


2005-06 2006-07 2007-08 2008-09 2009-10

Figure 16: Graph showing Working Capital Changes over five years

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5.6 Trend Analysis of Working Capital & Sales.

In working capital analysis the direction at changes over a period of time is of crucial
importance. Working capital is one of the important fields of management. It is therefore very
essential for an annalist to make a study about the trend and direction of working capital over a
period of time. Such analysis enables as to study the upward and downward trend in current
assets and current liabilities and its effect on the working capital position.

Any investment in Working Capital (WC) must be justified by the sales of the
organization. Management of WC in synchronization with sales is of immense importance.
Impressive WC ratios are not the only indicators of efficient WC management. There should be
positive and strong correlation between WC and sales, so that any increase or decrease in one is
supported by increase or decrease in another. Efficient WC management has least deviations in
projected and actual values of WC and sales.

In the words of S.P. Gupta “The term trend is very commonly used in day-today
conversion trend, also called secular or long term need is the basic tendency of population, sales,
income, current assets, and current liabilities to grow or decline over a period of time”

According to R.C.Galeziem “The trend is defined as smooth irreversible movement in

the series. It can be increasing or decreasing.”

Emphasizing the importance of working capital trends, Man Mohan and Goyal have
pointed out that “analysis of working capital trends provide as base to judge whether the practice
and privilege policy of the management with regard to working capital is good enough or an
important is to be made in managing the working capital funds.

Further, any one trend by itself is not very informative and therefore comparison with
Illustrated their ideas in these words, “An upwards trends coupled with downward trend or sells,
accompanied by marked increase in plant investment especially if the increase in planning
investment by fixed interest obligation”

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 Regression Analysis

Regression analysis method is a useful statistical technique applied for forecasting WC

requirement. It is the technique of estimating the value of one variable with the given value of
another variable, after establishing the fact that the two variables are related. Besides regression
analysis, the statistical technique of correlation analysis has also been used in order to find out
the strength of association between the two variables. It depicts the tendency of the variables to
move together.

For this purpose, let Y=a + bX be the equation of the straight with origin at the year
2009-10, where X is independent variable relating to time period under (X unit is 1 year) and Y
is dependent variable in Rs. to be predicted. By the method of least squares, the normal equations
for finding the values of a and b are:

∑Y = Na + b∑X

∑XY = a∑X + b∑X2

The above two equations are reduced and we get,

[N∑XY - (∑X) (∑Y)]

N∑X2 - (∑X)2

[∑Y – b (∑X)]

Here, N=number of years=5

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 Analysis of Projected & Actual Figures of Sales & WC.

Calculation for trend value of sales on the basis of Working Capital(WC)

Y= a + bX

[N∑XY - (∑X) (∑Y)]

N∑X2 - (∑X)2
b = 3.487

[∑Y – b (∑X)]

a = 1657

Equation is Y= 1657+ 3633.44X (Fig in Crore Rs)

Financial Working Trend Actual Deviation in Deviation
Year Capital(WC) Value of Sales terms of (%)
X sales on Value Rupees
the basis
of WC
2005-06 3837 15009 9942 (5067) (33)
2006-07 4870 18604 10330 (8274) (44)
2007-08 4404 16982 12162 (4820) (28)
2008-09 4490 17282 32933 15651 90
2009-10 3630 14289 16808 2519 17
( ) indicates Negative Value

Table 6: Calculation of trend values of sales on the basis of W.C values

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Trend & Actual Value of Sales on the basis of WC




Trend Value

15000 Actual Value



2005-06 2006-07 2007-08 2008-09 2009-10

Figure 17: Graph of comparison of actual & trend value of sales on the basis of W.C
Calculation for trend value of Working Capital (WC) on the basis of sales

Y= a + bX

[N∑XY - (∑X) (∑Y)]

N∑X2 - (∑X)2
b = 0.32

[∑Y – b (∑X)]

a = -1012

Equation is Y= -1012+ 0.32X

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(Fig in Crore Rs)

Financial Sales Trend Actual Deviation in Deviation
Year X Value of WC terms of (%)
WC on the Value Rupees
basis of
2005-06 9942 2170 3837 1667 76
2006-07 10330 2293 4870 2577 112
2007-08 12162 2880 4404 1524 53
2008-09 32933 9526 4490 (5036) (52)
2009-10 16808 4366 3630 (736) (17)
( ) indicates Negative Value

Trend & Actual Value of WC on the basis of Sales




6000 Trend Value

Actual Value



2005-06 2006-07 2007-08 2008-09 2009-10
Figure 18: Graph of comparison of actual & trend value of working capital on the basis of sales

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5.7 Degree of Correlation between Working Capital and Sales.

The quantity r, called the linear correlation coefficient, measures the strength and
the direction of a linear relationship between two variables .Any change in sales must get
reflected in WC figures and vice-versa. There should be a high degree of association between
WC and sales in order to avoid the situation of overtrading or under trading. Correlation analysis
deals with the association between two or more variables. It determines whether any relation or
interdependence exists between the variables and the degree of such relation. It also predicts the
direction of movement of one variable in response to the change in other variable. Correlation
analysis is used with regression analysis to measure how well the regression equation explains
the variations of variables in response to each other. The strength of correlation between working
capital and sales is calculated as follows.

X=Working Y=Sales x=X-X¯ y=Y-Y¯ x2 y2 xy


3837.39 9942.93 -409.26 -6492.61 167493.74 42153985 2657166

4870.74 10330.11 624.09 -6105.43 389488.32 37276275 -3810338

4404.17 12162.82 157.52 -4272.72 24812.55 18256136 -673038.8

4490.10 32933.30 243.45 16497.76 59267.90 27217608 40163780

3630.89 16808.57 -615.76 373.03 379160.37 139151.3 -229697

∑X=21233.29 ∑Y=82177.73 ∑x=0 ∑y=0 ∑x2=10202 ∑y2=3700 ∑xy=381

22.88 01632.3 07872.2

Table 8: Calculation of degree of correlation between working capital & sales

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Correlation Coefficient,

r = 0.62

It suggests that WC and sales are positively correlated to a moderate degree. It suggests
that in 62% instances, WC and sales move in the same direction. With reference to Table 1, it
can be seen that sales have shown an increasing trend continually from FY05-06 to FY08-09 but
in FY09-10 WC has decreased. Thus, in 3 instances out 5, sales and WC have moved in the same
direction. It can be inferred that sales and WC of IFFCO-Kandla have moderately strong and
positive correlations.

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Findings & Suggestions

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6.1 Findings
 It can be observed that in the year 2006-07 current assets increased by around 15% and
current liabilities decreased by 15% which affect as working capital increased by 27%.
 In the year 2008-09, current assets as well as current liabilities both shows increase which
imply that management might have invested the increased liabilities side to the current
 Sudden increase in sales in the year 2008-09 indicates affection of external factor on the
sale because current assets or liabilities data shows that solely Working Capital was not
responsible for such a jump in sales.
 As the correlation analysis states the degree of correlation between sales and Working
Capital is 0.62, the established hypothesis is accepted

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6.2 Suggestions
Recommendation can be used by the firm for the better increment of the firm, after study
and analysis of project report of working capital. I would like to recommend.

1. Company should raise funds through short term sources for short term requirement of
funds, which comparatively economical as compare to long term funds.
2. Company should take control on debtor’s collection period which is major part of
current assets.
3. Company has to take control on cash balance because cash is nonearning assets and
increasing cost of funds.
4. Company should reduce the inventory holding period with use of zero inventory

Over all company has good liquidity position and sufficient funds to repayment of
liabilities. Company has accepted conservative financial policy and thus maintaining more
current assets balance. Company is increasing sales volume per year which supports company for
sustaining its position in the fertilizer market.

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Book Reference
 Pandey I M, 2010, Financial Management, 9th Edition, Vikas Publishing house ltd.,
New Delhi page no.577-640.
 Khan M Y and Jain P K, Financial management – Vikas Publishing house ltd.,
New Delhi
 Smith K V- management of Working Capital- Mc-Grow-Hill New York
 Inamdar Satish- Principles of Financial Management-Everest Publishing House

Websites References
1. www.iffco.nic.in

2. www.google.co.in

3. www.workingcapitalmanagement.com

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