CHAPTER-1 PREFACE

This project has been undertaken for INVENTORY MANAGEMENT AND RATIO ANALYSIS. Despite all the limitations and obstacles, I have put my efforts and hard work to make the objective accomplished in stipulated time. I have come across difficulties to make this project a reality, but with the extreme support of my guide, I have completed it successfully. In todays cut throat competition scenario has been changed. Companies are adopting new policy to survive in market. In order to cope with the industry demand and technological advancements, we need to develop CSR strategy for building a reputation of the company and to retain employee. CSR is referred to as a method to give the new entrant or an existing employee the skills, knowledge and attitude needed to perform the job. CSR strategy helps to build healthy relation with society and with the employee. CSR maintain goodwill of the company. A Good reputation make it easier to recruit employee and simultaneously it help to retain the employees. CSR can make more competitive and reduces the risk of sudden damage to reputation. CSR strategy has been found to be greatly suiting to build up ongoing relationship with community and business leader. Help to enhance the image and visibility of the company and its products. At last I have given suggestions and recommendations to enhance the future growth and prospect of the company.

CHAPTER-2 INTRODUCTION
INVENTORY MANAGEMENT
Managing the level of inventory is like maintaining the level of water in a bath tub with an open drain. The water is flowing out continuously. If water is let in too slowly, the tub is soon empty. If the water is let in too fast, the tub overflows. The dictionary meaning of inventory is stock of goods. The investment in inventory is very high in most of the undertakings engaged in manufacturing. The amount of investment is sometimes more in inventory than in other assets. About 90 percent part of working capital is invested in inventories. It is necessary for every management to give proper attention to inventory management. A proper planning of purchasing, handling, storing and accounting should form a part of inventory management. By proper planning it is possible for a company to reduce its levels of inventories to a considerable degree, without any adverse effect on production and sales, by using simply inventory planning and control technique. The reduction in excessive inventories carries a favorable impact on companys profitability. An efficient system of inventory management will determine 1) What to purchase 2) How much to purchase 3) From where to purchase 4) Where to store, etc. Effective inventory management enables an organization to meet or exceed customers expectations of product availability while maximizing net profits or minimizing costs

CHAPTER-3 OBJECTIVE OF STUDY

The main aim of study is to check the efficiency and effectiveness of inventory management system at IFFCO Aonla. Investment in inventory incurs a high cost. Therefore effective management is necessary to minimize the cost and ultimately increases profitability of an organization. Apart from our main objective, our other objectives are: 1) To analyze the level of investment in inventory by IFFCO. 2) To study the inventory policy of the company. 3) To analyze the policy adopted by the company. 4) To analyze the financial position of the company. 5) To give suggestion if any, regarding effective inventory management, to ensure smooth and uninterrupted supply without making unnecessary investment of funds in inventory.

CHAPTER-4 RESEARCH METHODOLOGY

Research covers the search for retrieval of information for a specific purpose. Basically research is the objective and systematic method of finding solution to a problem. The steps followed to conduct this study are as follows:(1) Formulating research problem The problem under study viz. how effective are the measures applied by Iffco, Aonla to control the inventory is basically studied through analytical research. Material is important for the efficiency of the system. It is a matter of great importance for inventory department. Inventory department of IFFCO, Aonla is responsible for efficient inventory control. Thus the whole study is conducted under the guidance of officers of this department. (2) Extensive literature survey Many published studies, books or material on effective control of inventory were referred to for getting a true direction to research process. (3) Data collection The study is conducted through collection of data through surveys, interviews with officials etc. Personal interviews were conducted where a set of pre- conceived questions were asked from the officers of inventory department regarding material control policies adopted by them. Books of accounts of Aonla I and Aonla II are studied thoroughly to details about inventory stock, cost of material consumed, increase and decrease in stock in the last few years etc. Sample of material was obtained randomly. ABC analysis was used where sample of material was graded under three categories: A, B, C. (4) Analysis and interpretation The data about inventory is analysed to find out the effectiveness and efficiency of inventory policy. As regards the financial performance, the data about different financial indicators is analysed to calculate the different ratios and to draw the graphs.

CHAPTER-5
INTRODUCTION ABOUT IFFCO
During mid- sixties the co-operative sector in India was responsible for distribution of 70 per cent of fertilizers consumed in the country. This sector had adequate infrastructure to distribute fertilizers but had no production facilities of its own and hence dependent on public/private sectors for supplies. To overcome this lacuna and to bridge the demandsupply gap in the country, a new cooperative society was conceived to specifically cater to the requirements of farmers. Thus was born IFFCO, the worlds largest fertilizer cooperative. It was a unique venture in which the farmers of the country through their own co-operative societies created this new institution to safeguard their interests. Indian Farmers Fertilizer Cooperative limited, a multi-state Cooperative has emerged as a role model for cooperatives Over 42 years of its inception, IFFCO has turned into a true Cooperative Of the Farmers, By the Farmers and For the Farmers. IFFCO has steadily grown in strength and stature from a modest membership of 57 societies in 1967-68 to 39564 societies as on 31st March, 2008. The initial equity capital of Rs.6 lakh contributed by the cooperatives in 1967-68 has also gone upto a paid-up capital of Rs.426 crore. Indian Farmers Fertilizer Co-operative Limited (IFFCO) was registered on November 3, 1967 as a Multi-unit Co-operative Society. On the enactment of the Multi state Cooperative Societies Act 1984 which was amended in 2002, the Society is deemed to be registered as a Multi state Cooperative Society. The Society is primarily engaged in production and distribution of fertilizers. The byelaws of the Society provide a broad framework for the activities of IFFCO as a Cooperative Society. A pioneer in this field, IFFCOs growth reflects its belief in the strength of the farmer. Several prestigious awards stand testimony to the fact that IFFCO is driven by its values and the dedication of its people. This is an organisation that believes in fair play and has always followed transparent and professional practices in corporate governance.

PRODUCTION
The largest producer of fertilizers in the country, IFFCO has five state-of-the-art plants that ensure its special position. These are considered to be among the best professionally managed fertilizer plants in the world. IFFCO had set up the KALOL plant for manufacture of Nitrogenous Fertilizer and KANDLA plant for manufacture of Phosphoric fertilizer. These plants commenced commercial production in the year 1974-75. Another ammonia - urea complex was set up at Phulpur in the state of Uttar Pradesh in 1981. The ammonia - urea unit at Aonla was commissioned in 1988. As part of the new vision and in order to augment its complex fertilizer manufacturing capacity, IFFCO acquired DAP/NPK/NP plant in Paradeep, Orissa in September 2005. This was a historic moment, for it was the first private sector unit to be acquired by any Indian cooperative. The Paradeep unit was expected to achieve an optimal production load during 2008-09. During 2007-08, IFFCOs plants rolled out 68.47 lakh tonne of fertilizer material comprising 39.63 lakh tonne of urea and 28.84 lakh tonne of NPK/DAP/NP which bears ample testimony to its superlative performance. IFFCOs market share in N production is 20 percent and 25 percent in P2O5 produced in the country. IFFCO has initiated energy saving schemes in all its five ammonia plants at a cost of Rs. 410 crore

MARKETING AND DISTRIBUTION

A strong marketing team and a sound distribution network make the bottom line secure. Backed by this belief, IFFCO has gone all out to extend its reach, resulting in the highest-ever sales of fertilizer material this year. With the completion of Kalol Expansion Project, IFFCO is all set to realize the objective of producing 100 lakh tonne of fertilizers, thereby attaining the distinction of world leader in fertilizer production. Every fourth bag of fertilizer produced and every third bag of fertilizer sold in the country belongs to IFFCO. Around 40,000 cooperative societies and 158 Farmers Service Centres spread across 29 states and union territories in India make sure that IFFCOs productsNPK/NP/DAP/UREA-are easily available to farmers.

These impressive figures have been made possible largely because of the fact that IFFCO distributes its products through cooperative channels. Though the cooperative structure may differ from state to state, the goal is to reach out to each district, taluka and village and hence sell more. This year, IFFCO has dispatched around 86 lakh tonne of fertilizer material from its plants and ports by rail and road. With the aim of delivering to the doorstep of the farmer in all parts of the country, the organisation hired storage space at more than 1,700 locations. IFFCOs Farmers Service Centres not only supply material under one roof, they are used as contact points for providing technical know-how to farmers. These Centres also organize promotional programmes such as soil test campaigns and farmers meetings. . During 2007-08, IFFCO has notched up a record sale of 93.24 lakh tonne of fertilizer material comprising of 54.29 lakh tonnes of urea and 38.95 lakh tonne of NPK/DAP/NP witnessing a growth of 8.3% as against 86.10 lakh tonnes in the previous year. Best ever marketing productivity also sprang to 6158 tonne/head.

FINANCIAL PERFORMANCE
The society recorded an all time high turnover of Rs.12163 crore during 2007-08 while its pretax profit stood at Rs.380.52 crore and profit after tax at Rs.257.59 crore. The society declared a dividend of 20% for its shareholders for seventh successive year.

HUMAN RESOURCE PUTTING PEOPLE FIRST

No vision, however grand, can be fulfilled without the cooperation of its people. Recognizing this fact, IFFCO has made a sustained investment in its people, creating an environment that attracts the best talent. At IFFCO, we see teamwork at its best. Employees at all levels share a common dream, a dream that is understood in IFFCOs Vision 2010. Hence, enhancing skills is of great significance for the organisation. Other initiatives to help the growth of its people included workshops on human values, leadership and work ethics. There were also many technical activities that led to

development and skill upgradation. Employees were sponsored for participation I prestigious both in India and abroad. With the firm belief that Information and Communication Technology (ICT) helps the people and the organisation to grow together, IFFCO has augmented its workflow applications. The Corporate Data Centre in New Delhi has been refurbished with the latest technology. A new VPN was created to provide round-the-clock connectivity in the plants, zonal office and head office. IFFCO has, over the years, successfully showcased its image in India and overseas. Its achievements and its contributions to the farming community are highlighted in various exhibitions and fairs. Given the fact that IFFCO acknowledge that people are the key drivers in its growth, there is little wonder, then, that the work environment here is one that encourages creativity and nurtures success.

A YEAR OF APPRECIATION (2008-09)

It was a moment of pride for every member when the President of India in the year 2007 lauded IFFCOs efforts at conserving energy and keeping its consumption at the lowest level. This National Energy Conservation Award 2008 was among many accolades IFFCO received for its safety and conservation endeavours from FAI, CII and Government of India. These awards, interalia, include for Best Production Performance, Energy Conservation and Efficient Water Management to Phulpur Plant; Awards for Best Technical Innovation, Safety and Environment Management to Aonla Plant; Energy Conservation and Industrial Safety Award to Kalol Plant; and SUN and NDTV Green IT Award to Kandla Plant. In addition IFFCO has pocketed SMART WORKPLACE AWARD in the manufacturing and industrial segment by the prestigious Economic Times, Acer Intel Smart Workplace Award. At the world communications awards in London its associate IKSL has been conferred award for Best Content Service and Best Project Management.

Another significant event was the laying of the foundation stone of Indias first-ever Kisan SEZ (Special Economic Zone) by Dr. Y.S. Rajasekhara Reddy, Chief Minister of Andhra Pradesh. Further, IFFCOs Managing Director, Dr. U.S. Awasthi, received honorary Doctorate of Science degree from Dr Balram Jakhar, Governor of Madhya Pradesh, at the Vikram University Campus in Ujjain. Aonla Unit for the first time has crossed production of 20 lakh MT of urea which is commendable. Paradeep has achieved greater laurels by producing more than 13 lakh MT of NP/DAP despite shortage of raw material. Society has crossed the landmark sales and transportation of over 112 lakh MT of fertilizers material registering a sharp rise of 20% over the last year. With this, IFFCO has now become the largest marketer of process fertilizers not only in India but in the entire world. Society has already achieved the sales turnover of about Rs.32800 crore during the financial year 2008-09. During the year 2008-09, the society has entered into a long term agreement with LEGEND International for supply of rock phosphate along with equity stake. It has initialed an MoU with Kazphosphate, a leading chemical and fertilizer manufacturing company of Kazhakistan. Another agreement of intent has been signed with Qatar for setting up a Urea plant.

CORPORATE SOCIAL RESPONSIBILITIES

In line with its vision and mission statement, IFFCO has undertaken several social activities in the areas of education, community development, environment protection and horticulture, health care/medical facilities etc, all with the intent of reaching out to those in need and improving the quality of their lives. Adopting a village is of paramount importance to IFFCO. The programme started with an objective to bring about overall development in the living standards of rural community through integrated rural development with particular emphasis on agriculture development, creation of drinking water facilities, medical and veterinary check up. IFFCO has adopted 439 villages, thus empowering many lives.

Another scheme that benefits the farmers is Sankat Haran Bima Yojana, launched by IFFCOs subsidiary, IFFCO-Tokio General Insurance Company Limited (ITGI). Here, farmers are provided insurance against accidents with the purchase of a 50 kilogram bag of IFFCO fertilizer. This reaches out to member cooperative societies. The policy has helped over 7,000 people since its inception in September 2001. ITGI also offers customized policies for farmers such as Barish Bima Yojana, Mausam Bima Yojana and Janta Bima Yojana. IFFCO has initiated several promotional projects to provide greater opportunities to the farmer by organizing field days, farmers meetings, sales point personnel training, crop seminars, special agriculture campaigns to effect transfer of modern farming trends. Besides, kits containing seeds, fertilizers, bio-fertilizers and agrochemicals along with

booklets/literature were distributed to farmers. The aim: enhancing crop productivity and thus improving lives. In keeping with its intent of empowering the weaker sections of society, including women, IFFCO presents monthly scholarships to deserving students and also organizes training programmes for women. The organisation has instituted 17 IFFCO Chairs at agricultural universities and cooperatives. The emphasis is on current topics in agriculture. IFFCO uses its 12 storage-cum-community Centres for helping people come together and share their experiences. The environment is a major concern with IFFCO. Its units and townships comprise beautiful landscapes, surrounded by trees. IFFCO is also committed to improving the safety, health and environment of its manufacturing units, in line with international norms. The Kalol, Phulpur, Aonla and Kandla units have been awarded the ISO- 14001 certificate for Environment Management System. Further, the Kalol, Phulpur and Aonla plants have received the ISO-9001 certification for Quality Management. IFFCO has contributed Rs 10 crore to set up the IFFCO Kisan Sewa Trust. This Trust assists farmers in getting medical treatment. Employees also contribute regularly to it. The Kisan Sewa Trust organizes cancer detection and eye camps and arranges for blood through the Red Cross Society.

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The IFFCO Foundation has been promoted as the think tank of the organisation. Its objective is to focus on strengthening village level cooperatives in harmony with the law and culture of the country. Indian Farm Forestry Development Cooperative Limited (IFFDC), promoted by IFFCO, was given a certificate of appreciation by the Tata Energy Research Institute for its efforts towards good corporate citizenship. The Cooperative Rural Development Trust provides practical training to farmers and has organized 229 programmes in 2008, benefiting 22,221 farmers.

INFORMATION AND COMMUNICATION TECHNOLOGY

IFFCO is taking measures to develop web based services to provide exhaustive information on agriculture, fertilizer industry, agro-chemicals, and information on cooperative sector. For this purpose, 108 touch screen monitor based Farmers Information Kiosks or Cyber Dhabas in 10 languages have been installed in 17 different states of the country. Besides that, IFFCO has developed and implemented several ERP solutions and ecommerce solutions for internal use as well as for use in its joint projects. Some of these solutions have got recognition by Indian as well as by International Media Groups. During 2008-09, IFFCO has undertaken enhancement of WAN & Network security for all the plants and marketing offices across the country. Symantec antivirus server has been consolidated and clients installed on all the machines across the country for protection against virus attacks. In short, we can say that:

IFFCO IS:
1. 2. Largest producer of fertilizers in the country No. of Plant Locations : Five

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3.

Installed Annual Capacity (000 MT) a. b. c. d. UREA NPK/DAP TOTAL N - 4242.2 - 4335.4 - 2628.2

TOTAL P2O5 - 1712.8

4. Only Fertilizer Institution in the country to produce 68.47 lakh MT of fertilizers and 93.24 lakh MT of sales during 2007-08. 5. Contributed about 20% to the total N and 25% to the total P2O5 produced in the country during the year 2007-08. 6. Fertilizers marketed through 39564 Cooperative Societies and 158 Farmers Service Centers. 7. Service to the Farmers through a variety of programmes.

OBJECTIVES OF THE COMPANY

The broad objectives of setting up this venture:1) Producing fertilizers. 2) Promoting the fertilizers distribution system in the co-operative sector. 3) Ensuring availability of fertilizers at the farmers doorstep. 4) Creating scientific awareness among farmers. 5) Promoting nations growth through modern farming techniques. 6) Improving agricultural productivity through balanced fertilizer application. 7) Strengthening cooperation distribution system. 8) To promote the activity for enriching the life of the rural. 9) To achieve self reliant and self generated economy.

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IFFCO has grown steadily since its inception today. It has emerged not only as the largest fertilizer producing organization in India but also Asias largest fertilizer cooperative.

Prices of IFFCO's Fertilizers

(Applicable only within India) (Indian Rupees Per Tonne w.e.f 18-06-2008) UREA N46% NPK 12-32-16 10-26-26 20:20:00 18-46-0 K-60% DAP MOP

M.R.P.

4830

7197

7637

6295

9350

4455

Local Taxes Extra, where ever applicable.

MANAGEMENT
The Representative General Body (RGB) which is the General Body forms the supreme body that guides the various activities of IFFCO. The RGB consists of: 1. Members of the Board of Directors. 2. One delegate from each of the Member Societies holding shares of the value of Rs.100 thousand and above; such delegate shall be as per the provisions of the MultiState Cooperative Societies Act/Rules as amended from time to time; 3. Delegates to be elected from amongst the representatives of Member Societies (other than Members holding shares of the value of Rs. 100 thousand and above ) in each State/ Union Territory at the rate of one delegate for every 200 societies or part

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thereof. However the maximum number of such delegates from any State/Union Territory at the rate of one delegate for every 200 societies or part thereof shall not exceed 25. Such elected delegates shall be as per the provisions of the Multi-State Cooperative Societies Act/ Rules amended from time to time.

The Board of Directors of IFFCO carry out all functions as specified under the Multi-state Cooperative Societies Act/Rules. The Board of Directors frame policies, direct the various activities of the Society and undertake any other activities conducive to overall growth and development of Societies. The Board is headed by the Chairman. The Managing Director is the Chief Executive of the organisation with responsibilities for general conduct, supervision and management of day to day business and affairs of IFFCO. The The Finance Director oversees the financial aspects and the Marketing Director looks after the marketing functions of IFFCO. The Director (Technical) looks after the Techincal aspects, Director (HRD) is responsible for all the Human Resources, Director (Joint ventures) oversees all the Joint Venture operations and Director (Coop. Development) looks after Cooperative Development. These functional directors are assisted by Senior Executives who are experts in various disciplines.

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BOARD OF DIRECTORS
The Directors of IFFCO Chairperson Shri Surinder Kumar Jakhar Vice-Chairperson- Shri N.P. Patel

DIRECTORS

Shri Chandra Prakash Shri S.L. Dharme Gowda Shri Kartick Chandra Sarkar Shri Harminder Singh Jassi Shri M.Gopal Reddy Shri Ankushrao R.Tope Shri Rajhans Upadhyaya Shri G.C. Maikota Shri Vithalbhai H. Radadia Shri Sheesh Pal Singh Shri Raj Kumar Tripathi Shri Balvinder Singh Nakai Shri Ravindra Pratap Singh Shri K. Srinivasa Gowda Shri K. Somashekhar Rao Shri Simachal Padhy Shri Pramod Kumar Singh Shri R.K.Dhami Shri B.S.Vishwanathan Managing Director Dr. U.S. Awasthi

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Deputy Managing Director-cum-Marketing Director Shri D.K. Bhatt Deputy Managing Director-cum-FD Shri Rakesh Kapur Director (Technical) - Shri V.K. Bali Director (Coop. Development) Dr. G.N. Saxena Director (HRD) Shri S.K. Mishra Director (Joint Ventures) Mr. K.L. Singh

BANKERS
India Overseas Bank State Bank of India Bank of Baroda Standard Chartered Bank The Maharashtra State Co-operative Bank Ltd. The West Bengal State Co-operative Bank Ltd. Madhya Pradesh State Co-operative Bank Ltd. The Karnatake State Co-operative Bank Ltd. The Punjab State Co-operative Bank Ltd. The Hongkong and Shanghai Baking Co-operation Ltd. ICICI Bank Ltd. IDBI Bank Ltd.

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IFFCOs MAIN AIM

Strengthening management

and participatory character of the Indian Cooperative

Movement by using duly tested and appropriate consultancy, advisory and technological interventions sourced from within the country and abroad and in accordance of the Cooperative Principles and in harmony with the law and culture of the land.

VISION

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 co-operative societies economically and democratically strong for professionalized services to the farming community to ensure an empowered rural India.

MISSION
IFFCOs mission is to enable Indian farmers to prosper through timely supply of reliable, high quality fertilizers and farm inputs and services in an environmentally sustainable manner and to undertake other activities to improve their socio-economic status. 1) To provide to farmers high quality fertilizers in right time and in adequate quantities with an objective to increase crop productivity. 2) To make plants energy efficient and continually review various schemes to conserve energy. 3) Commitment to health, safety, environment and forestry development to enrich the quality of community life. 4) Commitment to social responsibilities for a strong social fabric. 5) To institutionalize 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. 6) Foster a culture of trust, openness and mutual concern to make working a stimulating and challenging experience for stakeholders.

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7) Building a value driven organization with an improved and responsive customer focus. A true commitment to transparency, accountability and integrity in principle & practice. 8) To acquire, assimilate and adopt reliable, efficient and cost effective technologies. 9) Sourcing raw materials for production of phosphatic fertilizers at economical cost by entering into joint ventures outside India. 10) To ensure growth in core and non-core sectors. 11) A true co-operative society commitment for fostering co-operative movement in the country. Emerging as dynamic organization, focusing on strategic strengths, seizing opportunities for generating and building upon past success, enhancing earnings to maximize the shareholders value

VISION 2010
Having accomplished the objectives envisaged in vision2000andmission-2005 IFFCO embarked on vision2010 which focuses on future growth and development of the society and aims at: Attaining an annual turnover of Rs.15,000 crore by 2010. Installation of Ammonia and Urea plants including acquisition of fertilizer units Backward integration to meet feed stock requirements such as Phosphoric acid, Natural gas etc. Generation of Power Production and marketing of micro-nutrients, seeds, bio-fertilizers, pesticides etc. Value addition to agri-products and marketing Information technology and IT enabled services Easblishment of retail chain in urban and semi-urban locations. Diversification into new growth areas such as mobile telephony and communication

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Technology in the rural areas.Under Vision 2010,IFFCO has set up a power generation company in Chattisgarh and formed a joint venture to manufacture Phosphoric Acid in Egypt.

APPROACH
To achieve our mission, IFFCO as a Cooperative society, undertakes several activities covering a broad spectrum of areas to promote welfare of member cooperatives and farmers. The activities envisaged to be covered are exhaustively defined in IFFCOs Bye-laws

COMMITMENT
Our thirst for ever improving the services to farmers and member co-operatives is insatiable, commitment to quality is insurmountable and harnessing of mother earths bounty to drive hunger away from India in an ecologically sustainable manner is the prime mission. All that IFFCO cherishes in exchange is an everlasting smile on the face of Indian Farmer who forms the moving spirit behind this mission.

BUSINESS PRINCIPLES OF THE COMPANY

Appreciation of national need of generation upto optimum return of investment. To fair price of the product manufactured by the company is subsidy to the farmers. Total consumer satisfaction as a quality of the product, price of the product and better service after selling the product. Effective management information system.

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To increase the efficiency of the workers. To maintain better human relations and discipline among all the employees. To develop good relation with customers.

IFFCOS EMBLEM
The Emblem of any organisation i.e. the logo is very important by which the company is known to everyone or that is identity of the company. After one year of establishment in 1968, the organisation has decided to make an EMBLEM of IFFCO. The executive of the company said that which can be easily fit into any place or easily changeable according to the place and made by simple geometrical method. So the EMBLEM is made by Mr. M.I. Gupta, Chief Visualiser Developer and looks like

Logos ratio is1:2:5 and the color is green. The rectangle shows that the Indian economy is depend upon the agriculture and green color shows the faith of the farmers, they believe that after using the urea their fields will always be green, the remaining white color shows that the quality of the IFFCOs product is very good and oval shape is meant for the wealth and prosperity.

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ORGANISATION CHART OF IFFCO

Board of Directors

Chairman & Vice Chairman

Managing Director

Dy.MD-cumMkt. Director

Dy.MD-cumFinance Director

Director (Technical)

Director (HRD)

Director. (Coop. Development)

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INVESTMENT OUTSIDE IFFCO

1. Indian Potash Ltd (IPL)

IFFCOs Equity Percentage of Equity held : Rs. 2.68 Crore : 34% ( Rs. 32.4 million)

Paid up capital( Mar 31,2000) : Rs 95 million Activity : Marketing of Potash and imported fertilizers

IPL is the Indian canalizing agency for domestic potash requirements.

2. Industries Chimiques du Senegal (ICS) I & II

Percentage of Equity held Plant Site Products Activity Production capacity : 19.09 % : Darou, Senegal : Rock Phosphate, Phosphoric Acid and NPK Fertilizers : Phosphoric Acid at Darou (Senegal) : 1.5 million TPA

Paid up capital (Mar 31,2000) : Rs 6.5 billion IFFCO has taken over the management and operational control of ICS Senegal in 2008-09.

3. IFFCO - TOKIO General Insurance Company Ltd. (ITGI)

IFFCOs Equity Percentage of Equity held Activity : Rs. 193.90 Crore : 72.64% : General Insurance

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Corporate Office Paid up capital (Mar 31,2006)

: New Delhi : Rs 2.2 billion

ITGI has launched a new policy named Janta Bima Yojana which is providing insurance cover to the poorest of the poor at very nominal premium.

PARTNERS IN ITGI Joint Venture Partner : TM Asia Pte. Ltd. Total Equity : Rs. 220 Crore

4. Oman India Fertilizer Company (OMIFCO)

IFFCOs Equity Percentage of Equity held Plant Site Products : Rs. 329.08 Crore : 25% : Sur, Oman : Ammonia, Urea

5. Indo Egyptian Fertilizer Co. (IEFC)

Project Cost IFFCOs Paid up Equity Debt : Equity Ratio IFFCOs Equity El Nasr Mining Co. Activity : USD 325 million : Rs. 38.89 Crore : 70 : 30 : 76% : 24% : Phos. Acid Plant

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6. National Commodity and Derivative Exchange (NCDEX)

IFFCOs Paid up Equity Percentage of Equity held : Rs. 30 Crore : 12%

Redeemable Preference Share Capital : Rs. 10 Crore Activity : On Line Trading in commodity futures

7. National Collateral Management Services Ltd. (NCMSL)

IFFCOs Equity Percentage of Equity held Activity : Rs. 4 Crore : 13.33% : Collateral Risk Management Solutions

8. IFFCO Chhattisgarh Power Ltd

Project Cost IFFCOs Paid up Equity Debt : Equity Ratio IFFCO Equity CSEB Activity : Rs. 6265 Crore : Rs. 11.10 Crore : 70 : 30 : 74% : 26% : Power Generation (1320 MW)

9. Kisan International Trading FZE (KIT)

Investment Location Activity : Rs. 11 Crore* : Dubai : Special purpose vehicle (SPV) for shipping, logistics and

investments in new overseas Joint Ventures. * Includes Rs. 9.80 crore towards 9 bonus shares received during 2007-08.

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10. Jordan India Fertilizer Company (JIFCO)

Project Cost : USD 580 Million IFFCO Equity : 52% (Rs. 2.08 Crore) JPMC Equity : 48%, Activity : Phos. Acid Plant

11. IFFCO Kisan Sanchar Ltd. (IKSL)

Paid up Share Capital : Rs. 5 Crore IFFCO Equity : Rs. 3.65 Crore (73%) IKSL has expanded its network in most parts of the country. Its products viz. Kisan Torch and Kisan Lantern are gaining popularity amongst the farmers. IKSL is sending five free voice messages disseminating agricultural related information to about 15 lakh farmers everyday.

12. IFFCO Kisan SEZ Ltd.

Project Cost : Rs. 2400 Crore

Others
Indian Farm Forestry Development Cooperative (IFFDC) : Rs. 8.60 Crore

Maharashtra State Coop. Bank Ltd. : Rs. 10 Lakh IFFCO Kisan Bazar : Rs. 9 Lakh

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26

Provisional highlights of IFFCO performance during 2008-09.

Highest Production of Fertilizers (Previous Best 70.12 lakh MT in 2006-07) Highest Production of Urea (Previous Best 39.63 lakh MT in 2007-08) Production of NPK/DAP/NP (Best 32.26 lakh MT in 2006-07) Highest Sales of Fertilizers (Previous best 93.24 lakh MT in 2007-08) Highest Sales of Urea (Previous best 54.29 lakh MT in 2007-08) Highest Sales of NPK/DAP (Previous best 38.95 lakh MT in 2007-08) Highest Turnover (Previous best Rs.12163 crore in (2007-08) Plant Productivity (Best 1669 MT in 2005-06) Highest Marketing Productivity (Previous best 6158 MT in 2007-08) Composite Energy Consumption Lowest 5.907Gcal / MT in 2007-08)

71.68 lakh MT

40.68 lakh MT

31.00 lakh MT

112.33 lakh MT

58.49 lakh MT

53.84 lakh MT

Rs 32800 crore

1376 MT per employee

7380 MT per employee

5.9433 Gcal/ MT

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CHAPTER-6
DATA COLLECTION & ANALYSIS
FINANCE AND ACOUNTS DEPARTMENT

Each company is carried with a purpose of earning money. Money or capital being a scare as well as crucial resource in the working of any organization needs to be given prime importance. The financial resources have been planned and controlled in a proper and continuous manner. As among the most crucial decisions of a firm are those which relate to finance. Finance & accounts from an integral part of any organization. Proper and smooth functioning of this section is very vital for the organization to survive and grow. Finance functions are of two types: Managerial finance function Routine finance function Managerial finance functions are so called because they require skilful planning, control and execution of financial activities. Routine finance functions on the other hand, do not require a great managerial ability to carry them out. They are chiefly and are incidental to the effective handling of the material finance functions. The various areas covering under the preview of subsections are as follows

1. BOOKS SECTION
This section basically deals with accounting function, maintenance and keeping of records. The various functions include: Books: Preparing and maintaining balance sheets. IFCC (Fertilizer Industries Coordination committee) Costing & Pricing Cells Reporting

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2. PAY ROLL SECTION

This section deals with the payments of salary and wages to the employees and extending various other benefits are covering under to preview are Salary Leave Travel Concession (LTC) Medical Allowance Conveyance Advances Loans to employees

Aonla Unit undertakes processing of salary and other staff related payments of all employees through Human Resource Management System (HRMS). It is an integrated package based on Oracle DBMS. The System integrates Personnel & Administration Department and Finance & Accounts Department. Simultaneously, Financial Accounting System (FAS) which is also based on Oracle DBMS has been launched in F&A DEPARTMENT through which General Ledger Sub Ledger of Employees is maintained and Trial Balance and Financial Accounts are generated. There is also inter- relation of HRMS and FAS so that cash payment/receipt vouchers, Bank Payment Vouchers and Journal Vouchers generated in HRMS are automatically posted online to Payroll Section of Finance & Accounts Department.

3. Taxation Section
As per the status and operations of the society, It deals with the following Taxes: Central Excise Duty Income Tax Service Tax Sales Tax

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Central Excise Duty

As we know that this duty is charged by Central Government on the goods manufactured. IFFCO mainly produce ammonia and urea at Aonla plant. So duty on ammonia is charged. In this relation monthly production report is prepared and all documents and accounts are prepared by the Finance & Accounts Department. The duty is deposited in the Government bank account on the 5th day of the month. EXCISE Duty is not charged on production of Urea.

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CONCEPT OF INVENTORY MANAGEMENT

Dictionary meaning of inventory is detailed list of movable articles. The literary meaning of inventory is stock of goods. According to International Accounting Standards-2, inventory is a tangible property which is held: For sale in the ordinary course of business; In the process of manufacture for such a sale; For consumption in the process of production of goods and services for sale including maintenance supplies and consumables other than machinery spares.

Inventory Management involves the control of assets being produced for the purpose of sale in the normal course of the company's operations. The goal of effective inventory management is to minimize the total costs - direct and indirect - that are associated with holding inventories. However, the importance of inventory management to the company depends upon the extent of investment in inventory. The term inventory includes: Inventory of Raw Materials : In the case of manufacturing concerns, various types of raw materials are being used in the production system. To ensure smooth production function and also to avoid any kind of production delays the concern has to keep inventory of raw materials. Inventory of Stores and Spare Parts : This inventory consists of those products which serve as accessories to the main products manufactured for the purpose of sale. Bolts, nuts screws, clamps, etc., are the examples of stores and spares parts. Such spare parts are either bought from outside or manufactured in the concern itself. Inventory of Work-In-Process (W.I.P.) : Sometimes the manufacturing system involves various processes for converting raw materials into finished goods. As such, some materials might have been issued to the

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production process but might not have been completed as finished goods. This is known as work-in-process. Inventory of Finished Goods : All goods manufactured during a particular period may not be sold immediately. These are to be kept in warehouse. The idea is to uncouple the production and sales function so that it is no longer necessary to produce the goods before a sale can occur. The application of managerial function on the basis of management principles in the field of inventory is termed as inventory management. Managerial functions are performed with respect to inventory; it may be called inventory management. The objective of inventory management is to plan the optimum size of inventory which is neither excessive nor deficient and is timely available. For timely availability along with optimum size, there is need for controlling as well. Only on the basis of various control techniques one can ensures whether inventory would be timely available. But effective control in itself depends upon organizing and coordination. Thus, inventory management comprises the functions of planning, controlling and organizing the types of all goods, quantity, status, flow and time- sequence etc.

Need for inventory management

Inventory management is an integral part of general management. Three important functional aspects of a business are closely related to inventory management. These are:
1) 2) 3)

Production management Marketing management Financial management

Here the production management and marketing management are related to the physical aspect of inventory management and; financial management is concerned with the financial aspect of the inventory management.

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In production management, production manager will always strive to have a large inventory of raw materials and of such a good quality as to ensure stable production operations. In marketing management, marketing manager aims at satisfying ever increasing demands for improved customers service by having large inventory of inside goods. In financial management, finance manager will effort towards to keep investments in different types of inventory at a minimum possible level so that the business concern may earn maximum return.

MATERIAL DEPARTMENT
Material Department is responsible for the proper handling of inputs and controlling of material inputs. Proper handling of input materials ensures the smooth running of plant. Material department recognizes the need of the input materials and arranges them for the plant. It includes the procurement, verification and controls of materials in right quantity and at right time to facilities the production function. Material management includes two important functions: Purchasing Storing and control of materials

Thats why; it is divided into following sections: Purchase section ( It is responsible for purchasing of materials ) Store section ( It stores the inputs)

These both sections are interrelated and perform their function on coordination. All purchases are to be made only by the materials department except purchases of petty item through some vouchers and Department Managers within the limits prescribed in purchase procedure/power of officer. Material purchase indent should give following information:

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1) Quantity in stores 2) Average monthly consumption since last purchase for stock items 3) Maximum /minimum level 4) Last purchase order reference 5) Reorder level

PURCHASE SECTION
The purchase department is at the interface of internal and external department. Purchase department do enquiry about the inputs whether it is required or not. This enquiry is done in two ways that are: 1) Single stage 2) Two stage After enquiry purchase department invites a tender. After confirmation of all terms and conditions the department contacts the supplier and orders for the inputs. Thus it is responsible for purchasing of materials and other raw materials whatever is required by the organization. Purchase department is responsible for the delivery of right amount of material at the right time and at the right location to avoid the hampering of the production. The purchase department considers various things before purchasing the raw materials. 1. Information about the input material 2. Sources of material- vendor 3. Reasonable price of that material 4. All terms and conditions Indenter is that person who raises the indent.

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PURCHASE PROCESS
The purchase process can be expressed as following:

INDENTER

Material Purchase Requirement (MPR) Single stage Enquiry Two stage

E- Procurement (15 days)

Manual (21 days)

Opening

Quotation Comparative Statement (QCS)

Technically Acceptable L-1 Bidder

Order (With approval of competent authority)

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The diagram can also be summarized as follows: 1) RAISING OF INDENT: First of all the indenter raises the indent. This indenter may belong to any department. Now the indenter informs to the store. If that particular material is not available at the particular point of time then store informs to the purchase department. After it the working of purchase department starts. 2) RECOGNITION OF NEED: The purchase department recognizes the need of indenter and checks whether that material is available in the store or not. The availability of input material at all points of time is the responsibility of purchase department. 3) REQUISITION TO PURCHASE: This is an intimation to purchase department by the indenter that he has need of certain materials. He raises indent by filling a form Material Purchase Requisition (MPR). For stock items MPR is raised by store keeping in view maximum, minimum & re-ordering lable. In this he gives several information like:a. Material description/ Proposed Reason b. Item code/ proposed code c. Unit d. Quantity required e. Value f. Budget code g. MPR No. h. Indenter 4) MRP SCRUTINY: Next step involves scrutinizing of the MRP to certified the genuinely of the need, for this, first approval to given by immediate higher authority of the indenter. Next, the MRP is send to the stores, to check whether the material is

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available or not. If it is not available the MRP goes to the purchase department. For further action. Here it is scrutinize in three ways : Approval scrutiny Budget scrutiny Technical scrutiny

5) SENDING or ENQUIRY/INVITATION TO BID: Enquiry can be done by two

types: I. II. Single stage Two stage

SINGLE STAGE: Single stage is followed when there is no or very few chance of technical deviation. Here there is no restriction on supplier or vendor. This enquiry is done in case of nonproprietary items.

TWO STAGE: Two stage enquiry is followed when there is more chances of technical deviation. This enquiry is done in case of proprietary items. Items can be classified in to two categories keeping in view the purchasing function Proprietary items: These are those items e.g. spares which have to be bought from particular supplier or vendor.

Nonproprietary items: These are those for which there is no restriction on vendor.

Enquiry is sent in order to know the prices and other terms and conditions of vendors. Bidding can be done in three waysI. Proprietary bidding: This is for the proprietary items and is sent to only one vendor. Here the proprietor is invited to set a competitive price.

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II.

Limited tender enquiry: This is done for non proprietary items and bids are invited from a limited no. of vendors selected from the registered vendors with the company.

III.

Press tender/Open bidding: For non prosperity item, if approved vendor list is not available and amount involved in purchase is more than fifty lakh then press tenders are issued in various news papers. There may be global tenders also. However if estimated value of enquiry is less then fifty lakh, the vendor list shell be developed with the approval of Competent Authority

6) Receiving of offers: Bids are received by purchase department and opened on the date and time stipulated in the document before tender committee to compare the quotationsQuotations comparison statement (QCS), of technically & commercially acceptable bids, is made and bid with lowest landed cost is chosen. QCS is also sent to the technical department for its comments. Work Order/Rate contract can be given to more than one bidder as per requirement & terms of ITB but on the L-1 bidder rates.

7) Purchase order: After selecting the best offer, purchase order is sent to that vendor with all the terms and conditions specified and details of the material to be purchased are also given. A bank guarantee of performance is taken from the vendor in advance which is usually 5% of the P.O.A. time limit is set for delivery of consignment and in case of delay a penalty is imposed @ 0.5% of P.O. per week to the maximum 5% of the P.O.A.

8) Receipt of materials: After the consignment reaches the stipulated place, the payment is done by the organization according to the purchase terms agreed upon by the two parties. The material is checked for quality conditions, quantity and then sent to the store where the store releases the Stores Receipt Voucher (SRV). From here it is delivered to the indenter. Normal payment is done after 30 days from the receipt or acceptance of material.

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9) Follow up done for every order: It may be regarding delay in supply, changes in price, defective or damaged items supplied etc. For every indent, a separate file is opened and correspondence goes on. For every step, recommendations of indenter, manager (F&A), materials manager & general manager are sought. In case of damaged input materials the store does not accept the materials. A rejection report is prepared in case of damaged items.

PAYMANT AGAINST PURCHASE:

There are various modes of payment through which payment is done:

1.

Advance payment to supplier :

If both the parties are agreed upon advance payment that is specifically provided in

the contract order, only then advance payment is given. The advance payment to contractors shall be made against submission of bank guarantee in the Performa provided by IFFCO. Advance payment against indemnity bond shall not be released as provided in the purchase procedure.

2.

Full payment / 90% to 95% payment :

In case the terms of payment provide for full payment or part payment against dispatch documents through bank, the supplier will be negotiating the documents through the bankers. After the documents are received by the bankers, they are forwarding bank intimation along with a copy of the purchase order to ascertain that the invoice is raised for the material ordered and conforms to the other terms and conditions of purchase order. After the intimation from the bank is received the invoice of the suppliers will be scrutinized by the Finance and Account Department for the followingi. ii. Purchase order number Whether materials supplied are as specified in the purchase

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iii. iv. v. vi. vii. viii. ix.

Whether materials supplied are as specified in the purchase order. Quantity supplied. Price basis whether F.O.R. or Ex-works Whether excise duty, sale tax and other taxes are as per the order. Whether bank charges are claimed as per the purchase order. Other terms and conditions of the purchase order. Document with bank for retirement should have consignee copy of GR. Where there is delay in supplying the material and the payment through bank is

90% to 95%. It should be ensured that penalty for delay, as provided in the purchase order, is recovered before releasing the balance payment. Where payment required to be made, a clarification is to be sought from materials department and proper approval taken for waiving of penalty or otherwise before retiring documents. The payments under the contracts must be regulated as per the expressed terms and conditions. Any payment not covered by the contractual terms and conditions should not be released.

3. Full payment / Balance payment after receipt of materials :

In case the purchase order provides the 100% payment after receiving of materials and accepted payment is to be released after the SRV is received from the stores department. In case 95% or 90% released against document retired from bank then the balance payment can be released after receipt of SRV from store, which confirms that the material has been accepted after inspection and taken on charge. Before released of the payment, the invoices should be scrutinized as the case of payments released through bank. In addition it should also be verified whether all the items invoiced have been received, inspected and accepted as per the SRV.

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DELAY IN DELIVERY
In any contract, the time and date of the delivery is the essence of the contract. In the event of delay in the execution of the order beyond the date of delivery as stipulated in the order, the project authorities may take following actions 1. Accept delayed delivery at price reduced by a sum equivalent to 0.5 % if the value goods not delivered for every week of delay or part thereof limited to a maximum of 5% of the contract value. 2. Cancel the order in part or full and purchase such cancelled materials from elsewhere on account and at the risk of the suppler without prejudice to his right inspect of goods delivered.

Inspection of Material
The material department shall coordinate with other departments and arrange inspection of material at vendors shop prior to dispatch. Inspection of materials in other cases shall be carried out on receipt of materials at site. Only materials those cleared by the inspection will be taken on charge in stores. The person inspecting the material will sign on the stores receipt voucher in token of having inspected and accepted the material. Generally indenter is called upon for the inspection of the material. Sometimes inspection is done at the gate of IFFCO. Only after inspection material enters into the store. If there is any damage in the material or they are insufficient in quantity then rejection report is prepared. Its copies are distributed among all the parties which are involved in it.

Damaged/Short/Rejected Materials
If the materials are received short or in damaged condition, there are some conditions in this regard. In cases where the responsibility for the transit insurance is on IFFCO, a claim should be lodged with insurance company for the value of material plus incidentals. This insurance is done by IFFCO TOKIO GENERAL INSURANCE COMPANY. As soon as the

41

shortage per damage of the materials is noticed the material department will lodge the provisional claim with the underwriters and pass on the relevant papers to the finance & accounts department for lodging monetary claim.

In respect of transit insurance claims bill section will pass an adjustment Entry debiting claim recoverable account and credit the Advance to Vendors account. After the adjustments the bill section sent the copy of journal voucher along with all necessary details such as P.O. No. , MRR No. quantity and value, name of the supplier to the insurance section for following up the claim with the insurance company. Where the responsibility for short supply or damages in transit is of the suppliers, the material department should take up the matter with the supplier for arranging replacement. A report is prepared in this case. Its copies are sent to the supplier, purchase department and finance and account department.

Accounting of Raw Materials

Based on the projected consumption requirement of raw materials, the procurement action is taken by the commercial department at the head office which is in Delhi. Described below is the accounting requirement of major raw material.

Imported Phosphoric acid and Ammonia

The consignment of phosphoric acid and Ammonia are received at Kandla and the material actually received is valued at the contracted cost & freight price. Where free on board (FOB) price is agreed, the ocean freight element is loaded separately. All connected expenditure like customs duty; handling charges etc. are also included in inventory valuation.

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The valuation of inventory at the month end is to be made on the basis of exchange rates prevailing on the last day of the month. The difference if any between the provisional rate and the actual payment rate shall be charged off to the consumption account, if the material is already consumed.

The account department also ensures that all claim suppliers for shortage are booked on monthly basis and necessary on quarterly basis for the pending claims.

Indigenous Ammonia
The indigenous ammonia is supplied by KRIBHCO / GNFC to Kandla unit. The quantity received is accounted at the price payable to the party which is fixed by the Govt. of India. This price is fixed at par with the landed cost of imported ammonia.

Potash
Potash purchase orders are placed by the commercial department time to time depending on the material requirement. The material received valued at agreed price plus local sales tax and freight for transportation of material up to plant site. The finance department at head office ensure that payment for these raw materials are released on due dates to avoid interest liability. After releasing the payments the inter unit debit advice is sent to plant. On receipt of the payment advices the suppliers account is adjusted in the plant.

Natural Gas
Kalol, Phulpur and Aonla plant consume as feed stock and fuel. As per the contract with ONGC, gas is supplied to IFFCO at the price fixed by Govt. of India from time to time. The meters provided at the inlet point in the plants are the basis for monthly billing. Meter reading is carried out jointly by ONGC / GAIL and IFFCO representatives. The unit sends the e-mail to head office for making payment to ONGC / GAIL after due certification of bill by the head of technical department about quantity of gas received.

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Naphtha
Naphtha is supplied by IOC against advance payment terms. There are excise duty concessions available for these items provided they are consumed for manufacture of fertilizers. Accounts department in coordination with production department shall ensure that all the excise duty requirements are fulfilled that the duty concessions are fully availed. The inventory is valued based on the quantity received as per MRR received from production department on monthly basis. The price payable to IOC for naphtha is fixed by the Govt. from time to time. The naphtha is supplied by IOC from its refiners located at Mathura, Koyli, BRPL, Panipat & Bagoun to Kalol, Phulpur & Aonla units.

Catalysts & Resins

The Catalysts & Resins are produced by the material department at the plant; on the receipt of the material the inventory is valued at the agreed price. For Catalysts & Resins where IFFCO has pooling arrangement with other companies, the material received is taken to inventory at the actual price paid and equivalent amount is credited to material received on loan account. This entry will be reverse when the material is procured by IFFCO and replenished for return of loan. The inventory and consumption account then shall be accounted at the actual procurement price.

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STORE SECTION
Store of any organization is of vital importance. It is the responsibility of stores to receive the material required by the organizations operations to keep it properly & to issue it as when required. The stores are divided in two subsections for greater flexibility like receipt and custody section. In IFFCO there are two stores. a. Store A for Aonla-1( this store contains that spares which are used by Aonla-1) b. Store B for Aonla-2 unit.( it contains mainly catalysts used by Aonla-2 ) Store has the following warehouses: Main Store Cement godown Petrol Pump Cable yard Chemical godown Paint godown PDIL store

A.

RECEIPT SECTION This section is responsible for receiving the materials and inspecting them. The

process involves following steps. 1) The document regarding the material may be sent to the stores, purchase, concerned department. But ultimately they have to be send to stores. The documents may be: 2) Goods receipt / railway receipt / challan Form 38 Excise duty Toll tax

The particulars of the document are noted in the carrier receipt register (CRR).

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3)

After the entry in the register, the document is given to an agent termed as handling contractor. He will collect the material. Consignments cases are intact. If not he will ask for open delivery. Then he has to deliver the goods to stores. In case of damage he has to give a certificate. Some consignment may receive without document i.e. door delivery and is some cases it may be face to face delivery.

4)

5)

If any discrepancy is found during checking, the accounts section is informed for necessary action and getting claim from insurance company. The date of receipt is filled in CRR.

6)

The next operation is filling the stores receipt vouchers (SRV). Here the quantity mentioned in challan and purchase order are compared, SRV Has 7 copies, two for accounts and one for each purchase, stores, indenter, master file & custody section.

7)

Inspection is done by the indenter: Suppose all items are accepted then the material is handed to custody section after putting identification & giving a SRV control number. If some items are defective then the accepted items will be sent to custody and for defective ones, information is sent to supplier, accounts, indenter & insurance company and the particulars noted in rejection register. If there is some breakage then either item may be replaced by company or claim against insurance is obtained, when an item is replaced, its dispatch advice is made.

8) Direct charge SRV (DCSRV) is prepared when indenter wants material directly from receipt section.

B)

CUSTODY SECTION This section is responsible for proper keeping of materials and issuing them when

required by different department and contractors. The material received here is first checked as per SRV for every material there is a card. These cards are located in bins according to code of material is received in custody the card information is updated. When someone wants to issue certain material he has to fill the store issue voucher (SIV). Once the item is issued again information is updated in the kardex. When a particular part is returned then this received in stores by internal stores return voucher (ISRV). After

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issuing the material the number of issue and the quantity issued is noted in SIV control registers. Custody section takes care of spares. SPARES About 36848 spares of Aonla Unit-1 are housed in store and 17799 spares of Aonla Unit-2 are housed in store. Spares have been classified plant wise. The first digit of the code of item is numbered according to given criterion Ammonia Urea Product handling Power Sp. Equipments General items

In IFFCO inventory is divided into two types: i. ii. General and Spares General are those inputs which can be used at various sites as wire, pipe etc. Spare are those inputs which are specific to a particular plant and are of particular size.

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ABC CLASS WISE LIST OF PHYSICALLY VERIFIED ITEM

AONLA UNIT -1

Verified A Class B Class C Class Unclassified Total in the General Spare General Spare General Spare General Spare General Spare year 2000-01 2001-02 2002-03 2004-05 2005-06 2006-07 2007-08 0 0 0 0 0 0 134 0 Total 134 0 0 0 0 1 0 402 0 403 0 0 0 22 72 49 384 23 550 0 0 0 20 122 0 630 112 884 0 7 3 8323 3512 41 3982 229 16097 1 1 6 0 0 0 0 0 0 0 0 0 0 1876 1876 0 7 3 8345 3584 90 4500 775 17304 1 1 6 10401 1400 0 5104 2631 19544

10381 0 1277 0 4072 613 0 0 0 523

16381 523

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ABC CLASS WISE LIST OF PHYSICALLY VERIFIED ITEMS AONLA UNIT-2

Verified A Class in year 2001-02 2002-03 2004-05 2005-06 2006-07 2007-08 the General Spare General Spare General Spare General Spare General Spare 0 0 0 0 0 134 0 Total 134 0 0 0 1 0 389 0 389 110 0 0 0 0 257 0 367 271 0 0 0 0 626 0 897 203 2 2713 1185 13 1428 159 5703 393 11 5353 311 4 2204 219 9055 0 0 0 0 0 0 139 139 0 0 0 0 0 0 1115 1115 313 2 2713 1185 13 1819 298 6343 664 11 5353 811 4 3279 1334 11456

B Class

C Class

Unclassified

Total

ACCOUNTING FOR STORES

General Outline of stores Function: a. The authority of receipt, store and issue of all material is centralized in the materials department subject to exception in permitted in certain cases. In certain cases a nominal stock of few consumable items can be permitted with uses departments such as maintenance, laboratory and administration department for meeting emergencies. In addition certain chemicals are permitted to be stored in production department due to the operational needs.

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b. The authority of storage of packing materials like bags is vested with bagging department. The bagging department receives the material, gets it inspected in laboratory, issued the same for product bagging and maintains the stocks.

c. Maintenance of records for all quantitative transaction of packing material is the responsibility of bagging department. Similarly the raw materials are handled by production department with all responsibilities in respect of quantity accounting.

Functions of Store Accounting Section

The section dealing with accounting of stores in the finance department shall have following functions:1. Accounting of receipts, issues, return and transfer of materials. 2. Accounting of imported materials for capital works and operations. 3. Associating with stores section for stock verification. 4. Valuation of stores items should do on weighted average basis.

Receipt /Issues/ Returns Transfer of Materials

a) The second copy of the material receiving reports after pricing, shall be passed on to the stores accounts sections to scrutinized the same with reference to store item code quantity of measure etc. and process it for accounting of receipt of materials. After issue / return of materials, issue section of stores department arranges data entry on the daily basis. Checklist processed is sent to stores accounting section for scrutiny in respect of store item code, cost / service code, expense code and unit measure etc.

b) The corrections and financial and financial adjustments are made to arrive at final check list after scrutiny of final check list entry in priced store ledger is to be processed. The section shall ensure that all receipts, issues and returns / transfer voucher raised by the stores section are finally posted in the price store ledger.

c) For clearance of imported materials, amount deposited for custom duty in the PD account etc. Shall be cleared against individual MRRs on receipt bill of entry

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d) The issue notes shall be priced on the weighted average rate basis after accounting the last receipt of material.

e) After ascertaining the nature of expenditure, the job for which material is issued; an appropriate account code shall be given in accordance with the chart of account.

f) In case of material like steel plates etc. where materials are received on actual weight basis and the issues are accounted are on theoretical weight basis as per sectional measurements, the quantity accounting shall be kept on weight basis. The difference in quantity in weight basis, if any, shall be adjusted to revenue / capital account, as then case may be, in consultation with consuming department, in case the shortage is more than the consumption norms, the same should be recovered from the contractor.

g) For all issue notes relating to works contracts, one copy of the price issue notes may be sent to the work accounts section to enable them to debit the contractors account. A monthly abstract also be prepared and passed on to works accounts group for check.

h) Details for receipts and issue of materials received / issued on loan shall be maintained by the store account section loan transactions shall be approved by the competent authority. It is the responsibility of material department to take action to square up the transactions within the reasonable time.

i) Inter unit transfer of material shall be accounted at cost basis freight and other incidental charges shall be borne by the transferee unit.

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j) Materials issued to contractors shall be priced at the monthly weighted average rate and debited to materials issued to contractors account. The accounting for the difference between issue price and recovery price provided in the contract shall be cleared by the accounts section dealing with the works. Recovery should be predefined basis and must be uniform.

k) For material returned to stores, return note shall be priced by the stores accounting section at the same rate which it was issued and the Value shall be debited to the relevant code of stores and spares parts inventory accounts by credit to the cost center / job number where the material is received back. The return note shall be priced on the basis of the original issue requisition against which the material was drawn if such reference is available, otherwise the same should valued at the prevailing average monthly rate applicable to that material.

l) No material shall be transferred to one card to another card without giving proper information to the stores account section. Such transfers shall be made by means of a transfer voucher on receipt of such transfer voucher and pass adjustment entries by debiting and crediting respective accounts.

m) Under the mechanized system of store accounting, all documents, such as MRRs issue notes return notes and transfer vouchers shall be sent to the EDP section after exercising the prescribed checks. The EDP section shall prepare the all accounting abstracts with the summary figures with monthly journal entry. In addition, it shall prepare the priced store ledger. Ledger abstract for all items transacted during the month giving the opening stock, receipts, issues and past closing balance shall also be prepared. A copy of this statement shall be forwarded to store section for verification of the bin card balances. Discrepancy if any shall be reconciled by the store section with the stores accounts section.

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n) The price store ledger balance for each category store shall reconciled value wise with the control account balance in the ledger wherever possible. The accounts section shall draw out reconciliation on monthly basis. After reconciliation a monthly material consumption statement, cost center wise, is prepared and circulated to concerned department by the 10th of following month for verification of its correctness and for monitoring the budgeted expenditure, if any discrepancy is reported, the same is adjusted in the ensuring month.

Insurance of Stock & Stores

For stocks of ammonia, naphtha, general stores, bags, phosphoric acid, and finished products held at plants, insurance shall be taken to cover the risks arising out of fire explosion, riot, strike terrorism, malicious damage, earthquake, etc. The stock of finished products lying at different marketing warehouses should also be adequately covered through the warehousing agencies. According to the value of stores and finished products keeps on varying from time to time, insurance shall be obtained in the form of declaration policy whereby the average daily stock for each product held during the month shall be declared to the insurers in the first week of the next month. According to the declaration policy, the insured amount for each product shall be stated separately. The liability of the insurers is limited to the insured amount. At any time if it is found that the actual stock is more than the insured amount to avoid less amount of insurance. In case of a declaration policy, insurance premium is payable for minimum 35 % of the insured value. Before insurance is obtained, various categories of stores shall be reviewed with a view to select such items for which insurance is considered necessary.

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Verification of Inventories
The officer of stores will coordinate the job of physical verification and the accounts officer in charge shall render all assistance to ensure that the physical verification of inventories is carried out as per the policy and the policy and the approved program. The store department will ensure that the posting in the Kardex are updated before the verification of inventories. Kardex contains all the information that is in the store. The inventories are classified in three categories for verification purpose. Raw material & Packing materials Stores, Chemicals & Spare parts Finished products

The stocks of raw materials, packing materials and finished products are to be verified on quarterly basis by an independent surveyor by the society. No adjustments need be carried out in the books of accounts unless the discrepancies in liquid raw materials and solid raw material are in excess of 1% to 5% respectively. This is as per guidelines issued by the head office. In case of finished goods also the same principle applied except that no adjustments in the books of accounts shall be made. However the stock registers shall be adjusted on the basis of actual stock in order to replace the notional figures of stocks by more accurate estimate based on physical verification. The inventories for other items such as stores, spares, construction materials etc. are also verified every year keeping in view ABC analysis of stock items value and exercise of verification may be completed by March every year. For the purpose of verification of stores, chemicals & spare parts shall be classified in to A, B, C categories.

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Categories A B C

Value (Rs. per unit) Above Rs. 50,000/10,001 to 50,000/Below Rs. 10,000/-

Quantum of Verification 100% 70% 25%

A team of stock verifiers shall prepare a stock verification sheet giving the kardex balance and the physical balance of each item covered in the stock verification. After filling up the particulars of the value and quality discrepancies with reference to the priced stores ledger balance, the stock verification sheets shall be forwarded to the materials department for scrutiny and reconciliation and adjustment in consultation with finance department accepted shortage shall be processed for the approval of the competent authority.

RECONCILIATION AND ADJUSTMENT

After each physical verification by the custodians of inventories and suitable adjustment action has to be taken. It is desirable to complete the physical verification work by March every year so that reconciliation/adjustment action can be completed within the year itself.

Internal Check
1) One set of document for receipts, issues and return of materials shall be sent to the

accounting section of finance department. Based on these documents, priced store ledger shall be prepared for each item for stores. The material code number between stores and accounts shall be identical. The priced store ledger shall provide value of each receipt, Issue and return transaction along with quantity ledger. The quantity balance appearing in priced store ledger shall serve as counter check for accuracy of bin card balance in store which is essential for proper functioning of inventory control system

55

2)

The priced store ledger shall not be maintained for large number of low value items

such as stationery, medicines, canteen stores etc. in this case the expenditure shall be charged to the appropriate expense account at time purchase. Quantitative record shall be kept by the concerned department and shall be produced as and when required for audit purpose.

Inventory Control
Inventory control is concerned with minimizing the total cost of inventory. The three main factors in inventory control decision making process are:
a. b.

The cost of holding the stock (e.g., based on the interest rate). The cost of placing an order (e.g., for row material stocks) or the set-up cost of production.

c.

The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand. The third element is the most difficult to measure and is often handled by

establishing a "service level" policy, e. g, certain percentage of demand will be met from stock without delay. The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations. Inventory control is a systematic control and regulation of purchase and usage of materials in such a way so as to maintain an even flow of production at the same time avoiding excessive investment in inventories. Efficient material control reduces losses and wastage of materials that otherwise pass unnoticed. Inventory control is the core of material management. The need and importance of inventories varies in direct proportion to the idle time cost of men and machinery, and

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urgency of requirements. If men and machinery in the factory could wait and so could the customers, materials good not lie in want for them and no inventory need to be carried. But it is highly uneconomical to keep the men and machine waiting and the requirements for modern life are so urgent that they can not wait for materials to arrive after the need for them has arisen. Because materials constitute a significant part of the total production cost of the product. Thus, cost is controllable to some extent; proper planning and controlling of inventories are of great importance. If investment in inventory will be more then the company has to bear carrying cost and that finance cannot be utilized. A good inventory management policy should ensure smooth and uninterrupted supply without making unnecessary investment of funds in inventory. This requires that inventory management policy must balance the requirements of the following two opposing and conflicting ends: i) ii) To maintain a large quantity for smooth operation and efficient customers services. To maintain only a minimum possible inventory because holding costs and opportunity cost of funds invested in inventory.

OBJECTIVES OF INVENTORY CONTROL

Scientific control of inventories should serve the following purposes: 1) To provide the continuous flow of required materials, parts and components for efficient uninterrupted flow of production. 2) To minimize investment in inventories keeping in view operating requirements. 3) To provide for efficient store of materials so that inventories are protected from losses by fire and threat and handling time and costs are kept at minimum. 4) To keep surplus and absolute items to minimum. 5) To protect the inventory against deterioration, obsolescence and unauthorized use. 6) To ensure that finished goods are available for delivery to customers just to fulfill the orders.

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TECHNIQUES OF INVENTORY CONTROL

Reduction of surplus stock is an essential requirement inventory control. Various techniques are available to solve the various types of problems associated with inventory control:1) Min-Max plan 2) Order cycling system 3) Fixation of various levels 4) Use of control ratios 5) Review of slow and non-moving items 6) The ABC Analysis

1) Min-Max plan:
In this plan analyst lays down a maximum and minimum for each stock item. Minimum level establishes the reorder point and order is placed for quantity of material, which will bring it to the maximum level.

2) Order Cycling System:

In this system, quantities in hand of each item or class of stock are reviewed periodically. In that, if it is observed that stock level of a given item will not be sufficient till the next schedule review keeping in view of its probable rate of depletion, an order is placed to replenish its supply.

3) Fixation of Various Levels:

Certain stock levels or fixed levels are given below:-

A). Maximum Level

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It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity exceeds maximum level limit then it will be overstocking. Maximum Level = Re-ordering level + Re-ordering Quantity-(Minimum

Consumption*Minimum Re-ordering period)

B). Minimum Level

It represents the quantity of stock that should be held at all the time, stock level is normally not allowed facing below this level. Minimum Level = Re-order level (Normal consumption*Normal Re-order Period)

C). Safety Level Normal issues of stock usually stopped at this level and made only
under specific instructions. Safety stock is a buffer to meet some unanticipated increase in usage. Safety stock level = Ordering Level (Average rate of consumption * Re-order level) OR = (Maximum rate of consumption Average rate of consumption) * Lead Time.

d). Re-ordering Level

When the quantity of materials reaches at a certain figure then fresh order is sent to get materials again. Re-ordering level = Maximum Consumption*Maximum Re-order period. 4) Use of Control Ratios: Inventory turnover ratio helps management to avoid capital being locked up unnecessarily. This ratio reveals the efficiency of stock keeping . Inventory turnover ratio =Cost of materials consumed / Cost of average stock held during the period Where,

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Cost of average stock = [Cost of opening stock + Cost of closing stock] / 2

Inventory turnover ratio [in days] =Days during the period /Inventory turnover ratio.

5) Review of slow moving and non- moving items:

Stock turnover ratio should be as high as possible. Loss due to obsolescence be eliminated or these items used in some profitable work.. Slow moving stock should be identified and speedily disposed off. The speed of movement should be increased. The turnover of different items of stock can be analyzed to find out the moving stocks. The percentage of slow moving stores = Slow moving stores / Total Inventory

TECHNIQUE USED IN IFFCO FOR INVENTORY CONTROL The ABC Analysis:

With the numerous parts and materials that enter into each and every industrial production, inventory control leads itself, inventory and foremost, to the problem of analysis. Such analytical approach is popularly known as ABC (ALWAYS BETTER CONTROL) Analysis. This Plan is based upon segregation of material for selection control. It measures money value i.e. cost significance for each materials item in relation to total cost and inventory value. The logic behind is that the management should study each item of stock in terms of its usage, lead-time , technical or other problems and its relative money value in the total investment in inventories. Critical, i.e. high value items deserve very close attention, and low value items need to be devoted minimum expense and effort in the task of controlling inventories.

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The ABC Reports are made: A inventory reports lists parts having little or no turnover. Turnover frequency is measured by an exposure index. We calculate the index by dividing a parts inventory quantity by its usage during the most recent 24 month period. B report shows the parts with more than a one year supply but less than a 2-year supply. C report lists the parts with more than six months supply but not more than one year.

Criteria For Judging The Inventory System

While the over-all objectives of the inventory system is to minimize the cost to the firm the risk level acceptable to the management, the more proximate criteria for judging the are:

Comprehensibility Inventory system range from the utterly simple to the complex ones. Irrespective of how simple or how complex a system is, regardless of whether it is automated or manual, it should be clearly understood by all affected parties. The system must be properly explained to all concerned people so that its purpose, logic and rationale are transparent.

This generates enthusiasm for the system and enhances its credibility. Otherwise it is likely to be perceived as a mysterious Black box of dubious value.

Adaptability The questions raised in this context are: 1. Is the system responsive to change? 2. Can new products, new situations and new requirements be handled by the system?

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A certain degree of flexibility and adaptability must be desired into the system to make it versatile. Of course this cannot be and this should not be carried too far. The system must not provide for every possible and imaginable contingency. If it is developed with this ideal, it is likely to be a complex monstrosity. Remember the caveat that the design of any system should ordinarily take care of about 90% of the cases, leaving the balance 10% to be handled by hand. Timeliness Inventories may suffer loss in value on account of a variety of factors. The more common sources of value decline are: Obsolescence caused by changes in technology & shifts in consumer taste. Physical deterioration with the passage of time. Price fluctuation because of inherent volatility of certain commodities

The inventory system should be capable of inducing timely action. It should provide adequate forewarning which triggers appropriate corrective steps

Inventory Software
In IFFCO the PSL software is used for the management of inventories. This software holds all the transactions of the stocks. So this software helps much in maintenance of stocks. It makes very easy to account persons to maintain the transactions of inventories. A part of this software is installed on the systems of the stores, whenever a transaction is made in the store, the details of that transaction is reaches to the systems of the store accounting section, because both the systems are connected in the local area network (LAN). So with the help of LAN environment it is very easier to accountants to retrieve the information regarding the transactions made by the stores. Apart from this, this software has the variety of qualities which we can discuss with the help of menus of software. There are six different menus in this software these are as follows: i. ii. Data entry Queries

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iii. iv. v. vi.

Reports Processing Calculator Exit

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DATA ENTRY MENU

Data Entry

Document entry

Adjustment SIV

SRV SIV ISRV SAV STV (IN) STV (Out)

Adjustment ISRV

Physical Verification Entry Entry of Surplus/ obsolete/ Insur.

The very first menu that is data entry is used for the various types of entries of transactions. In the data entry menu there are several options shown in above diagram.

Document Entry:
This option is used to enter the data in various types of documents like SRV, SIV, ISRV, STV (in), STV (out) etc.

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Adjustment Entry:
With the help of this option we may easily make the adjustments in the stock issue voucher (SIV), due to any previous adjustment. If the value of material has wrongly feed in the documents or the valuation is high then it is used to decreases the value of that material.

Adjustment ISRV:
This option of data entry menu has the same working in issue stock return voucher (ISRV). This is used whenever the valuation of any material has to increase. Thus easily adjustments are made.

Physical Verification:
In case of verification of stock the person responsible for stock verification estimates a range of items for verification and after verifies the selected range of items, they punched the quantity verified or lock the verified quantity till the next verification.

Entry of Surplus/ Obsolete:

This option is used for adjust the surplus items which is declared by the plant. The surplus items means, the items which are exceeds from the records. So in case of this situation the accountants make entry @ of 1 Rupee per unit of items. There are some spares which are not in used. We give entry them in surplus. While the spares which are not in working condition or they are outdated, comes under obsolete items.

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REPORTS MENU

Reports

Summary account head wise Month Report before PSL runs PSL JV Month Report after PSL runs Inventory Consumption Kardex Code wise inventory status Yearly summary for HO Issue above Issue more than Other reports

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Summary A/C head wise:

This option creates the summary reports of all the A/Cs in respect of accounts heads like Inventory spares (Ammonia, Urea etc.) Loose Tools Chemicals General Stores Construction Materials etc.

Monthly report before PSL runs:

This option creates the monthly report of all the documents like SIV, ISRV, SAV, STV (in), STV (out) etc. so that the account persons may check whether the documents are correct or not., because if there is any mistake in any document and PSL run is performed it will create the wrong final reports.

Monthly report after PSL runs:

The working of this option is same as the previous option but the difference is that the reports made after the PSL run are more accurate updated and non volatile in nature.

PSL JV:
After processing of PSL run all the documents becomes updated and all the transactions also gets updated. So that by this option we can see all the journal voucher of the entries of inventories.

Inventory consumption:
This option of the report menu shows the data regarding the consumption of materials according to the date. We can see the consumption of a particular item. This report

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helps in forecasting of material purchasing for the future consumption of the materials. It helps in deciding the re-order level of inventory.

Code wise inventory status:

This option creates a report inventory code wise. We can create report for selected codes. This code is of 12 digits in the IFFCO.

Kardex:
The kardex is the very useful tool for showing the current status of all the items. Kardex shows the update inventory and also shows the past status of every past tears. The accountant may see the past status as on any past date. The kardex retain all information about the material. As when the material was received i.e. receipts, when the material was issued i.e. issues, its balance in the store, vendor, its current stock, its value, location in the store and as well as its minimum, maximum and reorder level. Thus it reserves every information about the materials.

It is in form of a software in IFFCO. Here I have given a example of kardex in which each detail of material is written. It is as follows.

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QUERIES MENU

Queries

Brows Inventory Master

This menu has single option that is brows inventory master. In this option we may see the status of various materials or items. As the name of this menu, we can perform the query task, on the basis of material codes, that are of twelve digits number. This option is very helpful in search of any particular transaction in inventories. In a query task we are supposed to enter the material code in the material code box and then click over the retrieve button. As soon as we click over the retrieve button the whole in formation regarding that code is appears on the screen. The appearing statement contains the material code, material description, opening quantity, closing quantity, values, PSL rate that is the per unit price and also the location of that material.

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PROCESSING MENU

Processing

Weekly PSL proc.1

Put account INVMAST

group

in

Reverse stock for Physical Kardex mismatch

Cumulative process

Reverse stock for PSL Kardex mismatch PSL Process 1

Processing is the most important task of this software, because all the reports which are forwarded to the concerning authorities and are the basis for the further actions are made only after the processing or the PSL run. PSL processing makes update all the documents.

PSL Process I:
The option process I update and calculate the values for all documents and makes available to create the final reports. Once a PSL run is processed the data can not be changed, So that this task is very sensitive so the operating person should have the great care

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and responsibility in processing task. PSL Process is done for tallying codes and value of the material.

Put A/C group in inventory Master:

This option also a processing task when we executes this option it assigns the account group to all the inventory / item codes so that these codes may link to a particular account group. In this inventory are grouped.

Reverse stock for PSL kardex mismatch:

It is very important processing because it creates a list of all the items which are mismatching in respect of units / quantity between the PSL and kardex. If there is any mismatch in PSL and Kardex the report shows those mismatches on the screen.

Reverse stock for physical kardex mismatch:

This option creates a list of mismatches of karedx and physical verification. This processing performed once in year, because the physical verification of the inventories is done once in a year.

Calculator & Exit Menus

The calculator menu has no sub option we can use the calculator only by clicking on the calculator menu. It helps much in manual calculations make the surety of correctness. Apart from this the exit menu is simply for quitting the software, whenever we click over the exit menu it exits from the software.

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RATIO ANALYSIS OF IFFCO

A ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. One of the most important financial tools which have come to be used very frequently for analyzing the financial strengths and weaknesses of the enterprise is ratio analysis. Ratio analysis as a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. Financial ratios are calculated from one or more pieces of information from a company's financial statements. A financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. A ratio gains utility by comparison to other data and standards. Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of some of the categories of ratios is given below.
1.

Leverage Ratios which show the extent that debt is used in a company's capital structure.

2.

Liquidity Ratios which give a picture of a company's short term financial situation or solvency.

3.

Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets.

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4.

Profitability Ratios which use margin analysis and show the return on sales and capital employed.

5.

Solvency Ratios which give a picture of a company's ability to generate cashflow and pay it financial obligations.

Ratios are always expressed as a decimal value, such as 0.10, or the equivalent percent value, such as 10%. Financial ratios allow for comparisons

between companies between industries between different time periods for one company between a single company and its industry average

HOW A RATIO IS EXPRESSED?

As Percentage - Such as 25% or 50%. For example if net profit is Rs.25, 000/- and
the sales is Rs.1, 00,000/- then the net profit can be said to be 25% of the sales.

As Proportion - The above figures may be expressed in terms of the relationship

between net profits to sales as 1: 4.

As Pure Number /Times - The same can also be expressed in an alternatively

way such as the sale is 4 times of the net profit or profit is 1/4th of the sales

VARIOUS RATIOS FOR IFFCO

1) Inventory Turnover- This ratio indicates the number of times the inventory is
rotated during the relevant accounting period. This ratio is also called as stock turnover ratio or stock velocity. This ratio is calculated to consider the adequacy of the quantum of capital and its justification for investing in stock or Inventory. Inventory turnover is

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used to measure the efficiency of sales. Inventory turnover is the number of times obtained by dividing turnover by inventory.

Inventory Turnover ratio-

Turnover Inventory (Rs. in crore )

Particular Turnover Inventory Inventory Turn. Ratio

2007-08 12162.82 1577.10 7.71 times

2008-09 32933.30 1731.36 19.02 times

Interpretation:- It is revealed from above table that the stock turnover has been increased
to 19.02 times in the year 2008-09 as compared to 7.71 times in the year 2007-08. It shows better control over inventory and efficiency in sales. Since IFFCO is in the business of fertilizer manufacturing and in this sector a huge investment in plant and machinery is required. Keeping in view the investment in Plant & machinery in this sector for which number of spares and stores items are required to be maintained for upkeep of the plant, the above Inventory Turnover ratio is reasonable. However, IFFCO should efficiently use various inventory management tools to control the stock levels like ABC analysis, monitoring of stock levels i.e. ROL, EOQ, Min-Level, Max-Level system of verification of inventory etc.

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Inventory Turnover Ratio

2)

Working Capital Turnover- This ratio establishes the relationship between the
turnover (sales) and the working capital. It indicates the number of times a unit invested in the working capital produces sale. In other words, this ratio indicates whether the working capital has been effectively utilized or not in effecting sales. Net Current Assets are also known as working capital instead of total current assets is being compared with the sales. This ratio indicates the velocity of the utilization of net working capital. It indicates the number of times the working capital is turned over in the course of a year. This ratio is calculated as follows-

Working Capital Turnover =

Turnover Working Capital

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(Rs. in crore) Particular Turnover Working Capital Working Capital Turnover 2007-08 12162.82 4404.17 2.76 times 2008-09 32933.30 4490.10 7.33 times

Working Capital = Current Assets Current Liabilities For the Year 2007-08 = 5775.74 1371.57 = 4404.17 For the Year 2008-09 = 7672.99 3182.89 = 4490.10

Interpretation: -.The higher the ratio, the better it is. However, a very high ratio
indicates overtrading- the working capital being not adequate for the scale of operations. In the above table both turnover and working capital are increasing. It appears from the above calculation that Working Capital Turnover ratio has been increased to 7.33 times in the year 2008-09 as compared to 2.76 times for year 2007-08. It shows a better utilization of working funds in the business. Hence IFFCO is using its working capital in a better way.

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Working Capital Turnover

3)

Current Ratio- The ratio of current assets to current liability is called current

ratio. This ratio is an indicator of the firms commitment to meet its short-term liabilities. Current assets include cash and other assets convertible into cash during the operating cycle of the business. Current liabilities means liabilities payable within a years time. An ideal current ratio is 2:1.The ratio of 2 is considered as a safe margin of solvency. A very high current ratio would indicate the less efficient use of funds while a poor current ratio indicates lack of liquidity and shortage of working capital.

Current Ratio = Current Assets Current Liabilities (Rs. in crore)

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Particular Current Assets Current Liabilities Current Ratio

2007-08 5775.74 1371.57 4.21:1

2008-09 7672.99 3182.89 2.41:1

Interpretation: - As a general rule, the ideal current ratio is 2:1 and we can see that the
current ratio for the two previous years is above ideal ratio. In the year 2008-09, the current ratio is moving closer to the ideal one indicating sound utilization of funds. So we can say that the liquidity position of the concert is sound and it is able to meet its short term debts and obligations.

Current Ratio

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4) Cash Ratio- This ratio measures the relationship between cash in hand and current
assets. A very high cash ratio indicates major items of current assets & may be a poor indicator of profitability because cash by itself does not earn any profit. Ideally the proportion should be kept as low as possible. But some amount of cash for daily requirements of the firm should be kept.

Cash Ratio =

Cash in Hand / Current Assets (Rs. in crore)

Particular Cash in Hand Current Assets Cash Ratio

2007-08 243.32 5775.74 0.04 :1

2008-09 69.63 7672.99 0.009:1

Interpretation:Form the above it can be seen that cash ratio is appropriate from year to year. It shows that the concern is efficiently using and monitoring cash for day to day transactions.

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Cash Ratio

80

5) Solvency Ratio- This ratio highlights upon the long-term solvency of the concern and
this ratio shows the relationship between the total assets and total liabilities of the concern. This ratio is obtained by dividing total assets by total liabilities. Total assets include fixed assets and current assets. Total liabilities include both long term and shortterm liabilities.

Solvency Ratio- Total Assets Total Liabilities (Rs. in crore) Particular Total Assets Total Liability Solvency Ratio 2007-08 12370.06 8681.40 1.42:1 2008-09 20486.66 16527.79 1.24:1

Interpretation:-

From the above it can be seen that the concern is having a sound position. Its total assets are 1.24 times of its total liabilities in the year 2008-09; therefore the solvency position is good i.e. the firm has the ability to pay off its long term liabilities.

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Solvency Ratio

82

6) Stock to Current Assets Ratio- This ratio expresses the relationship between
Stock and Current Assets. It denotes how much proportion of current assets is in the form of stock .

Stock to Current Assets-

Stock

Current Assets (Rs. in crore) Particular Stock Current Assets Stock to Current Assets 2007-08 1577.10 5775.74 0.27:1 2008-09 1731.36 7672.99 0.23:1

Interpretation: The above calculation shows that stock to current asset ratio is
decreasing. Thus it is not a bad situation because a company always wants to retain stock according to the requirement. It does not want to over-invest in stock. Every company prefer money in liquid form rather than over-investment.

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Stock to current asset ratio

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7) Raw Material Turnover Ratio- The raw material turnover ratio represents the
relationship between raw material consumed and average stock of raw material. Here average stock of raw material is the average of opening stock of raw material and closing stock of raw material. Or Opening stock of raw material + closing stock of r.m. Average stock of raw material = 2

Raw Material Turnover =

Raw material consumed Avg. stock of raw material

(Rs. in crore) Year Raw material consumed Avg. stock of raw material Raw Material Turnover 2007-08 6646.44 751.04 8.85:1 2008-09 13997.22 891.39 15.70:1

Interpretation: Here Raw material consumed is 6646.44 in 2007-08 and 13997.22 in

2008-09. Avg. stock of raw material is 751.04 in 2007-08 and 891.39 in 2008-09. The calculation shows that the raw material turnover is 8.85 times in 2007-08 and 15.70 times in 2008-09. It indicates that raw material turnover is increasing because of more production. Production is increasing because of increase in demand. Thus it is a favorable situation.

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Raw Material Turnover

86

8) Owned Capital Turnover: It represents the relationship between turnover and

shareholders fund.

Owned Capital Turnover =

Turnover Shareholders fund (Rs. in crore)

Year Turnover Shareholders Fund Owned Capital Turnover

2007-08 12162.82 3688.66 3.30:1

2008-09 32933.30 3958.87 8.32:1

Interpretation: In the above table the turnover is 12162.82 for the year 2007-08 and
32933.30 for the year 2008-09. Shareholders fund is increasing by 270.21 crores. As a result the owned capital turnover has increased drastically by 5.02 times. It clearly shows that the company is earning profit.

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Owned capital turnover

88

9) Profit Before Tax To Sales- The ratio expresses the relationship between Profit
Before Tax and turnover.

Profit Before Tax to Sales- Profit Before Tax *100 Turnover (Rs. in crore) Particular Profit before Tax Turnover P.B.T. to Sales 2007-08 380.52 12162.82 0.03 % 2008-09 441.95 32933.30 0.01 %

Interpretation: Inspite of the fact that profit before tax is increasing from the year 200708, profit before tax to sales ratio is decreasing by 0.02 %. It is due to increase in turnover tremendously.

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P.B.T. to Sales

10) Capital Turnover- Sometimes the efficiency and effectiveness of the operation is
judged by comparing the sales with the amount of capital invested in the business. Capital Employed is equal to Net Fixed Assets and Working Capital. This ratio is calculated by establishing the relationship between turnover and capital employed.

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Capital Turnover-=

Turnover Capital Employed (Rs. in crore)

Particular Turnover Capital Employed Capital Turnover

2007-08 12162.82 9573.96 1.04 times

2008-09 32933.30 9746.92 0.96 times

Capital Employed = Net Fixed Assets + Working Capital For the Year 2007-08 = 5169.79 + 4404.17 = 9573.96 For the Year 2008-09 = 5256.82 + 4490.10 = 9746.92

Interpretation :From the above it is clear that Capital Turnover ratio has been reduced by 0.08 times from the year 2007-08 in the year 2008-09. It shows over investment in Total assets as compared to the corresponding sales made by the concern.

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Capital Turnover

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ANNEXURE

As at 31-03-2009

As at 31-03-2008

Inventories (including goods-in-transit Rs. 637.56 crore) Previous year Rs. 277.63 crore) Raw material Stores and spares Loose tools Chemical and catalysts Packing materials Construction materials Stock-in-process(Including intermediary products) Finished goods: Traded products Own manufactured Total 319.08 130.26 449.34 1731.36 59.56 114.68 174.24 1577.10 823.39 290.21 2.03 72.49 37.49 14.11 42.30 959.39 327.83 1.83 28.94 33.26 14.72 36.89

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BALANCE SHEET

SOURCES OF FUNDS Shareholders Funds: Share Capital Reserves and Surplus Loan Funds: Secured Loans Unsecured Loans Deferred Tax Liability( net) Total APPLICATION OF FUNDS Fixed assets: Gross block Less: accumulated depreciation Net block Capital work-in-progress Investments Current assets, Loan and Advances: Inventories Sundry debtors Cash and bank balances Loan and advances Less: Current liabilities & provisions: Current Liabilities Provisions

As at 31.03.2009 426.28 3532.59 7373.18 5429.60

As at 31.03.2008 423.93 3264.73 2404.67 4370.97

3958.87

3688.66

12802.78 542.12 17303.77

6775.64 534.19 10998.49

8808.00 3842.16 4965.84 290.98

5256.82 7552.95

8138.98 3400.04 4738.94 430.85

5169.79 1416.73

1731.36 407.23 69.63 5464.77 7672.99 2860.18 322.71 3182.89 4490.10 3.90 17303.77

1577.10 413.76 243.32 3541.56 5775.74 1048.49 323.08 1371.57 4404.17 7.80 10998.49

Net Current Assets Miscellaneous Expenditure(to the extent not written off) TOTAL

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PROFIT & LOSS ACCOUNT ( in Rs. Crore)

Year ended 31/03/2008 Income from operations Turnover Sales Subsidy on fertilizers Other revenue Increase/(Decrease) in stocks Year ended 31/03/2009

5968.47 6194.35

12162.82 354.77 (1136.21) 11381.38

7387.70 25545.60

32933.30 499.00 280.51 33712.81

Less: cost of operations Consumption of raw materials, stores etc. Raw materials 6646.44 Stores and spares 96.26 Chemicals and catalysts 38.22 Packaging materials 170.43 Power, fuel and water 756.48 7707.83 Less: stock transfer for self 118.81 consumption Purchase of products for resale Employees remuneration and benefits Manufacturing, administration and distribution expenses Interest Depriciaton / amortisation Prior period adjustment (net) Deferred revenue expenditure written off(VRS Expenses) Profit before tax Provision for taxation: current tax Fringe benefit tax Deferred tax Earlier years Profit after tax Profit transferred to: Capital repatriation fund

7589.02 1245.44 405.75

13997.22 108.34 41.38 200.39 981.80 15329.13 159.41

15169.72 14539.23 595.96

959.49 389.37 410.93 (3.00) 3.86

1481.91 1023.20 470.40 (13.46) 3.90

11000.86 380.52 61.80 6.50 56.14 (1.51) 92.80 8.02 7.93 (26.81)

33270.86 441.95

122.93 257.59 0.46

81.94 360.01

0.47

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Contribution towards Approved Donations(Under IT Act 1961) NET PROFIT AS PER MULTI STATE COOP. SOCIETIES ACT,2002

1.00

0.46 257.13

1.47 358.54

Significant Financial Indicators

Financial Ratios Operating profit to sales (%) Profit before tax to sales(%) Return on capital employed(%) Profit before tax to net worth(%) Profit after tax to net worth(%) Fixed assets turnover(times) Working capital turnover(times) Inventory of finished goods Inventory of raw material & packing material Sundry debtors Current ratio Quick ratio Debt equity ratio No. of employees Sales per employee(Rs.crore)

200809 6.50 1.34 3.12 11.16 9.09 6.32 7.41 0.12 0.74

200708 7.67 3.13 3.50 10.31 6.99 2.54 2.62 1.50 1.25

200607 6.69 2.43 2.53 6.90 4.81 2.20 2.50 1.48 1.01

200506 6.92 4.85 7.18 13.55 9.60 3.01 4.07 0.74 0.86

200405 6.52 6.37 10.58 14.27 9.68 3.57 4.58 0.90 0.79

200304 10.86 8.66 11.32 16.49 10.60 2.78 3.58 1.30 0.79

200203 8.15 13.26 18.56 24.65 17.02 2.74 4.04 1.88 0.68

200102 11.84 7.28 9.32 13.32 11.06 2.18 3.76 1.81 0.77

200001 12.34 4.54 5.60 9.12 9.00 2.12 3.53 1.60 0.63

199900 13.13 6.91 7.38 13.11 13.11 1.78 3.08 2.51 0.57

0.67 2.41:1 1.87:1 3.23:1 6757 4.87

0.78 4.21:1 3.06:1 1.84:1 6743 1.80

0.90 5.06:1 3.15:1 1.78:1 6826 1.51

0.89 3.49:1 2.37:1 1.42:1 6506 1.77

1.17 2.36:1 1.51:1 2.20:1 5752 1.29

1.50 2.84:1 1.71:1 0.32:1 5977 0.99

1.36 2.62:1 1.51:1 0.33:1 6125 0.99

1.30 2.72:1 1.39:1 0.43:1 6326 0.81

1.20 2.92:1 1.65:1 0.63:1 6405 0.80

1.25 2.93:1 1.47:1 0.78:1 6403 0.71

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CHAPTER-7 Key Finding, Learning & Recommendation

I had done my project in inventory management & analysis of IFFCO Financial strength by ratio analysis. Further, I have also understand the role of F&A departments at unit level.

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CHAPTER-8 Conclusion
Therefore it can be said that IFFCO is on sound footing to protect it stability and enhance it profitability by cutting on cost and increasing production in years to come. Further IFFCO has also taken various other venture like SEZ at NELLORE, Power plant at CHASSIGARDH, IFFCO Tokio General insurance, IFFCO Kisan Sanchar L.T.D., IFFCO has taken Joint Venture out of India i.e. OMIFCO at OMAN, JORDAN India fertilizer company , Industrial Chimiques DU Senegal (ICS)and Kisan International Trading FZE at Dubai. Therefore IFFCO main business is Product & sell fertilizers but it has extends its wings for backward integration& meet the needs of its services Requirement & to serve better to the famer community. It might seem axiomatic that inventory control is efficient as long as inventory level is going down.But the fact is that if inventories are minimized without adequate operations, inventories have been mismanaged rather than controlled efficiently. Thus, the basic objectives of inventory management appear to be conflicting in nature. Inventories should increase or decrease in amount or time as related to sales requirements and production schedules. In most inventories a small proportion of items accounts for a very substantial usage (in terms of monetary value and annual consumption ) and a large proportion of items accounts for a small usage. ABC analysis based on this empirical reality advocates in essence a selective approach to inventory control, which calls for a greater concentration of efforts on inventory items accounting for the bulk of usage value. Responsibility for control of inventories is of the top management. Though decision in this regard might well be based upon the combined judgement of the production manager, the sales manager and the purchasing manager. This is desired in view of the financial considerations involved in the problem and also because of need for coordinating different kinds of inventories and conflicting view points of different departments. Decisions relating to inventories should be taken by higher authority of the organisation as well as departments.

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There are some points that may be given as recommendation or a program may be constructed for inventory monitoring and controlling which consists of following elements: Active disposal of goods that is surplus, obsolete and unusable. More effective exercise should be followed of vigilance against imbalance of raw material and work in progress which tends to limit the utility of stocks. To strict adherence to production schedule. To shortening the production cycle. To change in design to maximize use of standard parts and components, which are available off the shelf. To maintain the special pricing to dispose off unusually slow moving items. To make vigorous efforts to expedite completion of unfinished production jobs to get them in to sellable condition.

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CHAPTER-9 BIBLIOGRAPHY
Marketing Research - Thomas C Kinncar & James R Taylor

Research Methodolgy - Kothari, C.R.- 2nd Edition Business Environment Cherunilam, Francis- Himalaya Publishing House Industrial Relations - Monappa, Arun Tata Mcgrew Hill Publishing Company IFFCO Magazine

Website:
www.iffco.nic.in

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