TABLE OF CONTENTS

CHAPTER DESCRIPTION PAGE NO

1. Company profile: (5-23)

Background of Company - 6

Mission, Vision, Goal - 15

Memorandum of understanding - 16
P/L Account - 19
Balance Sheet - 20

2. Introduction Of Project: 24
3. Cash Management (25-60)
Research Methodology - 28
Study of Cash Management - 29
Cash Management in NFL - 31

Observations & Findings - 46

Findings - 58
Recommendations - 59
4. Receivable Management (61-83)
Dimensions of Receivable Management- 69
Findings - 81

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 Recommendations - 82

5. Inventory Management: (84-104)

Objective of Inventory Management -
Inventory Management in NFL -
6. Findings 102
7. Recommendations 103
8. Bibliography 105

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INDEX OF TABLES AND FIGURES

( PAGE NO.)

1. Company profile:

Plant at a Glance - 14

Plant (Strategical Located) - 14

MOU Rating - 17-18

Overall urea Production - 21

Sale Turnover - 21

Sale & overall capacity - 22

Share in country - 23

Area of Operation - 23

2. Cash Management

Working capital Agreement - 32

Current Ratio - 50

CA/CL - 51

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 Return on Equity - 54

Return on Investment - 55

Earning Per share - 56

Debt Equity Ratio - 57

3. Receivable Management

Debenture on ratio - 78

Debetor Collection Period - 80

4. Inventory Mangement

Inventory Turnover Ratio - 100

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 Company profile
India is traditionally agro-based country where 70% of the population

is dependent on agriculture. The basic requirement of a human being is food,

cloth and shelter. Out of the three main basic requirements, food is most

important in the society. Due to increase of population of India, the consumption

of food has increased tremendously. So the increased in the food production can

be achieved by increasing the irrigated land or by using the modern technique

and method of agriculture. One of the important inputs for agricultural growth is

fertilizer and one of the major player in fertilizer industry is NFL.

Along with the production of fertilizer, one of the important activity is working capital

management. NFL is a multi-unit company having five plants and is involved with the

production of nitrogenous fertilizers. It has wide network of dealers and customers.

Moreover it procures raw materials from a large no. of suppliers. A huge amount of funds

is involved which includes both receipts and payments. A proper working capital

management is necessary to handle efficiently & effectively all these activities.

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Our project basically dealt with understanding NFL’s system and giving

recommendations for improving upon it.

The areas, which we emphasized upon were the cash management where we studied

the various cash management techniques being followed by the organization,

understand its workings and tried to improve upon it. Our findings revealed that NFL

follows a very efficient & effective cash management system.

NFL, a profitable public sector undertaking operates under the administrative control of

the Deptt. Of Fertilizer in the Ministry of Chemicals & Fertilizers.

National Fertilizer Limited ( NFL ), a leading producer of Nitrogenous Fertilizer in

India, was incorporated on 23rd August, 1974 with two manufacturing units at Bhatinda

(Punjab) and Panipat (Haryana) subsequently, on the reorganization of fertilizer group

of companies in 1978, the Nangal unit of fertilizer corporation of India came under the

NFL ltd.

NFL, a Mini Ratna Category- I Company, is a market leader in the fertilizer industry

with a market share of 16.6%. The company’s strength lies in its sizeble presence,

professional marketing team and its strong distribution network nationwide.

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PLANT SPECIFICATION

Nangal Unit

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1. Location : Naya Nangal, District: Ropar(Punjab)

2.Products:

CAN : 3,18,160 TPA (production of CAN is dropped now a days)

Urea : 4,78,500 TPA

Methanol : 16500 TPA

3. Raw Materials and Utilities:

Power for can & Heavy water : 164 MV

Power for urea plant : 18 MV

Water : 80 MGD

Line stone : 272 TPD

Fuel oil / LgHs : 720 TPD

Coal :900 TPD

4.Project cost :

CAN plant : Rs.31 crores

Urea plant : Rs. 1325 crores

5.Land :1800 Acres

6. Sources of foreign exchange :

Old plant Free Foreign Exchange

Nangal Expansion : World bank loan

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 Bathinda unit

1. Location : Bathinda , District : Bathinda (Punjab)

2. Products : Urea - 511,500 TPA

3. Raw Materials and Utilities:

Power : 25 MV

Water : 12.5 MGD

Fuel oil / LgHs : 990 TPD

Coal :1600 TPD

4.Project cost : Rs.239.3 crores

(Foreign currency Rs. 67.87 crores)_

CPP cost : Rs.109.66 crores

5. Land

Factory : 450 Acres

Township : 285 Acres

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6. Sources of foreign exchange :

Ammonia & Urea plants : Yen credit

Captive power plant : World bank loan

Panipat unit

1. Location : Panipat , District : Karnal (Haryana)

2. Products : Urea - 511,500 TPA

3. Raw Materials and Utilities:

Power : 25 MV

Water : 12.5 MGD

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 Fuel oil / LgHs : 990 TPD

Coal :1600 TPD

4.Project cost : Rs.223.5.crores

(Foreign currency Rs. 55.79 crores)_

CPP cost :Rs.110.43 crores

5. Land

Factory : 442 Acres

Township + Low lying : 131 Acres

6. Sources of foreign exchange :

Ammonia & Urea plants : Yen credit

Captive power plant : World bank loan

Vijaypur unit

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1. Location : Vijaypur , District : Guna(M.P)

2. Products : Urea - 7,26,000 TPA

3. Raw Materials and Utilities:

Power : 16 MV

Water : 12.5 MGD

As Fuel :1,75,000,000 NM3/Hr

As Feed stock :4,35,000,000 NM3/Hr

4.Project cost : Rs.533.crores

(Foreign currency Rs. 185.2 crores)_

5. Land : 1250 Acres

6. Sources of foreign exchange

:World Bank loan

:OECF loan

:DANIDA loan

Vijaypur Unit -2

Urea : 8,53,400 MT

Commissioned : 1.3.1997

Project cost : 10731 Crores

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(Foreign component – 431 crores)

Vijaypur 1 & 2 has been re-assessed by Ficc w.e.f.1.4.200

Capacity increased to 8,53,400 MT

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NFL MISSION

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“ To be a market leader in fertilizers ; and a significant players in all it’s other business ;

reputed for customer delight , optimum rewards shareholders , ethics , professionalism

and concern for the ecology and the community ” .

NFL VISION 2008

NFL will be a reputed , valuable , major Indian enterprise , with domestic and

international operations in addition to the core fertilizer business , and into chemical ,

petrochemical and related services and trading business.

NFL GOALS 2008

To achieve a group turnover of Rs.10,000 crores , from the diverse business; with the net

profit of Rs.1200 crores and additional outlay of Rs.6,000 crores , financed by a mix of

equity , debt and portfolio investment.

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 MEMORANDUM OF UNDERSTANDING

Memorandum of Understanding (MoU) is a negotiated agreement between Government

as owner of public enterprises and the management of the Public Sector Enterprises

(PSEs). MoU is meant to measure the Performance of Management of PSE at the end of

the year in an objective and transparent manner.

In the search of improving accountability and giving higher operational autonomy to

Public Sector Undertaking, the Department of Public Sector Enterprises (DPE)

Government of India introduced the concept of Memorandum of Understanding (MoU)

in early nineties. The new Industrial Policy of 1991 made it mandatory for all PSU's to

enter in to MoU with their respective Administrative Ministries. The MoU over these

years has gained significant improvement from the fact that it reflects the company's

overall composite rating and secondly the performance of the Chief Executive of the

company is partly seen through MoU. The strengthening of existing system of monitoring

PSU's through MoU is an important element of the present policy of the Government.

NFL started signing MoU from the year 1991-1992 and has been getting Excellent rating

for most of the years. NFL's MoU rating from 1991-92 to 2008-09 is given below:

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 MoU RATING

YEAR RATING
1991-92 Excellent
1992-93 Excellent
1993-94 Excellent
1994-95 Excellent
1995-96 Excellent
1996-97 Fair
1997-98 Very Good
1998-99 Good
1999-00 Very Good
2000-01 Excellent
2001-02 Excellent
2002-03 Excellent
2003-04 Excellent
Excellent
2004-05
(Provisional)
2005-06 Excellent
2006-07 Excellent
2007-08 Excellent
2008-09 Under Euatvalion

MoU rating for the year 2007-08 works out as "Excellent" based on

Un-audited data.

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The Company has already signed MoU for the year 2007-08 with

Department of Fertilizers.

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 CASH MANAGEMENT

Cash is the most liquid and critical assets of the business. Skillful management of cash is

necessary for efficient functioning of the business. A business, which ignores it, may be

trapped in and ultimately falls into bankruptcy.

In a business anything done financially affects cash eventually cash is to business what

blood is to a living body. A business cannot operate without its life- blood cash and

without cash management. There may remain no cash to operate. It’s a two-way traffic.

The inflow and outflow of cash never coincides. Due to non-synchronicity of cash inflow

and outflow, the inflow may be more than the outflow and vice versa. This needs

regulation. Cash flow is apt to follow mono-sonic pattern and showers of cash may be

heavy scanty or just normal. Hence there is a direct need to control its movement through

skillful cash management.

Cash management is concerned with:

a) PAST

Analyzing cash movements historically so as to figure out the trends of such

movements. After analyzes it provides vital information regarding cash needs

during season or off -season. Actual receipt of cash inflow from the customers viz

a vis projection made, quantum and periodicity of various cash expenses.

Depending on it the company makes it present and future operations.

b) PRESENT

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 It is relevant for monitoring cash movements so that it is efficiently regulated and

controlled. It helps in identifying areas, which require immediate attention. An

efficient cash management programme is capable of making itself a profitable by

judicious deployment of surplus short-term funds.

c) FUTURE

It is relevant for forecasting the anticipated cash movements of cash in budget

period. Cash forecasting is most effective instrument of cash control and is the

most important tool of management. Cash forecasting reveals the time and extent

of probable cash deficits and surpluses in future period and company can take

action in advance for replenishing cash. Cash forecasting helps management to

appreciate cash implications of long term policies it has envisaged in its corporate

plan.

OBJECTIVES OF CASH MANAGEMENT

1. Cash management is needed for the efficient utilization of cash resources.

2. It is required to minimize the idle cash held by the firm.

3. It aims at reduction in interest in costs of the company in short term loan and

long term loan.

4. It aims at ensuring that there is enough cash available with the firm to meet its

demand as and when it arises.

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 RESEARCH METHODOLOGY

The methodology used for carrying out this project is as follows:

 Studying the Annual Accounts of the company for obtaining related financial

data .

 Studying the Accounting Records and arrangement with the consortium of banks,

commercial paper, working capital demand loans (WCDL), FDRs and other short

term loans.

 Analyzing the guidelines and norms laid down by the Department of Public

Enterprises (DPE) for investment of funds by PSUs.

 Reviewing RBI Bulletins and RBI policies and guidelines.

 Studying the cash flow statements, cash budgets and cash reports.

 Analyzing the various ratios in order to find out the liquidity positions of NFL.

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  STUDY OF CASH MANAGEMENT

The study of the cash management is divided into three parts:

1. SIZE OF CASH

Large cash and bank balances generally accompany growth in sales. A sound

management demands the rate of growth in holding cash should be lower than the

growth rate in sales as fixed expenses remain constant irrespective of increase in

sales.

2. ADEQUACY

A firm should have adequate cash to maintain liquidity and solvency to meet the

maturing obligations as and when required.

To measure the liquidity & solvency of a firm 3 (three) ratios are commonly

calculated, they are as under:

a) Current Ratio

b) Quick ratio or Acid Test Ratio

c) Absolute Liquidity Ratio

3. EFFECTIVE CONTROL OF CASH

For effective control of cash, the management can exercise the following

techniques:-

a) Cash budget

A cash budget is a summary statement presented in an orderly format containing

forecasted figures of receipts and disbursements of cash over a given period of time.

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 b) Cash to Current Assets Ratio

This ratio throws light on the quantum of the optimum cash required by a business.

This ratio is calculated by the following formula:

CASH/ CURRENT ASSETS

c) Cash Turnover Ratio

This ratio measures the velocity of cash balances in terms of sales. This

ratio is calculated as

SALES/ INITIAL CASH BALANCE

d) Cash Flow Statement

e) Maximizing Cash Availability

f) Investing Excess cash in Short Term Securities

g) Internal Control of Cash

The system of internal control is the plan of organization and all the

methods and procedures adopted by the management of entity to assist in

achieving managements objective of ensuring as far as practicable, the

orderly and efficient conduct of business including adherence to

management policies, safeguarding of assets, prevention and detection of

fraud and error.

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 CASH MANAGEMENT IN NFL

Cash is the lifeline of any business and without sufficient cash it may hamper the day-to-

day workings of the business. A business should have an efficient and effective cash

management system in order to manage cash to its optimum so that the business does not

find any shortage in cash.

In NFL whatever sales are made are being done through zonal offices and regional

offices are being forwarded to SBI on the same day. They have 45 collection centers

throughout India. Collection is carried out in these centers and forwarded to the centers in

New Delhi.

SOURCES OF CASH

When NFL is to procure working capital, a Board resolution has to be passed to resolve

the cash credit limit of the company to meet the working capital requirements. The board

also has to decide upon the following issues:

 How much funds to be procured?

 Who will be the signing authority?

 How power has to be delegated?

After the resolution has been passed the Finance Department will decide upon the

Consortium of Banks and meet the bank officials.

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All the banks in the consortium have to sign various agreements known as following:

1. WORKING CAPITAL CONSORTIUM AGREEMENT(CFI): it is an

agreement between NFL and consortium bank in which working capital

facilities given to meet the working capital needs of the borrower are

mentioned the 7 consortium banks of NFL are State Bank of India(SBI),

Oriental Bank of Commerce(OBC), State Bank of Patiala(SBP), Panjab

National Bank(PNB), Union Bank Of India(UBI).

WORKING CAPITAL CONSORTIUM AGREEMENT

BANK CC LIMIT Effective intrest rate

(Rs. In crore)

SBI 96.00 12.25%

UBI 100 .00 11.50%

PNB 116.00 12.00%
BOI 72.00 12.25%
SBP 5.00 12.50%
SBH 50.00 10.75%
OBC 10.00 9.00%

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2. JOINT DEED OF HYPOTHECATION(CF2): It is a deed between NFL

and consortium banks in which the borrower agrees with the terms and condition

given in the consortium agreement. The borrower agree to repay each of the bank

their respective principal amount as well as the interest and commission @ per

annum as mentioned in their consortium agreement.

3. INTER SE AGREEMENT AMONG CONSORTIUM OF BANKS: It

is an agreement between consortium banks . in this they choose their lead

and second lead bank. The members agree to abide by the directions given

by the lead bank in consultation with the second lead bank in the matter of

cash credit accounts opened by the borrowers.

4. LATTER REGARDING THE GRANT OF INDIVIDUAL LIMIT

WITHIN THE OVERALL LIMIT(CF5): It is the letter in which the

amount given to the borrower is written along with its overall loan limit, rate of

interest and nature of the facility given.

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 VARIOUS SOURCES OF CASH (FUND BASED)

FUND-BASED SOURCES OF CASH

Cash at NFL is raised through the following sources:

1. Cash credit

2. WCDL

3. Commercial Paper

4. Short-term Loan

The CC limit as approved by the Board of NFL is Rs. 450 crore which it has to

procure from Consortium of Banks. NFL can also avail WCDL, which is a part of CC

limit. NFL can avail the full amount of CC limit, as WCDL or it can be whole of CC.

The third source from where NFL can procure funds is CP. As NFL’s financial position is

sound and it has a very strong repaying capacity, so CRISIL has rated NFL as ‘P1’ for ST

Loan and ‘A1’ for LT Loan.

CASH CREDIT

It is also known as drawing account. Under this arrangement a business is authorized to

draw cash subject to the limit prefixed by the bank. Under term loan where full amount is

available to the borrower, in case of cash credit a credit limit is put at its disposal. This

gives the borrower a lot more flexibility. The business can avail funds to the extent it

desires. The interest is charged only for the amount against the limit. The borrower is

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accorded the facility of reducing the debit balance in his account as per his convenience

and save interest. At times cash credit and overdraft are taken to be identical but a bank

extends cash credit facility to its valued customers on a regular basis for a long tenure.

On the contrary overdraft facility is provided occasionally and for shorter durations.

Current prevailing rates are 9-10%.

WORKING CAPITAL DEMAND LOAN

It is a part of cash credit but the rate of interest is different. It is always given for a

particular period and before the maturity date we can’t repay. The current prevailing rate

for WCDL is approximately 4.8-5%.

COMMERCIAL PAPER

It is a typical IOU instrument. It is unsecured and is only used by large business houses

enjoying highest credit rating in the market and can attract funds by issuing commercial

paper. Commercial paper can be issued in the market through a issuing and paying agent.

Normally commercial papers are issued for 1 to 12 months. It is also a good source of

short term financing. At maturity the borrower has to redeem the paper by making

payment as per terms. If the borrower is a large prestigious business house, it can roll

forward the maturity by substituting the issue so matured with the new issue.

At times banks are not in a position to meet the money requirements of the borrowing

companies in lieu of its internal regulations & statutory constraints. In this case the

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business having a reputed name and credited in the market through commercial paper and

fetch the desired amount. The disadvantage associated with this method is that it is not

available to all the business houses as only a few reputed businesses can avail of this

facility of raising funds through the issuance of commercial paper.

In India, issue of commercial paper is regulated through Non-Banking Companies

(acceptance of deposits through CP) Directions 1989. RBI has been continuously

amending this regulation. Regulations according to RBI on date are:

a) The company should have a minimum net worth of Rs. 4 crore and it should have

a fund based of cash limits from the banks for a minimum amount of 4 crore.

b) The issue should be rated by a recognized credit rating agency like CRISIL/

ICRA.

c) Commercial paper can be issued only by listed companies, public sector

companies and closely held public companies.

d) The time period of commercial paper can be for a minimum of 1 month and

maximum of 12 months.

e) The maximum amount of commercial paper is restricted to 75% of permissible

bank finance limits (fund based WC limits)

f) The current ratio of issuing company should not be less than 1.33 times.

Commercial papers are issued at a discount or face value and rate mentioned in the

instrument shall be the yield to investor rate and not discounting rate. No underwriting or

company acceptance is allowed to be made in the CP issued in India. The rate of

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commercial paper issue depends on the money supply prevalent in the short- term money

market at a particular time. Current prevailing rates are 6-7%.

The following are the steps for issuing CP:

STEP1: AGENT

NFL appoints an agent i.e. introduction to mass service Pvt Ltd.

STEP2: REGULATORY AUTHORITY

(NSDL) The following documents are required from NFL

i. Letter of Intent.

ii. Letter to issue CP in demat form

iii. Master creation form for CP

iv. Corporate action information.

STEP3: Information required from bank:

i. DP ID

ii. CP allotment number.

iii. CP redemption number.

iv. CP redemption certificate after maturity.

STEP4: Information and documents to be submitted Bank by NFL:

i. Offer letter- Annexure VI

ii. Deal confirmation- Annexure VII

iii. Jumbo commercial paper- Annexure V

iv. Agreement in stamp paper (Rs. 100) – Annexure IV

v. CRISIL rating – Annexure III

vi. Performa for submitting to RBI- Annexure II

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vii. Board Resolution- Annexure I

viii. Confirmation compliance with RBI requirement- Annexure II & VII

After procuring funds from working capital limit, if NFL requires extra funds, they can

raise the additional funds through ST Loans. They can procure the ST Loans up to the

limit of Rs. 100 crore for maximum of 6 months. The current prevailing rate is 4.8 – 5

%.

SHORT-TERM LOANS

When the company is in need of extra funds, it can go for short term loans over and

above the cash credit limit for a maximum period of 6 months at a relatively lower rate of

interest. Current prevailing rates are between 4.75-5%.

NON-FUND BASED CASH RESOURCES

LETTER OF CREDIT (L/C)

Letter of credit has unique features making it a favorite instrument in the commercial

world especially in international trade. The basic advantage is that of guaranteed

payment in case the order is executed as per the terms. As an additional advantage it acts

as a cash management tool also. The business can get instantaneous payment of full

amount or as agreed with the customer through the bank, against delivery of dispatch

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documents. It need not wait till the goods reach the customer. Sometimes even before the

dispatch of goods, the bank provides advances against the letter of credit.

Letter of credit is now also being used in the domestic trade. A L/C is being

issued by a bank on behalf of its customer (buyer) to the seller. As per this document the

bank agrees to honour drafts drawn on it for the supplies made to the customer if the

seller fulfills the conditions laid down in L/C

The L/C serves various useful functions, which are as under:

i. It virtually eliminates credit risk, if the bank has a good standing.

ii. It reduces uncertainty, as the seller knows the conditions that should be fulfilled

to receive payments.

iii. It offers safety to the buyer who wants to ensure that payment is made only in

conformity with the conditions of the L/C.

BANK GUARANTEE (B/G)

Bank guarantee is one in which the banker takes the responsibility on behalf of its

customers to pay the suppliers the amount due to its customers. The bank takes the

responsibility only when its customers credit standing and relation with the bank is good.

1. Sale of fertilizers.

2. Subsidies from FICC. (Fertilizer Industry Coordination Committee)

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HYPOTHECATION OF CHARGES

When NFL takes a loan from any bank, then that bank may want some kind of security

for lending that amount. Two forms are used for this purpose; they are FORM 13 states

the Registration of charges & FORM 17 states the Satisfaction of charges.

CASH CREDIT UTILIZATION

NFL has fund based cash credit limit of Rs. 450 crores for working capital requirement,

which is being availed by the company through consortium of several banks. Further with

a view to meet temporary additional short falls in the working capital requirements,

company is also availing short term funds up to Rs. 100 crores and also commercial

papers.

CASH SYSTEMS

The cash system in a firm aims at providing linkage between cash flows. The financial

manager has the task of developing and maintaining the policies and procedures

necessary to achieve an efficient flow of cash for the firms operations. The external

system of cash includes a collection system for getting cash into the firm and

disbursement system for paying the suppliers and other receivers of cash.

The internal system of cash includes a concentration system to more cash from the entry

level in the firm to the concentration banks and disbursement funding system to move

funds from the concentration bank to disbursement bank in order to make the payments in

due time. A financial manager is also required to be responsible for maintaining banking

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relations to ensure smooth flow of cash into through and out of the firm as banks are the

main institutions involved in the payment system.

CONCENTRATION BANKING

It is a means of accelerating the flow of funds of a firm by establishing strategic &

multiple collection centers instead of a single collection center located at the company

headquarters. The purpose is to shorten the period between the times a customer mails in

his payment and the time when the company has used the funds. Customers in a

particular geographical area are instructed to remit their payments to a collection center

that area. When payments are received, they are deposited in the collection centers local

bank. Surplus funds are then transferred from these local bank accounts to a

concentration Bank or Banks. A concentration bank is one, which the company has a

major account usually a disbursement account; in case of NFL it is SBI & PNB.

In concentration banking customers usually receive their bills earlier then if the bills were

mailed from the head office which in return make the customers pay their bills to the

nearest collection center, which reduces the time required for the typical remittance to go

the head office. This reduces the mailing time.

The time required to collect cheques is reduced as remittances deposited in collection

center’s local bank, usually are drawn on banks in that geographical area. By speeding up

the process of collection of customer’s cheques would result in release of funds for

investment elsewhere.

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 DISBURSEMENT OF THE COLLECTED CASH

The basic objective of conservation of cash resources is to optimize its utilization. Under

this system, all payments are released from a centralized disbursement account operated

at corporate office. This enhances the investment value of cash reservoir available with

the business. Special disbursement accounts are opened,. Under this system one central

account is operated for catering to the requirements of a number of special disbursements

accounts. As and when need arises specific amount is transferred from central account to

special disbursement. If the central account & special disbursement account are in the

same bank, then the disbursement account will have zero balance at the end of the day. It

is also known as “ Zero Balance Account”

TECHNIQUES OF DISBURSEMEN USED BY NFL

NFL uses the latest techniques for disbursement process. Fund are transferred through
RTGS(Real Time Gross Settlement System) or NEFT(National Electronic Fund
Transfer).

RTGS:

Real Time Gross Settlement(RTGS) system is a funds transfer mechanism where

transfer of money take place from one bank to another bank on a “real time” and on

“gross basis”. This is the fastest possible money transfer system through the banking

channel

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Settlement in real time means payment transaction is not subject to any waiting period.

The transaction are settled as soon as they are processed. “Gross settlement” means the

transaction are settled on one to one basis without bunching with any other transaction.

Considering that money transfer takes place in the books of the Reserve Bank of India,

the payment is taken as final and irrevocable.

CEILING IN AMMOUNT FOR RTGS TRANSACTION

The RTGS system is primarily for large value transactions.

The minimum amount to be remitted through RTGS is Rs. 1 lakh.

There is no upper ceiling for RTGS transaction.

TIME LIMIT FOR CREDIT

The beneficiary bank credits the beneficiary’s account within two hour of receiving the

funds transfer massage.

THE ESSENTIAL ENFORMATION REQUIRED FOR RTGS

REMITTANCE

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The remitting customer has to furnish the following information to a bank for a RTGS

remittance

1) Amount to be remitted

2) His/her account number which is to be debited

3) Name of the beneficiary bank

4) Name of beneficiary customer

5) Account number of the beneficiary customer

6) Sender to receive information if any

7) The IFSC code of the receiving branch.

NEFT:

NEFT was introduced in 2005 and is highly improved version of EFT (Electronic Fund

Transfer) that is available at selected center whereas NEFT is available nationwide. The

NEFT(National Electronic Fund Transfer) service helps in the seamless transfer of funds

from one branch to another without any delays or procedural hassles likes RTGS, RBI

has introduced another type of funds transfer system called NEFT.

CEILING IN AMOUNT FOR NEFT TRANSCTION:

RBI has introduced NEFT system mainly to encourage small value payment at nominal

coast.

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There is no minimum transfer amount limit. However, only up to Rs. 1 lakh can be

transferred per transaction. There is no inward payment charge under NEFT.

There is no floor or cap on the amount of transfer in NEFT, means from an amount as

small as one rupee to any amount one can transfer within a minute.

THE ESSENTIAL INFORMATION REQUIRED FOR NEFT:

1) Name of the bank

2) IFSC code of the bank

3) Beneficiary account no.

NOTE:

 If the bank is same fund shall be transferred through online system.

 To make the NEFT and RTGS cheaper and popular, RBI is not charging

anything to bank on paying their role, for the time being.

 Both provides most safe and secure remittance facility. The fund will be

available for immediate use. Cheaper remittance facility compared to

conventional remittance like DD or collection of cheque.

RECENT AMENDMENT BY RBI

To encourage migration of payment to more secured electronic mode specially for large

value transfers, RBI has enhanced the threshold amount of cheques eligible to presented

in high value clearing banks from rs 1 lakh to 10 lakh with effect from june 1, 2009 and

to Rs. 25 lakhs with effect from july 1, 2009. Respectively.

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 OBSERVATIONS AND FIN DINGS

 Commercial paper intrest is very high i.e. 6-7 %, therefore its use has been

stopped. Its involve too much paper work and manpower

 There is no fixed system of interest reduction adopted by NFL. Its varies

according to changing situations and on the intellectual judgement of the financial

officers. Here the consortium of banks and multi banking system is used for

interest reduction.

 Cash credit interest rate is quite high i.e. 9-10%. So, as a result it is less used by

NFL

 It has repaid all its debt and has become a ZERO-DEBT company. Therefore it

requires no long term loan.

 Currently NFL requires no long term loans but the government wants NFL to

convert the non gas plants( Bhatinda, unit, Panipat unit, Nangal unit) to gas

based plants for which they require long term loan.

 NFL is using RTGS system to transfer funds through internet( e-payment system)

which has reduced the work to a great extent.

 NFL is efficiently utilizing its cash credit limit (450 crores) in a working capital

management as a working capital demand loan(WCDL).

 NFL has an additional option of Rs. 100 crores as a short term loan(STL) which is

over and above the cash credit limit.

47
 NFL has stopped using the commercial paper as a source of finance to working

capital as it requires many formalities to be fulfilled.

 Sales are managed by three zones namely, , where all the sale collected through

different areas are transferred to collection account at Noida which is under the

control of CMO.

 Daily cash reports are prepared with the help of which balance funds is analysed.

It gives the details of total funds collected from different source i.e. Marketing,

FICC, others and short term loans received by different consortium banks. It also

contained the detail of funds transferred to the units and other payment details to

IOC,GAIL, Railway, freight, dividend etc

48
 STRATEGIES FOR UTILIZING CASH

The company is required to formulate strategies regarding the utilization of cash more

efficiently by the following methods:

 To manage cash efficiently and effectively, budgets are prepared to give an

estimate of future inflow and outflow of cash over a specified period of time. This

enables the management in taking decision regarding the investment of surplus

cash if any in various short-term securities.

 A firm can utilize its cash by following a collection policy which would enable it

to adapt to the changing situations and must delay their payment till the last date

without damaging the firms credit rating.

Cash management of NFL aims at evolving strategies for delaying with various facts of

cash management which include the following:

1. OPTIMUM UTILIZATION OF OPERATING CASH FLOW

Implementation of a sound management programme is based on rapid generation,

efficient utilization & effective conservation of its cash resources. The cash flows in a

circle, therefore the quantum and speed of the flow can be regulated through prudent

financial planning facilitating the running of the business with minimum cash

balance. This is achieved by making a proper analysis of operative cash flow cycle

and forecasted cash flow statement.

49
 2. CASH FORECASTING

It is the backbone of cash planning. It forewarns NFL regarding expected cash

problems which it may encounter thus regulating future cash flow movements. The

instrument that is used is Cash Budget and Daily Cash Reports.

3. LIQUIDITY ANALYSIS

Liquidity of the organization depends on the efficient utilization of cash, which in

turn helps in obtaining an optimum level of liquidity.

For effective cash management we must know how much cash we have &

whether it’s adequate to meet the requirement or not. To know the adequacy of

cash we calculate:

Current Ratio

Quick Ratio.

CURRENT RATIO OF NFL

Current ratio = CA/CL

S.No Year Current Ratio

1 2008-2009 1.68
2 2007-2008 3.09
3 2006-2007 1.97
4 2005-2006 2.32

50
5 2004-2005 2.14

Current Ratio

3.5
3
2.5
2
Current Ratio
1.5
1
0.5
0
2008-2009 2007-2008 2006-2007 2005-2006 2004-2005

51
 CA vs CL

180000
160000
140000
120000
100000
CA
80000 CL
60000
40000
20000
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

52
QUICK RATIO OF NFL

Quick Ratio = CA-Inventory/CL

S.No Year Quick Ratio

1 2008-2009 1.09
2 2007-2008 2.03
3 2006-2007 1.26
4 2005-2006 1.09
5 2004-2005 1.08

year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Quick Ratio 0.22 0.53 0.024 0.0425 0.053

Quick Ratio

0.6
0.5
0.4
0.3 Quick Ratio
0.2
0.1
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009

53
 CASH TO CURRENT ASSETS RATIO OF NFL

2008-2009 2007-2008 2006-2007 2005-2006 2004-2005

0.22 0.53 0.024 0.0425 0.053

year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Cash To CA Ratio
0.22 0.53 0.024 0.0425 0.053

Cash To CA Ratio

0.6
0.5
0.4
Cash To CA
0.3
Ratio
0.2
0.1
0
54 2006- 2007- 2008-
2004- 2005-
2005 2006 2007 2008 2009
 RETURN ON EQUITY

A return on shareholder’s equity is calculated to see the profitability of owner’s

investment. The shareholder’s equity or n et worth will include paid up share capital,
share premium and reserves and surplus less accumulated losses. Net worth can be found
by subtracting total liabilities from total assets

YEAR ROE(%)

2004-2005 32.8

2005-2006 23.73

2006-2007 35.9

2007-2008 22.15

2008-2009 19.8

55
 45
40
35
30
25
20 ROE

15
10
5
0
2004-05 2005-06 2006-07 2007-08 2008-09

This is the measure of profitability from the company’s shareholders point of view. From

the graph we can observe that ROE has decreased from 2007 till 2009 this is a bad sign

for NFL whis shows that the share holders fund have not been efficiently employed . this

is due to the following reason:-

 There has been a decrease in the net profit from the year 2007 to2009 which has

resulted in the decrease in the RoE every year. The sharesholders fund has

remained constant in the corresponding year so it has no effect on ROE.

RETURN ON INVESTMENT

56
A ratio that measure a company earning before interest and taxes (EBIT) against its total

Net assets is return on total assets. The ratio is considered an indicator of how effectively

a company is using its assets to generate earning before contractual obligation must be

paid.

The greater company earning in proportion to its assets (and the greater the coefficient

from this calculation), the more effectively that company is said to be using its assets

0.2
0.15
0.1
0.05
0
20 20 20 20 20
From the graph it is clear that ROI has decreased in 2008 bu has slightly increasing 2009.

This is on account of the following reasons:

 In the year 2008 the total assets employed was less yet ROI did not increase

because there was a downfall in the profit before tax and interest.

 In 2009 the total assets employed as well as profit before tax and interest increase

which counterbalances each other and so there is a slight increase in ROI.

EARNING PER SHARE

The rate of dividend on share depend upon the amount of profit earned by the firm

whatever profit remains, after meeting all expenses and paying preference share dividend

belong to equity share holders. These are the profit earned on equity share capital. This is

57
a popular ratio as it measure the profitability of a firm from owner standpoint. The higher

the ratio the greater would be the market price of share of company or vice versa.

4
3.5
3
2.5
2 EPS
1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09

DEBT EQUITY RATIO

This ratio reflect the relative claims of creditors and shareholders against the assets of

the firm. A high debt equity ratio, the higher the shareholders earning when the cost

of debt is less than the firm’s overall rate of return on investment. A low debt equity

ratio implies a greater claim on owners than creditors. Debt equity ratio is directly

computed by dividing total debt by net worth.

58
 0.4
0.35
0.3
0.25
0.2 debt equity ratio
0.15
0.1
0.05
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

From the graph it is clear that the ratio has increased in 2008 but decreased in 2009.

This is due to the following reason:

 In 2008 ratio increased due to more utilization of loan by NFL rather than its

shareholders’ earning

 In 2009 NFL has taken fewer loan and utilization its earnings and so its debt

equity ratio declined.

FINDINGS

1. NFL requires no long-term loan. All NFL bonds will be redeemed by 30 th

June’04. Since its interest cost is very high. They can now do without the

bonds since they have sufficient funds with the banks. It has repaid all its

debts & has become a Zero- Debt Company.

59
2. At the time of receiving payments NFL is using drafts while at the time of

making payments NFL uses cheques.

3. There is no fixed system of interest reduction adopted by NFL. It varies

according to changing situations and on the intellectual judgment of the

financial officials. Here the Consortium of Banks & Multibanking System is

used for interest reduction.

4. Inter-banking system poses disadvantage i.e. the funds when transferred

from one bank to another may be wrongly transferred to a personal account

rather than the company account.

5. The interest rate of cash credit is quite high i.e. 9 – 10 %.Very rarely NFL

is using it.

6. The interest rate of commercial paper is also high i.e. 6 – 7%, therefore its

use has been stopped. It involves too much manpower, too much bookwork

and its effective rate of interest is also high.

7. NFL is now using the most efficient and effective system known as CASH

MANAGEMENT SYSTEM (CMS).

RECOMMENDATIONS

1. NFL should exercise tight control over inter-bank transfers of cash and

transfers between various units of NFL such as divisions or subsidiaries.

Excessive funds may be tied up in various division of the firm, which the

company should give due attention to.

60
2. NFL should give special attention to the handling of large remittances so

that they may be deposited in a bank as quickly as possible e.g. personal

pick-ups, air mart, special delivery etc.

3. When a small no. of remittances account for a large proportion of total

deposits, it may be worthwhile to initiate controls to accelerate the deposits

and collection of their cheques.

4. Investment in Treasury bills and government securities of 3 years maturity,

call money deposits. NFL can also deposit its surplus funds in UTI &

ILFS.

5. Monthly report for the total payments released during the month along with

details of the major recipients should be prepared for reporting to the

management.

6. Surprise checks of the physical cash should be made periodically. When

cash is lying at more than one place, cash verification for all the places

should be attempted at one time.

61
 RECEIVABLES MANAGEMENT

Receivables result from credit sales. A concern is required to allow credit sales in order to

expand its sales volume. It is not always possible to sell goods on cash basis only. It has

62
to establish a practice of selling goods on credit basis also. It is not possible to avoid

credit sales without adversely affecting sales. The increase in sales is also essential to

increase profitability. Thus, receivables constitute a significant portion of current assets

of a firm. But for investment in receivables, a firm has to incur certain costs. There is a

risk of bad debts also. It is therefore very necessary to have a proper control &

management of receivables.

Receivables represent amounts owned to the firm as a result of sale of goods or services in

the ordinary course of the business. These are claims of the firm against its customers &

form part of its current assets, It is also known as accounts receivables, trade receivables,

customer receivables or book debts. The receivables are carried for the customers. The

period of credit & extent of receivables depends upon the credit policy followed by the

firm. The purpose of maintaining or investing in receivables is to meet competition & to

increase the sales & profits & forms a large portion of working capital.

Receivables management refers to the decisions a business makes regarding its overall

credit & collection policies & the evaluation of individual credit applicants. In formulating

an optional credit policy, finance manager analyze the marginal benefits & cost associated

with charges in credit standards, credit terms, collection efforts etc.

Receivables management proves for a firm, both an asset & a problem: an asset of the

promise of a future cash flow & a problem because of the need to obtain financing while

waiting for the future cash flow.

63
The financial manager sets policies that have a great deal to do with this credit decision,

All credit decision are based primarily on the creditors assessment of the customers

likelihood of payment setting a maximum on the amount of credit offered to a customer

limits the exposure of the firm’s to the risk that the customer won’t pay.

COSTS OF MAINTAINING RECEIVABLES

1.COSTS OF FINANCING RECEIVABLES - When goods & services are provided on

credit then concern’s capital are allowed to be used by the customers. The receivables are

financed from the funds supplied by the shareholders for long term financing & through

retained earnings. The concern incurs some costs for collecting funds, which finance

receivables.

2.COST OF COLLECTION – A proper collection of receivables is essential for

receivables management. The customers who do not pay the money during a stipulated

period are sent reminders for early payment. Some persons may have to be sent for

collecting these amounts. In some cases legal recourse may have to be taken for collecting

receivables. All these costs are known as collection costs which a concern is generally

required to incur.

3.BAD DEBTS – Some customers may fail to pay the amounts due towards them. The

amounts, which the customers fail to pay, are known as bad debts. Though a concern may

be able to reduce bad debts through efficient collection machinery but one cannot

altogether rule out this cost.

64
  OBJECTIVES OF MAINTAINING RECEIVABLES

1.For expansion of its sales volume & consequently profit.

2.To remain competitive in the current business scenario.

 FACTORS INFLUENCING THE SIZE OF RECEIVABLES

The following factors directly & indirectly affect the size of receivables.

1.SIZE OF CREDIT SALES- The volume of credit sales is the first factor, which

increases or decreases the size of receivables. The higher the part of credit sales out of

total sales, figures of receivables will also be more or vice versa.

2.CREDIT POLICIES- A firm with conservative credit policy will have a low size of

receivables while a firm with liberal credit policy will be increasing the figure. If

collections are prompt then even if credit is liberally extended the size of receivables will

remain under control. In case, receivables remain outstanding for a longer period there is

always a possibility of bad debts.

3.TERMS OF TRADE – The period of credit allowed & rates of discount given are

linked with receivables. If credit period allowed is more, then receivables will also be

more. Sometimes trade policies of competitors have to be followed otherwise it becomes

difficult to expand sales.

65
4.EXPANSION PLANS – When a concern wants to expand its activities, it will have to

enter new markets. To attract customers, it will give incentives in the form of credit

facilities. The periods of credit can be reduced when the firm is able to get permanent

customers. In the early stages of expansion more credit becomes essential & size of

receivables will be more.

5.RELATION WITH PROFITS – The credit policy is followed with a view to increase

sales. When sales increases beyond a certain level the additional costs incurred are less

than the revenues. It will be beneficial to increase sales beyond a point, as it will bring

more profits. The increase in profits will be followed by an increase in the size of

receivables or vice versa.

6.CREDIT COLLECTION EFFORTS – The collection of credit should be streamlined.

The customers should be sent periodical reminders if they fail to pay in time. Adequate

attention should be paid towards credit collection. An efficient credit collection machinery

will reduce the size of receivables. If these efforts are slower then outstanding amounts will

be more.

7.HABITS OF CUSTOMERS – The paying habits of customers also have a bearing on

the size of receivables. The customers may be in the habit of delaying payments even

though they are financially sound. The concern should remain in touch with such customers

& should make them realize the urgency of their needs.

66
8. COMPETITION – When the concern is functioning under a competitive business

scenario, it has to keep a constant watch over other competitors credit policies & sales

terms. If the competitors are extending more credit period & discount, then the particular

concern should do the same.

FORECASTING THE RECEIVABLES:

A concern should be clear about its credit policies. How much will be the size of

receivables on the basis of present policies? This is an important estimation, which will

help the concern in planning its working capital. Though it is not possible to forecast

exact receivables in the future but some estimation is possible on the basis of past

experience, present credit policies & policies followed by other concerns. The following

factors will help in forecasting receivables:

1.CREDIT PERIOD ALLOWED – The aging of receivables is helpful in forecasting.

The longer the amounts remain due, the higher will be the size of receivables. The

increase in receivables will result in more profits as well as higher costs too. The

collection expenses & bad debts will also be more. If credit period is less, then the size of

receivables will also be less.

2.FORECASTING EXPENSES - These expenses are administrative expenses on

collection of amounts, cost of funds tied down in receivables, bad debts etc. At the same

time, the increase in receivables will bring in more profits by increasing sales. If the costs

of receivables are more than the increase in income, further credit sales should not be

67
 allowed. On the other hand if revenue earned by the increase in sales is more than the

costs of receivables, then sales should be expanded.

3.FORECASTING AVERAGE COLLECTION PERIODS & DISCOUNTS – The

credit collection policies will spell out the time allowed for making payments & the time

allowed for availing discount. If the average collection is more than the size of

receivables will be more.

Average collection period: - Trade Debtors X No. Of working days

Net Sales

The concern should try to keep average collection period under control. The number of

customers availing discounts should be determined. If a certain percentage of customers are

not availing discount facility, it means payment by that percentage of customers is over due.

Average collection period & discount allowed will also be helpful in forecasting the size of

receivables.

4.AVERAGE SIZE OF RECEIVABLES: The determination of average size of

receivables will also be helpful in forecasting receivables.

Avg. size of receivables = Estimated size of annual sales X average collection period.

68
  DIMENSIONS OF RECEIVABLES MANAGEMENT

1.FORMING OF CREDIT POLICY

(a) QUALTY OF TRADE ACCOUNTS OR CREDIT STANDARDS

The volume of sales will be influenced by the credit policy of a concern. By liberalizing

credit policy, the volume of sales can be increased resulting in increased profits. The

increased volume of sales is associated with certain risks too. It will result in enhanced

costs & risks of bad debts & delayed receipts. The increase in the number of customers

will increase the clerical work of maintaining the additional accounts & collecting of

information about the credit worthiness of customers. There may be more bad debt losses

due to extension of credit to less worthy customers. These customers may also take more

time than normally allowed in making the payments resulting into tying up additional

capital in receivables. On the other hand extending credit to only credit worthy customers

will save costs like bad debt losses, collection costs, and investigation costs etc. The

restriction of credit to such customers only will certainly reduce sales volume, thus

resulting in reduced profits.

A finance manager should liberalize credit only to the level where incremental revenue

matches the additional costs. The optimum level of investment in receivables should be

where there is a trade off between the costs & profitability & liquidity. It should be

neither too stringent nor too liberal.

(b) LENGTH OF CREDIT PERIOD

69
It means the period allowed to the customers for making the payment. A concern fixes its

own terms of credit depending upon its customers & the volume of sales. The customs of

industry act as constraints on credit terms of individual concerns. The competitive

pressure from other firms compels to follow similar credit terms, otherwise customers

may feel inclined to purchase from a firm, which allows more days for paying credit

purchases. Sometimes more credit time is allowed to increase sales to existing customers

& also to attract new customers. The length of credit period & quantum of discount

allowed determines the magnitude of investment in receivables. A firm may allow liberal

credit terms to increase the volume of sales.

(C) CASH DISCOUNT

Cash discount is allowed to expedite the collection of receivables. The funds tied up in

receivables are released. The concern will use the additional funds received from

expedited collections due to cash discount. The discount allowed involves costs. The

financial manager should compare the earnings resulting from released funds & the cost

of discount. The discount should be allowed only if its cost is less than the earnings from

additional funds. If the funds cannot be profitably employed then discount should not be

allowed.

(D) DISCOUNT PERIOD

The collection of receivables is influenced by the period allowed for availing the

discount. The period allowed for this facility may prompt some more customers to avail

discount & make payments. This will mean additional funds released from receivables,

which may be alternatively used.

2. EXECUTING CREDIT POLICY

70
(a) COLLECTING CREDIT INFORMATION

It is necessary to gather credit information about customers. This information should be

adequate enough so that proper analysis about the financial position of the customers is

possible. But it involves certain cost. The cost incurred in collecting this information &

the benefit from reduced bad debts will be compared. The credit information will

certainly help in improving the quality of receivables.

The source from which credit information will be available should be ascertained like

financial statements for a number of years, credit rating agencies, reports from banks,

firm's records etc. to determine the credit worthiness of customers.

(b) CREDIT ANALYSIS

After gathering the required information the financial manager should analyze it to find

out the credit worthiness of potential customers 7 also to see whether they satisfy the

standards of the concern or not. The credit analysis will determine the degree of risk

associated with the account, the capacity of the customers to borrow & his ability &

willingness to pay.

71
(c) CREDIT DECISION

After analyzing the credit worthiness of the customers the financial manager has to take a

decision whether the credit is to be extended & if 'yes' then up to what level. He will

match the credit worthiness of the customer with the credit standards of the concern. If

customer's credit worthiness is above the credit standards then there is no problem in

taking a decision.

3.FORMULATING &EXECUTING COLLECTION POLICY

The concern should devise procedures to be followed when accounts become due after

the expiry of credit period. The collection policy be termed as strict & lenient. A strict

collection policy will involve more collection efforts on collection. It may enable early

collection of dues & will reduce bad debt losses but will involve increased collection

costs & reduce volume of sales. A lenient policy may increase the debt collection period

& more bad debt losses. A customer not clearing the dues for long may not repeat his

order as he will have to pay earlier dues first, thus causing loss of customers.

The collection of book debts can be monitored with the use of average collection period

& aging schedule. The actual average collection period to evaluate the efficiency of

collection so that necessary corrective action can be taken if the need be. The aging

schedule further highlights the debtors according to the age or length of time of the

outstanding debtors.

TECHNIQUES OF RECEIVABLE MANAGEMENT IN NFL

72
 1. .FORMING OF CREDIT POLICY

Credit is an important marketing tool but at the same time should not be extended as a

matter of routine. Every time credit is extended, NFL has to examine weather it needs

any one of the following.

 Off season placement of stocks.

 Increased volume of sale i.e. part cash and part credit

 Pre-empt competition.

 NFL gives credit to its customers according to the credit policy set by the top

management. They solely take this decision along with marketing department and

CMO has to execute the decision. It includes appointment of dealers credit terms.

Cash discounts etc. it is reviewed time to time and necessary modification are

made.

2. CREDIT ADMINISTRATIVE PROCEDURE

The zonal office committee(ZOC) draws up the credit limit for each dealer. ZOC

must ensure that the dealer should have provide one or more of the following as

securities:

 Cash deposit as security on which interest is allowed by the management.

The interest rate is fixed as per the fixed deposit rate(FDR) of the

commercial bank. Finance department has to inform the CMO about the

interest rate applicable every year

 Bank guarantee or latter of credit issued by the schedule Indian bank.

73
  Hypothecation of documents sating that NFL will have the right to

deposit off the prorerty in case of default by the party in payment of the

dues to NFL. Letter of hypothecation is not required if the dealer gives

bank guarantee for extra credit.

Procedure of fixing one time maximum credit limit

The procedure of fixing one time maximum credit limit is arrived at by

calculating 18 months average of collection/ realization per month from

the party. The maximum credit limit should be 3 time this average

collection per month.

3. OVERDUE INTEREST

As a deterrent against delaying payment , a penalty interest is charged to the party

for the number of days beyond the due date of payment and this is notified in

advance. The penalty interest will be 2% above the bank rate interest. For this

purpose the invoice should clearly indicate the due date of payment. Cheque

facility is often misused by delaying the realization of procedure.

4. CASH DISCOUNT

If the customers wants to avail the cash discount and pay within 30 days from the

date of purchase, then they will be offered a cash discount at a minimum of Rs.

36/MT. this cash rebate is given on the daily basis @ Rs.1.20 per day.

The top management has decided the different distribution margin for normal

dealers and institutional buyers. This distribution margin is fixed by the

government committee known as FICC.

74
DEALERS:

Basic Price of Urea = Rs.4830/MT

Distribution margin= Rs.180/MT

Price offered= 4830-180=Rs.4650/MT

Category Quantity(MT) Commitment Rebat(Rs.)

A 6000 60
B 5000 55
C 4000 50
D 3500 45
E 3000 45
F 2500 40
G 2000 35
H 1500 30
I 1000 30
J 750 25
K 500 20
L 250 20

INSTITUTIONAL BUYERS:

Basic price of urea=Rs 450/MT

Distribution margin=Rs. 200/MT

CONTROL AND MONITORING OF RECEIVABLE IN NFL

Once the credit as been extended to a customer as per credit policy, the next important

step in the management of receivable is the control of these receivables. Maerely, setting

of standerds and framing of credit policies is not sufficient; equally important is their

effective implementation to control the receivable. In order to control the level of

75
receivables. The firm should apply regular check and there should be a continuous

monitoring system. The financial manager should keep a watch as well as on the total

credit policy of the firm.

NFL uses the following procedure to control and monitor its receivable;

a) EXECUTION OF THE COLLECTION POLICY:

The marketing staff has the job of visiting the customers, taking orders from them,

reminding them for the amounts due, assessing the credit worthiness & reporting to the

marketing department.

The steps usually taken are:

a. Letters including reminders to expedite payment.

b. telephone calls

c. visit in person &

d. legal action.

b) AGING SHEDULE

The concern prepares an Aging Schedule/Analysis. It is prepared to know the percentage

of debtors & outstanding amounts by them at different periods & to make the follow up

to the party. It is made for less than 6 months, more than 6 months, less than 1 year, less

than 2 years, less than 3 years & more than 3 years. Those with more than 3 years have

76
legal disputes with NFL. It also helps for reporting to the management & realization of

debts.

The contract with a dealer is terminated when the party is a non-working one i.e.

having legal disputes for a long time, the field staff going daily to the party for money but

is unable to recover the dues or is unable to meet the officials, by an order from the

management, by an agreement with the party & when the party stops or does not take the

stipulated amount of goods from the godowns of NFL.

c) EVALUATION OF RECEIVABLES

An analysis of receivables should be made to know whether rigorous policy for the

collection of receivables is being followed. An analysis of receivables may be made into

various sections as:

Book debt vis – a- vis sales

Investment in accounts is expected to fluctuate in direct relationship with volume of

sales, provided terms of credit & collection practices do not change. But effective

management of receivables should not allow their fast growth as compared to sales. Here

we see that though sales are increasing at a constant rate but this rate is not the same as

increase in debtors from year to year. This is due to subsidies which differs from year to

year depending upon the policies of Govt. of India.

Debtors Turnover Ratio

77
This ratio gives an idea about efficiency of granting credit & efficiency of collecting past

due accounts. This ratio establishes the relationship between annual credit sales

Receivable turnover ratio = annual net credit sales / av.debtors

Particular 2004-05 2005-06 2006-07 2007-2008 2008-09

Credit sales 347406.16 359053.16 386568.25 414065.75 512710
Avg. debtor 44941.98 62976.385 101509.38 100385.49 85360.06
Debetor 7.73 5.70 3.80 4.17 6.21

Turnover

ratio

Debetors turnover ratio

100%
90%
80%
70% debetor turnover ratio
60%
50% avg. debetors The
40% cradit sales
30%
20%
10%
0%
2004-05 2005-06 2006-07 2007-08 2008-09

decrease in the debetors turnover from 2004 to2007 is due to the increase in the receivables from

FromFICC against subsidy. The ratio then shows an increasing trend from 2007 to 2009 which

indicates better liquidity of the firm(about 170 crores bonds were sold to generate cash)

Debtors collection period

78
It measure the quality of debtors since it indicate the speed of their collection. The shorter

the average collection period, the better the quality of debtors, since a shorter collection

period implies the prompt payment by the debtors. A low collection period is not

necessarily favourable rater, it may indicate a very restrictive credit and collection

policy. The collection period of NFL is given blow.-

YEAR DEBTORS COLLECTION PERIOD

2004-05 46.57
2005-06 63.17
2006-07 94.53
2007-08 86.17
2008-09 65.33

100
90
80
70
60
50
40 DEBTORS COLLECTION
30 PERIOD
20
10
0
2004- 2005- 2006- 2007- 2008-
05 06 07 08 09

Debtors collection period

NFL’s main debtors is the government from whom it has to receive subsidy.

There is an increase in the recoverable from FICC and the government has

issued bond instead of cash.

79
 FINDINGS
1.Debtors’ turnover ratio is increasing this year as percentage of average debtors is

increasing as compared to sales.

2 Collection system is much more efficient.

3.Bad debts have increased during the last 2 years due to increase in debtors each year,

which is not a good sign.

4. Sometimes the goods, which are supplied in bags to customers, may get spoilt &

consequently the suppliers also delay payment.

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 RECOMMENDATIONS
1.The system in vogue should ensure raising of bills/invoices immediately at the

completion of a transaction. When this is not possible invoices must be dispatched along

with dispatch of goods or promptly thereafter.

2. Special attention should be paid while dealing with Govt. & Govt. agencies, which

want documentation with meticulous precision.

3. Accounting statements should be sent at regular intervals even if debt has not become

due technically

4.Credit limit so fixed should be prominently displayed in the

credit file of the customer so that even an overzealous salesman does not miss the ceiling

figure.

81
5. Cash discount offered should invariably be linked with the interest rate prevalent in the

market and must be subject to constant review.

6.Overdue debts i.e. which are due for more than 1and 2 years

should be handed legally.

7.Change in credit terms, credit standards & collection policies can be helpful for

reducing the average collection period.

8. If the customers do not pay within the maximum credit period then a reminder should

be sent & if still the payment gets delayed then their licenses should not be renewed for

the next contract.

9. Supply fresh goods in plastic bags so that customer is satisfied & he does delay in

payment.

10. Training & instructions to be provided regularly to farmers & field staff.

11. For collection of payments, they can take the help of collection agencies or engage in

factoring.

82
83
 INVENTORY MANAGEMENT

Every enterprise needs inventory for smooth running of the business. It serves as a link

between production & distribution process There is, generally, a time lag between the

recognition of a need & its fulfillment. The greater the time lag, the higher the requirements for

inventory .The unforeseen fluctuations in demand & supply of goods also necessitate the need

for inventory.

The investment in inventories constitutes the most significant part of current assets/working

capital in most of the undertakings. Thus it is very essential to have proper control &

management of inventories. The purpose of inventory management is to ensure availability of

materials in sufficient quantity as & when required & also to minimize investment in

inventories.

TYPES OF INVENTORIES

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It means the stock of goods. It may mean stock of finished goods only. In a manufacturing

concern, it may include raw materials, work in process &stores, etc. It includes:

(a) RAW MATERIAL: - It forms a major input into the organization they are required to

carry out production activities uninterruptedly. The quantity of raw materials required will be

determined by the rate of consumption & the time required for replenishing the supplies. The

factors like the availability of raw materials & government regulations, etc to affect the stock

of raw materials.

(b) WORK-IN-PROGRESS: - The work-in-progress is that stage of stocks, which are in

between raw materials & finished goods. The raw materials enter the process of manufacture

but they are yet to attain a final shape of finished goods. The amount of work-in-progress

depends upon the time taken in the manufacturing process. The greater the time taken in

manufacturing, the more will be the amount of work in progress.

(c) CONSUMABLES: - These are materials, which are needed to smoothen the process of

production. These materials do not directly enter production but are catalysts, etc. They do not

create any supply problem & form a small part of production cost.

(d) FINISHED GOODS: - These are goods are ready for the consumers. The stock of

finished goods provides a buffer between production & market. The purpose of maintaining

inventory is to ensure proper supply of goods to customers. In some concerns the production is

undertaken on order basis, in these concerns there will not be a need of finished goods.

(e) SPARES: - The stocking policies of spares are different from industry to industry. The

spares are engines, maintenance spares etc. are not discarded after use, rather they are kept in

85
ready position for further use. All decisions about spares are based on the financial cost of

inventory on such spares & the costs that may arise due to their non-availability.

MOTIVES OF HOLDING INVENTORIES

Every business enterprise has to maintain a certain level of inventories to facilitate

uninterrupted production & smooth running of business. In the absence of inventories a firm

will have to make purchases as soon as it receives orders. It will mean loss of time & delays in

execution of orders, which sometimes may cause loss of customers & business. A firm also

needs to maintain inventories to reduce ordering costs & avail quantity discounts, etc. There

are three purposes:

(1) TRANSACTION MOTIVE – which facilitates continuous production & timely

execution of sales orders.

(2) PRECAUTIONARY MOTIVE - which necessitates the holding of inventories for

meeting the unpredictable changes in demand & supplies of materials.

(3) SPECULATIVE MOTIVE – which induces to keep inventories for taking advantage of

price fluctuations, saving in re-ordering costs & quantity discounts, etc.

COSTS OF HOLDING INVENTORIES

The various costs & risks are:

86
(1) CAPITAL COSTS – Maintaining of inventories results in blocking of the

firm’s financial resources. The firm has, therefore, to arrange for additional funds to

meet the cost of inventories. The funds may be arranged from own resources or from

outsiders. But in both cases, the firm incurs a cost .In the former case, there is an

opportunity cost of investment while in the latter case, the firm has to pay interest to

outsiders.

(2) ORDERING COSTS –

Are also known as acquisition &set up costs, refer to costs involved in the placement

of order for the purchase of material. These include expenses related to preparation of

purchase order, transporting, receiving, inspecting & recording of materials.

Lower the number of orders, higher will be the ordering costs. So if in a period, the

inventory holding is large there shall be fewer instances of order placements & lesser

ordering costs.

(3) CARRYING COSTS– Refers to the costs incurred for maintaining a given

level of inventory. These are storage costs, servicing costs, costs of deterioration &

opportunity costs. Storage costs incur expenses like rent of godowns, depreciation of

handling equipnent, insurance &utilities. Servicing costs refer to costs of labour

handling inventory, clerical & accounting costs for record keeping, janitorial services

etc. Costs related to deterioration are pilferages, thefts loss by fire etc. Stock may

become obsolete due to technical advancements or change in fashion. Finally

opportunity costs refer to the loss of revenue, which a business would have earned on

87
 the amounts, which have been invested in inventory. If inventory level increases,

carrying costs too will show a rising trend. To minimize carrying costs it would be

advisable to keep on placing orders in smaller lots. But placement of orders in smaller

lots will increase the ordering costs. So a trade off between ordering costs & carrying

costs need be reached.

(4) RISK OF PRICE DECLINE- in the prices of inventories by the suppliers in

holding inventories. This may be due to increased market supplies, competition or

general depression in the market.

88
 OBJECTIVES OF INVENTORY MANAGEMENT

(1) To reduce cost of holding stock so that investment in stock remains in

imal.

(2) To reduce the stock outs so that production cycle operates smoothly.

(3) To ensure continuous supply of materials spares & finished goods so that

production should not suffer at any time & the customers demand should also be met.

(4) To avoid both over-stocking & under-stocking of inventory.

(5) To investments in inventories at the optimum level as required by the

operational & sales activities.

(6) To keep material cost under so that they contribute in reducing cost of

production & overall costs.

(7) To eliminate duplication in ordering or replenishing stocks. This is

possible with the help of centralizing purchases.

(8) To minimize losses through deterioration, pilferage, wastages &

damages.

(9) To design proper organization for inventory management. A clear-cut

accountability should be fixed at various levels of the organization.

(10) To ensure right quality goods at reasonable prices. Suitable quality

standards will ensure proper quality of stocks. The price-analysis,

cost analysis & value-analysis will ensure payment of proper prices.

89
 INVENTORY MANAGEMENT OF NFL

The material department of NFL has the responsibility of managing inventory. The two plant

of NFL namely Panipat and Bhatinda have similar technology and therefore, they have

common storage space where single inventory of each item is maintained for the two plants

together. For the other two plant i.e. Nangal and Vijaypur with different technology separate

warehouse are maintained.

IMPORTANCE OF STORES MANAGEMENT

Store keeping activities play a very important role in material management functions. It is in

direct touch with the User Department in its day-to-day activities. The most important purpose

served by stores is to provide uninterrupted service to the user department and at the same time

to keep optimum level of inventory. It has to be realized that store means money and any

saving effected in reducing inventory, its carrying cost and obsolescence will contribute in

improving the profitability of the company.

FUNCTION OF STORES

 The primary objective of stores wing of materials management department is to serve

the users, particularly, production & Maintenance promptly apart from main functions

of receiving, inspection, storing, issuing. It has also to take suitable steps for evolving

methods and procedures for inventory control.

90
  Stores also have to keep link with Purchase Department as well as Finance Department

with regard to stores Accounting, physical stock verification, disposal of scrap and

surplus materials, lodging of formal claims on the under-writers/carriers, etc.

The following bulk materials are consumed in various plants of NFL:-

i. Coal

ii. Fuel/oil/LSI/HPS/Naphtha

iii. Packing Materials-HDPE bags

iv. LPG/HSD/Petrol

v. Lime Stone &Soap Stone

vi. Bulk Chemicals.

These are kept in stock for fifteen days. These items are needed daily, so they are quickly used

up. These materials take 85% of the total revenue expenditure of NFL the rest comprises of

spare part and chemicals.

For natural gas and for semi-finished goods no stock is required and is supplied in regular

fashion. After production the finished goods are immediately handed over to dealers and the

dealers are responsible for the distribution of these goods. Still in rare circumstances a

maximum of one month is taken for stocking purpose.

91
For raw materials a perpetual control system is followed i.e. long-term contracts with the

suppliers. For finished goods production is 100% and is controlled by Government of India.

The urea comes under ECA(Essential Commodities Act) and the Government fixes the price.

The demand for urea fluctuates due to seasonal variations. April, May and June is the worst

period while July and August are the consumption periods whereas December to March is the

peak material period. Therefore, accordingly the level of inventory is maintained by the

Material Department.

NFL plants also use spares which forms a part of inventory. There are two type of spares

available in NFL:-

(a) Insured spares: These are highly critical spares. These are major items for production &

are very costly. It is normally imported e.g. motors, pumps. These types of spares are not

normally forecasted.

(b) Regular Consumption spares – These are the items that are used at regular intervals wand

hence, level is to be maintained. Here, that safety level is two months, Examples are seals,

packing materials, castings etc. Here some level is to be maintained. Its safety level is 2

months.

VALUATION OF INVENTORY

 The technique that is applied for the evaluation of inventory is weighted average

method. In this method the total cost of all the material is divided by the total number

92
 of items of the stock. The price calculated in this way will be used for the issue of

material till a new purchase is not done.

 After new purchase is made, the quality will be added to the earlier balance quantity

and the material cost will be added to the earlier cost. A new price is calculated by

dividing the changed total cost by the number of units in the stock after purchase. This

method is recover the whole cost of materials. This method is suitable when the price

fluctuations are frequent as it smoothens out the fluctuations by taking in to account

total cost and the total quantity of the material.

 Raw materials, packing materials and stores and spares are valued at lower of weighted

average cost and net realizable value. In case of stores and spares not moved for more

than 2 years and up to 5 years, provision is made at 5% per annum(on straight line

basis) and charged revenue.

 In case of stores and spares not moved for more than 5 year/identified as surplus or

obsolete, value is taken as certified by an engineering value and diminution if any

charged to the revenue.

 Finished and semi-finished goods are valued at lower of the weighted average cost and

net realizable value based on applicable retention price/sale price. The plant wise

finished stock lying at warehouses are determined on first-in-first-out basis.

SURPLUS IDENTIFICATION & DISPOSAL

The following procedure shall be followed for identification of Surplus & Disposal:-

93
PHYSICAL VERIFICATION

 Over and above the physical verification of the stores by a third party, the Unit should

conduct 100% physical verification of all the stores and spares every five years in order

to eliminate/reconcile the discrepancies. This shall be carried out by the stores section

of the materials department along with the help of concerned Technical Group.

 The spares of equipment declared ‘Surplus’ can be tagged for identification and taken

out of the regular stores and placed separately as a lot for Exhibition and Disposal. The

lot can consist of spares of number of equipments. The items to be disposed off can be

classified in the following categories.

1) Complete equipment with their spares,

2) Equipment spare parts, components, sub-assemblies,

3) Capitalized spares,

4) Non-capitalized spares,

5) Bulk material like pipes, pipe fittings, cabels, structural, steel items

6) Chemicals & catalysts

i. Totally spoiled

ii. Recyclable

7) Low shelf life items.

94
PROCEDURE OF DISPOSAL

The reserve price so recommended by the Unit Level Committee or Certified Engineering

Valuer, available in sealed covers shall be opened after receipt of price bids from parties. The

same shall be got approved from Comptent Authority as per the prevalent Delegation of Power

for declaration and disposal of such items and fixed in advance before opening of price bid.

After approval of Reserve Price, Price bids which are received prior to opening of sealed cover

containing recommended reserve price, shall be opened. in cases where the highest rater

received against the tender is equal to or more than the Reserve Price, the same shall be

analyzed by the Unit Level Committee and shall be considered for disposal.

RESPONSIBILITY FOR RAISING INDENTS

The work of indenting and procurement follow-up shall be entrusted to Store and various

consumers on the following basis:-

FOR STOCK ITEMS

I. The indents for purchase of materials which have been declared as Stock Item will be

raised by Store Section after the quantity in stock has reached the ‘Re-order Level’ as

determined for the respective items. Such indents/requisitions, amongst other

particulars, shall also indicate:

 Reorder quality

 Stock in hand

95
  Pending purchase order reference and quantity

 Consumption statistics

 Safety stock etc.

FOR OTHER ITEMS

II. The respective departments will raise all requisitions/indents for purchase of materials

and service. The requirements should not be intentionally befurcated so as to avoid

approval from higher authorities. One time purchase for projects or capital

equipments/spares should be properly justified. Further, the obsolescence factor should

also be taken into account, i.e. the equipment to be purchased should conform to the

latest specifications and technology available in the market. The departmental head will

ensure that the purchase requisitions must indicate:-

 Budget provision

 Estimated value of the present requisition.

PROCUREMENT TIME

Indenting officers shall be expected to familiarize themselves with the purchase procedure.

While stipulating delivery time on the indent, the time required in placement of order as per

purchase procedure and the time required by the suppliers and carriers in shipping and

transportation of material shall be taken into account. Any stipulation on delivery, which

96
ignores this aspect, is likely to result not only in avoidable rush purchase but also in higher

specifications, which are more broad based, and conform to standards and trade practice.

STOCK AND STOCK LEVELS

Head of the Material Department of NFL as Chief Custodian of Stores, shall not only regulate

optimum level but also take steps to ensure elimination of practice resulting in waste and

misuse of stores e.g. issue against return of old stores wherever necessary, stamping of items

prone to misuse, fixation of quotas based on estimated requirements in consultation with user

or industrial engineering dept. etc.

INVENTORY MANAGEMENT TECHNIQUES IN NFL

(a)ABC Analysis - ‘A’ stand for ‘High Value Items’ or most ‘Important Items’. All ‘A’

categories items shall be monitored by the stores in charge. Exam. – motor pumps. Petroleum

etc.

‘B’ stand for ‘Intermediate Importance’. ‘B’ category item are monitored by the Dy.

Managers/Managers. Example- insured spares

‘C’ stand for items that have ‘Relatively least Importance’. All ‘C’ category items are

under simple control of management. Example.- packing material, sheets etc.

97
ABC analysis of stores is carried out both consumption basis as well as stock balance basis

with the help of computer so as to have selective control on procurement and inventory

holdings. The stock cards are suitably marked with the category of the item and the selective

control, which is required physical verification for stores and spares is indicated below-

Category of inventory Stock Value Periodicity of Verification

A items Rs. 1lakh and above Annual
B Items Rs. 20,000/- to 1lakh Annual
C Items Below Rs. 20,000/- Once in 3year i.e. 1/3 of the

Items each year

(b) FSN analysis - F (fast moving inventory)-these items are required daily & in large

numbers & are crucial to production process e.g. bearings, seals etc used up within 2 years.

S (slow moving inventory)-are those which are required often & used up often within 3

years. N (non-moving inventory)- are those items that are not used for more than 3

years & the slow moving items be converted to non-moving items.

(c) VED analysis - ‘V’ stand for ‘vital inventory’ these items are very crucial to

production process without which manufacturing cannot go on e.g. insurance spares, coal, fuel

etc.

‘E’ stand for ‘Essential’ These items are also necessary but there stocks may be kept at low

figures e.g. recorders, bearings, pressure system, and electrodes.

98
‘D’ stand for ‘Desirable’ it may be avoided at times. If the lead time of these spares is less,

then stocking of these spares can be avoided. e.g. packing materials, sheets etc.

Codification of stock is also done to facilitate quick identification & management. It depends

on the nature of items. As all the work is computerized therefore specific codes are required to

identify the various stocks available with the organization. The codification done is in

alphanumeric system where the code used is of 9 digits out of which 2 are alphabets & 7 are

numeric.

Rarely in case of raw materials there is delay in the supply. If there is any delay for any reason

then there is a contingency plan & the problem is eliminated quickly.

There is hardly any damage to the finished goods. Still there may be some damage as the goods

are hygroscopic in nature & the damage is 1% to 1.5% of the total product, which is negligible.

Their ordering costs are Rs2000-2500 per order, which is competitive compared to other

market players. Their inventory carrying costs are 20% of total inventory cost, which is not

high at all.

All the stocks of NFL are hypothecated with the banks. So whenever they need to finance

inventories, they readily avail of the funds from the banks as they have a very good relation

with them.

They have an excellent system for monitoring inventory in the godowns. The different units

send periodic i.e. monthly inventory reports to the corporate office for records & maintenance

99
where the reports are analyzed for any discrepancies &immediately corrected. The documents

used are material receipt notes, daily transfer registers, bin cards, issue slips, stock ledgers etc.

The technique that is applied for valuation of inventory is weighted average method. In this

method the total cost of all the materials is divided by the total numbers of items of stock. The

price calculated in this way will be used for issue of materials up to the time a fresh purchase

has not been made. After a fresh purchase, the quantity will be added to the earlier balance

quantity & material cost will be added to the earlier cost. A fresh price is calculated by

dividing the changed total cost by the number of units in stock after the purchase. This method

recovers the whole cost of materials. This method is suitable when price fluctuations are

frequent as it smoothes out fluctuations by taking into account total cost & total quantity of

materials.

There is no problem of stock out situation as their network of suppliers is large & materials are

procured from them without any problem & also they have sufficient in the godown while part

of the materials are in transit & the rest are kept ready for loading.

Sometimes problem arises in case of coal which gets moist & wet during transit & in oil

refineries When supply gets delayed, but these problems are not that acute to hamper the

production process.

INVENTORY TURNOVER RATIO

100
Inventory turnover ratio = Cost of goods sold / Av.inventory

S.No Year Inventory T/O

1 2004-2005 9.34
2 2005-2006 10.65
3 2006-2007 11.49
4 2007-2008 10.96
5 2008-2009 13.70

INVENTORY TURNOVER RATIO

14
12
10
8
6 INVENTORY TURNOVER
RATIO
4
2
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009

101
The ratio has increased in 2009 which shows a good sign of inventory management. The higher ratio

indicates efficient management of inventory because more frequently the stocks are sold, the lesser

amount of money required to finance the inventory.

FINDINGS

1. Sometimes there is over procurement of raw materials than necessary & this leads to over

stocking & consequently cost increases.

2. Frequently duplicity of items occurs which also leads to increase in cost.

3. There are a large number of items, which are more than 5 years old under the non-moving

category, which only add to the inventory, cost of NFL.

4.There are many items like ‘usable surplus’ & ‘disposal surplus’, which sometimes become

difficult to distinguish & manage.

102
103
 RECOMMENDATIONS

FOR INVENTORY MANAGEMENT:

 To avoid duplicity NFL should adopt a control system in which the reports related to

the item must be prepared which includes the details like when the product is being sent

when ordered etc. this requires efficient functioning of the control staff.

 The organization has to fix up a set quantity for each raw material to be procured as the

production level is being set by the government. If the quantity exceeds that level,

reasons should be specified while making the order & should be approved by the higher

authority

FOR RECEIVABLE DEPARTMENT.

 When invoice cannot be attached at the time of transaction, NFL should dispatch the

invoices along with the dispatch of goods or promptly there after.

 NFL still uses batch processing method in which after the end of each month, all the

invoices are collected and datas are entered in to the computer one by one. NFL should

replace this method by real time invoicing.

 Overdue debts which are due for more than 2 year should be handled legally.

 Change in the credit terms, credit standards and collection policies can be helpful for

reducing the average collection period.

104
  If the customers do not pay with in maximum credit period, then a reminder should be

send and if the payment still gets delays, then their license, should be renewed for the

next contract.

 For collection of the payment , they can take the help of collection agencies or engage

in factory.

FOR CASH DEPARTMET

 NFL should give special attention to the handling of large remittance so that they may

be deposited in a bank as quickly as possible. E.g. person pick-ups, air mart, special

delivery.

 Monthly report for the total payments released during the month along with details of

the major receipts should be prepared for reporting to management.

 It should control inter-bank transfers of cash and transfers between various unit of NFL

such as division or subsidiaries. Excessive fund may be tied up in various division of

the firm, which the company should give attention to.

105
 BIBLIOGRAPHY

Financial Management I .M. Pandey

Financial Management Khan & Jain

Financial Management Prasana Chandra

Financial Management P.V. Ratnam

Financial Management V.K. Bhalla

Brouchres:

Company’s Annual Report 2007-2008

Company’s Annual Report 2008-2009

Web Sites:

www.nationalfertilizers.com

106
www.workingcapitalmanagement.com

107