Sources, Application and Needs of Working Capital

SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL
INTRODUCTION TO PROJECT
The project has been done on Sources, Application and Needs of working capital in
current business scenario at INDIAN RAYON (A unit of ADITYA BIRLA NUVO
LTD.). The project has been conducted specially at finance and accounts department of
INDIAN RAYON. The day to day or general information are provided on INDIAN
RAYON but core data analysis was done on ADITYA BIRLA NUVO LTD.
STANDALONE’s balance sheet’s figures.
This topic was selected by me because of criticalities involved in managing the working
capital and its components. I selected this topic to learn all the concepts related to
working capital. I chose INDIAN RAYON for this purpose as it is a successful
manufacturing concern which manufactures Viscose Filament Yarn, Caustic Soda
and Other Chemicals and supplies it products to various customers related to textile
sector, chemicals sector, detergent sectors etc. INDIAN RAYON is the oldest and
flagship unit of ADITYA BIRLA NUVO LTD.
Every business needs investment to procure fixed assets, which remain in use for a
longer period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed
Capital’. Business also needs funds for short-term purposes to finance current operation.
Investment in short term assets like cash, inventories, debtors etc., is called ‘Short-term
Funds’ or ‘Working Capital’. The ‘Working Capital’ can be categorized, as funds
needed for carrying out day-to-day operations of the business smoothly. The
management of the working capital is equally important as the management of long-
term financial investment.
This project contains all the concepts which are considered by the manufacturing
organizations. I have tried to deal with all the concepts and have learnt many important
concepts and tips. Along with it I learnt how such concepts and tips works in ERP
system like SAP and how it is used by such units for maintaining their accounts and
reports.
Globsyn Business School - Ahmadabad 3

INTRODUCTION
OF
ADITYA BIRLA GROUP

Great legends are not only born for survival of themselves but for the survival of other
individuals on this earth, epitomizing the philosophy of its legendary leader – the Late
Shri. Aditya Vikram Birla a man who made a difference. A man Rooted in Indian
values, yet global in visions, rock solid in fundamentals. Nurturing a culture where
success does not come in the way of the need to keep learning afresh, to keep
innovating, and to keep experimenting.
Group is considered as one of the largest and successful business houses from India
under the leadership and vision of Mr. Kumar Mangalam Birla currently. It includes
flagship companies like Hindalco Industries Ltd, Grasim Industries Ltd, Aditya
Birla Nuvo ltd, Indian Rayon, Idea, Ultra Tech, Essel mining, Birla global finance,
Higi industries, Bihar caustic Ltd, Aditya Birla Minacs, Birla Sun Life, Peter England,
Van Hussen, More ( a retail Chain) etc. A diversified product portfolio along with
major stack holding in market of that product such as Viscose filament yarn (VFY),
Aluminum, Chemicals, Carbon black, Sponge iron, Textiles, Insurance, retail, Cement,
Telecommunication, Financial services & solution, Branded garments, Minerals etc.
From over 53 years, the Aditya Birla Group has continuously offered total customer
solutions through its quality product and services. It enjoys leadership positions in key
business with strong competitive edge. The group has generated revenue of worth $ 28
Billion and has 14, 78,988 shareholders. More than 1, 00,000 efficient people working
for them in 25 countries. Today Aditya Birla group’s companies are considered in
fortune 500 and they are considered as best employer in India and among top 20 in
Asia.
They work not only in India but globally in other countries such as UK, Germany,
Hungary, Brazil, Italy, France, USA, Switzerland, Luxembourg, Canada, Egypt, China,
Thailand, Australia, Laos, Indonesia, Philippines, Dubai, Singapore, Myanmar,
Bangladesh, Vietnam, Malaysia, and Korea.

Group’s VISON
“TO BE A PREMIUM GLOBAL CONGLOMERATE WITH A CLEAR FOCUS ON

EACH BUSINESS.”
Group’s MISSION
“TO DELIVER SUPERIOR VALUE TO OUR CUSTOMERS, SHAREHOLDERS,

EMPLOYES AND SOCIETY AT LARGE.”
Core values of Group
 INTEGRITY
 COMMITMENT
 PASSION
 SEAMLESSNESS
 SPEED
Achievement of the Group
 The world’s no.1 in viscose staple fiber.
 The world’s largest single location world scale copper smelter.
 The world’s no.1 in insulators.
 Globally 4th largest producer of Carbon black and 2nd in India.
 The world’s 11th largest producer of cement globally, 7th largest in Asia, 2nd in
India and the largest in a single geography.

 Hindalco, from its fold, is a Fortune 500 company by producing aluminum and
copper with most cost-efficient in the world.
 Among the world’s top 15 BPO companies and among India’s top 3
 A premier branded garments player in India. Like Van Hussein, Peter England
 The 2nd largest player in Viscose Filament yarn in India
 The 2nd largest player in Caustic soda in India.
 Among top 5 mobiles telephony companies.
 A leading player in private sector of Life Insurance and Asset management.
 Among the best energy efficient fertilizer plant.
 The best employer in India and among the top 20 in Asia etc.
Beyond Business
 Working in 3700 villages.
 Reaching out to 7 million people annually through the Aditya Birla Centre for
Community Initiatives and Rural Development, spearheaded by Mrs. Rajashree
Birla.
 Focus area are: health care, education, sustainable livelihood, infrastructure and
espousing social causes.
 Currently running 41 schools and 18 hospitals at various places in India.
Transcending the conventional barriers of business to send out a message that

“We Care”.

VARIOUS COMPANIES OF THE GROUP
HINDALCO INDUSTRIES LTD.
The metals flagship company of the Aditya Birla Group is an industry leader in
aluminum and copper. A metals powerhouse with a consolidated turnover of Rs.600,
128 million (US$ 15 billion), places it in the Fortune 500 league. Hindalco is the
world's largest aluminum rolling company and one of the biggest producers of primary
aluminum in Asia. Its copper smelter is the world's largest custom smelter at a single

location. Novelis under its fold Hindalco ranks among the global top five aluminum
majors, as an integrated producer with low-cost alumina and aluminum facilities
combined with high-end rolling capabilities and a global footprint in 12 countries
outside India.
GRASIM INDUSTRIES LTD.

A flagship company of the Aditya Birla Group ranks among India's largest private
sector companies, with consolidated net turnover of Rs.184 billion and a consolidated
net profit of Rs.29 billion (FY2009). Starting as a textiles manufacturer in 1948, today
Grasim's businesses comprise viscose staple fiber (VSF), cement, chemicals and
textiles. Its core businesses are VSF and cement, which contribute to over 90 per cent of
its revenues and operating profits. The Aditya Birla Group is the world’s largest
producer of VSF, commanding a 24 per cent global market share and 11 per cent of
global market share. It is also the second largest producer of caustic soda (which is used
in the production of VSF) in India. Its registered office is in Nagda (M.P.).
ULTRATECH
They are the India's largest exporter of cement clinker. The company's production
facilities are spread across five integrated plants, five grinding units, and three terminals
— two in India and one in Sri Lanka. All the plants have ISO 9001 certification, and all
but one have ISO 14001 certification. While two of the plants have already received
OSHAS 18001 certification, the process is underway for the remaining three. The
company exports over 2.5 million tons per annum, which is about 30 per cent of the
country's total exports.

ADITYA BIRLA NUVO LTD.
Aditya Birla Nuvo Ltd. is a major player in all its key businesses – viscose filament
yarn, garments, carbon black, textiles, telecommunication and insulators. The company
has also established its presence in the life insurance, Information Technology (IT) and
BPO sectors. This group is perfect blend of old and new business of Aditya Birla group.
Its flagship unit and the oldest unit is Indian Rayon. Aditya Birla Nuvo Ltd. is new
name given to Indian Rayon & Industries Ltd. in 2006 its registered office is in Veraval
(Gujarat).
JOINT VENTURES
Company Partner Key products / services
Birla Sun Life Insurance

Sun Life (Canada) Insurance Solutions
Company Ltd.
TIDCO (Tamil Nadu Industrial
Tanfac Industries Ltd. Fluorine Chemicals
Development Corporation)
Birla Sun Life Asset
Sun Life (Canada) Mutual Funds
Management Company Ltd.
Birla Sun Life Distribution
Sun Life (Canada) Investment Planning Services
Company Ltd.
INTERNATIONAL COMPANIES
The Aditya Birla Group, seen today as India's first truly global corporation, has a
significant presence in various countries and has recently forayed into China and
Australia.
Country Company Products / services

Thai Rayon Viscose Staple Fiber (VSF)
Indo Thai Synthetics Spun and Fancy Yarns
Century Textiles Fabrics
Thai Acrylic Fiber Acrylic Fiber
Thai Carbon Black Carbon Black
Thailand
Sodium Phosphates, Specialty Phosphates,
Epoxy Resins (bis-a and bis-f), Diluents,
Aditya Birla Chemicals
Curing agents and Allied products, Sodium
(Thailand) Ltd.
Sulphite, Sodium Metasulphite, Sodium
bisulphate, Caustic Soda, Chlorine
Hydrogen Peroxide, Per Acetic Acid,

Thai Peroxide
Calcium Peroxide
Indo Phil Textile Mills Yarns
Philippines Indo Phil Cotton Mills Yarns
Indo Phil Acrylic Mfg. Corp. Yarns
PT Indo Bharat Rayon Viscose Staple Fiber (VSF)
PT Elegant Textile Industry Yarns
Indonesia
PT Sunrise Bumi Textiles Yarns
PT Indo Liberty Textiles Yarns
PT Indo Raya Kimia Carbon Disulphide
Refined Palm Oil, Palm Olein, Stearin and

Pan Century Edible Oils
PFAD
Malaysia
Pan Century Oleo chemicals Fatty Acids, Glycerin
Alexandria Carbon Black

Carbon Black
Company S.A.E
Egypt
Alexandria Fiber Company
Acrylic Fiber
S.A.E
China Liaoning Birla Carbon Co. Carbon Black

Ltd.
Softwood/ Hardwood Pulp (for VSF
AV Cell Inc.
manufacture)
Canada
AV Nackawic Inc. Dissolving Pulp (for VSF manufacture)
Australia Aditya Birla Minerals Ltd Copper
BREIF INTRODUCTION
OF
ADITYA BIRLA NUVO LTD.

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

production (Unit –Indian Rayon) to Business Process Outsourcing (Unit – Tran works
Ltd.). It is a leading player in the following businesses:
Viscose Filament Yarn (VFY) : Branded as 'Ray One', Aditya Birla Nuvo offers more
than 900 shades of yarn. Aditya Birla Nuvo has a 35 per cent market share and it is the
second largest producer of VFY in India. With a capacity of 16,400 tons per annum
(TPA), it also accounts for 33 per cent of VFY exports from India. It has natural whites as
well as a wide array of colors, ranging from purest tints through medium tones to vibrant
deep shades; in fine to coarse deniers ranging from 75 to 900. Located at Veraval in
Gujarat, VFY plant is the first in Aditya Birla Nuvo Ltd. to be accredited with the ISO
9002 and ISO 14001, certifications. As a part of its backward integration process, it has a
91,250 (TPA) caustic soda plant and 34.5 MW co-generation thermal power plant supplies
uninterrupted power.
Garments : Madura Garments, Aditya Birla Nuvo's garments division, is a market leader
in branded apparel. It offers a wide range of ready-to-wear clothes to cater to every market
segment. Its power brands are Van Heusen, Louis Philippe and Allen Solly. Its popular
brands are Peter England, and its youth brand is San Francisco.
Carbon Black : The Aditya Birla Group produces 6, 20,000 metric (TPA) of carbon
black, making it the world's fourth, and India's second largest producer of carbon

black. In India, carbon black is produced by the company at Renukoot in Uttar Pradesh and
at Gummidipoondi, near Chennai, in Tamil Nadu. The combined capacity is 170,000
(TPA).
Textiles : Jaya Shree Textiles, an Aditya Birla Nuvo's textile division, is a leading player
in the domestic flax and worsted yarn markets. It also enjoys a strong international
presence, with over 50 per cent of its revenues coming from exports. This division is
increasing wool-combing capacity from 4,000 (TPA) to 8,000 (TPA) at a capex of Rs.
35.9 Crore.
Insulators : Birla NGK Insulators Pvt. Ltd is India's largest and the world's third largest
manufacturer of insulators, with a production capacity of 36,000 tons per annum (TPA). In
August 2002, the insulators business was de-merged from Aditya Birla Nuvo Ltd. to form
a joint venture company called Birla NGK Insulators Pvt. Ltd. with NGK Insulators Ltd.
of Japan to usher in a new era in insulator manufacturing and bring about an improvement
in the reliability and quality of power supply in India.
Insurance : Birla Sun Life Insurance Company Ltd (BSLI) is a joint venture between the
Aditya Birla Group and Sun Life Financial of Canada, a leading international financial
services organization. Aditya Birla Nuvo holds a 74 per cent stake in this subsidiary. Birla
Sun Life Insurance offers a wide range of insurance solutions, and is India's second largest
insurance company in the private sector.
IT services : Aditya Birla Nuvo Ltd. entered the IT services sector with the acquisition
of PSI Data Systems in June 2001. PSI develops customized software solutions for
businesses and specializes in the insurance, banking and financial services sectors.

BPO : Aditya Birla Nuvo Ltd. entered the business process outsourcing (BPO) sector in
June 2003 with the acquisition of TransWorks, a leading Indian ITES / BPO company.
With delivery centers in Mumbai and Bangalore, TransWorks services clients in North
America and Europe, including many of the top 100 companies in the Fortune 500.
Fertilizers : Indo-Gulf Fertilizers enjoys a leadership position in the nitrogenous fertilizer

sector supported by a strong distribution and customer service network. In February 2004,
its Shaktiman urea brand was relaunched as Birla Shaktiman in order to leverage the
group's strength. Its marketing areas include Uttar Pradesh, Bihar, Jharkhand and West
Bengal, which together account for over 40 per cent of the total urea consumption in India.
Telecom : Idea Cellular Ltd. is one of the leading cellular operator in India with 16.2%
market share in 11 circles under commercial operations. It has more than 24 million
subscribers’ users of its services. The brand ambassador of Idea is Mr. Abhishek Bahchan
and has a famous tag line as “What an Idea Sir ji”.

ADITYA BIRLA NUVO’s BUSINESS PORTFOLIO
Growth Businesses Value Businesses
Garments Telecom BPO Financial IT Rayon Carbon Insulators Textiles Fertiliser

Services Services Black
Apparel Retail Life Insurance*
Contract Exports
Asset Management*
Distribution*
Capital Market
Insurance Advisory

Represents Subsidiaries
Represents JV’s / Associates
(*) JV with Sunlife Financial, Canada
ADITYA BIRLA NUVO’s REVENUE COMPOSITION
Aditya Birla Nuvo Limited has crossed USD $ 3 billion mark during the year in
revenue. Growth was of 17 % from Rs. 12,134 Crores in the 2007-08 year to Rs.
14,200.4 Crores in the 2008-09 year. Life Insurance, Telecom, Fertilizers businesses
were the major contributors to the revenues growth of the company. The share of
growth businesses falls to 73% from 75% in previous year.
FY 2007-08
FY 2008-09

MILESTONES
Aditya Birla Nuvo traces its origins to a modest beginning with the acquisition of
Indian Rayon Corporation Limited, a viscose filament yarn manufacturing unit, in 1963.
1956 : Indian Rayon Corporation Ltd is incorporated.
1963 : Indian Rayon's viscose filament yarn plant at Veraval goes on stream.
1966 : The Birla’s acquire Indian Rayon Corporation Ltd.
From year 2000 onwards :
2000 : Indian Rayon acquires Madura Garments, taking the Aditya Birla Group to the
top of the league in the branded apparels sector.
2001 : Life insurance joint venture — Birla Sun Life Insurance Company commences
operations in March Indian Rayon acquires PSI Data Systems.
2002 : Insulators business hived into a separate subsidiary, effective from 1 August
2002.

2003 : Joint venture with NGK of Japan – Birla NGK Insulators Pvt. Ltd – launched on
6 February 2003. Entered into a business process outsourcing (BPO), with the
acquisition of Trans Works, a leading Indian ITES / BPO company.
2004 : Brownfield expansion of 40,000 TPA completed at Hi-Tech Carbon,

Gummidipundi, taking total capacity to 1,60,000 TPA.
2005 to 2007: A new identity
Indian Rayon's new identity as Aditya Birla Nuvo marks the transformation of a
manufacturing company into a premium conglomerate with diversified businesses. Its
tagline of strong foundation, energized growth reflects the company's thrust on growth
and creation of value.
2005 : Indian Rayon rechristened as Aditya Birla Nuvo Ltd. and mergers of Indo Gulf
Fertilisers Limited and Birla Global Finance Limited with the company, effective from
1 September 2005. By virtue of the merger, Birla Sun Life Asset Management and Birla
Sun Life Distribution, leading players in high growth Asset Management and Wealth
Management industry came into the company's fold. ABNL increased its stake from 4.3
% to 20.7 % in Idea Cellular Limited, a company which is in the high growth telecom
sector.
2006 : Increased stake from 20.7 per cent to 35.7 per cent in Idea Cellular Limited,
Acquired Minacs, and leading Canadian BPO Company in August 2006. Insulators JV
with NGK terminated mutually in November 2006. Caustic soda capacity was increased
by 65 TPD taking total capacity to 225 TPD. 18 mw power plant commissioned in
September 2006 in the Rayon division. The chlor alkali and chlorine derivatives
businesses of Aditya Birla Nuvo, Bihar Caustic and Grasim become a single SBU.

2007 : Wholly owned subsidiary "Aditya Birla Insulators Ltd." merged into Aditya
Birla Nuvo Ltd. w.e.f. 1 April 2007 and raised Rs. 777 Crores through rights issue of
equity shares. Brownfield expansion of 60,000 TPA completed at Hi-Tech Carbon,
Gummidipundi, taking total capacity to 2,30,000 TPA
BREIF INTRODUCTION
OF
INDIAN RAYON UNIT

HISTORY AND DEVELOPMENT
The late Prime Minister Shree Lal Bhadur Shastri laid the foundation stone of Indian
Rayon Corporation ltd. It was incorporated on 26th September, 1956 under the
company’s act of 1956 and company was getting the commencement certificate on 13th
February, 1958.
The inauguration of the company was done by an American ambassador Mr. H.H.
Galberth on 13th April, 1963 and on the same day company took its trail production.
Shree Morarji Vaidya on of the leading industrialist of Gujarat of that time with a
view manufacture Viscose Filament Yarn (VFY) in collaboration with von-kohorn
international of USA started this organization.
Once a sick company and virtually on the verge of closure was taken over by late Shree
Aditya Vikram Birla in 1966 and it was named as INDIAN RAYON &
INDUSTRIES Ltd., who believed consolidation, expansion and diversification,
because of his beliefs and sincerity toward work this company has not only turned
around but has also made up strong market position today. By 1975 the JAYSHREE
TEXTILES has merged with INDIAN RAYON.

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

185 Km from Rajkot. The place is 1 meter above sea level. The eternal land which is
popularly known as ‘Prabhas Kshetra’ is out ridge of Veraval, which has religious
radius of approx. 5.5 km envelopes Lord Somnath Temple, The Bhalka Tirth and
Triveni.
PROFILE OF THE UNIT
The Rayon plant located at Veraval is an ISO 9002 and ISO 14001 certified plant. The
main product of the rayon plant is viscose filament yarn apart from chemicals like
Sulphuric acid, Carbon-di sulphide, which are both consumed in-house and sodium
sulphate, which is a by- product.
The total production is as follows:
Pot Spun Yarn : 41.5 TPD
Continuous Spun Yarn : 5.00 TPD
Exports constitute about 17% of total turnover. The total production till 31st march 2008
was 16,400 MT.
INDIAN RAYON Company is public ltd. Company. It comes under Aditya Birla Nuvo
Group which is among one of the groups of Aditya Birla group. It is a large scale
industry; it is a capital oriented unit because heavy automatic machineries are required
to produce yarn. It is also labor oriented unit as the man power is equally required to
execute the work. By seeing the heavy capital investment, large scale of employees,
longer production cycle and installation of heavy and costly machineries it can be said
that it is heavy capital industry. The work of unit is divided into 42 departments.

Vision
To be preferred choice of customer in premium segment of Viscose Filament Yarn
global market and benchmarked chlor alkali producer while remaining committed to the
interests of all stakeholders.
Mission
To produce viscose filament yarn to meet the expectation of customers in premium
segment.
To achieve minimum cost of production through innovation, development &

involvement of employees and vendors.
To maintain clean, safe and pollution free environment.
INDIAN RAYON unit is situated in Veraval and its registered office is also in Veraval
in its factory premises. Along with viscose filament yarn plant, Rayon has power plant,
caustic plant and other chemicals plant in its premises.
POWER PLANT
To meet the power and steam requirement of the Rayon & Caustic plant, the company
has set up a 16.5 MW thermal plant with the state of art technology. As the international

trends in fuel and power management goes strongly in direction of producing pollution
free power, two CFBC (Circulating Fluidized Bed Combustion) types boiler have been
installed. The CBFC boilers are considered to be most efficient and environment
friendly boilers and it provides excellent combustion and emission characteristics and is
flexible in using different combination of fuel. To meet the future power requirement of
the Rayon & Caustic plant, another power plant of 20 MW is proposed. This plant will
also be based on the same CFBC technology. Currently output is of 34.5 MW.
CAUSTIC PLANT
Caustic soda being one of the major inputs for producing Rayon a modern membrane
cell technology cholr-alkali plant has been installed and commissioned in the year 1997.
The caustic plant is integrated with power plant & Rayon plant. Caustic soda plant is
highly power intensive & integration with power plant provides multiple advantages.
The plant caters to the requirements of Rayon plant as well as nearby market. The plant
produces:
 160 Tons of caustic soda lye (Rayon grade quality) per day
 75 Tons caustic soda flakes per day
 Liquid chlorine (80% of caustic soda flakes) in addition to other by-products like
Hydraulic acid, Sodium Hypo & compressed Hydrogen gas.
 The total production was of 82,125 MT till dated 31st March, 2008
Company also gives important weight age to the health and safety of its workers &
employees. The necessary organizational set up such as safety department and
committees to promote the awareness. They also believe and have sense of taking care
of our environment. Therefore they strictly follow with the relevant rules and
regulations. Make efficient use of available resources, adopted eco friendly
technologies, safe, clean and healthy work practice.

OTHER CHEMICALS
Other than this, as an effort of backward integration, the unit has a Carbon disulphide
plant with capacity 27.5 TPD, which is a raw material in Viscose production. The unit
also has a plant of Sulphuric Acid with capacity of 100 TPD. The acid is used in the
process of spinning the yarn- the spin bath and also in drying process. The process used
is DCDA (Double conversion double absorption process).The unit also has a by-
product, Sodium Sulphide, with capacity of 28 TPD.
PRODUCTS OF INDIAN RAYON
Name of the
End user of final product Raw material
final product
Viscose Apparel, home furnishings, Pulp, caustic soda, acid,

Filament Yarn slipovers, industrial uses carbon di sulphide, zinc
Carbon Rubber chemicals, agro chemicals,

Charcoal
Disulphide pesticides, pharma, viscose
Fertilizers, intermediates, viscose,

Sulphuric Acid Sulphur
dyes, chemicals
Paper, alumina, viscose, fibers,

soaps & detergents, demineralization
Caustic Acid lye Salt
dyes & intermediates and other
chemicals
Organic & inorganic chemicals,

Liquid Chlorine By-product
paper, HCL, PVC, CPW etc.

DM water plant, pickling of steel,

Hydraulic Acid phosphoric acid, synthetic rutile, By-product
Ossian, DCP, Calcium chloride
Sodium Glass industries, paper, textiles,

By-product
Sulphate dyes, gum
AUTHORISED PERSONS FOR INDIAN RAYON
DESIGNATION NAME
Chair Man Mr. Kumar Mangalam Birla
Managing Director Dr. Bharat Singh
Business Director Mr. K.K. Maheshwari
Chief Financial Officer & whole Time Mr. Adesh Gupta

Director
Company Secretary Mr. Devendra Bhandari

President Mr. Rahul Mohnot
Joint President Mr. D.P. Modani (F&C)
Joint President Mr. K.D. Jhosi (Marketing)
Senior Vice President Mr. P.N. Rao (H.R.)
General Manager (F&A) Mr. Sudhir Maheshwari
SWOT ANALYSIS OF INDIAN RAYON
SWOT analysis shows the strength, weakness, opportunities and threats to company.
SWOT analysis is done for and by every company. Indian Rayon to have its SWOT
analysis which is as follows:
STRENGTH
 Company produce high quality yarn then also management always tries to increase
the quality of yarn in order to fulfill their potential customer’s satisfaction level.
 Total produced items plus wastage are being fully sold by company which shows
their efficiency of sales activity.
 This has helped them to secure 2nd position in Indian market for VFY.
 Better packaging, carriage and transportation system with all modern equipments
and good after sales services.

 Regular seminars and meeting are conducted in entire department in order to find
their loopholes and solution for the same.
 Division also has continuous Spinning Yarn Equipments in which the modern
technology is used for spinning yarn. It is imported from Germany.
 Division has domestic as well as export market and for this they are doing online
marketing in order to find new market.
 Division also has World Class Manufacturing (WCM) cell, which looks out for
better ways of manufacturing.
 Indian Rayon is certified by ISO 9002 & ISO 14001 which shows the sign of
better quality production and environment concern for its surroundings.
 The most important thing is that they have good and healthy working atmosphere
in company and they provide ample no. of opportunities for everyone to satisfy
their job desire.
WEAKNESS
 Locations of depots (Consuming Centers) are far away from factory. Hence
transportation cost and time duration is increases in inventories.
 Bigger process cycle causes higher stock of raw materials.
 Many process steps and process are more sensitive to normal process variations
and small error causes the big amount of wastage of material.
 Being highly labor intensive unit, HR department is always under pressure and
many times fails to meet expectations of various departments and employees.

OPPORTUNITIES
 Division should find new market area for its products especially in chemicals.
 More research activity should be done as there are chances of getting new market.
 VYF use for certain textile items and indispensable. Hence they can make more
textiles unit as their customers.
 Quality has more weight age in international market and Indian Rayon’s Pot
Spinning Yarn is next to Asahi Japan and better than Chinese & Russian Yarn.
Hence there are opportunities for grabbing market share.
 Biggest opportunity for Indian Rayon was of opening up of global market. MFA
expires in 2005 which lead to demolishing of quota restrictions. This boosted the
export of yarn directly as world’s biggest textile market is of Europe and USA.
THREATS
 Government policies are the main hurdles of division’s performance.
 Emergence of cotton threads made the market share of rayon yarn low.
 Change in fashion is also a biggest threat for division.
 The main raw material is wood pulp and due to strict rules by various government
for forest cutting has made raw material costly and also shortage many time.

 Unregulated dumping of the products from China at lower cost has reduced the
market share.
OBJECTIVE OF THE PROJECT
Management as a profession can’t be taught merely in the four walls of classrooms.

Only theoretical knowledge is not sufficient to build competitive managers. Practical
knowledge of the business environment is equally important.
The INDIAN RAYON is founded on the strengths of strong foundation and

commitment beyond business.
This report attempts to show the study of the financial management done by INDIAN
RAYON a unit of ADITYA BIRLA NUVO Ltd. for Sources, Applications & Needs
of Working Capital in current business scenario.
This report enables me to have an overall view of INDIAN RAYON regarding finance.
I am pleased by taking training at India’s one of the best Viscose Filaments Yarn,
Caustic Soda & Other Chemicals manufacturing company along with most efficient
administrative management in area of Finance, Marketing and H.R.

Here the main motto was to gain experience of working in corporate world with all
short of medium and to develop more skill, and to apply all the theoretical knowledge
which was taken in the class room at Globsyn Business School and also provided me a
chance to take knowledge and experience of working in environment of SAP (ERP
SYSTEM) used by INDIAN RAYON for their usage in terms of latest technology and
MIS in company.
RESEARCH METHODOLOGY
&

LIMITATIONS AND PROBLEMS

FACED
 General Information
The research work to be carried out here is actually a study work conducted at
Indian Rayon and Industries Ltd., Veraval in finance & accounting department on
the topic of the comparative study of financial performance of Indian Rayon since
2005. The various data collected through method of discussion and no
questionnaire is designed for the purpose of the study. The information about the
design of sampling is given as under.
 Sampling
As discussing above, no questionnaire requires being prepared during the study
and the selection of the sampling is an easy task compare to other research work.
Starting from the officer level to the general manager almost all 25 staff members
were asked the different question related to the project topic.

 Research Tools
The financial performance of the last five years i.e. from F.Y. 2005 - 06 to 2009 –
10 are used for calculating the ratio and hence interpreting the financial position of
the organization during that period of time. The annual reports of Indian Rayon &
Aditya Birla Nuvo Ltd. are also used as a research tool.
PRIMARY DATA
 The primary data has been collected from experts, officials and employees
working in INDIAN RAYON (A UNIT OF ADITYA BIRLA NUVO LTD.).
SECONDARY DATA
 For secondary data, I have referred books related to working capital management.
 I have collected some data from the journals related to the YARN industries.
 Informations will be taken from the books and audited records of ADITYA
BIRLA NUVO LTD. or INDIAN RAYON & INDUSTRIES LTD.
 I will collect informations from ABNL or IR&IL annual reports and different
manuals referred by them.
 Books like Aditya Kiran (an in built group magazine) will also used for knowing
various facts and figures about group and its work for social causes and on
humanitarian ground.
 Various web sites will also be considered and taken data from there along with
intranet of INDIAN RAYON UNIT.

LIMITATIONS AND PROBLEMS FACED
 Annual reports consist of Aditya Birla Nuvo ltd. which includes various other
units, subsidiaries, joint venture’s of different sectors in it. Hence no individual
financial statement was available of Indian Rayon unit for analysis.
 Data analysis is done of Aditya Birla Nuvo Ltd. group’s of companies or Indian
Rayon & Industries Ltd. up till 2005 -06 companies. No individual account of
Indian Rayon unit was available for analysis.
 Various information regarding unit is not shared in the report due to maintaining
secrecy of the company and following their terms and regulation.
 In practical training only Indian Rayon’s accounts was used to gain the
knowledge.
 Various information regarding unit was also not shared with trainee by company
due to their rules, regulation and policies.
 Working Capital is wider concept and it requires more time for learning each and
every aspect of it. Hence there was time constraint too.
 Busy schedule of company guide and other authorized persons of the company
made delay and provided less portion of their time for trainee students.
 Unfamiliarity with culture and department of the company was also becoming a
hurdle for producing efficient output for trainee.
 Trainee had less time for practicing regarding the learning of SAP at the time of
training.

INTRODUCTON
OF

WORKING CAPITAL
There are two concepts of working capital
 Gross Working Capital
 Net Working Capital
Gross Working Capital :- Simply called as working capital, refers to the firm’s
investment in current assets. Current assets are the assets which can be converted into
cash within an accounting year (or operating cycle) and include cash. Short-term
securities, debtors, bills receivables and stock (Inventory).
Net Working Capital :- It refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders, which are expected to mature
to payment within an accounting year and include creditors, bills payable and

outstanding expenses. Net working capital can be positive and negative. A positive
working capital will arise when current assets excess current liabilities and vice – versa.
The concept of working capital – gross and net – are not exclusive, rather they have
equal significance from management view point.
Focusing on Management of Current Assets
The gross working capital concepts focuses attention on two aspects of current assets
management: (A) How to optimize investment in current assets? (B) How should
current assets be financed?
The considered of the level of investment in current assets should avoid to danger
points – excessive and inadequate investment in current assets. Investment in current
assets should be just adequate, not more than less, to needs of the business firm.
Excessive investment in current assets should be avoided because it impairs firm’s
profitability, as idle investment earns nothing. On the other hand, inadequate amount of
working capital can threaten the solvency of the firm because of its inability to meet its
current obligations. It should be realizing that the working capital needs of the firm
might be fluctuating with changing business activity. This may cause excess or shortage
of working capital frequently. The management should be too prompt to initiate an
action and current imbalances.
Another aspect of the gross working capital points in the need of arranging funds to
finance current assets. Whenever needs for working capital arise due to do the
increasing level of business activity or for any other reason, arrangement should be
made quickly. Similarly, if suddenly some surplus fund arises, then they should not be
allowed to remain idle, but should be invested in short term securities. Thus financial
manager should have knowledge of source of working capital fund as well as
investment avenues where idle fund may be temporarily invested.

Focusing on Liquidity Management
Net working capital, begin the difference between current assets and current liabilities,
is a qualitative concept. It (A) indicates the liquidity position of the firm and (B)
Suggest the extent to which working capital needs may be finance by permanent
sources of funds. Current assets should be sufficiently in excess of current liabilities to
constitute a margin or buffer to maturing obligations within the ordinary operation cycle
of a business. In order to protect their interest, short-term creditors always like a
company to maintain current assets at a higher level than current liabilities. However,
the quality of current assets should be considered in determinate the level of current
assets vice-versa current liabilities. A weak liquidity position poses a threat to solvency
of the company and makes it unsafe and unsound. A negative working capital means a
negative liquidity, and may prove to be harmful for the company.
Excessive liquidity is also bad. It may be due to mismanagement of current assets

therefore, prompt and timely action should be taken by management to improve and
current the imbalance in the liquidity position of the firm.
Net working capital concept also covers the question of judicious mix of long-term and
short-term funds for financing current assets. For every firm, there is a minimum
amount of net working capital, which is permanent. Therefore, a portion of the working
capital should be financed with permanent sources of funds such as owner’s capital,
debentures, long-term debts, preference capital or retained earnings. Management must,
therefore decide the extent to which current assets should be financed with equity
capital or borrowed capital.
In summary, it may be emphasized that both gross and net concepts of working capital
are equally important for the efficient management of working capital. There is no
precious way to determine the exact amount of gross, or net, working capital for any
firm. The data and problems of each company should be analyzed to determine the
amount of working capital. There is no special rule as to how current assets should be
financed. It is not feasible in practice to finance current assets by short-term sources

only. Keeping in view the constraints of the individual company, a judicious mix of
long-term finances should be invested in current assets. Since current asset involves
cost of funds, they should be put to productive use.

WORKING CAPITAL
AND
MANAGEMENT
Working capital is concerned with management of current asset. It is an important and

integral part of financial management as short term survival is prerequisite for long term
success.
The divisional management of IR&IL Co. (Indian Rayon & Industries ltd.) or ABNL
(Aditya Birla Nuvo Ltd.) manages the working capital within the board frame work laid
by and with consultation of Corporation Finance Division (CFD). Decision regarding
the utilization of the current assets is made in accordance with the policy of company.
Working capital management or short term financial management is concerned with

decision relating to current assets and current liabilities.

WCM = Current Assets (CA) – Current Liabilities (CL)
The key difference between long-term finance management and short-term financial
management is in term of timing cash. While long- term financial decision like buying
capital equipments or issuing debentures involves cash flows over extended period of
time i.e. more than one to five years or even more while short term financial decision
typically involve cash flows within a year or within the operating cycle of the firm.
WCM is management for the short- term which is critical to the firm. Managers spent
about 70% in managing for the short- term capital.
The operating cycle can be said to be at eh heart of the need for working capital.
Receivable
Cash
Inventory
The management of the finances of a business / organization in order to achieve

financial objective.
Taking a commercial business as the most common organizational structure, the key
objectives of financial management would be to:
 Create wealth for business
 Generate cash and
 Provide an adequate return on investments bearing in mind the risks that the
business is taking and the resources invested.

There are three key elements to the process of financial management:
FINANCIAL PLANNING : Management need to ensure that enough funding is

available at the right time to meet the needs of the business. In short term, funding may
be needed to invest in equipment and stocks, pay employees and fund sales made on
credit. In the medium and long term, funding may be required for significant additions
to the productive capacity of the business or to make acquisitions.
FINANCIAL CONTROL : Financial control is a critically important activity to help

the business ensure that the business is meeting its objectives.
FINANCIAL DECISION-MAKING : A key financing decision is whether profits

earned by the business should be retained rather than distributed to shareholders via
dividends. If dividends are too high, the business may be starved of funding to reinvest
in growing revenues and profits further.
ORGANIZATIONAL STRUCTURE OF
FINANCE DEPARTMENT
Business Director
Globsyn Business School - Ahmadabad Deputy 42

Manager
Salary
President
(Rayon
Division) Joint President
(Finance &
(Rayon Division) Comm.)
GM Finance
Sr. Manager
(A/C)
Deputy
Manager Deputy
Cash Manager
Creditor
Officer Officer
Officer
Officer
Officer Officer

ISSUES & FACTORS
INFLUENCING
FOR WORKING CAPITAL
ISSUES IN WORKING CAPITAL
Working Capital refers to the administration of all components of working capital-cash,

marketable securities, debtors (receivable) and stock (inventories) and creditors
(payables). The financial manager must determine levels and composition of current
assets. He must that right sources are trapped to finance current assets, and that current
liabilities are paid in time.
There are many aspects of working capital management, which make it an important
function of the financial manager.

Time :- working capital management requires much of the financial manager time.
Investment :- working capital represents a large portion of the total investment in

assets.
Critically :- working capital management has great significance for all firms but it is
very critical for small firms.
Growth :- the need for working capital is directly related to the firm’s growth.
FACTORS INFLUENCING WORKING CAPITAL
There is not set of rules or formula to determine the working capital requirement of the
firms. Therefore, an analysis of relevant factor should be made in order to determine
total investment in working capital.
The main factors are:
1. Nature of Enterprise

The nature and the working capital requirements of an enterprise are interlinked. While
a manufacturing industry has a long cycle of operation of the working capital, the same
would be short in an enterprise involved in providing services. The amount required
also varies as per the nature; an enterprise involved in production would require more
working capital than a service sector enterprise.
IR&IL is a manufacturing organization, because of which it requires lot of funds to be

blocked in raw materials for the production of VYF & Chemicals. The cycle of
operations at INDIAN RAYON is quite long and thus it needs large amount of working
capital. 40% of total funds are invested in raw materials.
2. Manufacturing/Production Policy
Each enterprise in the manufacturing sector has its own production policy, some follow
the policy of uniform production even if the demand varies from time to time, and
others may follow the principle of 'demand-based production' in which production is
based on the demand during that particular phase of time. Accordingly, the working
capital requirements vary for both of them.
IR&IL follows continuous production policy. The plants are operated 24 hours in
different shifts. Demand factor is not considered here as the VFY and chemicals are
sold by its marketing department. As the production continues for 24 hours, the
investment in raw material inventories is very high as interruption in production causes
increase in cost of production because of high set up cost of plants even need of raw
material for power plant is always in demand for the same.
3. Operations

The requirement of working capital fluctuates for seasonal business. The working
capital needs of such businesses may increase considerably during the busy season and
decrease during the slack season. Ice creams and cold drinks have a great demand
during summers, while in winters the sales are negligible.
As INDIAN RAYON has policy of continuous production, it does not have to consider
seasonal factors for its working capital requirements. Its working capital does not vary
with seasons.
4. Market Condition
If there is high competition in the chosen product category, then one shall need to offer
sops like credit, immediate delivery of goods etc. for which the working capital
requirement will be high. Otherwise, if there is no competition or less competition in
the market then the working capital requirements will be low.
IR&IL does not have to depend on market conditions as VYF & chemicals like
Chlorine and Caustic Soda are always considered essential for textile and for various
manufacturing unit. So there is not much competition in this industry. Secondly IR&IL
manufactures both the products of different categories, while sales is handled by its
marketing department efficiently.
5. Availability of Raw Material
If raw material is readily available then one need not maintain a large stock of the same,
thereby reducing the working capital investment in raw material stock. On the other
hand, if raw material is not readily available then a large inventory/stock needs to be
maintained, thereby calling for substantial investment in the same raw materials are
very important aspect for arriving at working capital requirements at IR&IL because of
two reasons mainly. First IR&IL follows continues production policy so the raw

materials are used in very large quantum and second the raw materials like Wood Pulp,
Caustic Soda Flicks for VFY and Common Salt of low magnesium for Caustic Soda,
Coals for power plants and many others and most of the raw materials are imported
from foreign countries which takes around two months as lead time. Thus it requires
large amount of working capital.
6. Growth and Expansion
Growth and expansion in the volume of business results is enhancement of working

capital requirement. As business grows and expands, it needs a larger amount of
working capital. Normally, the need for increased working capital funds precedes
growth in business activities.
Indian Rayon or ABNL has grown incredibly since its inception. Because of high
growth it needs large amount of working capital as the operations are handled at very
large scale. Indian Rayon has expanded its operations through investing in many other
important projects which compel them to invest immensely in working capital.
7. Price Level Changes
Generally, rising price level requires a higher investment in the working capital. With
increasing prices, the same level of current assets needs enhanced investment. The price
level changes in raw materials hit very hard to Indian Rayon as the major investments
are being done in raw materials. Most of the materials are imported for outside India
which involves risk of exchange rate fluctuations thus it needs high amount of working
capital.

8. Manufacturing Cycle
The manufacturing cycle starts with the purchase of raw material and is completed with
the production of finished goods. If the manufacturing cycle involves a longer period,
the need for working capital would be more. At times, business needs to estimate the
requirement of working capital.
Manufacturing cycle affects a lot on working capital requirements at Indian Rayon as

the cycle takes lot of time to convert raw material into finished goods. It takes around 7
to 8 days to complete one process of converting raw material into final product.
Purchase of raw material takes as long time as two months. Therefore it is very
necessary for Indian Rayon to invest sufficient amount in working capital.
At times, business needs to estimate the requirement of working capital in advance for
proper control and management. The factors discussed above influence the quantum of
working capital in the business. The assessment of working capital requirement is made
keeping these factors in view. Each constituent of working capital retains its form for a
certain period and that holding period is determined by the factors discussed above.
9. Technology:
In Rayon Division, the technology used for production process is labor intensive in
VFY and Caustic Soda and also heavy machinery in power plant along with VFY,
chemicals and Caustic Soda. So it increases the requirement of working capital.
10. Credit Policy:

The credit policy of the firm affects working capital by influencing the level of the book
debts. The Rayon division allows merely 3 days of credit period to its customers and if
the payment is not made, the high rate of interest is charged i.e. around 18 %. But for
special customer they provide credit of around 1 month too.
11. Banking Facility:
The Rayon Division uses the latest banking facility like Cash Management Services
(CMS) which help in maintaining almost Zero Bank Balance and facility like at par
cheque, Cash credit Service, Letter Credit, Fixed deposits, Over Draft facility, Working
Capital loans, e-banking, Bill discounting facility etc. ABNL or Indian Rayon has major
account and deals it’s transaction with HDFC bank, HSBC bank, and State Bank of
India.
12. Business Fluctuation:
The Operating Efficiency of the firm relates to the optimum utilization of resources at
minimum costs. Better utilization of resources improves profitability and thus helps in
releasing the pressure on working capital.

ASSESMENT FOR THE SORUCES
AND
APPLICATION FOR WORKING

CAPITAL
The assessment of the working capital in the ABNL’s unit is done by the CFD with the
consultation with the management staff of the Co. and on the basis of the Co.’s previous
year experience. This helps to maintain efficiently fund for operation of the
organization. There are main four components which plays vital role for it which are as
follows:
 INVENTORY

 RECIEVABLE (UGAI), (DEBTORS)
 CASH MANAGEMENT
 PAYABLES (CREDITORS)
INVENTORY
Inventory includes all types of stocks. For effective working capital management,
inventory needs to be managed effectively. The level of inventory should be such that
the total cost of ordering and holding inventory is the least. Simultaneously, stock out
costs should also be minimized. Business, therefore, should fix the minimum safety
stock level, re-order level and ordering quantity so that the inventory cost is reduced
and its management becomes efficient.
Following are the types of inventory, which the company generally holds.
1 Raw Material:-
A raw material is the goods, which are required to produce the product of the firm.
Raw materials are the basic input of the production which is converted into finished
goods after manufacturing process.
2 Goods in Production Process:-
These are the goods or inventories, which are under the production process, in
other words we can say goods in process or semi finished goods. They represent the
products that need more work before they become finished goods for sale.
3 Finished Goods:-

Finished goods inventory are those which are completely manufactured and ready
for sale. Stock of raw material or work in progress facilitates production, while stock
of finished goods is required for smooth marketing operations.
4 Stock Of Stores Materials :-
Stock of store materials includes spare and tools. Spares means the parts of the
machinery and tools are equipment, which are provided to the employees to the
firm. These materials do not directly enter into production but they are essential for
production process.
NEEDS FOR HOLDING INVENTORY:-
Mainly there are two motives of holding inventories.
1. Transaction motive :-
A transaction motive emphasizes the need to maintain inventories to facilitate

smooth production operation
2. Precautionary motive:-
Precautionary motive necessitates holding of inventories to guard against the risk

of unpredictable changes in demand and supplies forces and other factors.
TECHNIQUES OF INVENTORY MANAGEMENT:-
1. ABC ANALYSIS :- In ABC analysis, the entire goods in stores are divided into
three categories A, B, and C. it is the most effective way of the inventory
management. Most of the firms are adopting this technique. That is why ABC is

also known as ALWAYS BETTER CONTROL. How the goods are divided into
three categories is mentioned below:
“A” category goods:- A category goods are high value goods, which incurred
maximum cost of the total inventory cost. In Indian Rayon those goods are of “A”
category which costs more than Rs.50,000.
“B” category goods:- “B” category goods are those, which costs between Rs.10,000/-
to Rs.50,000/-.
“C” category goods:- “C” category goods involves goods which costs below
Rs.10,000/-.
1. FSN ANALYSIS :- In FSN technique all goods are categorizes into three
categories. Fast moving goods, slow moving goods and non moving goods. The
rules of the FSN analysis may vary according to company’s norms. The norms of
FSN analysis at Indian Rayon are mentioned below.
Fast Moving Goods: Fast moving goods are those, which are used within three
months.
Slow Moving Goods: Slow moving goods are those, which are used between
three to six months.
Non Moving Goods: Non moving goods are those, which are used since in above
six months.
Inventory Valuation System at INDIAN RAYON (IR&IL)
The IR&IL Co. is the manufacturing organization, so being manufacturing

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

operation. The Co. invests nearly 75 to 80 percent of total current assets in the
inventories.
In the IR&IL Co. the inventory is maintain by finding the actual requirement and
analyzing material, which is scared or not easily meet at the proper time. The after the
Co. decides the optimum level for each inventory based on requirement. But because
Co. has a good image to the supplier, it maintains the three days stock inventories for
most of the goods even though the industry standard is seven days.
In IR&IL Co. there is special storage dept. and separate inventory management force
which perform certain functions for efficient management of inventories in the
company. It maintains sufficient stock of raw materials in period of short supply and
anticipates price change. It helps sales dept. by maintaining sufficient finished goods
inventories for smooth sales operation.
The company is maintaining proper records of inventory. No material discrepancies

have been noticed on physical verification of stocks as compared to book records.
Inventories Rs. In Crores

Finished Goods 288.72
Stores & Spares 77.94
Raw Materials 320.71
Packing Materials 3.89
Work – in – Progress 56.04
Waste / Scrap 0.30
Inventory Turnover Ratio = NET SALES

Inventory
= 4687.57
747.60
= 6.27 times
Cost of inventory is compared on a weighted average or FIFO basis. For the inventories
of stores and spares the organization uses the Music 3D system (Multi Unit Selective
Inventory Control) of inventory management.

(Note : The above figures are of ABNL Standalone’s balance sheet, which includes INDIAN
RAYON in it.)
RECEIVABLES (UGAI), (DEBTORS)
The term receivable is defined as debt owed to the firm by customers arising from sale
of goods or services in the ordinary course of business. IR&IL Co. sells its products to
the industries. So it needs to grant credit to its buyer.
Given a choice, every business would prefer selling its produce on cash basis. However,
due to factors like trade policies, prevailing marketing conditions, etc., businesses are
compelled to sell their goods on credit. In certain circumstances, a business may
deliberately extend credit as a strategy of increasing sales. Extending credit means
creating a current asset in the form of ‘Debtors’ or ‘Accounts Receivable’. Investment
in this type of current assets needs proper and effective management as it gives rise to
costs such as:
i. Cost of Carrying Receivable (Payment Of Interest Etc.)
ii. Cost of Bad Debt Losses
Thus the objective of any management policy pertaining to accounts receivables would
be to ensure that the benefits arising due to the receivables are more than the cost
incurred for receivables and the gap between benefit and cost increases resulting in
increased profits. An effective control of receivables helps a great deal in properly
managing it.
Each business should project expected sales and expected investment in receivables
based on various factors, which influence the working capital requirement. A business
should continuously try to monitor the credit days and see that the average credit
offered to clients is not crossing the budgeted period. Otherwise, the requirement of

investment in the working capital would increase and, as a result, activities may get
squeezed. This may lead to cash crisis.
Receivables treated as marketing tool to aid the sale of goods as well as use for
protecting the customers from the competitor and attract the new customers and thereby
profit.
Credit Standards
As per the industrial standard for Rayon, the organization runs well on the track of
Average collection period. But due to core competition in the chemical market the avg.
collection period increased and reached near to the 25 to 30 days, so it can conclude that
organization investment in receivable is not very high.
The customers are paying its obligation to the organization in time. The default rate is
nearly zero in the organization. Beside all above the organization also evaluate their
customer’s financial condition, character and capacity and that’s why the Co. has never
incurred the bed debt in its entire history.
The collection of the fund is done by HDFC bank, which plays an agent role for them.
The avg. collection period for the account receivables is between 21 to 27 days, or as
per the deal. Late payments by customer are penalized by putting interest on
outstanding amount. Interest rate is of 18 % for late payment on the left amount.
Receivable (UGAI) Management at INDIAN RAYON: - Receivable

management in IR&IL is big component to be considered with respect to working
capital requirements. It does sale its production directly in the market. Indian Rayon is
manufacturing unit which dispatch it’s partly production to various centers or depot
made by company and also deals directly from factory. Though VFY marketing office
is in Mumbai but the key function are done from Veraval where as for Caustic Soda and
Chemicals marketing heads are in factory compound itself.

At IR&IL, receivables have their fair amount of share in current assets. Current assets
shown in books of IR&IL or ABNL most of the times represent high balance or upward
balance as one of the main component of current assets which is deal here. Hence this
implies as liquidity for Indian Rayon unit.
CASH MANAGEMENT
Cash is the most liquid current asset. It is of vital importance to the daily operations of
business. While the proportion of assets held in the form of cash is very small, its
efficient management is crucial to the solvency of the business. Therefore, planning
cash and controlling its use are very important tasks. Cash budgeting is a useful device
for this purpose.
Cash Budget
Cash budget basically incorporates estimates of future inflows and outflows of cash
over a projected short period of time which may usually be a year, a half or a quarter
year. Effective cash management is facilitated if the cash budget is further broken down
into month, week or even on daily basis.
There are two components of cash budget (i) cash inflows and (ii) cash outflows.
The main sources for these flows are given here under:
Cash Inflows
(a) Cash sales
(b) Cash received from debtors
(c) Cash received from loans, deposits, etc.
Cash Management at INDIAN RAYON :- Cash management is an important

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

not only involve management of cash transactions but also of bank transactions. Here
cash and bank aspects of cash management have been discussed separately.
Cash Section:- Cash is the most important asset for any organization but at the same
time a least productive one. At INDIAN RAYON, very few transactions are made in
cash, value of which is not more than Rs.15,000.
Main Cash Expenditures at INDIAN RAYON:
1. Tour advances to its employees.
2. Other miscellaneous expenses.
Main Cash Receipts at INDIAN RAYON:
1. Employee’s dues
2. Scrap sale
Documents for Any Cash Transaction:
1. Cash receipt voucher
2. Cash payment voucher with approval of authorized officer.
Other Policies Regarding Cash Management:
 INDIAN RAYON maintains cash balance of Rs.1,00,000 for every day

transactions with cashier.
 Petty cash of Rs.5000 has been approved to 7 to 8 employees for specified

purposes.
 The authorized officers verify hard cash with cash balance at regular interval of
15 days.
Bank Section:

INDIAN RAYON is largely dependent on banks as it makes all its transactions through
bank. IR&IL or ABNL’s manages its bank transactions in a very proper and systematic
way. Mainly it deals through its current account with HDFC Bank. INDIAN RAYON
has got bank credit of RS. 31 Crores, all the transactions which are of routine nature are
paid through this bank credit. These transactions include following;
 Statutory dues
 Custom duties
 Freight
 Day to Day expenses
The above all payments are done through cheques. Regular payments for these
transactions are very essential as the legal implications are involved with some the
above transactions.
Other policies regarding managing bank transactions:
 INDIAN RAYON has another account with UBI Bank & SBI Bank. These
accounts are also used for freight and other payments purpose.
 It also has its account in HSBC Bank
 Post dated and pre dated cheques are mainly not accepted by INDIAN RAYON.
 Demand drafts on local banks are accepted to avoid clearing charges.
 LC that is LETTER OF CREDIT is also has been provided by bank to INDIAN

RAYON.
 Bank charges 0.6 % commission on bank guarantee.
 Bank charges 9% interest on the amount spent by INDIAN RAYON from its bank
limit and also charges 15% interest on bank overdraft.

MANAGING PAYABLES (CREDITORS)
Creditors are a vital part of effective cash management and should be managed
carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function can create
liquidity problems. Consider the following:
 Who authorizes purchasing in your company - is it tightly managed or spread

among a number of (junior) people?
 Are purchase quantities geared to demand forecasts?
 Do you use order quantities which take account of stock-holding and purchasing
costs?
 Do you know the cost to the company of carrying stock?
 Do you have alternative sources of supply? If not, get quotes from major
suppliers and shop around for the best discounts, credit terms, and reduce dependence
on a single supplier.
 How many of your suppliers have a returns policy?
 Are you in a position to pass on cost increases quickly through price increases to
your customers?
 If a supplier of goods or services lets you down can you charge back the cost of
the delay?
 Can you arrange (with confidence!) to have delivery of supplies staggered or on

a just-in-time basis?

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

Payables management is dealt by Creditors department in Finance and Accounts
department along with coordination and help of purchase department, work bills section
as the payables mainly involve credit purchases of raw materials and other contractual
works being undertaken by contractors at INDIAN RAYON.
Policies Regarding Payables At INDIAN RAYON:-
Different terms of purchases are defined in NIT.
Generally, INDIAN RAYON gets period of 30 days to meet its obligations with regards
to its creditors and payables.
The raw materials like Wood pulp, Sulphur, are imported from foreign countries.
Because of which the investment in inventories is quite high which ultimately leads to
high amount of payables and they also requires a good amount of Common Salt and
Coal to run their plant as per requirement.
All Payables are paid by the Head Office i.e. from Veraval and also recorded here only.

NEEDS OF AND RESOURCES
OF
FINANCE FOR WORKING CAPITAL
NEEDS OF WORKING CAPITAL

The need for working capital to run day to day business activities cannot be
overemphasized; we will hardly find a business firm which does not requires any
amount of working capital. Indeed firm differs in their requirement of the working
capital. We know that firms aim at maximizing the endeavor to maximize shareholders
wealth; a firm should earn sufficient returns from its operations. Earnings a steady
amount of profit require successful sales activity. The firm has to invest enough funds
in current assets are needed because sales o not convert into cash instantaneously. There
is always an operating cycle involved in the conversion of sales into cash.
Balanced Working Capital Position
The firm should maintain a sound working capital position. It should have adequate
working capital to run its business operations. Both excessive as well as inadequate
working capital positions are dangerous from the firm’s point of view. Excessive
working capital means holding costs and idle funds which earn no profits for the firm.
Paucity of working capital not only impairs the firm’s profitability but also results in
production interruptions and inefficiencies and sales disruptions.
CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL
 Implementation of operating plans may become difficult and consequently the

profit goals may not be achieved.
 Cash crisis may emerge due to paucity of working funds.
 Optimum capacity utilization of fixed assets may not be achieved due to non-
availability of the working capital.
 Growth may be stunted. It may become difficult for the enterprise to undertake
profitable projects due to non-availability of working capital.

 The business may fail to honor its commitment in time, thereby adversely
affecting its credibility. This situation may lead to business closure.
 The business may be compelled to buy raw materials on credit and sell finished
goods on cash. In the process it may end up with increasing cost of purchases and
reducing selling prices by offering discounts. Both these situations would affect
profitability adversely.
 Non-availability of stocks due to non-availability of funds may result in

production stoppage.
CONSEQUENCES OF OVER ASSESSMENT OFWORKING CAPITAL
 Excess of working capital may result in unnecessary accumulation of inventories.
 It may lead to offer too liberal credit terms to buyers and very poor recovery
system and cash management.
 It may make management complacent leading to its inefficiency.
 Over-investment in working capital makes capital less productive and may reduce
return on investment.
RESOURCES OF FINANCE FOR WORKING CAPITAL

External funds available for a period of one year or less are called short-term funds.
Such funds are used for financing working capital. Two most significant short-term
sources of finance of working capita are trade credit and bank borrowing. The use of
trade credit has been increasing over years in India. Trade credit as a ratio of current
assets is about 40%. Bank borrowing is the next important source of working capital
finance. Before seventies, bank credit was liberally available to firms. It became a
restricted resource in eighties and nineties due to the changes in the government
policies; banks required to follow the government prescribed norms in financing
working capital requirement of firms. Now there are no such government norms and
banks are free to take business in granting finance for working capital.
Two other short-term sources of working capital finance which have recently developed
in India are: (1) factoring of receivables and (2) commercials paper.
Bank Finance for working Capital
Banks are the main institutional sources of working capital finance in India. After trade
credit requirements bank considers a firm’s sale and production plans and the desirable
levels of current assets in determining its working capital requirements. The amount
approved by the bank for the firm’s working capital is called credit limits. Credit limits
is the maximum funds, which a firm can obtain from a banking system. In the case of
firms with seasonal business banks may fix separate limits for the peak level credit
requirement and normal, non-peak level credit requirement indicating the period during
which the separate limits will be utilized by the borrower. In practice, bank does not
lend 100% of the credit limit; they deduct margin requirement min. of 30% and will
lend up to 70% of the value of assets. A firm can draw funds from its bank within the
max. Credit limit sanctioned. It can draw funds in the following norms: (a) overdrafts,
(b) cash credit, (C) bills purchasing or discounting, and (d) working capital loan.

FUND FLOW STATEMENT
Meaning of Fund

Funds may means of changes in financial resources, arising from changes in working
capital items and from financing and investing activities of the enterprise, which may
only involve non - current items.
Fund Flow Statement

The statement of changes in financial position, prepared to determine only the sources
and uses of working capital between dates of two balance sheets, is known as the funds
flow statement.
As historical analysis, the statement of changes in working capital reveals to

management the way in which working capital was obtained. With this insight,
management can prepare the estimates of the working capital flows. A statement
reporting the changes in working capital is useful in addition to the financial statements.
A projected statement of changes in working capital is immensely useful in the firm’s
long-range planning.
The working capital flow of fund arises when the net effect of a transaction is to
increase or decrease the amount of working capital.
The concept of working capital flow may be summarized as follows:
 The net working capital increases or decreases when a transaction involves a

current account and a non-current account.
 The net working capital remains unaffected when a transaction involves only
current accounts.
 The net working capital remains unaffected when a transaction involves only
non-current accounts.
Statement of Changes in Financial Position from 31/3/2008 to 31/3/2009

(All Figures in Rs. Crores)
Liabilities 2007-08 2008-09 difference Source/Application
Share capital 95.01 95.01 - Source
Share Warrants 377.41 377.41 - Source
Reserves and Surplus 3551.32 3649.24 97.92 Source
Differed Tax Liabilities 200.31 180.24 (20.07) Application
Secured Loans 1856.72 2217.07 360.35 Source
Unsecured Loans 886.70 2282.14 1395.44 Source
Current liabilities and 700.37 773.48 73.11 Source

Provisions
Assets : 2007-08 2008-09 difference Source/Application
Fixed assets ( Net Block) 1430.89 1476.21 45.32 Application
Capital WIP 70.73 128.78 58.05 Application
Investments 4054.17 5712.39 1658.22 Application
Inventories 776.60 747.60 (29.00) Source
Debtors 760.98 887.23 126.25 Application
Cash and Bank 97.15 89.81 (7.34) Application
Loans and Advances 476.50 532.57 56.07 Application
Interest Accrued on Investments 0.82 - (0.82) Source
FUND FLOW STATEMENT ON WORKING CAPITAL BASIS
(All Figures in Rs. Crores)
Sources Amount Uses Amount
Share capital - Fixed assets 45.32

Share Warrants - Capital WIP 58.05
Reserves and Surplus 97.92 Investments 1658.22
Secured loans 360.35 Inventories (29.00)
Unsecured Loans 1395.44 Debtors 126.25
Current liabilities & 73.11 Cash and Bank (7.34)

provisions
Differed tax liability (20.07) Loans and Advance 56.07
- - Interest Accrued on (0.82)

Investments
Total 1609.75 Total 1609.75


USE OF WORKING CAPITAL IN BUSINESS
The typical uses of working capital are as follows:
1. Adjusted net loss from operations.
2. Purchase of non-current assets:
 Purchase of long-term investments like shares, bond / debentures etc.
 Purchase of tangible fixed assets, like land, building, plant, machinery,

equipment etc.
 Purchase of intangible fixed assets, like goodwill, patents, copyrights etc.
3. Repayment of long-term debt (debentures or bonds) and short-term debt

(bank borrowing).
4. Redemption of redeemable preference shares.
5. Payment of cash dividend.
6. Payment of taxes and various other expenses.
7. Payment of other liabilities which are hidden but their payment plays
crucial role in production cycle and also in working capital cycle.
8. Provide more R&D options and wider scope as resources are more available
in terms of money for company.
9. To reduce one’s liabilities by paying them from making working capital

profit.
10. To keep control on providing credit to its debtor or customer.
11. To keep control on operational expenses and to know the requirement of

capital for inventory.

DATA ANALYSIS
OF
WORKING CAPITAL STATEMENTS

ANALYSIS OF THE WORKING CAPITAL STATEMENT
The working capital statement for the last six financial years and the comparison
between two successive years are given in details as under. Along with the comparison
the reasons for the changes in working capital is also given here under.
Working Capital Statement comparison for the year 2003-04 and 2004-05
(All Figures are in Rs. Crores)
Particulars 31-03-04 31-03-05 Increase Decrease
Current Assets, Loan &
Advance:
Inventories 276.91 355 78.09
Sundry Debtors 186.41 260.90 74.49
Cash & Bank Balance 13.27 9.41 3.86
Loan & Advances 93.50 103.88 10.38
TOTAL (A) 570.09 729.19 162.96 3.86
Less:- Current
Liabilities & Provisions:
Acceptance 14.21 7.22 6.99
Sundry Creditors 133.73 147.06 13.33
Advances from Customers 3.91 7.97 4.06
Investors and Education
0.00 1.64 1.64
and Protection fund
Interest Accrued but not
1.01 2.15 1.14
due on loan
Other Liabilities 57.91 62.54 4.63
Provisions 38.40 37.94 0.46
TOTAL(B) 249.17 266.52 7.45 24.80
Working Capital (A - B) 320.92 462.67 170.41 28.66
Increase in Working
141.75
Capital
Total 170.41 170.41

ANALYSIS & INTERPRETATION
From the working capital statement comparison for the year ended on 31 st March, 2004
and 31st March, 2005 given above some of the fact revealed are as under.
 The current assets increase in the latter year by Rs. 159.10 Crores.
 The current liabilities increase in the latter year by Rs.17.35 Crores.
The reasons behind the increase in current assets are as follows:
 Increase in debtors due to high competition in the market. Hence company is

giving more credit to its customer as per needs of its segment through its various
units for Rs.74.49 Crores. Hence it caused a more application of funds for IR&IL
working capital.
 Increase in inventory of Rs.78.09 Crores is to meet the demand and requirements

of its customers and also the increased capacity of various units respectively for
IR&IL. For example Indian Rayon unit got expansion of power plant for more
production of 20 MW and in Textile units expansion and installation of more
machinery to produce more Linen Fabrics caused more inventory of storage of
raw materials etc.
 Decrease in Cash and bank balance was due to the fund used for expansion and
renovation of various units and due to such reasons cash balance decreased and it
was used more by Rs. 3.86 Crores. Hence IR&IL had to made more availability
of fund for such application occurred in working capital.

The reasons for the increase in current liabilities are given as.
 Increase in creditors for IR&IL are due to expansion of various plants or units and
hence requirement of such plants or units increased in terms of raw materials and
various other services. Hence to fulfill such needs, more materials were purchased
and creditors also provided good deal by giving more credit days for making better
relations with IR&IL units respectively. Therefore amount increased by Rs 13.33
Crores and also become source of fund for working capital.
 Trust of creditors on organization and group leads to interest accrued but not due
to loans. These interests have increased in the latter year by Rs. 4.06 Crores.
 To make deal final and for guarantee purpose advance are taken from customer’s
by various units of IR&IL. Such advance also generate source of fund for working
capital and it provides more liquidity to company needs of short – term fund,
various units of IR&IL has taken more advance of Rs. 4.06 Crores in latter year.
 IR&IL’s various unit accepted money as “Acceptance” from customers,

creditors, outsiders. Such funds work as sources for working capital and they are
one kind of short – term loans. But this year such loan decreased by Rs. 6.99
Crores as they were paid off and in spite of being source they became as more
application of fund for working capital.

Due to all the above affect the net working capital increased by Rs.141.75 Crores.
(PLEASE NOTE: Above & rests of data analysis have been done upon Aditya Birla Nuvo Ltd. presently or on
Indian Rayon & Industries Ltd. previously, but not on INDIAN RAYON UNIT alone. Here Balances are
taken of Nuvo’s STANDALONE’S business figures which includes INDIAN RAYON unit figures in it.)
(All the Figures in Crores)

Advance:
Inventories 355 526.33 171.33
Sundry Debtors 260.90 415.44 154.54
Interest Accursed on
0.00 0.00
Investment
Loan & Advances 103.88 664.18 560.30
TOTAL (A) 729.19 1626.27 897.08
Less:- Current Liabilities
& Provision
Acceptance 7.22 37.80 30.58
Interest Accrued but not
2.15 9.70 7.55
due on loan
Advance from customers 7.97 11.18 3.21
Investors and Education
1.64 2.29 0.65
and Protection Fund
Provisions 37.94 73.92 35.98
TOTAL (B) 266.52 498.70 232.18
Increase in working
664.90
capital

Total 897.08 897.08
and 31st March, 2006 given above some of the facts revealed are as under.
 The current liabilities increase in the latter year by Rs. 232.18 Crores.
 Mergers and Acquisitions took place in the latter year and various other units got
merged in this company.
 Indian Rayon & Industries Ltd. up till 2004-05 changed and made Aditya Birla
Nuvo Ltd. in 2005-06 and more units were added to it. Hence more addition to
current assets.
 Increase in inventory caused from the above effect by Rs. 171.33 Crores.
 Increase in debtors due to competition in market from other players and also the
above factors caused the more amount of money by Rs. 154.54 Crores.

 ABNL made more advance payments for taxes and for various other legal
procedure amount for getting work done quickly. They also made partial amount
of deal to its creditor for getting their deals final for various units. This caused
them to generate more funds as application of working capital increased by
Rs.560.30 Crores.
The reasons for increase in current liabilities are as follows:
 Increase in creditors is due to mergers and acquisition of more units in the

company and also more credit days given by creditors to increase their business
with various units of their area respectively of ABNL’s diversified business
portfolio by Rs. 118.82 Crores.
 Trust of creditors on the name of the organization and group leads to interest
accrued but not due on loans. These interests have increased in latter year by Rs.
7.55 Crores. Such amount are small but always bring sources of funds for
working capital for various units of ABNL OR IRIL
 Indian Rayon & Industries Ltd. up till 2004-05 changed and made Aditya Birla
Nuvo Ltd. in 2005-06 and more companies were added to it. Hence due to it more
addition to current liabilities.
 ABNL also accepted more amounts of money as “Acceptance” from its

customers, creditors and outsiders as a short – term loans for its various units.
Such loans are always useful for any business as the generate sources of fund at

very less expense. Hence the generation was of Rs.30.58 Crores more in latter
year.
 Due to above effect of mergers and acquisitions of various units the provision and
other liabilities also increased Rs. 35.98 Crores and Rs. 35.39 Crores
respectively. Hence they are also generating source of fund for working capital for
various units of ABNL or IRIL.
Due to all above affect the net working capital increased by Rs. 664.90 Crores.
(All the figures are in Rs. Crores)

Advance:
Inventories 526.33 475.26 51.07
Sundry Debtors 415.44 595.99 180.11
Interest accrued on
0.00 0.15 0.15
Investment
Loan & Advances 664.18 332.18 332
TOTAL (A) 1626.27 1426.32 182.68 383.07
& Provision:
Acceptance 37.80 11.04 26.76
Advances from Customers 11.18 15.34 4.16
Interest accrued but not due
9.70 20.41 10.71
on loan

Investors and Education and
2.29 2.19 0.10
Protection Fund
Provision 73.92 59.65 14.27
TOTAL (B) 498.70 451.97 72.91 26.18
Decrease in working
153.66
capital
Total 409.25
and 31st March, 2007 given above some of the facts revealed are as under:
 The current assets decrease in the latter year by Rs. 200.39 Crores.
 The current liabilities decrease in the latter year by Rs. 46.73 Crores.
The reasons behind the decrease in current assets are as follows:
 Increase in debtors is due to competition in market from various other players of

their segments and Chinese dumping in various businesses has affected all the
units and business of ABNL. Being a diversified business portfolio company has
to maintain its customer and market share. Hence it brought increase in debtor’s
amount by Rs. 180.11 Crores.

 Decrease in inventory due to less demand of products in various field and
incremental in cost of raw materials for various units has caused the reduction of
Rs. 51.07 Crores from previous year and it worked as a source for working capital.
 Decrease in loans & advances due to no need seen by ABNL’s various units for
making advance payments for taxes and creditors as market was not as demanding
from previous year. Hence the amount made free by them was Rs. 332 Crores and
also increased their source of working capital in huge amount.
The reasons behind the decrease in current liabilities are as follows:
 Decrease in creditors due to less production and demand of product in market for
various units and being not so demanding market creditors also provided less
credit days for various items and which caused the reduction of Rs. 31.78 Crores
and it also decreased the sources of working capital for various units of ABNL.
accrued but not due on loans. This interest amount had increased in latter year by
Rs. 10.17 Crores.

 ABNL’s various unit accepted money as “Acceptance” from customers, creditors,
outsiders. Such funds work as sources for working capital and they are one kind of
short – term loans. But this year such loan decreased by Rs. 26.76 Crores as they
were paid off and in spite of being source they became as more application of fund
for working capital.
Due to above all affect net working capital decreased by Rs. 153.66 Crores.
Working Capital Statement comparison for the year 2006-07 to 2007-08
(All the figures are in Crores)

Advance:
Inventories 475.26 776.60 301.34
Sundry Debtors 595.99 760.98 164.99
Interest accrued on
0.15 0.82 0.67
Investment
Loan & Advances 332.18 476.50 144.32

TOTAL (A) 1426.32 2112.05 685.73
Less:- Current
Liabilities & Provision:
Acceptance 11.04 33.00 21.96
Advances from customers 15.34 22.26 6.92
Interest accrued but not
20.41 30.53 10.12
due on loan
Investors and Education 2.28
2.19 0.09
and Protection Fund
Provisions 59.65 133.48 73.83
TOTAL (B) 451.97 700.37 248.40
Working Capital (A – B) 974.35 1411.68 685.73 248.40
Increase in working
437.33
capital
Total 685.73 685.73
From the working capital statement comparison for the year ended 31 st March, 2007 and
31st March, 2008 given above some of the facts revealed are as under

 ABNL’s various unit’s production capacity was increased and hence production
increased for various products. Inventories increased by Rs. 301.34 Crores which
is the main reason due to expansions of production capacity of plant for various
units of ABNL. For example expansion took place in Indian Rayon this year.
 Due to competition in the market ABNL have given more credit to its debtor’s
around Rs. 164.99 Crores for various products like VFY, Black Carbon, and
Fertilisers etc.
 ABNL’s various units had made payments to its creditors a partial amount of
actual deal in advance to procure and make their deal confirm for their units
respectively. They also made advance payments for various taxes to get huddle
free trade in market and for export which caused ABNL to arrange more amounts
of Rs. 144.32 Crores for its various units.
The reasons behind increase in current liabilities are as follows:
 Increase in production capacity had made more creditors for ABNL’s units in
latter year by Rs. 97.18 Crores for providing raw materials and services for
various units.

accrued but not due on loans. This interest amount had increased in latter year by
Rs. 10.12 Crores.
 ABNL’s various units had accepted money in form of “Acceptance” from various
customers, creditors and outsiders. Due to this effect the rise of Rs. 21.96 Crores
in current liabilities has occurred and it worked as source of working capital for
ABNL’s various units. It is also one kind of short – term loan taken from market.
Due to above all affect net working capital increased by Rs. 437.33 Crores.
(All Figures are in Rs. Crores)

Advances:

Inventories 776.60 747.60 29.00
Sundry Debtors 760.98 887.23 126.25
Interest accrued on
0.82 - 0.82
Investment
Loan & Advances 476.50 532.57 56.07
TOTAL (A) 2112.05 2257.21 182.32 37.16
& Provision
Acceptance 33.00 28.02 4.98
Sundry Creditors 331.28 465 133.72
Advances From Customers 22.26 39.31 17.05
Interest Accrued but not due
30.53 66.57 36.04
on loan
Investors and Education and 2.28
2.34 0.06
Protection Fund
Provisions 133.48 96.44 37.04
TOTAL (B) 700.37 773.48 113.82 186.87
Increase in Working
72.11
Capital
Total 296.14 296.14
and 31st March, 2009 given above some of the facts revealed are as under:

The reasons behind the decrease in current assets are given as:
 Increase in debtors due to competition for ABNL’s various units and crisis in
economy and to sustain business with customers more credit time was given to
debtors. Due it the increase in amount is of Rs. 126.25 Crores.
 Decrease in inventories is due to keeping safer side. Less demand and increase in
cost of various raw materials also played vital role, which cost reduction of around
Rs. 29 Crores overall for ABNL’s Various unit as whole
 Increase in loans and advance given in order to take benefit of various tax policies
and made payments for various licenses renewal and also for acquiring new ones
which made effect of Rs. 56.07 Crores for ABNL’s various units. It has worked
as more of application in working capital.
 Decrease in cash balance was for the above reasons and also due to less credit
available for company in market for its credit due economy meltdown and bad
position of market along with it various unit’s modernization for better
performances. Hence due to this effect cash balance reduced by Rs. 7.34 Crores in
latter year and it worked as application of fund in working capital.
The reasons for the increase in current liabilities are given as:

accrued but not due on loans. But in latter year it has increased by Rs. 36.04
Crores.
 Increase in creditors because of sustaining their customer’s in this low demand

market. This has caused more days of credit and increased the amount by
Rs.133.72 Crores for ABNL’s and its various units. Such effect has worked as
useful source of working capital for the company.
 Due to reduction in production and keeping the market scenario in mind, IR&IL
or ABNL has decreased its other liabilities by Rs. 71.80 Crores. Hence it caused
an effect of application in working capital.
 Seeing demand and production the provisions for taxed has also decreased by Rs.
37.04 Crores.
Due to all the above affect the net working capital increased by Rs. 72.11 Crores.

RATIO ANALYSIS
AND
INTERPRETATION

Ratio analysis helps in finding out the company’s position in the industry in which it is
working. It also helps in identifying the strengths and weakness of the organization
when compared with other organization of the same industry. So, for the financial
analysts keeping record of the ratio and tracking them lighten their way of taking
decision. The Various ratios and there analysis for the “INDIAN RAYON &
INDUSTRIES LTD. (IR&IL)” previously known or “ADITYA BIRLA NUVO
LTD. (ABNL)” known now for the financial years 2004-05, 2005-06, 2006-07, 2007-
08, 2008-09 i.e. for 5 years are calculated and compared here under. Here the purpose
of finding and analyzing ratio is to compare the activities of company during different
financial years and to know the efficiencies of finance department of the company and
its management. It also gives the knowledge how this ratio’s are helpful for decision
making and to know the strength and stability on a company not only for ABNL but for
any company.
Working capital Ratio helps in meeting or indicating the ability of a business concern in
meeting its current obligation as well as its efficiency in managing the current assets for
generation of sales. They are divided into three categories which are as follows:
 Liquidity Ratio : It consist of Current Ratio and Quick Ratio.
 Efficiency Ratio : It consists of Working Capital to Sales, Inventor y Turnover

Ratio, and Current Assets Turnover Ratio.
 Structural Ratio : It consists of Current Assets to total net Assets, Composition

of Current Assets, Debtor Turnover Ratio, Debtors Collection period, Creditors
Payment Period.
Ratio’s like Return on Investment, Return on Equity, Cash Ratio also plays vital role in
decision making and also indicates the strength of company financial wise and it also
shows how efficient company is.

CURRENT RATIO
The current ratio is a measure of the firm’s short-terms solvency. It indicates the
availability of current assets in rupees for every one rupees of current liability. Current
ratio is defined as a ratio of the current assets to the current liabilities. Mathematically it
is given as.
Current Ratio = Current Assets

Current Liabilities
Year 31/03/05 31/03/06 31/03/07 31/03/08 31/03/09

Current 729.19 1626.27 1426.32 2112.05 2257.21
Assets
Current 266.52 498.70 451.97 700.37 773.48
Liability
Current 2.74 3.26 3.16 3.02 2.92
Ratio
ANALYSIS & INTERPRETATION :

As mentioned above, it shows the relationship between C.A. & C.L. according to
measure the ideal ratio is of 2:1 and min. required should be 1.33:1 for banks. Here we
can see that ratio is fluctuating every year and not gone down below 2:1 at any point
and the max. was 3.26:1 in 2005-06 financial year, up till 2008 -09 analyses for last five
years. Currently the ratio is of 2.92:1 and which has reduced from previous year but still
far from min. level. Hence it can be said that IR&IL have kept close watched on their

current ratio and tried to maintained their efficiency in working capital management as
well as of company among its shareholders.
QUICK RATIO
Quick ratio establishes the relationship between quick assets and current liabilities.
Generally it is used as a measure of company’s ability to meet its current obligation.
Mathematically it is given by
Quick Ratio = Current Assets – Inventories
Current Liabilities
Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Quick 374.19 1099.94 951.06 1335.45 1369.98

Assets
Quick 266.52 498.70 451.97 700.37 773.48
Liabilities
Quick Ratio 1.40 2.21 2.10 1.91 1.77

It can be seen that quick ratio is also fluctuating with year changing. The ideal ratio is
considered of 1:1. IR&IL or ABNL is efficient and have sufficient fund to meet its
current liability at any point. The lowest was at 1.4:1 in 2004–05 financial year and had
highest ratio of 2.21:1 in 2005-06 financial year in last five years. Currently the ratio is
of 1.77:1 and it is on reducing side from previous years.
DEBT TO EQUITY RATIO
It is the ratio which indicates the relationship between loan funds and net worth or share
holder funds of the company, which is known as ‘gearing’. This ratio helps in
controlling debt, which is a part of working capital management. This ratio also helps
the stockholder in taking the decision of investment. Mathematically it is given as
Debt to Equity Ratio = Loan Funds
Share holder fund
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

Loan Funds 493.03 1563.57 2831.83 2743.42 4499.31
Share 1354.06 2207.61 3124.55 4023.74 4121.66

holder fund
D. E. Ratio 0.36 0.71 0.90 0.68 1.10

By seeing the above facts and figure it can be said that by time spend the ratio have
jumped from 0.36 to 1.10 and it has shifted company from low gearing to high gearing
and it can reap the benefit of trading on equity. ABNL’s long-term solvency is more
satisfactory. All the ratio of the respective year was well within the accepted norm of
2:1.
LONG-TERM DEBT TO EQUITY RATIO
It is ratio of long-term debt to the net worth. This ratio would be of more interest to the
contributories of long-term finance to the firm, as the ratio gives a factual idea of the
assets available to meet long-term liabilities. It gives the idea about long term debt like
long-term loans, debenture, bonds etc. Mathematically it is given by
Long-term debt to Equity = Long-term Debt

Net Worth
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
L.T. Debt 493.03 1084.21 2071.62 1856.72 2217.07
N.W. 1354.06 2207.61 3124.55 4023.74 4121.66
Ratio 0.36 0.49 0.66 0.46 0.54

This ratio also has same trend as debt to equity ratio had. In earlier years the ratio was
low and latter on it increased sharply. Hence by seeing the above figures it can be said
the ABNL is sound and secured along with better position in terms of financial
conditions. Though graph is showing fluctuation in ratio’s every year as the current
position is of 0.54 and it has increased from last year of 0.46.
TOTAL ASSETS TURNOVER RATIO
It shows the part of the total asset turnover ratio in single financial year. It focuses on
the effectiveness and efficiency of management in taking decision and using available
resources. Mathematically it is given by
Total Asset Turnover Ratio = Net Sales

Total Assets
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Net Sales 1860.62 2642.50 3420.47 3924.21 4786.58
T.A. 1972.61 3938.88 6130.46 6967.47 8801.11
TATR 0.94 0.67 0.55 0.56 0.54

Every year Finance Department of IR&IL from 2004 – 05 have shown their efficiency
in controlling ratio and to make it ideal for the company. In early stage IR&IL was
showing over trading of total assets. But as times spend ABNL came with improved
and efficient result by coming towards 0.54 by 2008 – 09. This shows the caliber and
efficiency of Finance department of the company and there concern for the needs
working capital.
TIME INTEREST EARNED RATIO
The amount of interest paid by the company should be compared with the operating
profit before interest, depreciation and tax. It shows how many times interest charges
are covered by funds that are available for payment of interest. Mathematically it is
given as
Time Interest Earned Ratio = PBI, Dep. & Tax.

Interest
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Profit 264.15 443.39 603.78 634.85 585.70
Interest 18.73 55.79 171.16 179.02 257.4
Ratio 14.10 7.95 3.53 3.55 2.28

By seeing the above figures it can be said that IR&IL was conservative in using debt in
2004 to 06. But from 2006 – 07 company started to use debt and the ratio come down
up to 2.28 in last five years. An interest cover of more than 7 times is regarded as safe
which was up till 2005 – 06. ABNL has used more debt and raised fund as the ratio has
reached around 2.28 and has gone below 7 times currently. Cover of 2 times is min for
any company considered by financial institutions.
OPERATING EXPEENSE RATIO
Operating profit is after deducting operating expenses from the gross profit. The
operating profit ratio is given by the between operating profit and net sales. It means
amount of operating profit for sales worth one rupee. It is calculated in average.
Mathematically it is given as
Operating Expense Ratio = COGS + Operating Expenses *100

Net Sales
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09

COGS + 1625.27 2277.89 3032.35 3510.87 4398.49
Expenses
Net Sales 1870.56 2665.43 3464.98 3965.80 4786.18
O.P. Ratio 86.89% 85.50% 87.51% 88.51% 91.90%

ABNL min. expense is in between 85.00% to 90.00% from last four years. But from
last three years the graph has shown up trends due to increase in price of fuel, raw
materials, and transportation for various units. Old unit’s maintenance expenses are also
adding up the sum for e.g. Maintenances charges are quite high for Indian Rayon Unit.
High expenses by growth businesses have also increased the operating expense ratio.
Currently it is 91.90 % for 2008 – 09.
NET PROFIT RATIO
Similar to gross profit ratio, the net profit ratio will show the amount of net profit for
the sales worth amount of 1 rupee. The net profit ratio shows the profitability of the
organization. Mathematically it is given as
Net Profit Ratio = 100% - Operating Ratio
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Operating 86.89% 85.50% 87.51% 88.51% 91.90%

Ratio
N.P. Ratio 13.11% 14.50% 12.49% 11.49% 8.10%

It can be analyzed from above chart that net profit had declined in recent years. All the
effects are due to Chinese industries dumping have restricted Indian companies profit

and adverse effect of it can be seen on ABNL too. As profit of 14.50 % in the year
2005 – 06 have come down to 8.10% in 2008 – 09. Hike in the prices of fuel and raw
materials have reduced the profit margin in current status. Inefficient performances of
growth business like Birla sun life insurance occurred loss are also reducing profit for
ABNL. Current melt down and economy crisis has also played crucial role on ABNL’s
diversified business.
FIXED ASSETS TURNOVER RATIO
It shows the relationship between the fixed assets and the net sales. It gives the amount
of net sales in rupee of fixed assets. Mathematically it is given as
Fixed Assets Turnover Ratio = _Net Sales

Fixed Assets
Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Net Sales 1860.62 2642.50 3420.47 3924.21 4687.58

F.A. 810.28 1135.52 1308.13 1501.62 1604.99
Ratio 2.30 2.33 2.61 2.61 2.92

It can be seen from the figures that management of ABNL has tried to improve every
year for the better usage of fixed assets. It can be seen that the graph have shown
upward sign only, no downfall have been recorded in last five years. Hence it shows the
efficiency of finance department of ABNL. Currently the ratio is of 2.92:1 and in last
five years graph is on up trend for ABNL and its various units.
CASH FLOW MARGIN RATIO
It gives the idea about the cash flow with respect to the net sales of the organization.
This ratio focuses on the effectiveness of the finance department in handling the cash.
Cash profit is net profit + deprecation. Mathematically it is given as
Cash Flow Margin Ratio = Cash Profit

Net Sales
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Cash 777.21 1635.67 1773.87 1923.96 1951.38

Profit
Net Sales 1860.62 2642.50 3420.47 3924.21 4687.58
Ratio 0.42 0.62 0.52 0.49 0.42

The cash flow margin has fluctuated from year to year. It can be seen from above
figures that in 2005 – 06 financial year it was around 0.62 which came down up to 0.42
in 2008 – 09 financial year. The reasons are increase in cost of everything, high
inflation, increase in cost of labor, maintenances charges etc. Than to ABNL’s finance
department had tried to maintain their efficiency by not reducing the graph very steeply.
They bounced back from downfall from 0.42 to 0.62 in 2005 – 06 financial year.
CASH RETURN ON ASSETS RATIO
It is quite similar to the above ratio. The only change is that here the cash from the
operating activities are compared with the total assets of organization. The effectiveness
is measurement of cash management compares to the total assets of the company. Here
cash from operating activities is net profit + deprecation. Mathematically it is given as
Cash Return on Assets Ratio = Cash from Operating Activities

Total Assets
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Cash 777.21 1635.67 1773.87 1923.96 1951.38

Profit
Total 1972.61 3938.88 6130.46 6967.47 8801.11
Assets
Ratio 0.39 0.42 0.29 0.28 0.22


Graphs of Cash return on assets ratio of ABNL have steeply fallen down from the
financial year 2005 – 06 to 2008 – 09. It can be seen that it has gone down from 0.42 to
0.22 and there is constant downfall no sign of improvement is seen. It may due to
inefficiency of growth business performance as per their investment.
RETURN ON EQUITY (%)
The return on equity shows the amount of net profit with respect to the net worth of the
company. Here net worth contains the total amount of share holder’s fund i.e. equity
share capital + reserves and surplus. This ratio helps in comparing the performance of
the company for two or more financial year and also shows strength of the company in
returns to its share holder. Mathematically it is give as
Return on Equity Ratio = Net PAT * 100

Net Worth
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
PAT 113.28 186.93 224.97 243.07 137.43
Net Worth 1354.06 2207.61 3124.55 4023.74 4121.66
Ratio 8.37% 8.47% 7.20% 6.04% 3.33%


Well it can be seen that ABNL’s performance has fallen down from previous years. The
reasons are Chinese dumping, changes in government policies, increase in various cost
of raw materials, transportation, fuel cost etc. for various units. Even market conditions
have affected the business of ABNL too, as growth business requires heavy capital
investments and then to they are not able to perform well due to economy crisis, for ex.
Birla Sun Life Insurance which is always in need of heavy investments than to it
showed losses in the current year. Though ABNL’s didn’t have good performance from
last two financial years, still they have good support and faith of share holders and they
have stability to survive in worse to worse conditions with support of Aditya Birla
Group. Currently the ratio has come down from 8.47% in 2005 – 06 to 3.33% in 2008
– 09.

RETURN ON INVESTMENTS (%)
The return on investment shows the amount of net profit earned by the company with
respect to total amount invested as assets. It shows the profitability of the company and
measures effectiveness of decision making of the finance manager and also shows
stability of the company. It is also known as ROACE. Mathematically it is given as
Return on Investment Ratio = PBIT * 100

Total Assets
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
PBIT 183.46 331.59 483.47 492.85 419.71
Total 1972.61 3938.88 6130.46 6967.47 8801.11

Assets
Ratio 09.30% 08.42% 07.87% 07.07% 04.77%


From the above figures and graph it can be said that profit of ABNL have decreased
and it has sharply fallen down. The reasons are highly competitive market with high
cost of materials, labor, transport etc. along with Chinese dumping and unfavorable
government policies, poor condition of market and economy has also played a vital role
for such poor performance. Reduction in profit margin of ABNL’s so that it can sale its
product at more cheaper and competitive rate in market from others to sustain its
customers. Poor performance of Growth Business unit’s and also losses occurred by
them are one of the cause in reduction of ROACE from previous years as it has come
down to 4.77% in 2008 – 09 from 9.30% in 2004 – 05 which is around 49 % reduction
in profit.

WORKING CAPITAL TURNOVER RATIO
This ratio indicates the extent of working capital turned over in achieving sales of the
firm. It also shows how efficiently firm or finance manager of a company is using
capital or resources effectively for meeting the requirement of working capital.
Working Capital Turnover Ratio = Net Sales

Working Capital
Year 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Net Sales 1860.62 2642.50 3420.47 3924.21 4687.58
Working 462.67 1127.57 974.35 1411.68 1483.73

Capital
WCT 4.02 2.34 3.51 2.78 3.16

Ratio

From the above figures and graph it can be said that IR&IL’s or ABNL’s various units
finance managers and their departments have shown their efficiency and their work
from time to time, though working capital turnover ratio graph has shown fluctuating
figures from year to year. It shows how much concern of finance department has for
working capital, they have managed working capital were effectively for every unit of
ABNL. They have reduced the working capital ratio as rest of the capital can be used
for other purposes but keeping themselves on the safer side not on the edge. ABNL has
used working capital as per their needs and almost accurate estimation and never
blocked the fund unnecessarily. They have never gone below 2:1 ratio up till date from
last 5 years. Hence it shows the strength and stability of the IR&IL or ABNL for usage
and allocation of funds for its diversified business portfolio. Currently the ratio is of
3.16:1 in 2008 – 09 from 4.02 in 2004 – 05.

DEBTOR’S COLLECTION PERIOD
Debtor’s collection period indicates days required to collect amount of credit sales from
debtors. This represents the number of days; the funds are blocked in debtors for a firm
sells goods for cash and credit. Credit is used as a marketing tool by a number of
companies. So a firm must manage its credit policy well.
Debtors Collection Period = Debtors * 365

Sales
Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Debtors 260.90 415.44 595.99 760.98 887.23
Sales 1860.62 2642.50 3420.47 3924.21 4687.58
DCP Days 51 57 64 71 69

ABNL’s has extended its collection period more in terms of days as per the need of
market in recent trends for various units of its diversified business. From above graph it
can be seen that as the year passed days also increased and ABNL’s needs of working
capital also increased due to blocking money for around 71 days from 51 days
previously, but currently it is 69 days in 2008 – 09. Then to they have very low bad
debts. Finance & Accounts department has worked very crucially on the extension of
debtor’s collection period along with marketing department. Hence the application of
funds for working capital is mainly done on this part along with inventories. The
average collection period or UGAI period is of 30 days given by ABNL’s various units
to its premium and major customers.
(Note: - As the figure of credit sales was not available, it has been assumed here that all the
sales are credit sales.)

CREDITOR’S DEFERRAL PERIOD
Creditor’s deferral period indicates the duration for which the suppliers provide credit
facility. This duration should be long enough so that company can convert the raw
material into finished goods and sell it in the market. Because the main source of
revenue for any organization is its sales. Purchase is equal to Raw Material Consumption +
Closing Stock of Raw Material-Opening Stock of Raw Material. Hence the days are:
Creditors Collection Period = Creditors * 365

Purchase
Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Creditors 147.06 265.88 234.10 331.28 465
Purchase 1065.76 1561.97 1730.89 2319.38 2280.87
CCP Days 51 62 49 52 74

The average deferral period of creditors is 30 days which represents its strong liquidity
position to pay its obligations within 45 days for various units of ABNL. This ratio has
gone down up till 49 days in 2006 – 07 year. In this year it is 74 days currently in 2008
- 09 which shows the creditability of ABNL’s in market and its strong position financial
wise. The fluctuation is due to changes in trends of market and creditor’s policy for
giving credit and per agreement dead. Such credit from creditor’s works as a use full
source of working capital for ABNL and it reduce burden for that year. It also reflects
the reputation of ABNL’s various units holds in market as creditors provide more
service by lending more days of credit to make more healthy terms and relation with
ABNL’s units for having business.
(Note: - As the figure of credit purchase was not available, it has been assumed here that total
purchases are credit purchase.)

INVENTORY TURNOVER RATIO
The Inventory Turnover ratio indicates the movement of average stock holding of each
item of material in relation of its consumption during accounting period. Average stock
is equal to opening stock + closing stock divided by 2 for that year. Calculated days are
as follows:
Inventory Turnover Ratio = Average Stock * 365

Cost of Material
Years 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Avg. Stock 315.96 440.67 500.80 625.93 762.10

Cost of 995.74 1447.57 1840.36 2131.25 2322.01
Material
ITR(Days) 116 111 99 107 113

It can be said that ABNL or IR&IL on an average has inventory turnover within 100
days in its various units all together of different business portfolio. ABNL has high
intensive manufacturing units like fertilisers, VFY, Caustic Soda, Carbon Black,
Textiles, power plant (for own units only) etc. which work 24 *7 for whole year. The
raw material required for various products are imported from foreign countries which
require min. 2 months after giving order for procurement. Hence to not get in short fall
of materials ABNL’s graph shows the turnover of 99 days in 2006 – 07 to 113 days in
2008 – 09. The graphs shows the fluctuation which shows that ABNL always tries to
minimize its days and always try to block its fund as less as it can be possible and to
minimize the application of funds for working capital. They always keep in mind and
work accordingly so that they never get shortfall of materials and do not suffer loss by
shutting down plants or various units due to such reasons.

ESTIMATION FOR NEEDS
OF
WORKING CAPITAL

The most appropriate method of calculated the working capital needs of a firm is the
concept of operating cycle. However, a number of other methods may be used to
determine working capital needs in practice. We shall illustrate here three approaches
which have been successfully applied in practice.
Current assets holding period: to determine working capital requirements on the

basis of average holding period of current assets and related them to costs based on the
company’s experience in the previous years. This method is essentially based on the
operating cycle concept.
Ratio or Percentage of sales: It is a traditional and simple method of determining

the level of working capital and its components. In this method working capital is
determined on the basis of past experience. If over the years the relationship may be
taken as a base for determining the working capital for future.
Ratio of fixed investment: To estimate working capital requirements as a percentage

of fixed investment.

Regression analysis method: It is useful statistical technique applied for forecasting
working capital relationship between sales and working capital and its various
components in the past years. The method of least squares is used in this regard.
ESTIMATION OF WORKING CAPITAL REQUIERMENT AT

ADITYA BIRLA NUVO LTD. VARIOUS UNIT
Working capital requirement estimation is dealt with proper care and cautions. Working
capital requirement fixation is done with respect ABNL various units like (INDIAN
RAYON). Some important aspects of working capital like sales and debtors are
considered here as these matters are to be taken care of by INDIAN RAYON office
itself. INDIAN RAYON sends its working capital estimation to ABNL’s office situated
in Mumbai on quarterly basis. Then ABNL’s office collects working capital estimations
of its every unit and merges them and then provides funds to individual units. The main
aspect of working capital in INDIAN RAYON is its raw materials used in production of
VYF, Power, and Caustic Soda. While estimating its working capital needs, the main
aspect to be focused on is the funds blocked in raw materials. Working capital blocked
in raw materials is estimated on the basis of the production budget for the year. From
production budget it comes to know what quantity of raw materials will be needed to
meet production targets. Then the lead time for every raw material is decided. Thus the
unit comes to know for how many days they will have to hold inventory of raw
materials. The minimum quantity needed is then multiplied to its rates and thus the unit

arrives at its working capital requirement for its production. Then the firm deducts the
funds of creditors for raw materials.
The other current assets and current liabilities are taken from its monthly balance sheet
and are shown with 10%variation for next quarter’s estimations. Hence it can be said
that ABNL uses percentage or ratio of Sales method generally for estimation of working
capital for its various units. Calculation of estimation ratio of sales for 2009 – 10 F.Y. is
practically shown by taking ABNL’s Standalone balance sheet’s figure which includes
INDIAN RAYON unit in it.
CALCULTION OF PERCENTAGE OR RATIO OF SALES

METHOD FOR ABNL VARIOUS UNITS
(All the Figures in Crores)
% of Sales Estimation Estimation Estimation
Actual Sales
Particulars Based on at 5% at 10% at 15%
2008-09
2008-09 Growth Growth Growth
Sales 100 % 4786.58 5025.90 5265.24 5504.57
Current Assets
Inventories 16 % 747.60 784.98 822.36 859.74
Sundry
18 % 887.23 931.59 976 1020.31
Debtors
Cash & Bank
2% 89.81 94.30 98.79 103.28
Balance
Loan &
11 % 532.57 564.44 585.83 612.46
Advances
Total CA (A) 47 % 2257.21 2370.07 2482.93 2595.79
Current Liab
& Provisions
Liabilities 14 % 677.04 710.89 744.74 767.10
Provisions 2% 96.44 101.26 106.08 110.91

Total CL (B) 16 % 773.48 812.15 850.83 889.50
W/C (A-B) 31 % 1483.73 1557.91 1623.10 1706.30
Hence when sales are of Rs. 5504.57 Crores the estimated requirement of working
capital will increase by Rs. 1706.30 Crores in upcoming year for ABNL’s various
units.
IMPORTANCE
OF
MIS SYSTEM (SAP) FOR ACCOUNTING

INTRODUCTION OF SAP
As a composite application, SAP Product Definition accesses and unifies data from a
full spectrum of enterprise resources, including document management systems,
customer relationship management (CRM) systems, project management systems, and
desktop applications such as Microsoft Office – creating new, cross-functional business
processes focused on optimizing front-end product definition.
Leveraging the powerful capabilities of the SAP Net Weaver technology platform, SAP
Product Definition seamlessly integrates with both third-party and SAP solutions – and
lowers your total cost of ownership. The full form of SAP is system application and
product.
SAP Business Objects offers a broad portfolio of tools and applications that are
designed to help you optimize business performance by connecting people, information
and businesses across business networks.
SOLUTIONS FOR LARGE ENTERPRISES
SAP Business Objects intelligence platform :– Leverage a single platform to connect

all people to all information, providing a unified view of the business.

SAP Business Objects GRC solutions :– Promote corporate accountability by unifying
corporate strategy, control initiatives, opportunity discovery and loss mitigation across
the extended enterprise.
SAP Business Objects EPM solutions :– Capitalize on the value of your corporate
data, enabling your organization to become more agile and competitive by providing
organizational alignment, visibility and greater confidence.
SOLUTIONS FOR SMALL BUSINESSES & MID-SIZED COMPANIES
SAP Business Objects Edge Series :– Benefit from a connected, interactive and open
business intelligence solution for mid-sized companies.
Crystal Reports :– Leverage a complete report management solution for small

companies.
Exclusive :– Leverage dynamic and customizable data visualization software.
USE OF SAP FOR VARIOUS DEPARTMENTS
 Finance
Automate time-consuming tasks – and outperform the competition in controlling
risk and streamlining financial reporting and compliance.
 Human Resources
Attract top talent and manage a borderless global workforce that extends beyond
any company, region, and industry boundaries.
 Information Technology
Streamline operations and facilitate innovation across the company.

 Product Development
Foster continuous innovation and deliver the right products and services faster with
superior quality and at competitive prices.
 Operations
Deliver products and services more profitably at the right cost, quality, quantity,
date, and location.
 Supply Chain
Better respond to dynamic market conditions across any business network to
maximize profitability.
 Manufacturing
Maximize the return on my organization's assets.
 Sales
Maximize revenues in every selling opportunity and develop a long-term
relationship with customers.
 Marketing
Coordinate efforts that result in effective marketing campaigns, profitable
promotions, and satisfied customers.
 Service
Competitive advantage through superior and differentiated customer service.
Cash is the lifeblood of any business. Today's tough credit environment brings a
renewed focus on cash flow and liquidity. It needs the best practices to manage a
company’s receivables and collections, customer credit risks, and global liquidity and
also managing inherent cash flow risks to protect the profit margins of company.
SAP provides market-leading software and services to help companies to make better
customer trade credit risk decisions, accelerate dispute resolutions, manage collections

intelligently, improve insight and control over company liquidity, and electronically
integrate billing and payment processes with company’s financial institutions.
Solutions for Optimizing Working Capital
SAP's financial management solutions feature a fully integrated set of process-

collaboration applications to improve any dispute and collections processes, trade
credit, and cash and inventory management. As a result, company can optimize working
capital through multiple strategies – each of which can be independently achieved based
on the needs of organization.
MIS SYSTEM IN INDIAN RAYON UNIT
The SAP implementation project at Indian Rayon's viscose filament yarn and chlor-
alkali plants was launched in October 2005 and the implementation went live in April
2006. It covered finance, controlling, sales and distribution, materials, quality,
production and maintenance modules of SAP at Veraval and 14 sales offices and
depots. Subsequently, the division has implemented Business Intelligence Warehouse
(SAP BW) in January 2007. Besides covering usual features, the division has to its
credit implementation of special features like profit center accounting, funds
management, budgetary control, segment profitability under CO-PA module etc., some
of which are for the first time in the Aditya Birla Group. The implementation at Indian
Rayon was a complex process due to its vast range of filament yarn products (13,000
product codes), highly integrated multi-stage processing in series of value-adding
activities and captive plants for manufacture of various input chemicals and utilities.
But the dedicated and comprehensive implementation team, along with PWC, its
implementation partner, made it possible within six months. It created 170 cost centres
and 37 profit centers in SAP. The division also adopted UNSPSC coding (United
Nations Standard Products and Services Codes) for materials, which enabled scientific

classification of all kinds of materials, particularly maintenance spares and
consumables.
ORGANIZATION STRUCTURE OF VARIOUS DEPARTMENTS
FINANCE AND CONTROLLING

SALES AND DISTRIBUTION
AREA WISE SALES OFFICE
RAYON
UNIT
Surat Salem Delhi Mumbai Bangalore
MATERIALS MANAGEMENT
Purchase Organization
Imports Local Purchasing
Groups
Plants Mumbai Office

Rayon Caustic Power Depots
Storage
Main
Locations
Prod Stores
Reject
Scrap
All the departments or various section of INDIAN RAYON are inter linked with each
other and the single entry passed at one place can be seen at various places and has its
effect on whole account nor on that particular section. Suppose entry passed by Surat
depot or center will have effect on main units account as it is linked to it and not on
Surat’s account only. SAP plays vital role in today’s high tech world. It saves time and
wastage of various stationary. Top management can view the data easily and at any
point. It can be said that Single access to SAP enables information to be drilled down
across the cost centers as well as viewed across the business segments. The single
database permits information to be extracted for any cost centre or profit centre while
enabling easy solution for management review and actions.
It was a great pleasure and very value able learning asset which I got from this training
was to work in SAP environment. I learnt and operated SAP and also made various
report by taking help of it. This ERP system really has an edge on ORACLE and it is
really faster than ORACLE. I also used ORACLE and found the difference in both.
SAP has more advanced features and operating options which deal with the day to day
needs, it is friendly user and at a time multiple users can post entries and data in it from

various or different locations and SAP clubs and generate the accurate and perfect data
presentation required by operator. Learning of SAP in this training has added advantage
for my initial stage of career as it will provide me upper hand from other candidates for
having experience and knowledge of working in SAP.
INDIAN RAYON also won the prestigious SAP ACE 2007 award. The award honors
best run businesses that set global benchmarks in excellence. The award came in
recognition of Indian Rayon's excellent implementation of SAP in its Veraval plants
and 14 sales offices and depots. Among the 38 winners from various categories, Indian
Rayon won the award in chemicals sector. It was the first Aditya Birla Group company
to receive this award from SAP India, a subsidiary of SAP AG-Germany — world's
leading ERP solutions provider for customer excellence at New Delhi on 27 August
2007.
CONCLUSION

From the above report, I can conclude that at present peoples and connected companies
are 99% satisfied with Aditya Birla Nuvo Ltd. They are well known in market for their
business like Viscose Filament Yarn, Textiles, Chemicals, BPO, Insurance, Carbon
Black, Fertilisers, and Caustic Soda etc.
Any change in working capital will have an effect on business’s cash flows. A positive
change in working capital indicates that the business has paid out cash for e.g. in
purchasing or converting inventory, paying creditors etc. Hence an increase in working
capital will have a negative effect on the business’s cash holding. However a negative
change in working capital indicates lower funds to pay off short term liabilities (current
liabilities) which may have bad repercussions to the future of the company.
Managing Working Capital is one of the pioneer’s and role-playing part of the
company. Aditya Birla Nuvo Ltd. manages its working capital very efficiently for its
diversified business. Each & every component of working capital is dealt with expertise
and experience of the finance & accounting department. The procedure is very simple
for estimating working capital requirement. Predetermined norms are applied wherever
they are applicable. Mainly working capital management is the function of finance

department but many other departments like production, purchase & marketing are
involved in this procedure indirectly. Thus the effort from all the departments of various
units helps company to manage its working capital in a systematic manner. Being the
part and unit of ABNL’s, INDIAN RAYON also follows the main company norms and
terms for calculation for accounting of its working capital.
Hence this training helped me a lot to know the importance and function of working
capital and its component. Here I was able to relate what I had read in the books and
learnt in class rooms. It is essential for a person to know about the sources, application
and needs of working capital for business in real life if one will going to specialize in
the field of finance and going to work for a company or as entrepreneur. I also got a big
opportunity to work in SAP environment. I also got value able tips and guidance about
how to use SAP for increasing one’s performance, accuracy and speed towards work.
BIBLIOGRAPHY

Text References
Financial Management I.M. Panday
Financial Management Ravi .M. Kishor
Management Accounting and Financial Board of Studies, The Institute of Charted

Analysis Accountants of India
Journals :-
Annual Reports of Indian Rayon & Industries Ltd. and Aditya Birla Nuvo Ltd. for the
years :
IR&IL : 2003 – 04, 2004 – 05
ABNL : 2005 – 06, 2006 – 07, 2007 – 08, 2008 - 09
Web References :-

Intranet of Indian Rayon unit , www.adityabirla.com ,
www.adityabirlanuvo.com , www.fabriclink.com/History.htm ,
www.fibersource.com/f-tutor/history.htm , www.money.rediff.com ,
www.businessgyan.com, www.sap.india.com,
Google search engine, www.deliot.com,
ANNEXURE

(All figures are in Rs. Crores)

Particulars 31-03-04 31-03-05 31-03-06 31-03-07 31-03-08 31-03-09
Inventories
Finished Goods 104.00 108.20 147.00 194.60 273.61 288.72
Stores & Spares 13.91 17.78 35.91 46.71 80.91 77.94
Raw Materials 133.26 201.27 298.87 197.83 365.16 320.71
Packing 1.75 2.06 8.70 2.68 3.36 3.89
Materials
Work – in – 23.57 25.47 35.32 33.00 53.48 56.04
progress
Waste / Scrap 0.42 0.22 0.53 0.44 0.08 0.30
TOTAL 276.91 355 526.33 475.26 776.60 747.60
Sundry
Debtors
Due for period 2.10 3.33 10.82 12.14 21.58 17.79
exceeding six
months
Others 184.31 257.57 404.62 583.85 739.40 869.44
Total 186.41 260.90 415.44 595.99 760.98 887.23
Cash & Bank
Balances
Cash in Hand 1.20 0.82 0.51 0.87 1.17 0.56
Cheques in 1.25 0.82 0.51 0.25 7.82 5.78
hand &
Remittances in
Transit

Balances with
Scheduled
Banks:
Current 9.47 7.04 17.79 19.18 47.08 29.63
Accounts
Current ----- ----- ----- 1.41 0.12 0.08
Accounts in
respect of
Rights Issue
Refund order
Deposit 1.31 0.71 1.48 1.03 40.96 53.76
Account
Current 0.04 0.02 0.03 ---- ---- ----

Account –
Standard
Chartered Bank
(SCB), London
TOTAL 13.27 9.41 20.32 22.74 97.15 89.81
Loans &
Advances
Advances 57.23 74.01 105.35 105.72 221.58 218.76
recoverable in
cash
Loans against ---- 292.56 74.06 ---
Collateral
Securities
Deposits 26.57 18.32 242.11 125.62 222.23 199.57
Balance with 9.70 11.55 24.16 26.78 32.69 58.01

Central Excise,
Customs & Port
Trust, etc.
Fertilisers 37.45
Bonds
Tax (Provision) 18.78
TOTAL 93.50 103.88 664.18 332.18 476.50 532.57
Provision
Taxation 3.70 0.82 10.56 19.87 19.02 ----
Proposed 23.95 23.95 41.75 ---- 54.63 38.00

Dividend
Corporate Tax 3.07 3.36 5.86 ----- 9.28 4.43

Dividend
Retirement 7.68 9.81 15.75 39.78 50.55 54.01

Benefits
TOTAL 38.40 37.94 73.92 59.65 133.48 96.44
Source on www.adityabirla.com & www.adityabirlanuvo.co.in

OR
2004 – 05 figures from Indian Rayon & Industries Ltd. annual reports and for rest of the years
from Aditya Birla Nuvo Ltd. annual reports.


Sources, Application and Needs of Working Capital

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Sources, Application and Needs of Working Capital

Uploaded by

Copyright:

Available Formats

SOURCES, APPLICATIONS & NEEDS OF WORKING CAPITAL

Globsyn Business School - Ahmadabad 3

Globsyn Business School - Ahmadabad 4

Globsyn Business School - Ahmadabad 5

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

“TO DELIVER SUPERIOR VALUE TO OUR CUSTOMERS, SHAREHOLDERS,

Core values of Group

Achievement of the Group

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

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

 The world’s no.1 in insulators.

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

Globsyn Business School - Ahmadabad 6

 The 2nd largest player in Viscose Filament yarn in India

 The 2nd largest player in Caustic soda in India.

 Among top 5 mobiles telephony companies.

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

 Among the best energy efficient fertilizer plant.

 Working in 3700 villages.

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

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

Globsyn Business School - Ahmadabad 7

VARIOUS COMPANIES OF THE GROUP

HINDALCO INDUSTRIES LTD.

Globsyn Business School - Ahmadabad 8

GRASIM INDUSTRIES LTD.

Globsyn Business School - Ahmadabad 9

Company Partner Key products / services

Birla Sun Life Insurance

Country Company Products / services

Globsyn Business School - Ahmadabad 10

Hydrogen Peroxide, Per Acetic Acid,

PT Indo Bharat Rayon Viscose Staple Fiber (VSF)

PT Elegant Textile Industry Yarns

PT Indo Liberty Textiles Yarns

PT Indo Raya Kimia Carbon Disulphide

Refined Palm Oil, Palm Olein, Stearin and

Pan Century Oleo chemicals Fatty Acids, Glycerin

Alexandria Carbon Black

Globsyn Business School - Ahmadabad 11

Australia Aditya Birla Minerals Ltd Copper

ADITYA BIRLA NUVO LTD.

Globsyn Business School - Ahmadabad 12

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

Globsyn Business School - Ahmadabad 13

Globsyn Business School - Ahmadabad 14

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

Globsyn Business School - Ahmadabad 15

ADITYA BIRLA NUVO’s BUSINESS PORTFOLIO

Growth Businesses Value Businesses

Garments Telecom BPO Financial IT Rayon Carbon Insulators Textiles Fertiliser

Apparel Retail Life Insurance*

Globsyn Business School - Ahmadabad 16

Represents JV’s / Associates

(*) JV with Sunlife Financial, Canada

ADITYA BIRLA NUVO’s REVENUE COMPOSITION

Globsyn Business School - Ahmadabad 17

1956 : Indian Rayon Corporation Ltd is incorporated.

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

From year 2000 onwards :

Globsyn Business School - Ahmadabad 18

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