Deep Final Project

PROJECT REPORT
ON
“STUDY OF WORKING CAPITAL MANAGEMENT POLICY ADOPTED
BY IFFCO COMPANY”
Submitted to
Rashtrasant Tukadoji Maharaj Nagpur University, Nagpur
for the award of degree of
Master of Business Administration
course specialization in
Financial Management
Prepared by:
DEEPAK TEMBHARE
Guide:Dr. MUKESH PATIL
2017 – 20118
NIT Graduate School of Management

Survey No. 13/2, Mahurzari, Katol Road, Nagpur – 441 501

CERTIFICATE
This is to certify that the project report titled “STUDY OF WORKING CAPITAL
MANAGEMENT POLICY ADOPTED BY IFFCO COMPANY” is a bonafide work OF
Mr. Deepak Tembhare who is student of MBA (fourth sem), N I T Graduate
School of Management (Academic Session – 2017-18). This report is being
submitted in partial fulfillment of requirement for the course of Post Graduate
Degree of Masters of Business Administration (MBA) of Rashtrasant Tukadoji
Maharaj Nagpur University, Nagpur.
Dr. Mukesh Patil Dr Neha Sharma
Project Guide Director
2
APPROVAL OF PROJECT PROPOSAL
Name of Student : - Mr: Deepak Tembhare
Enrollment Roll No :-
College : - NIT Graduate School of Management
Address of Student :-
Title of Project : - STUDY OF WORKING CAPITAL MANAGEMENT
POLICY ADOPTED BY IFFCO COMPANY
Subject Area : - Financial Management
Name of Guide : - Dr. Mukesh Patil
Dr. Mukesh Patil Dr Neha Sharma

Faculty & Guide Director
3
DECLARATION
I Deepak Tembhare hereby declare that the project report titled, - “STUDY OF WORKING
CAPITAL MANAGEMENT POLICY ADOPTED BY IFFCO COMPANY” which is being
submitted by me in partial fulfillment of requirement for the Degree of Master of Business
Administration of Rashtrasant Tukadoji Maharaj Nagpur University, is a bonafide record of
work exclusively carried out by me. It is the result of my genuine efforts and the same has not
been previously submitted towards requirements of any course or examination of this or any
other university.
The sources of material and information used in this research study has been duly acknowledged
and certified. I hereby further confirm that this project truly represents the bonafide work
undertaken by me and is the outcome of thorough and systematic research.
Name of Student
Deepak Tembhare
4
ACKNOWLEDGEMENT
The study is the outcome of the support, guidance and co-operation of several persons to
whom I own my sincere gratitude.
First and foremost I would like to express my deepest gratitude to research guide Dr. Mukesh
Patil for valuable guidance and constant encouragement in conducting the study and completing
the work.
I am privileged to extend our sincere thanks to Mrs. Neha Sharma, Director of my college for
his inspiration and guidance rendered to members.
I am also thankful to Department of Management Studies, NIT Graduate School Of

Managment, Nagpur. for necessary support and guidance.
The Project study would have been impossible if the finance manager of the company
had not contributed their valuable information. I acknowledge and thank the entire respondents
for their valuable contribution.
Lastly, I express word of gratitude to one and all that helped me in one other way to
complete my study.
Name of Student
Deepak Tembhare
5
INDEX
SR.
CONTENTS Page No.
NO.
1. INTRODUCTION
2. COMPANY PROFILE
3. LITERATURE REVIEW
4. RESEARCH METHODOLOGY
5. DATA COLLECTION
6. DATA ANALYSIS
7. CONCLUSIONS & SUGGESTIONS
8. BIBLIOGRAPHY
ANNEXURES
9.
6
CHAPTER 1
INTRODUCTION
7
INTRODUCTION TO PROJECT
What is working capital?

In simple words working capital is the excess of current Assets over current liabilities. Working capital
has ordinarily been defined as the excess of current assets over current liabilities. Working capital is the
heart of the business. If it is weak, business cannot prosper and survives. It is therefore said the fate of
large scale investment in fixed assets is often determined by a relatively small amount of current assets. It
is important to keep adequate working capital with the company.
Cash is the lifeline of company. If this lifeline deteriorates so does the company’s ability to fund
operation, reinvest do meet capital requirements and payment. Understanding Company’s cash flow
health is essential to making investment decision. A good way to judge a company’s cash flow prospects
is to look at its working capital management. The company must have adequate working capital as much
as needed by the company. It should neither be excessive or nor inadequate.
Excessive working capital causes for idle funds laying with the firm without earning any profit, where as
inadequate working capital shows the company doesn’t have sufficient funds for financing its daily needs
working capital management involves study of the relationship between firm’s current assets and current
liabilities. The goal of working capital management is to ensure that a firm is able to continue its
operation. And that it has sufficient ability to satisfy both maturing short term debt and upcoming
operational expenses.
The primary objective of working capital management is to

Ensure that sufficient cash is available to
Meet day to day cash flow needs.
Pay wages and salaries when they fall due
Pay creditors to ensure continued supplies of goods and services.
Pay government taxation and provider of capital – dividends and
Ensure the long term survival of the business enterprise.
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Need for working capital
The prime objective of the company is to obtain maximum profit thought the business. The amount of
profit largely depends upon the magnitude of sales. However the sale does not convert into cash
instantaneously. There is always a time gap between sale of goods and receipt of cash. The time gap
between the sales and their actual realization in cash is technically termed as operating cycle. Additional
capital required to have uninterrupted business operations, and the amount will be locked up in the current
assets. Regular availability of adequate working capital is inevitable for sustained business operations. If
the proper fund is not provided for the purpose, the business operations will be effected. And hence this
part of finance is to be managed well.
Working capital
Current Assets Current Liabilities

Current Assets- Cash Short-term Debt
Marketable Securities Current Portion of Long-

Term Debt
Accounts Receivable Accounts Payable
Inventory Accrued Liabilities
Prepaid Expenses
1. A balance sheet account that represents the value of all assets that are reasonably expected to be
converted into cash within one year in the normal course of business. Current assets include cash,
accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be
readily converted into cash.
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2. In personal finance, current assets are all assets that a person can readily convert to cash to pay
outstanding debts and cover liabilities without having to sell fixed assets.
In the United Kingdom, current assets are also known as "current accounts".
1. Current assets are important to businesses because they are the assets that are used to fund day-to-day
operations and pay ongoing expenses. Depending on the nature of the business, current assets can range
from barrels of crude oil, to baked goods, to foreign currency.
2. In personal finance, current assets include cash on hand and in the bank, and marketable securities that
are not tied up in long-term investments. In other words, current assets are anything of value that is highly
liquid.
Current Liabilities-
A company's debts or obligations those are due within one year. Current liabilities appear on the
company's balance sheet and include short term debt, accounts payable, accrued liabilities and other
debts.
Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally,
companies withdraw or cash current assets in order to pay their liabilities.
Analysts and creditors will often use the current ratio, (which divides current assets by liabilities), or the
quick ratio, (which divides current assets minus inventories by current liabilities), to determine whether a
company has the ability to pay off its current liabilities.
A firm is required to maintain a balance between liquidity and profitability while conducting its day to
day operations. Liquidity is a precondition to ensure that firms are able to meet its short-term obligations
and its continued flow can be guaranteed from a profitable venture. The importance of cash as an
indicator of continuing financial health should not be surprising in view of its crucial role within the
business. This requires that business must be run both efficiently and profitably. In the process, an asset-
10
liability mismatch may occur which may increase firm’s profitability in the short run but at a risk of its
insolvency. On the other hand, too much focus on liquidity will be at the expense of profitability. Thus,
the manager of a business entity is in a dilemma of achieving desired tradeoff between liquidity and
profitability in order to maximize the value of a firm.
Working Capital Management (WCM) is of particular importance to the small business.

With limited access to the long-term capital markets, these firms tend to rely more heavily on owner
financing, trade credit and short-term bank loans to finance their needed investment in cash, accounts
receivable and inventory.
Not all companies are the same.
Some companies are inherently better placed than others. Insurance companies, for instance, receive
premium payments up front before having to make any payments; however, insurance companies do have
unpredictable outflow as claims
Normally, a big retailer like Wal-Mart (NYSE:WMT) has little to worry about when it comes to accounts
receivable: customers pay for goods on the spot. Inventories represent the biggest problem for retailers; as
such, they must perform rigorous inventory forecasting or they risk being out of business in a short time.
Timing and lumpiness of payments can pose serious troubles. Manufacturing companies, for example,
incur substantial upfront costs for materials and labor before receiving payment. Much of the time they
eat more cash than they generate.
NATURE AND IMPORTANCE OF WORKING CAPITAL-
The working capital meets the short-term financial requirements of a business enterprise. It is the trading
capital, not retained in the business in a particular form for longer than a year. By minimizing the amount
of funds tied up in current assets, firms are able to reduce financing costs and/of increase the funds
available for expansion. The money invested in it changes form and substance during the normal course
of business operation. The need for maintaining an adequate working capital can hardly be questioned.
Just as circulation of blood in the human body is very necessary working capital is required to maintain
business. If it becomes weak, the business can hardly prosper and survive.
11
Working capital starvation is generally credited as a major cause if not the major cause of small business
failure in many developed and developing countries.
The success of a firm depends ultimately, on its ability to generate cash receipts in excess of
disbursements. The cash flow problems of many small businesses are exacerbated by poor financial
management and in particular the lack of planning cash requirements.
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CHAPTER 2
ABOUT IFFCO
INTRODUCTION OF IFFCO
13
INTRODUCTION OF IFFCO-KANDLA
During mid- sixties the Co-operative sector in India was responsible for distribution of 70 per cent of
fertilizers consumed in the country. This Sector had adequate infrastructure to distribute fertilizers but had
no production facilities of its own and hence dependent on public/private Sectors for supplies. To
overcome this lacuna and to bridge the demand supply gap in the country, a new cooperative society was
conceived to specifically cater to the requirements of farmers. It was a unique venture in which the
farmers of the country through their own Co-operative Societies created this new institution to safeguard
their interests. The number of co-operative societies associated with IFFCO has risen from 57 in 1967 to
38,155 at present.
Indian Farmers Fertilizer Co-operative Limited (IFFCO) was registered on November 3, 1967 as
a Multi-unit Co-operative Society. On the enactment of the Multistate Co-operative Societies act 1984 &
2002, the Society is deemed to be registered as a Multistate Co-operative Society. The Society is
primarily engaged in production and distribution of fertilizers. The bylaws of the Society provide a broad
frame work for the activities of Indian Farmers Fertilizer Cooperative Limited as a Co-operative Society.
IFFCO commissioned an ammonia - urea complex at Kalol and the NPK/DAP plant at Kandla
both in the state of Gujarat in 1975. Ammonia - urea complex was set up at Phulpur in the state of Uttar
Pradesh in 1981. The ammonia - urea unit at Aonla was commissioned in 1988.
In 1993, IFFCO had drawn up a major expansion program of all the four plants under overall
aegis of IFFCO VISION 2000. The expansion projects at Aonla, Kalol, Phulpur and Kandla have been
completed on schedule. Thus all the projects conceived as part of Vision 2000 have been realized without
time or cost overruns. All the production units of IFFCO have established a reputation for excellence and
quality. As part of the new vision, IFFCO has acquired fertilizer unit at Paradeep in Orissa in September
2005.
IFFCO has made strategic investments in several joint ventures. Godavari Fertilizers and Chemicals Ltd
(GFCL) & Indian Potash Ltd (IPL) in India, Industries Chimiques du Senegal (ICS) in Senegal and Oman
India Fertilizer Company (OMIFCO) in Oman are important fertilizer joint ventures. Indo Egyptian
Fertilizer Co (IEFC) in Egypt is under implementation. As part of strategic diversification, IFFCO has
entered into several key sectors. IFFCO-Tokyo General Insurance Ltd (ITGI) is a foray into general
insurance sector. Through ITGI, IFFCO has formulated new services of benefit to farmers. 'Sankat Haran
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Bima Yojana' provides free insurance cover to farmers along with each bag of IFFCO fertilizer
purchased. To take the benefits of emerging concepts like agricultural commodity trading, IFFCO has
taken equity in National Commodity and Derivative Exchange (NCDEX) and National Collateral
Management Services Ltd (NCMSL). IFFCO Chhattisgarh Power Ltd (ICPL) which is under
implementation is yet another foray to move into core area of power.
The distribution of IFFCO's fertilizer is undertaken through over 37,000 co-operative societies.
The entire activities of Distribution, Sales and Promotion are co-ordinate by Marketing Central Office
(MKCO) at New Delhi assisted by the Marketing offices in the field. In addition, essential agro-inputs for
crop production are made available to the farmers through a chain of 158 Farmers Service Centre (FSC).
IFFCO has promoted several institutions and organizations to work for the welfare of farmers,
strengthening cooperative movement, improves Indian agriculture. Indian Farm Forestry Development
Cooperative Ltd (IFFDC), Cooperative Rural Development Trust (CORDET), IFFCO Foundation, Kisan
Sewa Trust belongs to this category. An ambitious project 'ICT Initiatives for Farmers and Cooperatives'
is launched to promote e-culture in rural India. IFFCO obsessively nurtures its relations with farmers and
undertakes a large number of agricultural extension activities for their benefit every year.
IFFCO, to day, is a leading player in India's fertilizer industry and is making substantial
contribution to the efforts of Indian Government to increase food grain production in the country.
INTRODUCTION OF IFFCO-KANDLA
15
Kandla Unit – Location
State Gujarat, India
State Capital Gandhinagar
District Kachchh
Distance from New Delhi Approx. 1100 kilometers by rail
Distance from Mumbai Approx. 800 kilometers by rail
Nearest Airport Kandla Airport, Near Gandhidham,and Bhuj
Airport 65 KM from Gandhidham.
Railway Station Gandhidham ( 12 Km from plant and 3 Km
from IFFCO's township at Gandhidham)
and Kandla (3 Km from the plant)
Road Adjacent to Kandla Port Trust on National
Highway 8-A , 365 Km. from Ahmedabad
Area under Plant 70.61 Hectares
Area under Township 79.65 Hectares
Temperature ( o C ) 47 (Max.) in summer to 7 (Min.) in winter.
Rainfall (mm) Scarcity
Longitude 70o 13'26" E
Latitude 23o 00'00" N
Address IFFCO, Kandla Unit, Post BoxNo.12,
Gandhidham - 370201, Kandla (Kachchh),
Gujarat, INDIA
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IFFCO’s NPK plant is located on the water front adjacent to Kandla Port Trust Oil Jetty. The plant was
built at a cost of about Rs. 30 crores with two streams (called train A and train B) and with the licensed
capacity of 127000 tones of P2O5. This plant was designed by the M/s Door Oliver-Inc., to produced
three grade ok NPK based on DAP, the plant was commissioned on 26th November, 1974 and its
commercial production started on 1st January, 1975.
With increase in demand for complex fertilizers, the capacity of NPK has been doubled at a cost
of about Rs. 28.6 crores. Two more streams (train C and train D) had been added with the increased
licensed capacity from 127000 MT P2O5 to 260000 MT P2O5 per annum. The new two streams are
called Kandla Phase 2 was completed one month ahead of the projected schedule. This is a rare
phenomenon not only in India but in entire South East Asian region. Kandla Phase 2 commissioned on4th
June, 1981 with the production record for IFFCO. The production of Kandla Phase 2 was started from 6th
September, 1981.
IFFCO went for expansion of their unit at Kandla in 1996-97. Kandla phase-II NPK/DAP project
conceptualized the setting up of two additional streams (train E and train F) for manufacture of the same
grades of NPK/DAP fertilizers with an annual production capacity of 2,10,700 MTPA thus increasing the
total capacity from 3,09,000 MTPA of P2O5 to 5,19,700 MTPA of P2O5. The actual cost of the project
was Rs. 205.30 crores against a budgeted cost of Rs. 212.20 crores.
The total annual production of the Kandla unit was 127000 MTPA as on 26 th November, 1974
with two streams (train A and train B), which was increased by 182000 MTPA as on 6 th September, 1981
by starting two more stream (train C and train D), which was further increase to 210700 MTPA as on
1999 by introducing two more streams (train E and train F). So currently the total production capacity of
the both plant at Kandla unit is 519700 MTPA. Currently all six streams (train A, B, C, D, E and F) is
working in its full-fledged capacity and giving its optimum output.
In 1974 when the Kandla Unit was started IFFCO was importing its raw material with help of Kandla
Port Trust Oil Jetty and currently Kandla unit has its own Oil Jetty.
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Various departments in IFFCO-KANDLA
1) Production
2) Technical
3) Finance and accounts
4) Personnel and Administration
5) Materials
6) Maintenance
7) Systems
Introduction to F&A
Finance is the life blood of business. According to Howard and Upton “Finance is that administrative
function in an organization which relate with the arrangements of cash and credit so that the organization
may have the means to carry out its objectives as satisfactory as possible.”
Functions of Finance & Accounts Department
Finance & Account Department of Kandla Unit is controlled by Head of Department i.e. CM (F&A). His
main function s to co-ordinate all activities related to Finance and Accounts and report to Head Office’s
Finance & Accounts Department / Finance Director as well Unit Head. Finance & Accounts Department
function various types of activities as per guidelines issued by Head Office, Purchase Procedure, Service
Rules, Powers of Officers, etc.
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Finance Department comprises of
o PAY ROLL SECTION
o RAW MATERIALS
o FIXED ASSETS & INSURANCE
o WORKS BILL SECTION
o PURCHASE BILL SECTION
o BOOKS AND BUDGETS
o FINANCIAL CONCURRENCE
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CHAPTER 3
Literature Review
20
Literature Review
1) IFFCO INVEVTORY
By K. Sharma(2008)
During the year 2008-09 IFFCO produced 71.68 lakh(7.168 million) tonnes of fertiliser material;
registering overall capacity utilisation of 98 percent for nitrogenous and 53 per cent for
phosphatic fertiliser. It contributes 21.4% of country’s total nitrogenous fertiliser production and
27% of total phosphatic fertiliser production in the same period. Plant productivity during the
year stood at 1373 tonnes/person.
The Society has also achieved another important landmark in the field of energy conservation by
clocking overall annual energy of 5.943 Gcal/tonne of urea.
The Society has cloaked an all time high sales of 112.58 lakh tonne of fertilizers during 2008-09
2) Optimizing Safety Stock
By Dave Piasecki (2009)
Optimizing Safety Stock levels by calculating the magical balance of minimal inventory while
meeting variable customer demand is sometimes described as the Holy Grail of inventory
management (ok, forecasting is probably the true holy grail but I thought this sounded good).
Many companies look at their own demand fluctuations and assume that there is not enough
consistency to predict future variability. They then fall back on the trial and error best guess
weeks supply method or the over simplified 1/2 lead time usage method to manage their safety
stock. Unfortunately, these methods prove to be less than effective in determining optimal
inventory levels for many operations. If your goal is to reduce inventory levels while
maintaining or increasing service levels you will need to investigate more complex calculations.
One of the most widely accepted methods of calculating safety stock uses the statistical model
of Standard Deviations of a Normal Distribution of numbers to determine probability. This
statistical tool has proven to be very effective in determining optimal safety stock levels in a
variety of environments. The basis for this calculation is standardized, however, its successful
implementation generally requires customization of the formula and inputs to meet the specific
21
characteristics of your operation. Understanding the statistical theory behind the formula is
necessary in correctly adapting it to meet your needs. Errors in implementation are usually the
result of not factoring in variables which are not part of original statistical model
3) Do Inventory Management Systems Really Work?
J.S Johar (2009)
Essentially, the systems work like this. First, bar codes or RFIDs tell scanners which items
consumers are buying. The scanners transmit the information to computers by reading the bar
codes and sending that information to the software. The software then interprets the numbers
from the bar code and matches those numbers to the type of merchandise they represent. This
allows the merchant to track sales and inventory -- either at the checkout counter or with a hand-
held scanner -- keeping the store abreast of which items are selling.
Specialized software keeps track of how much stock is going out the door via purchases and how
much remains on shelves and in the warehouse, giving managers a real-time picture of what's
happening. The software also analyzes the data and makes recommendations for re-ordering
strategies. Sometimes, they're programmed to automatically order at a certain point. It's
important to note, however, that good systems leave room for human decision-making. The
systems provide good information to support decisions but leave the final call up to managers.
Once managers make a re-order decision, the system uses electronic data interchange to
communicate its needs for additional merchandise to a vendor. Electronic data interchange is the
process of sending and receiving data between two parties -- a retailer and a vendor, for example
-- using data transmission lines, such as the Internet. The data is stored in a computer's memory
bank and read by managers at both ends of the line.
While inventory management systems offer retailers and vendors many advantages, there are
some pitfalls. Because the system aims to keep a bare minimum of stock in store, retailers can be
caught short if an item unexpectedly becomes a big seller. Retailers traditionally kept additional
stock on hand -- known as buffer or safety stock -- to prevent that occurrence, but many have
discontinued the practice. And, as with all technology, these types of systems are subject to the
effects of a widespread computer crash or software failure
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4) Enhance Inventory System Functionality Through Custom Reporting.
By Dave Piasecki (2007)
There are several truths that apply to business software packages regardless of whether you are
using a $500 small business inventory tracking package or a multi-million dollar enterprise
package.
They don’t do everything you thought they would do.
The standard reports available are less than optimal for your business needs.
These truths do vary somewhat between the low-end and high-end systems in that the low-end
systems are generally less buggy due to a much lower level of complexity and the high-end
systems will certainly offer more functionality and more standard reporting. What is also true is
that few companies take full advantage of the data available because they remain constrained by
the standard reports or by the misconception that custom reporting falls under the responsibility
of the IS department and requires a programmer or the software manufacturer to implement.
Executives and managers at larger companies have long known the value of having programmers
create custom reports where data is accumulated, manipulated and summarized giving them the
information to make the decisions necessary to remain competitive. However, this level of
information utilization is rarely achieved at mid and lower levels of an organization and is a
complete mystery to smaller businesses. The primary reasons for this are that end-users are
unaware of the reporting tools available and/or are unaware that it does not take a programmer to
use these tools. There is also the misconception that custom reporting is a tool used for high
level analysis and does not apply to day to day operations.
5) Team CIO
Added on Jun 02, 2010
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As the world's largest producer and distributor of fertilizer, IFFCO is responsible to over 40,000
co-operative societies located all over the country. It's a complex operation: just its marketing
division is divided into five zones, 20 state offices, 68 area offices and 455 field locations and
177 retail outlets.
Fertilizer is sent from plants and ports via rail and road and then stored in about 5,000
warehouses. Just the number of trucks used to move material from rake points to warehouses?
6,90,000. Its widespread operations and multiple variables created major challenges.
Because a majority of IFFCO's data sources were in rural India, information moved through the
system slowly, which resulted in delayed decisions. Another challenge was entering data of what
was produced and dispatched from every plant, every day. The cooperative also needed to
monitor inventory at each of its warehouses. "The release of government subsidies in thousands
of crores is linked to this data," says S.C. Mittal, senior executive director management services
and IT, IFFCO. "Many ERP systems were evaluated but none of them met our requirements."
As he pushed the project through its final phases, Mittal met with multiple challenges, one of
them being educating users. "The field-force is not computer literate," he says. "And since field
officers are located in remote locations providing them with support was also a major challenge."
Training programs and identifying computer-savvy area account officers who were trained in
resolving hardware and software-related issues went a long way in breaking these challenges.
Today, the Rs 15-crore project has enabled faster decision-making, which allows salespeople to
generate more revenue. From 2006 to 2008, IFFCO's turnover tripled but it added on only 18
marketing people. VIKAS has also created greater visibility. "The lead time for depositing
remittances reduced from seven to three days resulting in huge interest savings," says Mittal.
"This initiative simplifies the ever-increasing complexities of IFFCO's business processes due to
its geographical spread
6) IFFCO plans to increase…….
By R.K. Mehta(2008)
HMEDABAD: Indian Farmers Fertilizers Co-operative Ltd (Iffco) plans to invest Rs

1,000 crore to set up a 4.5 lakh tonnes per annum plant at Kandla for manufacturing
24
phosphoric acid as a backward integration project.

Iffco is also planning to add around 8 lakh tpa capacity to its existing 37 lakh tpa of urea
capacity at an investment of about Rs 1200 crore.
“The Kandla plant, which manufactures DAP and NPK fertilisers is currently dependent
on imports for its main raw material, phosphoric acid. Due to the wild fluctuations in
global prices, Iffco is proposing to go in for backward integration,” said D K Bhatt,
marketing director of Iffco. Revenues from the Kandla plants are currently about Rs
2,500 crore.
Iffco is finalising plans to increase its urea and ammonia production facilities too. “From
August 19, Iffco temporarily stopped its urea production at Kalol plant so as to use the
ammonia produced at Kalol for its DAP and NPK products at its Kandla plants.
Global ammonia prices were recently hiked to $ 240 per tonne from $ 170 by a global
cartel. This step taken by Iffco is to pressurise global producers to bring down the
ammonia prices,” said Bhatt. To reduce its dependence on imported ammonia Iffco is
now planning to increase its existing ammonia capacities.
Bhatt said that Iffco has also submitted its bid to the Gujarat government, showing its
interest to take a stake in the 500 MW power plant project to be set up at Chhattisgarh
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7) Guide to Inventory Accuracy
By Dave Piasecki(2009)
Having problems with inventory accuracy? Implementing technologies such as bar coding
systems, RFID, and pick-to-light are often assumed to be the solutions to inaccurate inventories.
If properly implemented these technologies can help reduce errors, however, none of them will
eliminate all errors, and a poorly implemented system can leave you worse off than you were
before. Whether you are planning on implementing additional systems or not you should
consider taking care of the basics first.
The Basics
Attitude
Process Definition
Procedure Documentation
Employee Training
Employee Testing
Monitoring Processes for Compliance
Setting Standards
Tracking Accuracy
Accountability
Count, Count, Count
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Reevaluate
There is nothing revolutionary about my list of "The Basics", it's simply a series of steps which
define a process for achieving higher levels of inventory accuracy. Your success or failure will
be determined by your implementation of these steps. This is not something that should be
rushed; throwing a quick fix approach together to alleviate an immediate need may be more
damaging in the long run since the success of this plan requires a cooperative effort by many
people within your organization. If your first attempt fails, you will find it more difficult to get a
high level of cooperation for your next try. Take the time and do it right.
8) Process Scheduling
Automate, integrate batch processes
across the enterprise with BMC
www.BMC.com(2008)
The purpose of this research was to provide recommendations to personnel at IFFCO, in

examining the applicability of a Just- in-Time (JIT) inventory management system. JIT is a
philosophy that can be applied to inventory management operations to reduce waste, achieve cost
savings, maximize space, and improve quality of care. In the healthcare environment, a prime
vendor program is essential to a successful JIT program. With the advent of a prime vendor
program at IFFCO, Oakland, the advantages offered by JIT become available. With diminishing
budgets, material managers must adopt innovative practices that reduce resource requirements,
while providing high quality care. JIT is an innovative approach to inventory management that
has been successfully applied in the healthcare industry. The authors examine JIT and how this
philosophy can further the goals of the prime vendor program and increase quality of care.
27
CHAPTER 4
RESEARCH
METHODOLOGY
.
28
RESEARCH METHODOLOGY.
Research covers the search for retrieval of information for a specific purpose. Basically research
is the objective and systematic method of finding solution to a problem. The steps followed to
conduct this study are as follows:-
(1) Formulating research problem – The problem under study viz. how effective are the
measures applied by Iffco, Aonla to control the inventory is basically studied through analytical
research. Material is important for the efficiency of the system. It is a matter of great importance
for inventory department. Inventory department of IFFCO, Aonla is responsible for efficient
inventory control. Thus the whole study is conducted under the guidance of officers of this
department.
(2) Extensive literature survey – Many published studies, books or material on effective control
of inventory were referred to for getting a true direction to research process.
(3) Data collection – The study is conducted through collection of data through surveys, interviews
with officials etc. Personal interviews were conducted where a set of pre- conceived questions were
asked from the officers of inventory department regarding material control policies adopted by
them. Books of accounts of Aonla –I and Aonla – II are studied thoroughly to details about
inventory stock, cost of material consumed, increase and decrease in stock in the last few years etc.
Sample of material was obtained randomly. ABC analysis was used where sample of material was
graded under three categories: A, B, C.
29
(4) Analysis and interpretation – The data about inventory is analysed to find out the effectiveness
and efficiency of inventory policy. As regards the financial performance, the data about different
financial indicators is analysed to calculate the different ratios and to draw the graphs.
This section deals with the methodology used in my study. It describes the nature of study, data
collecting method, accounting procedure of inventories, valuation and verification of inventories
etc. The data used in study was manually collected from the employees of IFFCO as well as from
the net. Data were collected through the inventory software, databases, net and by asking
questions to the employees. There is no manual coding. I have also included some financial data
with the help of annual report.
We were placed in different departments that are related to the inventory .
We were told how the documentation in different departments like srv, po ,isrv , bills etc. are done
.For collecting data we have asked questions to the different department heads
30
CHAPTER 5
DATA
COLLECTION
31
SOURCES OF DATA
There were various sources for collecting the data. But I have collected data from some of the
resources that are as following-
1) Through asking the questions from the employees
2) InterNet
3) Annual report of IFFCO
4) Accounting manual of IFFCO
5) From the stores
6) By the inventory software that is used in IFFCO
32
CHAPTER 6
DATA
ANALYSIS
33
RATIO ANALYSIS OF IFFCO
A ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined
as the indicated quotient of two mathematical expressions. One of the most important financial tools
which have come to be used very frequently for analyzing the financial strengths and weaknesses of the
enterprise is ratio analysis. Ratio analysis as a technique of analysis and interpretation of financial
statements. It is the process of establishing and interpreting various ratios for helping in making certain
decisions.
“Financial ratio analysis is the calculation and comparison of ratios which are derived from the
information in a company's financial statements. The level and historical trends of these ratios can be used
to make inferences about a company's financial condition, its operations and attractiveness as an
investment.”
Financial ratios are calculated from one or more pieces of information from a company's financial
statements. A financial ratio can give a financial analyst an excellent picture of a company's situation and
the trends that are developing. A ratio gains utility by comparison to other data and standards. Ratio
analysis can also help us to check whether a business is doing better this year than it was last year; and it
can tell us if our business is doing better or worse than other businesses doing and selling the same things.
Financial ratio analysis groups the ratios into categories which tell us about different facets of a
company's finances and operations. An overview of some of the categories of ratios is given below.
1. Leverage Ratios which show the extent that debt is used in a company's capital structure.
2. Liquidity Ratios which give a picture of a company's short term financial situation or solvency.
3. Operational Ratios which use turnover measures to show how efficient a company is in its
operations and use of assets.
4. Profitability Ratios which use margin analysis and show the return on sales and capital
employed.
34
5. Solvency Ratios which give a picture of a company's ability to generate cashflow and pay it
financial obligations.
Ratios are always expressed as a decimal value, such as 0.10, or the equivalent percent value,
such as 10%. Financial ratios allow for comparisons
 between companies
 between industries
 between different time periods for one company
 between a single company and its industry average
HOW A RATIO IS EXPRESSED?

 As Percentage - Such as 25% or 50%. For example if net profit is Rs.25, 000/- and
the sales is Rs.1, 00,000/- then the net profit can be said to be 25% of the sales.
 As Proportion - The above figures may be expressed in terms of the relationship

between net profits to sales as 1: 4.
 As Pure Number /Times - The same can also be expressed in an alternatively way
such as the sale is 4 times of the net profit or profit is 1/4th of the sales
VARIOUS RATIOS FOR IFFCO
1) Inventory Turnover- This ratio indicates the number of times the inventory is
rotated during the relevant accounting period. This ratio is also called as stock
turnover ratio or stock velocity. This ratio is calculated to consider the adequacy of
the quantum of capital and its justification for investing in stock or Inventory.
35
Inventory turnover is used to measure the efficiency of sales. Inventory turnover is

the number of times obtained by dividing cost of sales by inventory.
(Average Inventory/Sales) x 365 for days
(Average Inventory/Sales) x 52 for weeks
(Average Inventory/Sales) x 12 for months
Average Inventory or Stocks = (Opening Stock + Closing Stock)

2
Inventory Turnover ratio- sales
Inventory
( in crore )
Particular 2007-08 2006-07
Sales 5968.47 5554.53
Inventory 1577.10 2283.94
Inventory Turn. Ratio 3.78 times 2.43 times
Interpretation: - It is revealed from above table that the stock turnover has been increased to
3.78 times in the year 2007-08 as compared to 2.43 times in the year 2006-07. It shows better
control over inventory and efficiency in sales. Since IFFCO is in the business of fertiliser
manufacturing and in this sector a huge investment in plant and machinery is required. Keeping
in view the investment in Plant & machinery in this sector for which number of spares and stores
items are required to be maintained for upkeep of the plant, the above Inventory Turnover ratio is
reasonable. However, IFFCO should efficiently use various inventory management tools to
control the stock levels like ABC analysis, monitoring of stock levels i.e. ROL, EOQ, Min-
Level, Max-Level system of verification of inventory etc.
36
4
3.5
3
2.5
2
Inventory
1.5 turnover Ratio
1
0.5
0
2007- 2006-
08 07
Inventory Turnover Ratio
37
2) Working Capital Turnover- This ratio establishes a relationship between net

sales and working capital. Net Current Assets are also known as working capital
instead of total current assets is being compared with the sales. This ratio indicates
the velocity of the utilization of net working capital. It indicates the number of
times the working capital is turned over in the course of a year. This ratio is
calculated as follows-
Working Capital Turnover- Sales

Working Capital
( in crore)
Particular 2007-08 2006-07
Sales 5968.47 5554.53
Working Capital 4404.17 4870.74
Working Capital Turnover 1.35 times 1.14 times
Interpretation: - As we know that working capital turnover ratio measures the efficiency
with which the working capital is being used by a firm. In the following table the sales is
increasing while on the other hand working capital is decreasing. It appears from the above
calculation that Working Capital Turnover ratio has been increased to 1.35 times in the year
2007-08 as compared to 1.14 times for year 2006-07. It shows a better utilization of working
funds in the business. Hence IFFCO is using its working capital in a better way.
38
1.35
1.3
1.25
1.2
1.15 working capital
turnover
1.1
1.05
1
2007- 2006-
08 07
Working Capital Turnover
3) Current Ratio- The ratio of current assets to current liability is called current ratio. This
ratio is an indicator of the firm’s commitment to meet its short-term liabilities. Current assets include cash
and other assets convertible into cash during the operating cycle of the business. Current liabilities mean
liabilities payable within a year’s time. An idle current ratio is 2:1.The ratio of 2:1 is considered as a safe
39
margin of solvency. A very high current ratio would indicate the less efficient use of funds while a poor
current ratio is a danger signal to the management.
Current Ratio - Current Assets

Current Liability
Particular 2007-08 2006-07

Current Assets 5775.74 6071.97
Current Liability 1371.57 1201.23
Current Ratio 4.21:1 5.05:1
Interpretation: - It appears from the above table that the current ratio of three
consecutive years2004, 2005 and 2006 is 2.84:1, 2.36:1, and 3.49:1. As general rule the ideal
current ratio is 2:1 and we can see that the current ratio for three years is above idea ratio. So we
can say that the liquidity position of the concert is sound and it is able to meet its short term
debts and obligations.
40
5.2
5
4.8
4.6
4.4
4.2 current ratio
4
3.8
3.6
2007- 2006-
08 07
Current Ratio
4) Cash Ratio - This ratio measures the relationship between cash in hand and current
assets. A very high cash ratio indicates major items of current assets & may be a poor
indicator of profitability because cash by itself does not earn any profit. Ideally the
proportion should be kept as low as possible. But some amount of cash for daily
requirements of the firm should be kept.
Cash Ratio – Cash in Hand

Current Assets
Particular 2007-08 2006-07
41
Cash in Hand 243.32 330.84

Cash Ratio 0.04:1 0.054:1
Interpretation:-
Form the above it can be seen that cash ratio is almost stagnant from year to year. It shows
that the concern is efficiently using and monitoring cash for day to day transactions. But
this increment in ratio is not satisfactory. Thus management should do some efforts to
increase the cash ratio.
42
0.06
0.05
0.04
0.03
cash ratio
0.02
0.01
0
2007- 2006-
08 07
Cash Ratio
5) Solvency Ratio- This ratio highlights upon the long-term solvency of the concern and
this ratio shows the relationship between the total assets and total liabilities of the
concern. This ratio is obtained by dividing total assets by total liabilities. Total assets
include fixed assets and current assets. Total liabilities include both long term and
short-term liabilities.
Solvency Ratio- Total Assets

Total Liabilities
Particular 2007-08 2006-07
43
Total Assets 12354.26 11842.07

Total Liability 1795 1717
Solvency Ratio 6.88:1 6.89:1
Interpretation:-
In the year 2006-07 the total assets and total liability was 11842.07 and 1717 respectively
while in the 2007-08 the total assets and total liability was 12354.26 and 1795 respectively.
Form the above it can be seen that the concern is having a sound position. Its total assets
have increased and liability has also increased. Due to it solvency ratio has not so much
impact of it. Therefore the solvency position is good.
44
6.89
6.885
solvency Ratio
6.88
6.875
2007- 2006-
08 07
Solvency Ratio
6) Stock to Current Assets Ratio- This ratio expresses the relationship between Stock
and Current Assets.
Stock to Current Assets- Stock

Current Assets
Particular 2007-08 2006-07
45
Stock 1577.10 2283.94

Stock to Current Assets 0.27 0.37
Interpretation: The following calculation shows that stock to current asset ratio is
decreasing. It shows that current assets and stock both are decreasing. Thus it is not a bad
situation because a company always wants to retain stocks according the requirement. It
does not want to do over investment in stocks. Every company prefers money in liquid
form rather than over investment.
46
0.4
0.3
0.2
Stock to current
assets
0.1
0
2007- 2006-
08 07
Stock to current asset ratio
7) Raw Material Turnover Ratio- The raw material turnover ratio represents the relationship
between raw material consumed and average stock of raw material. Here average stock of raw material is
the average of opening stock of raw material and closing stock of raw material.
Or
Opening stock of raw material + closing stock of r.m. Average stock
of raw material = 2
47
Raw material consumed

Raw Material Turnover = Avg. stock of raw material
Year 2007-08 2006-07

Raw material consumed 950.80 551.27
Avg. stock of raw material 751.035 706.04
Raw Material Turnover 1.26 0.780
Interpretation: Here Raw material consumed is 551.27 in 2007-08 and 950.80 in 2006-07. Avg.
stock of raw material is 751.035 in 2007-08 and 706.04 in 2006-07. The
calculation shows that the raw material turnover is 0.780 in 2007-08 and 1.26 in 2006-07. It indicates that
raw material turnover is increasing because of more production. Production is increasing because of
increase in demand. Thus it is a favorable situation.
48
1.4
1.2
1
0.8
Raw Material
0.6 Turnover
0.4
0.2
0
2007-08 2006-07
Raw Material Turnover
8) Owned Capital Turnover: It represents the relationship between sales and shareholder’s
fund.
Owned Capital Turnover = Sales

Shareholder’s fund
49
Year 2007-08 2006-07
Sales 5968.47 5554.53

Shareholder’s Fund 3688.66 3641.84
Owned Capital Turnover 1.61 1.52
Interpretation: In the following table the sales is 5968.47 for the year 2007-08 and 5554.53 for the
year 2006-07. Shareholder’s fund is increasing by 413.94 crores. As a result the owned capital turnover is
increasing by 0.09. it clearly shows that the company is earning profit.
50
1.62
1.6
1.58
1.56
1.54
Owned capital
1.52 turnover
1.5
1.48
1.46
2007- 2006-
08 07
Owned capital turnover
9) Profit Before Tax To Sales- The ratio expressed the relationship between Profit
Before Tax and Sales.
51
Profit Before Tax to Sales- Profit Before Tax *100

Sales
Particular 2007-08 2006-07

Profit before Tax 380.52 251.25
Sales 5968.47 5554.53
P.B.T. to Sales 0.06 % 0.04 %
Interpretation: The following calculation shows that profit before tax to sales ratio is
increasing by 0.02 %. It is due to increase in profit before tax and sales. It indicates that
profit is increasing because of sales. That’s why profit before tax is also increasing. If
we shall do our efforts for increasing the sales then the profit for the shareholders will
increase.
52
0.06
0.05
0.04
0.03
P.B.T to Sales
0.02
0.01
0
2007-08 2006-07
P.B.T. to Sales
10) Capital Turnover- Sometimes the efficiency and effectiveness of the operation is
judged by comparing the sales with the amount of capital invested in the business.
Capital Employed is either equal to Shareholders Fund plus Long Term Loans or
equal to Total Assets minus Current Liabilities. This is calculated by establishing the
relationship between sales and capital employed.
Capital Turnover- Sales
Capital Employed
53
Particular 2007-08 2006-07

Sales 5968.47 5554.53
Capital Employed 5727.62 5752.21
Capital Turnover 1.04 times 0.96 times
Capital Employed = Equity Share Capital + Profit + Long term loan + Reserve & Surplus
= 423.93+3264.73+1781.83+257.13
= 5727.62
Interpretation:-
From the above it is clear that Capital Turnover ratio has been increased 1.04 from 0.96. It
shows that investment in Total assets as compared to the previous year has decreased even
after that sale is increasing. Though the capital turnover is good in the year 2007-08 as
compared to the year 2006-07. While calculating the return on investment ratio we have
seen that IFFCO has made huge
Investment in the assets in the year 2006-07 against which the return is expected in the
coming years. We hope this ratio will also improve in the coming years when the pay back
of the investment will start.
54
1.04
1.02
0.98
Capital Turnover
0.96
0.94
0.92
2007- 2006-
08 07
Capital Turnover
55
CHAPTER 7
CONCLUSION
56
CONCLUSION
The basic objectives of inventory management appear to be conflicting in nature.Inventories

should increase
or decrease in amount or time as related to sales requirement and production schedules.
In most inventories a small proportion of items accounts for a very substantial usage(in
terms of monetary value and annual consumption)and a large proportion of items
accounts for a small usage.ABC analysis based on this empirical reality advocates in
essence a selective approach to inventory control, which calls for a greater concentration
of efforts on inventory items accounting for the bulk of usage value.
Responsibility for control of inventories is of the top management, though decisions in

this regard might will be based upon the combined judgment of the production
manager, the sales manager and the purchasing manager. This is desired in view of the
financial considerations involved in the problem and also because of need for
coordinating the different kinds of inventories and conflicting viewpoints of different
departments. Decisions relating to inventories should be taken by higher authority of the
organization as well as departments.
As in maintainance of inventory two types of cost incurres in it holding cost and carrying
cost.
So to lower it adequate level of inventory should be maintained. The items whose

inventory are high but issue are less should be tried to reduce .
57
CHAPTER 8
RECOMMENDATION
Recommendation
58
 JIT (Just In Time) is a system in which material or the manufactured

components and parts arrive to the manufacturing sites or stores just few hours
before they are put to use. The delivery of material is syncronised with the
manufacturing cycle and speed. JIT system eliminates the necessity of carrying
large inventories, and thus saves carrying and other related costs to the
manufacturer. This system requires perfect understanding and coordination
between the manufacturer an dsuppliers in terms of the timing of delivery and
quality of the material. Poor quality material can halt the production.
 In IFFCO ERP should be applied. Enterprise resource planning (ERP) is an

integrated computer-based system used to manage internal and external resources
including tangible assets, financial resources, materials, and human resources. It is
a software architecture whose purpose is to facilitate the flow of information
between all business functions inside the boundaries of the organization and
manage the connections to outside stakeholders. Built on a centralized database
ERP systems consolidate all business operations into a uniform.
 If all plants of IFFCO will purchase together then raw material will get at low
cost.
 IFFCO should use professionalism.
 IFFCO should export the product.
59
CHAPTER 9
REFRENCES
REFRENCES
 www.Iffco.nic.in
60
 Annual report 2010of IFFCO
 Accounting Manual of IFFCO
 NIT of purchase department of IFFCO
I.M. Pandey (2009) ,Financial Management,9th Ed. New Delhi: Vikas Publisher
Ltd. Pp.624-638.
QUESTIONNAIRE
61
1) How is the Item coding done in IFFCO?

2) What is the normal classification methods of inventory followed in IFFCO?
3) What are the documents received along with the consignment.
4) How is the sampling for inspection done?
5) At what stage of goods arrival, inspection is done?
6) What are the internal documents made from the time of receiving materials till goods
are moved to final location?
7) How do you handle rejections? Do you send materials back?
8) Do you allow sorting / repair? If yes, where is repair carried out? If repair is carried
out at vendor site, what are the documents made for goods transfer and receipt?
9) Do you have expiry dates for the materials?
10) Do you make material requests to stores for issue of raw material?
11) Do you perform Inventory adjustments, value based or quantity based?
12) Do you perform Inventory receipts?
13) What the various types of analysis used for inventory management?
14) Do you use re-ordering methods?
15) How do you determine the ordering quantity?
16) Do you perform 100 % item checks or random? If Random, what are the criteria for
selecting items?
17) Which inventory software is used for the convenience in inventory control?
18) On what basis inventory is divided into generals and spares?
19) How much inventory is stored in form of spares and generals in IFFCO?
20) Which pattern is followed for the payment against purchase?
62
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PROJECT REPORT

Guide:Dr. MUKESH PATIL

NIT Graduate School of Management

NIT Graduate School of Management

Dr. Mukesh Patil Dr Neha Sharma

Project Guide Director

APPROVAL OF PROJECT PROPOSAL

Name of Student : - Mr: Deepak Tembhare

College : - NIT Graduate School of Management

Title of Project : - STUDY OF WORKING CAPITAL MANAGEMENT

POLICY ADOPTED BY IFFCO COMPANY

Subject Area : - Financial Management

Name of Guide : - Dr. Mukesh Patil

Dr. Mukesh Patil Dr Neha Sharma

I am also thankful to Department of Management Studies, NIT Graduate School Of

7. CONCLUSIONS & SUGGESTIONS

What is working capital?

The primary objective of working capital management is to

Need for working capital

Current Assets Current Liabilities

Marketable Securities Current Portion of Long-

Working Capital Management (WCM) is of particular importance to the small business.

Not all companies are the same.

NATURE AND IMPORTANCE OF WORKING CAPITAL-

Kandla Unit – Location

State Gujarat, India

State Capital Gandhinagar

Distance from New Delhi Approx. 1100 kilometers by rail

Distance from Mumbai Approx. 800 kilometers by rail

Nearest Airport Kandla Airport, Near Gandhidham,and Bhuj

Airport 65 KM from Gandhidham.

Railway Station Gandhidham ( 12 Km from plant and 3 Km

from IFFCO's township at Gandhidham)

and Kandla (3 Km from the plant)

Road Adjacent to Kandla Port Trust on National

Highway 8-A , 365 Km. from Ahmedabad

Area under Plant 70.61 Hectares

Area under Township 79.65 Hectares

Temperature ( o C ) 47 (Max.) in summer to 7 (Min.) in winter.

Rainfall (mm) Scarcity

Longitude 70o 13'26" E

Latitude 23o 00'00" N

Address IFFCO, Kandla Unit, Post BoxNo.12,

Gandhidham - 370201, Kandla (Kachchh),

Various departments in IFFCO-KANDLA

Functions of Finance & Accounts Department

Finance Department comprises of

o PAY ROLL SECTION

o FIXED ASSETS & INSURANCE

o WORKS BILL SECTION

o PURCHASE BILL SECTION

o BOOKS AND BUDGETS

2) Optimizing Safety Stock

By Dave Piasecki (2009)

3) Do Inventory Management Systems Really Work?

J.S Johar (2009)

4) Enhance Inventory System Functionality Through Custom Reporting.

By Dave Piasecki (2007)

They don’t do everything you thought they would do.

6) IFFCO plans to increase…….

HMEDABAD: Indian Farmers Fertilizers Co-operative Ltd (Iffco) plans to invest Rs

phosphoric acid as a backward integration project.

7) Guide to Inventory Accuracy

Monitoring Processes for Compliance