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 CHAPTER-I
INTRODUCTION
1.1 Introduction

1.2 Need for the study

1.3 Objectives of the study

1.4 Methodology

1.5 Limitation of the study

3
 INTRODUCTION

Every countries economic condition depends upon the performance of its industry. But it is not
easy for a layman to understand or to property analyse the performance of the company. To
understand the performance of any company we have to do financial statement analysis.

Ratio Analysis is a widely used tool of financial analysis, it is defined as the systematic use of
ratio to interpret the financial statements so that strengths and weaknesses of a firm as well as
its historical performance and current financial conditions can be determined. The term Ratio
refers to the numerical or quantitative relationship between two variables. With the help of
Ratio Analysis current year ratios are compared with those of previous years and if some weak
spots are thus located remedial measures are taken to correct them.

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated
quotient of mathematical expression" and as "the relationship between two or more things". A
ratio is used as benchmark for evaluating the financial position and performance of the firm.
The relationship between two accounting figures, expressed mathematically, is known as a
financial ratio. Ratio helps to summarizes large quantities of financial data and to make
qualitative judgment about the firm's financial performance.

Ratio analysis of an organization provides the clear view of its performance and comparison
between present and past performance. This analysis is important for the management and also
for the outsiders dealing with organization as this shows the way of functioning and the
direction in which an organization is moving.

The functions of raising funds, investing them in assets and distributing returns from assets to
shareholders are separately known as dividend decisions. While performing those functions a
form attempts to balance cash inflows and outflows this is called liquidity decision. The
important financial decisions or functions are:

 Investment or long term amount mix decision.

 Finance or capital mix decision.
 Dividend or profit allocation decision.
 Liquidity or short term amount mix decision.

The end products of the business transactions are the financial statements i.e., Position
Statement or Balance Sheet and Income Statement or Profit and Loss Accounts. Financial

4
Statements are the basis for the decision making by the management and as well as all other
stakeholder who are interested in the affairs of the firm such as investors, creditors, customers,
suppliers, govt., financial institutions and general public. In this project an attempt is made to
know the financial performance of COROMANDEL INTERNATIONAL LIMITED,
VISAKHAPATNAM through Ratio Analysis.

5
 NEED FOR THE STUDY

The process of study focuses mainly on the analysis of financial ratios in Coromandel
international limited.

 This study gives me a practical insight into the organizations activities and enables me to
know the practical problems and solutions in Coromandel International Limited in the area
of Financial Management.
 It is beneficial to the top Management of the company by providing crystal clear picture of
various aspects i.e., Financial position, Performance etc.,
 Ratio analysis is used as a device to analyse and interpret the financial health of enterprise.
 The investors who are interested in the company’s shares will also get benefits by going
through the study and can easily take a decision whether to invest or not in the company
shares.
 It is helpful in finance as it focuses on daily cash flows management and funds flow
management in the organization. Finance plans are central instruments for directing and
coordinating the financial effort.

6
 OBJECTIVES OF THE STUDY
The main objective of the study is to know how efficient the financial Position of Coromandel
International Ltd.
The main objectives of present study is aimed as
 To study the profile of fertilizer industry.
 To study the profile of the company Coromandel International Ltd.
 To evaluate the performance of Coromandel International Ltd by using ratios as
yardstick to measure the efficiency of the company.
 To study the theoretical framework with respect to ratio analysis.
 To study the financial position i.e. liquidity, profitability and solvency position of
the organisation.
 To offer suggestions to the organisation for improvement of overall financial
performance.

7
 METHODOLOGY
The information is collected through primary and secondary sources during this project. And
some of the important Information presented in this study with respect to CIL is taken from
Methodology adopted. This study is twofold in nature. First information through discussion
and second through publications. The study period is of two months’ duration. The source of
information can be categorized into primary and secondary sources.
Primary data:

The primary sources comprise information obtained from the manager of the finance
department and various subordinates of the departments.

Secondary data:

The secondary source mainly comprises of the annual reports and other magazines published
by the company.

After referring standard texts and reference books some of the information regarding
theoretical aspects is collected.

8
 LIMITATIONS OF THE STUDY

Every study is conducted under some limitations. Some of the limitations of the study are as
follows:

 The scope for gathering data is very less.

 Some of the information was not available due to the confidential matters.
 The study was limited to only five years Financial Data.
 Since officials, executives and others were busy the study was primarily focused on
secondary data.
 Comparison of Coromandel’s performance with other organizations was not
possible since the financial statements of other organizations were not available.
 Duration of time is also a limitation i.e., a period of 60 days, which is not sufficient
to carry out proper interpretation and analysis.

9
 CHAPTER-II
INDUSTRY PROFILE
FERTILIZER INDUSTRY

10
INTRODUCTION:

Indian fertilizer industry is one of the efficient industries. The industry relies heavily on imports
for the requirement of raw material. Hence any devaluation of the rupee could inflate its import bill.
Since the Nitrogen based fertilizers are protected by the retention price system (so far), the increased
costs will affect phosphorus and potassium fertilizer manufacturers.

Glauber developed the first complete mineral fertilizer, which was a mixture of saltpetre (Potassium
nitrate), lime, phosphoric acid, nitrogen, and potash. As scientific chemical theories developed the
chemical needs of plants were discovered, which led to improved fertilizer compositions.

Fertilizer is a substance added to soil to improve plants growth and yield. First used by ancient
farmers, fertilizer technology developed significantly as the chemical needs of growing plants were
discovered. Modern synthetic fertilizers are composed mainly of nitrogen, phosphorous, and
potassium compounds with secondary nutrients added. The use of synthetic fertilizers has
significantly improved the quality and quantity of the food available today, although their long-
term use is debated by environmentalists. Like all living organisms, plants are made up of cells.
Within these cells occur numerous metabolic chemical reactions that are responsible for growth and
reproduction. Since plants do not eat food like animals, they depend on nutrients in the soil to
provide the basic chemicals for these metabolic reactions. The supply of these components in soil
is limited, however, and as plants are harvested, it dwindles, causing a reduction in the quality and
yield of plants.

Fertilizers replace the chemical components that are taken from the soil by growing plants.
However, they are also designed to improve the growing potential of soil and can create a better
growing environment than natural soil. They can also be tailored to suit the type of crop that is
being grown. Typically, fertilizers are composed of nitrogen, phosphorus, and potassium
compounds. They also contain trace elements that improve the growth of plants. The primary
components in fertilizers are nutrients which are vital for plant growth. Plants use nitrogen in the
synthesis of proteins, nucleic acids, and hormones. When plants are nitrogen deficient, they are
marked by reduced growth and yellowing of leaves. Plants also need phosphorus, a component of
nucleic acids, phospholipids, and several proteins. It is also necessary to provide the energy to drive
metabolic chemical reactions. Without enough phosphorus, plant growth is reduced. Potassium is

11
another major substance that plants get from the soil. It is used in protein synthesis and other key
plant processes. Yellowing, spots of dead tissue, and weak stems and roots are all indicative of
plants that lack enough potassium. Calcium, magnesium, and sulphur are also important materials
in plant growth. They are only included in fertilizers in small amounts, however, since most soils
naturally contain enough of these components. Other materials are needed in relatively small
amounts for plant growth. These micronutrients include iron, chlorine, copper, manganese, zinc,
molybdenum, and boron, which primarily function as co-factors in enzymatic reactions. While they
may be present in small amounts, these compounds are no less important to growth, and without
them plants can die.

 The Three Main Macronutrients:

i. Nitrogen (N): leaf growth
ii. Phosphorus (P): Development of roots, flowers, seeds, fruit;
iii. Potassium (K): Strong stem growth, movement of water in plants, promotion of
flowering and fruiting;
 Three Secondary Macronutrients: Calcium (Ca), Magnesium (Mg), and Sulphur (S);
 Micronutrients: Copper (Cu), Iron (Fe), Manganese (Mn), Molybdenum (Mo), Zinc (Zn),
Boron (B). Of occasional significance are Silicon(Si), Cobalt (Co), and Vanadium (V).

The nutrients required for healthy plant life are classified according to the elements, but the
elements are not used as fertilizers. Instead compounds containing these elements are the basis
of fertilizers.

The Macro-Nutrients are consumed in larger quantities and are present in plant tissue in
quantities from 0.15% to 6.0% on a Dry Matter (DM) (0% moisture) basis. Plants are made up
of four main elements: Hydrogen, Oxygen, Carbon, And Nitrogen. Carbon, Hydrogen and
Oxygen are widely available as water and carbon dioxide. Although Nitrogen makes up most
of the atmosphere, it is in a form that is unavailable to plants. Nitrogen is the most important
fertilizer since nitrogen is present in proteins, DNA and other components (e.g., chlorophyll).
To be nutritious to plants, nitrogen must be made available in a "fixed" form. Only some
bacteria and their host plants (notably legumes) can fix atmospheric nitrogen (N2) by
converting it to ammonia. Phosphate is required for the production of DNA and ATP, the main
energy carrier in cells, as well as certain lipids.

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Micronutrients are consumed in smaller quantities and are present in plant tissue on the order
of parts-per-million (ppm), ranging from 0.15 to 400 ppm DM, or less than 0.04% DM. These
elements are often present at the active sites of enzymes that carry out the plant's metabolism.
Because these elements enable catalysts (enzymes) their impact far exceeds their weight
percentage.

INDUSTRY SCENARIO:

The Significance of agriculture in India arises from the fact that the development in agriculture
is an essential condition for the development of the rational economy. It suffices to note that
during the last 50 years the country has achieved and sustained historically unprecedented
growth of output(nearly 3-5% per year). Expansion of cultivated area has virtually come to a
stop in recent years. Growth in yields per hectare of cultivated area has become increasingly
important and is now the predominant source of growth. The virtual elimination of food grain
import can also be viewed as an achievement. With the current(2017-18) food grains
production standing at about 284.83 million tonnes (279.51 million tonnes in 2016-17). India
needs to produce an additional 5-6 million tonnes of food grains annually to meet the
requirement of an increasing population.

ROLE OF FERTILIZERS IN AGRICULTURE:

Sustainable agriculture is the farmers’ ability for producing food without affecting the
environment as well as the surrounding ecosystem. There are a few issues which are connected
to agriculture and one of them is the biophysical issue. It is linked with activities like fertilizer
usage, use of artificial nutrients and crop rotation along with the availability of resources like
sunlight, water and wind.

While all these factors are equally important for plant growth, fertilizers are given extra
importance, as they are the ones that help plants in the initial stages of growth. Fertilizers are
materials of synthetic or natural origin which are applied to the plant tissues or soil for
supplying plant nutrients crucial to plant growth. Fertilizers are meant for enhancing plant
growth. The objective is met in 2 different ways:

13
• Additives for providing nutrients,

• Fertilizers for enhancing soil’s effectiveness by modifying aeration and water retention.

Fertilizers are applied to plants both as liquids and solids. Almost ninety percent of fertilizers
are used as solids that are typically powdered or granulated. Liquid fertilizers consist of
anhydrous ammonia, aqueous ammonium nitrate solutions or urea and so on. Such
concentrated products can be diluted using water for forming concentrated liquid fertilizers.
Also, liquid fertilizers have advantages like easier coverage and rapid effects. To be successful
in agriculture, people need to know the basics of different fertilizers and their usage.

With the global population steadily growing, it is important that enough crops are produced
each year to provide food, clothing and other agricultural products to people around the world.
Crops such as corn, wheat and cotton receive nutrients from the soil they are grown in; various
crops deplete soil nutrients in different ways and rates. Some crop growth can deplete soil
nutrients after just a few seasons of planting. Fertilizers play an important role in providing
crops with the nutrients they need to grow and be harvested for nutritious food.

Fertilizers help deliver enough food to feed the world’s population. But they can do even more.
A class of fertilizers called micro & macro nutrient fertilizers is engineered to enrich crops with
vital nutrients that help support human health. The use of fertilizers has undeniably
revolutionized the agricultural aspect of society. Also, the abusive and incorrect usage might
affect the soil and the consumer. Fertilizers are an irrefutably an aid for the growing modern
society.

Reference to Indian Agriculture :

Agriculture is very vital sector of Indian economy; it accounts for the country’s GDP provides
employment to the work force and earns On Demand (OD) to the India’s foreign exchange.
Growth of agriculture is an indicator of health of the overall economy. The most important
factor that contributes to the growth of agriculture is the use of fertilizer. Different soils call for
different nutrients, as do different crops. Much greater yields of much better developed plants
can be attained; which benefit the harvester and the consumer.

1. The development of fertilizer industry in India has been synonymous with rapidly growing
agriculture.

14
2. About 50% increasing in crop productivity in recent times can be credited to the use of
fertilizers.

3. India has different kinds of soils and climatic regions. Centers of cropping and inadequate
manure have left the Indian soil largely developed of plant nutrients.

4. To advice and educate the farmers about the use of fertilizer and insure the supply of
qualitative products, a number of soil testing laboratories have been setup this helped the
former in judicious use of fertilizers. The consumption of fertilizers is directly related to have
availability of sub soil and surface water for irrigation and on the vagaries of the weather.

5. The Indian economy growth largely depends on agriculture health of the fertilizers industry
indicates the trends of economic upturn and/or recession.

6. Earlier the government introduced a retention price scheme for nitrogenous fertilizers, which
was later, to other fertilizers.

7. To make adequate of fertilizers available to farmers in time, government also gave a freight
subsidy, which covered the movement of fertilizer to the blockhead/district quarters from
production/warehouses.

8. Due to ample mishandling, political interference, government gave up all these plants and
gave permission for decontrol of phosphate and potassium fertilizers from august 25, 1992 and
adore subsidies on indigenous phosphate fertilizers.

CLASSIFICATION:

Fertilizers are classified in several ways. They are classified according to whether they provide
a Single Nutrient (e.g., K, P, or N), in which case they are classified as "Straight Fertilizers".
"Multi-nutrient fertilizers" (or) "complex fertilizers" provide two or more nutrients, for
example N and P. Fertilizers are also sometimes classified as Inorganic & Organic. Inorganic
fertilizers exclude carbon containing materials except Urea. Organic fertilizers are usually
(recycled) plant-derived or animal-derived matter. Inorganic are sometimes called Synthetic
fertilizers since various chemical treatments are required for their manufacture.

15
Single Nutrient ("Straight") Fertilizers:

The main nitrogen-based straight fertilizer is Ammonia or its solutions. Ammonium nitrate
(NH4NO3) is also widely used. Urea is another popular source of nitrogen, having the
advantage that it is solid and non-explosive, unlike ammonia and ammonium nitrate,
respectively. A few percent of the nitrogen fertilizer market (4% in 2007) has been met by
calcium ammonium nitrate.

The main straight phosphate fertilizers are the superphosphates. Single Superphosphate (SSP)
consists of 14–18% of P2O5, again in the form of Ca(H2PO4)2, but also Phosphogypsum (CaSO4
·2H2O). Triple Superphosphate (TSP) typically consists of 44-48% of P2O5 and no gypsum. A
mixture of single superphosphate and triple superphosphate is called Double Superphosphate.
More than 90% of a typical superphosphate fertilizer is water-soluble.

Multi Nutrient (Complex) Fertilizers:

These fertilizers are the most common. They consist of two or more nutrient components.

Binary (NP, NK, PK) fertilizers

Major two-component fertilizers provide both nitrogen and phosphorus to the plants. These are
called NP fertilizers. The main NP fertilizers are Mono-Ammonium Phosphate (MAP) and Di-
Ammonium Phosphate (DAP). The active ingredient in MAP is NH4H2PO4. The active
ingredient in DAP is (NH4)2HPO4. About 85% of MAP and DAP fertilizers are soluble in
water.

NPK fertilizers

NPK fertilizers are three-component fertilizers providing Nitrogen, Phosphorus, and

Potassium. NPK rating is a rating system describing the amount of nitrogen, phosphorus, and
potassium in a fertilizer. NPK ratings consist of three numbers separated by dashes (e.g., 10-
10-10 or 16-4-8) describing the chemical content of fertilizers. The first number represents the
percentage of nitrogen in the product; the second number represents the percentage of
phosphorus; the third number represents the percentage of potassium. Fertilizers do not actually
contain P2O5 or K2O, but the system is a conventional shorthand for the amount of the
phosphorus (P) or potassium (K) in a fertilizer.

16
A 50-pound (23 kg) bag of fertilizer labelled 16-4-8 contains 8 pounds of nitrogen (16% of the
50 pounds), an amount of phosphorus equivalent to that in 2 pounds of P2O5 (4% of 50 pounds),
and 4 pounds of K2O (8% of 50 pounds). Most fertilizers are labelled according to this N-P-K
convention, although Australian convention, following an N-P-K-S system, adds a fourth
number for sulphur, and uses elemental values for all values including P and K.

PRODUCTION:

Nitrogen Fertilizers:

Nitrogen fertilizers are made from ammonia (NH3), which is sometimes injected into the
ground directly. The ammonia is produced by the Haber-Bosch process. In this energy-
intensive process, natural gas (CH4) usually supplies the hydrogen, and the nitrogen is derived
from the air. This ammonia is used as a feedstock for all other nitrogen fertilizers, such as
anhydrous ammonium nitrate (NH4NO3) and urea (CO(NH2)2).

Deposits of sodium nitrate (NaNO3) (Chilean saltpeter) are also found in the Atacama desert
in Chile and was one of the original (1830) nitrogen-rich fertilizers used. It is still mined for
fertilizer.

Phosphate Fertilizers:

All phosphate fertilizers are obtained by extraction from minerals containing the anion PO4. In
rare cases, fields are treated with the crushed mineral, but most often more soluble salts are
produced by chemical treatment of phosphate minerals. The most popular phosphate-
containing minerals are referred to collectively as phosphate rock. The main minerals are
fluorapatite Ca5(PO4)3F (CFA) and hydroxyapatite Ca5(PO4)3OH. These minerals are
converted to water-soluble phosphate salts by treatment with sulfuric acid (H2SO4) or
phosphoric acid (H3PO4). The large production of sulfuric acid as an industrial chemical is
primarily due to its use as cheap acid in processing phosphate rock into phosphate fertilizer.
The global primary uses for both sulphur and phosphorus compounds relate to this basic
process.

17
Potassium Fertilizers:

Potash is a mixture of potassium minerals used to make potassium fertilizers. Potash is soluble
in water, so the main effort in producing this nutrient from the ore involves some purification
steps; e.g., to remove sodium chloride (NaCl) (common salt). Sometimes potash is referred to
as K2O, as a matter of convenience to those describing the potassium content. In fact potash
fertilizers are usually potassium chloride, potassium sulphate, potassium carbonate, or
potassium nitrate.

Compound Fertilizers:

Compound fertilizers, which contain N, P, and K, can often be produced by mixing straight
fertilizers. In some cases, chemical reactions occur between the two or more components. For
example, monoammonium and diammonium phosphates, which provide plants with both N
and P, are produced by neutralizing phosphoric acid (from phosphate rock) and ammonia :

NH3 + H3PO4 → (NH4)H2PO4

2 NH3 + H3PO4 → (NH4)2HPO4

Organic Fertilizers:

Organic fertilizers can be describe those fertilizers with an organic biologic origin that is,
fertilizers derived from living or formerly living materials. They can also commercially
available and frequently packaged products that strive to follow the expectations and
restrictions adopted by organic agriculture and environmentally friendly gardening related
systems of food and plant production that significantly limit or strictly avoid the use of
synthetic fertilizers and pesticides. The organic fertilizer products typically contain both some
organic materials as well as acceptable additives such as nutritive rock powders, ground sea
shells (crab, oyster, etc.), other prepared products such as seed meal or kelp and cultivated
microorganisms and derivatives.

Fertilizers of an organic origin include such animal wastes, plant wastes from agriculture,
compost, and treated sewage sludge (biosolids). Beyond manures, animal sources can include
products from the slaughter of animals-blood meal, bone meal, feather meal, hides, hoofs, and
horns all are typical components. Organically derived materials available to industry such as
sewage sludge may not be acceptable components of organic farming and gardening. They can
offer soil-building advantages to those who are trying to farm / garden more naturally.

18
ADVANTAGES OF FERTIILIZERS:
1. It increases crop yield and improves quality of land.
2. Manure improves soil texture, recycles nitrogen and introduces essential bacteria.
3. Once marshland is drained, fertilizers can help reclaim that land for pasture.
4. Crops grow faster – particularly when hybrid seeds are used.

DISADVANTAGES OF FERTILIZERS:
1. Crops grow better, but so do weeds. Therefore herbicide sprays are required too.
2. Better quality plants attract insects so pesticides may be needed.
3. Excess nitrogen from fertilizers gets into water supplies, causing fish to die.
4. Chemicals need to be used safely. In poorer countries in particular, farmers can damage
their health by applying fertilizers, pesticides and herbicides incorrectly.
5. Artificial fertilizers, applied without organic additions, do not improve soil structure.

STRATEGY FOR GROWTH :

The fertilizer industry has adopted the following strategy to increase fertilizer production
i. Expansion/profiting/revamping of existing fertilizer plants.
ii. Setting up joint venture projects in countries having abundant and cheaper raw
material resources.
iii. Working out the possibility of adopting alternative sources like liquefied natural
gas to overcome the constraint in the domestic availability of natural gas.

GROWTH AND DISTRIBUTION:

Indian soils are generally deficient in fertilizing elements namely nitrogen, phosphorus and
potassium and do not give high yields. It is, therefore, essential to feed these soils with chemical
fertilizers so that their productivity increases.

The significant contribution made by the chemical fertilizers can be seen from the impact of
the Green Revolution on Indian agriculture. The production of food grains increased from a
miserably low of 50.8 million tonnes in 1950-51 to 174 million tonnes in 2002-03. The health
and growth of the fertilizer industry is vital for increasing the growth of agricultural sector, to

19
meet the food-grain requirements of increasing population as well as increasing contribution
to exports.

The major role which fertilizers have played in raising the country’s food-grains production
can be seen from the increase in fertilizer consumption from 0.55 kg per hectare in 1951-52 to
10.7 kg in 1968-69, 32 kg in 1980-81 and 89.8 kg per hectare in 2003-04.

A modest beginning with respect to manufacturing of chemical fertilizers was made in 1906
when the first super-phosphate factory was set up at Ranipet in Tamil Nadu. The actual growth
of fertilizer industry is mainly a post-Independence phenomena. The setting up of the Sindri
plant by the Fertilizer Corporation of India Ltd. (FCI) in 1951.

At present, there are 57 fertilizer units manufacturing a wide range of nitrogenous and complex
fertilizers, including 29 units producing urea and 9 units producing ammonia sulphate as a
by-product.

Besides, there are about 64 medium and small scale units producing single superphosphate.
The production capacity has increased from a modest 85,000 tonnes in 1951-52 to 199.98 lakh
tonnes as on 2003-04 and that of phosphatic fertilizers from 63,000 tonnes to 54.20 lakh tonnes
during the same period. Although the production of both nitrogenous and phosphatic fertilizers
has increased rapidly over the years, the nitrogenous fertilizer has shown much better progress
than the phosphatic fertilizers.

The production of both nitrogenous and phosphatic fertilizers stood at nine thousand tonnes
each in 1950-51, but in 2003-04 the production of phosphatic fertilizers was only 3,567
thousand tonnes while that of nitrogenous fertilizers stood at 10,632 thousand tonnes.

The total installed capacity of fertilizer production, which was 120.58 lakhs MT of nitrogen
and 52.31 lakhs MT of phosphate as on 31.03.2003 has marginally changed to119.98 lakhs MT
of nitrogen and 53.60 lakhs.

As of 2000, installed capacity in nitrogen based nutrients was 11 MT and in phosphate based
nutrients was 3.6 MT. Potassium based nutrients must all be imported. Since 1992 the
government has been gradually decontrolling the price of fertilizers. The prizes of urea are
scheduled to be completely decontrolled by 2006/07.

20
MAJOR PLAYERS:

Public Sector Fertilizer Companies:

• Fertilizer Corporation of India Limited (FCIL).

• Hindustan Fertilizer Corporation Limited (HFC)

• Pyrites, Phosphates & Chemicals Limited

• Rashtriya Chemicals and Fertilizers Limited (RCF)

• National Fertilizers Limited (NFL)

• The Fertilizers and Chemicals Travancore Limited (FACT)

• Madras Fertilizers Limited (MFL)

Private Sector Fertilizer Companies

• Ajay Farm-Chem. Private Limited.

• Bharat Fertilizer Industries Limited

• Deepak Fertilizer and Petrochemicals Corporation Limited

• Coromandel International Limited.

• Gujarat Narmada Valley Fertilizer Co. Limited

• Karnataka Agro Chemicals

• Godavari Fertilizers & Chemical Limited

• Zuari Industries Limited- Fertilizer Limited

• Shri Amba Fertilizers (I) Private Limited

• Gujarat State Fertilizers & Chemicals Limited

• Indo-Gulf Fertilizers & Chemicals Corporation Limited

• Southern Petro Chemical Industries Corporation Limited

• Mangalore Chemicals & Fertilizers Limited.

21
 CHAPTER-III

COMPANY PROFILE

COROMANDEL INTERNATIONAL
LIMITED

22
INTRODUCTION:
COROMANDEL INTERNATIONAL LIMITED is located spreading over 485 acres of land
(which is leased from Visakhapatnam Port Trust on renewal basis) at Visakhapatnam, at 5kms
far from Visakhapatnam port on the east coast of India. The CIL was set as a Private Limited
company on 16th October 1961, with a capital investment of Rs.50crores. Then it was
converted in to Public Ltd Company with Authorised Capital of Rs.500crores.

CIL was jointly promoted by International Minerals and Chemicals Corporation (IMC) and
Chevron Chemical Company, two well-known U.S.A Corporation and E.I.D Parry (India)
Limited. In 1981, EID Parry was taken over by MURUGAPPA group holds 79% of share
market. Indian financial holds 13 % and Indian public hold 8% of share market.

CIL India’s second largest Phosphatic fertilizer player, is in the business segments of
Fertilizers, Specialty Nutrients, Crop Protection and Retail. The Company manufactures a wide
range of fertilizers and markets around 4.5 million tons making it a leader in its addressable
markets.

CIL producing low & high analysis of fertilizers like Urea, NPK, DAP, MOP, etc. under the
brand name of “GROMOR” at CIL Vishakhapatnam & “GODAVARI” at CIL Kakinada.
CIL installed Ammonia importation facility consisting of 5.2 Km length pipeline from sea berth
to plant location in the year 1999.

In its endeavour to be a complete plant nutrition solutions Company, Coromandel has also
introduced a range of Specialty Nutrient products including Organic Fertilizers. The Crop
Protection business produces insecticides, fungicides and herbicides and markets these
products in India and across the globe. Coromandel is the 2nd largest manufacturer of Malathion
and only the 2nd manufacturer of Phenthoate. Coromandel has also ventured into the retail
business setting up around 800 rural retail centres in the States of Andhra Pradesh, Telangana,
Karnataka and Maharashtra. Coromandel also offers extensive farmer friendly AGRO services
by analysing the soil samples for nutrients and advising the farmers from time to time on
optimum usage of fertilizers mix suitable to the fields

The Company clocked a turnover of Rs.11,049 Crore during FY 2017-18. It was ranked among
the top 20 best companies to work for by Business Today and was also voted as one of the 10
greenest companies in India by TERI, reflecting its commitment to the environment and
society. Coromandel is a part of the INR 329 Billion (32,893 Crores) of Murugappa Group.

23
CIL is originally an integrated fertilizer complex plant where some of the required raw material
such as urea, ammonia, sulfuric acid & phosphoric acid were manufactured at high capacity.
Urea required for the manufacture of 28:28:0 is being procured from various producers of Urea
Fertilizer in India.

At present, Ammonia & Urea plants were closed down as its production cost is incompatible
with the lower International market rates. So, CIL importing Ammonia from Gulf countries
and Urea from local fertilizer industries. We are also importing sulphur & rock phosphate (from
foreign countries like Japan, Senegal etc.) for the production of sulfuric acid & phosphoric acid
respectively.

Coromandel has constantly taken up modernization and up gradation programmes to enhance

production levels. These modernization are helped to increase the volume of production of
fertilizers from the original level of 2,50,000 MT per annum to the current level of 7,70,000
MT per annum. Coromandel has also installed a new complex plant (C-train) which increased
its fertilizer production to about 10,00,000 MT per annum.

CIL & ITS LOGO:

CIL emblem depicts the farmer with a branch of seven leaves on one hand whom the company
strives to serve providing them the fertilizers to ensure that this crop grows better and more
abundantly. The registered trade mark “GROMOR” is a catch work depicting the company’s
intention to grow more food. The Coromandel farmer appears on all the packages of the
company as well as in the media of sales promotion. The colour chosen is GREEN representing
the green revolution in agriculture. After acquisition of shareholding by M/S. EID Parry (India)
Limited. CIL formed a part in the Murugappa group of companies whose logo is “PEACOCK”.
Murugappa group has varied business batches both nationally and internationally starting from
a chocolate cycle infilling unit to big manufacture. Out of the 12 companies Murugappa group
in holding CIL claims first in revenue earnings and hence it has been rightly placed in the
plumage of the peacock symbol.

24
MISSION,VISION & PHILOSOPHY:

Mission: To enhance prosperity of farmers through quality farm solutions with sustainable
value for all stakeholders.

Vision: To be the leader in farm solutions business in geography of choice, consistently

delivering superior value to stakeholders through highly engaged employees, with a strong
commitment towards sustainability and our values.

Philosophy: The fundamental principle of economic activity is that no man you transact
with will lose then you shall not.

Values And Beliefs-The Five Lights:

1. Integrity: We value professional and personal integrity above all else. We achieve our
goals by being honest and straight forward with all our stake holders. We earn trust
with every action, every minute of every day.
2. Passion: We play to win. We have a healthy desire to stretch, to achieve personal goals
and accelerate business growth. We strive constantly to improve and to be energetic in
everything we do.

25
 3. Quality: We take ownership to our work. We unfailingly meet high standards of
quality in both what we do and the way we do it. We take pride in excellence.
4. Respect: We respect the dignity of every individual. We are open and transparent each
other. We inspire and enable people to meet high standards and challenging goals. We
provide every one equal opportunity to progress and grow.
5. Responsibility: We are responsible to corporate citizens. We believe we can help to
make a difference to our environment to change live Coromandel extranet.

CULTURE:

Coromandel is managed by competent and committed professionals using advanced

management practices. The Company is known for fostering a climate of high performance
and continuous improvement.Coromandel's culture is based on the three tenents:

Knows:

 Building capability at individual level

 Building capability at organisational level
 Ability to solve problems
 Thinking of innovative approaches

Cares:
 Customer: Prosperity improvement
 Employee: Well being and engagement
 Vendor: Improving capability and efficiency
 Society: Caring for environment and community development
 Shareholders: Maximise TSR through higher dividends and higher share price

Fulfills:
 Result orientation
 Energetic and speed of action
 Quality focus
 Building a seamless working environment

26
ORGANISATION STRUCTURE:

The supervisory board of MURUGAPPA Group supervises the organization if Coromandel

International limited. Top most authority of the CIL is administered and controlled by the
president and managing director. The main registered office of CIL is located at Hyderabad.
The present president of CIL is Mr.G.Veerabhadram. The Visakhapatnam plant is headed by
M.Kumaresan, Vice President who undertakes the charge of all the levels of departmental in
the organization.

Board Of Directors:

Chairman Mr. M.M.Murugappan

Vice Chairman Mr. V Ravichandran
Director Mr. B V R Mohan Reddy
Director Mr. M M Venkatachalam
Director Mr. Prasad Chandran
Director Mr. Sumit Bose
Director Mrs. Aruna B. Advani
Director Dr. Nagarajan Ramamurthy
Director Mr. Karat Venugopal Parameshwar
Managing Director Mr. Sameer Goel

Board Committees:

The following are the Committees of the Directors constituted by the Board of Directors of
Coromandel International Limited:

1. Audit Committee
2. Nomination & Remuneration Committee
3. Stakeholders Relationship Committee
4. Risk Management Committee
5. CSR Committee
6. Banking & Borrowing Committee

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Partners, Subsidiaries, Joint Ventures & Associate:

Partnerships:

1. FOSKOR (PTY) LTD., South Africa for extending CIL’s Technical assistance

2. Joint Venture Agreement with Groupe Chimique Tunisien & CPG of Tunisia set up a
phosphoric acid plant at La Skhira, Tunisia, at an estimated cost of US$ 180 million.

3. Joint Venture agreement with Socieded Quimicay Minera to set up a Water Soluble
Fertiliser (WSF) plant for manufacturing WSF at Coromandel's Kakinada Plant.

Subsidiaries:

1. Parry Chemicals Limited 2. Sabero Australia Pty. Ltd 3. Coromandel Brazil Ltd

4.Dare Investments Ltd 5. Sabero Organics America Ltda 6. CFL Mauritius Ltd

7. Sabero Argentina S.A 8. Sabero Europe B.V 9. Liberty Pesticides Fertilisers Ltd

10. Coromandel Agronegocios de Mexico, S.A de C.V

Joint Ventures:

1. Coromandel SQM (India) P Ltd 2. Yanmar Coromandel Agrisolutions P Ltd

Associate:

1. Sabero Organics Philippines Asia Inc.

LOCATION:

Coromandel's Corporate Office is located at Secunderabad in Andhra Pradesh. The Company's

manufacturing facilities and marketing branches are spread across India.

Fertilizers Plants:

1. Kakinada and Visakhapatnam in Andhra Pradesh

2. Ennore and Ranipet in Tamil Nadu
Crop Protection plants:

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 1. Ranipet in Tamil Nadu
2. Navy Mumbai in Maharashtra
3. Ankleshwar in Gujarat
4. Jammu in J&K
Marketing Branches servicing the farming community across India are located at

1. Kurnool, Vijayawada and Visakhapatnam in Andhra Pradesh.

2. Hyderabad in Telangana.
3. Bangalore and Raichur in Karnataka.
4. Tricky in Tamil Nadu.
5. Aurangabad in Maharashtra.
6. Ahmedabad in Gujarat.
7. Indore in Madhya Pradesh.
8. Raipur in Chhattisgarh.
9. Bhubaneswar in Orissa.
10. Kolkata in West Bengal.
11. Ghaziabad in Uttar Pradesh.
12. Bhatinda in Punjab.

FUNCTIONS:

The vice president (manufacturing and projects) is the over all in charge of manufacturing
fertilizers at plant and implementation of all projects in time. The vice president (finance) is
the incharge of overall fund management, internal audit and secretarial functions. The general
manager marketing is the incharge of overall marketing of CIL’s finished products as well as
the by-products like gypsum, fluorine etc.,

The employees of the organization are divided in to three grades, they are:

Technical: The technical employees are sub divided into highly skilled, semi-skilled and
unskilled people. The labours come under unskilled works men. Technical staff is graded in to
S1 to S7.

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Clerical: The clerical staff is graded in to C1 to C3 ranks, where C1 grade is for assistant, C2
for junior assistant and C3 for senior assistant. The clerical staff mainly looks after the office
work.

Managerial: The management staff is graded in to MG01 to MG10 ranks. Thus according to
the ranks the employees of Coromandel Fertilizers Limited are graded and the company runs
round the clock.

The employees work in shifting times. The timings of three shifts are:

07:00hrs to 15:00hrs

15:00hrs to 23:00hrs

23:00hrs to 0700:hrs

The general shift is from 08:00hrs to 16:30hrs. Thus, the employees working under all the shift
timings receive all the welfare facilities like canteen, drinking water, transport etc.

ORIGIN & HISTORY:

1959: Independent India realized that its largely agrarian economy needed a thrust in the right
direction for its people to benefit and prosper. Prime Minister Jawaharlal Nehru invited the
Ford Foundation to carry out a comprehensive study of Indian agriculture and gave its
recommendations.

1961: An industrial license was granted to three companies – IMC (the world’s largest producer
of fertilizers), Chevron Chemical Company (a major American player in fertilizers industrial
chemicals) and E.I.D.Parry(India) Limited (India’s largest private fertilizer producers with 60
years’ standing) – The Company was incorporated as a private company on 16th October to set
up a giant chemical fertilizer complex. The first Board of Directors was constituted on October
16 with H.V.R.Iyengar as its Chairman. Others on the Board included J.Q.Cope, Charles
Dennison, J.K.John, Dr L.Bharat Ram, A.W.Horton, J.T.Gibson, S.C.Dholakia, V.K.Rao and
Raja Rameswar Rao. L.L.Powell and P.J.Davies were the first Managing Director and Dy.
Managing Direct respectively. Donald.I.Meikle was the first Company Secretary.

1962: Market development commence in the form of a “seeding programme”. E.I.D. Parry was
appointed CIL’s principal sales agent in India for our product aptly name “GROMOR”

30
epitomizing the idea of Growing More food for the nation. A 483.5 acres site was identified at
Visakhapatnam along the “Coromandel” coast (India’s east coast), from where the Company
derived its name. The land, taken under a 50-year lease from Visakhapatnam Port Trust, has a
private jetty just 5 km from the plant site. With a capital investment of Rs.50 crores, Lumus
Company undertook construction of the plant.

1964: Coromandel converted into a public company on 10th April, 1964. The company
manufactures and sells complex fertilizers and urea. The complex fertilizers of the company
are sold under the trade name “GROMOR”.

1967: On December 10, Mr. Morarji Desai, the Deputy Prime Minister of India, dedicated the
fertilizer plant to the nation, in the presence of Mr. Kasu Brahmananda Reddy, the Chief
Minister of Andhra Pradesh. Grandhi Ramamurthy, a local farmer, was given the honour of
cutting the ribbon. The 245 ft. high Urea pill tower was one of the tallest industrial structures
in India then. Though not operational today, it still presents a formidable sight, towering against
the skyline, recalling old memories for those who were associated with its operation.

1970: The “GROMOR farmer” was developed as a marketing symbol and introduced on our
bags to spread the message of “Higher Yields, Bigger Profits”. Today, farmer households
across our addressable markets identify CIL’s brand by this symbol.

1971: The “Coromandel Lecture” was instituted to provide a forum for thinkers, economists,
social and agricultural research scientists around the world to share their thoughts on issues of
global concern such as food security, environment and extension activity. The “Borlaug
Award”, instituted in honour of Nobel Laureate Dr Norman Borlaug (father of the wheat
revolution), honours eminent men of science and industry for their distinctive contribution to
the cause of agriculture. This reflects CIL’s concern to develop a symbiotic interaction between
agriculture, industry and academic.

1976: Our fertilizer retail outlet at Secunderabad got a boost with garden lovers fervently
seeking small quantities of fertilizers for bigger and richer blooms and fruit.

1977: CIL completed a decade of participation in augmenting agricultural production for the
nation. Its vital role covered soil nourishment, sharing agronomic expertise, supporting
agricultural education and rewarding research – all of which had progressively grown in width
and depth during the decade.

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1980 - 90: Plans to diversify were afoot. A “ground breaking” ceremony was performed in
November 1980 at Chilamkur (Andhra Pradesh), which is rich in limestone deposits, to set up
a one million tone cement plant. The fully computerized plant (designed by world-renowned
cement manufacturer Krupp Polybius of West Germany) was commissioned in 1984. It was
later sold to India Cements in 19903.

1995 - 99: Chevron Chemical Company divested its stake in favour of E.I.D.Parry (I) Limited
in 1995 followed by IMC in 1999. E.I.D. Parry (I) Limited acquired majority shareholding in
CIL, making it a part of the Murugappa Group, a highly reputed industrial conglomerate.

2000: Coromandel’s growth over the years has been punctuated with several path-breaking
modernizations/upgradation programmes. Begun in 1975, the programme gathered momentum
in 1992-95, when the Sulphuric Acid, Phosphoric Acid and Complex Granulation plants were
debottlenecked. Production capacity wends up from the original 2,47,000 MT to 4,00,000 MT.
On September 29, Mr. N. Chandrababu Naidu, the then Chief Minister of Andhra Pradesh,
inaugurated a new complex granulation train. This further augmented capacity to 6,00,000 MT,
a boon to the entire farming community.

2003: On July 12, CIL consolidated its business by acquiring controlling stake in Godavari
Fertilizers & Chemicals Limited (GFCL). To optimize Synergy of operations in the Group, the
Farm Inputs Division of E.I.D Parry (I) Limited was merged with CIL on 1st December.

2004: Mr. V. Ravichandran took over as President and WTD on January 22. Mr. A.Vellayan
took over as Chairman on 1st September. Other Directors on the Board are Mr.J.Jayaraman,
Mr.M.M.Murugappan, Mr.T.M.M.Nambiar, Mr.M.K.Tandon, Mr.D.E.Udwadia,
Mr.S.Viswanathan and Mr.K.A.Nair. The first post-merger AGM of the Company was held on
July 15.

2005: Coromandel Signed & linked a business Assistance Agreement with Foskor Pty Ltd.,
South Africa, to provide managerial and technical assistance to Foskor. A joint venture
agreement was signed between Coromandel Group, M/s Chimique Tunisien of Tunisia and
Gujarat State Fertilizer Corporation.

2006: Plant Protection Business expands Coromandel acquired FICOM Organics Ltd.,

2007: Innovation in Retail Marketing Coromandel launched its retail business to serve the rural
markets. Today, Coromandel has a chain of over 400 outlets in rural Andhra Pradesh. On 1st
April, 2007 Godavari Fertilizers and Chemicals Limited was merged with Coromandel.

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2008: Product Innovation: Coromandel’s Speciality Nutrient range including Micro-Nutrients
and water soluble products were launched a new line of organic Fertilizers.

2009: JV with Sociedad Quimicay Minera (SQM) was signed on May 26 with Soquimich
European Holdings, B.V., the Netherlands (a Subsidiary of SQM, Chile) a World leader in
Specialty Plant Nutrition business to set up a manufacturing facility at Kakinada to produce
WSF NPK grades. The 50:50 JV Company, Coromandel SQM (India) Pvt Ltd was incorporated
on 09-10-2009.New brand Identity and Logo: 25th of August the name of the Company was
changed to Coromandel International Limited and the new logo unveiled.

2010: On 26 April 2010 Coromandel International announced that the company has entered
into a Share Purchase Agreement with the promoters of Pasura Biotech Pvt. Ltd. (Pasura) to
acquire 100% shareholding in Pasura. Pasura is engaged in formulation of Pesticides and has a
Plant in Jammu in the State of Jammu & Kashmir. on 22 July 2010 decided that in line with
the strategy for the pesticides business technical grade manufacturing facilities have been
consolidated at the new plant at Ankleshwar Gujarat. the manufacturing operations relating to
these products have been suspended at the Navi Mumbai Plant. Approved a proposal of
expansion of fertiliser manufacturing facility at Kakinada by installing a new granulation train.
On 13 September 2010 Coromandel International announced that the company has entered into
a Licence Agreement with Shell Research Ltd. for Shell Thiogro technology to manufacture
Sulphur Enhanced Fertilisers (SEF). Coromandel would initially employ the Shell Thiogro
technology to manufacture SEF at its plant at Visakhapatnam and may extend it to Kakinada
unit later. The BOD of Coromandel International at its meeting held on 19 October 2010
approved the sub-division of equity shares of Rs. 2 each into two equity shares of Re. 1 each
subject to the approval of the shareholders.

2011: On May30, 2011 Coromandel sign a definitive share purchase (42.22% of Equity Shares)
agreement to acquire promoter’s stake in Sabero Organics Gujarat Ltd. It established its
headquarters in Mumbai. The Turnover of the company is 413 crores in FY 2011 out of export
contribute about 220 crores. Sabero Organic have four Subsidiaries in Brazil, Argentina,
Australia and Europe boasts about 240 registration for key products. Coromandel international
limited declares 400% interim dividend.

2012: CIL has recommended a final dividend of Rs.3/- per share (300% on face value of Rs.1/-
per share).

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2013: CIL acquires ‘Liberty Phosphate Group” & received the prestigious and internationally
recognized “Golden Peacock National Training Award” in the category “Employer”.
Coromandel International Ltd India’s leading manufacturer of a wide range of Fertilizers, Crop
Protection Products and Specialty Nutrients, has been awarded the “Best Management Award-
2013” by the government of Andhra Pradesh.

2014: Coromandel International Ltd has informed that the High Court of Andhra Pradesh has
approved the scheme of Amalgamation of Liberty Phosphate Ltd and Liberty Urvarak Ltd.
“Coromandel enters JV for Farm Machinery Manufacturing”. On 25 April, Coromandel
International announced that it has entered into a joint venture agreement with Yanmar Co.
Ltd. and Mitsui & Co. (Asia Pacific) Pte. Ltd for setting up of manufacturing facility initially
for manufacture and marketing of Yanmar branded rice transplanters and harvesters.

2017: On 20 May, Coromandel International announced that it has incorporated a subsidiary

named as Coromandel International (Nigeria) Limited (CINL) in Nigeria for the purpose of
marketing of agrochemicals. On 22 December, Coromandel International announced that it has
signed a term sheet to acquire the Bio-Pesticides business from EID Parry (India) together with
its wholly owned subsidiary Parry America Inc. USA thorough a slump sale.

STRENGTHS AND OPPORTUNITIES:

CIL's leadership position is based upon its efficient cost structure and the credibility of its
product quality amongst the consumers. The Company will continue to focus on improving the
infrastructure and supply chain management in order to reduce the costs further. The tie-ups
with M/s. Foskor, South Africa and M/s. Group Chimique Tunisien, Tunisia and other major
raw material suppliers would enable the Company to maximize the production of Complex
fertilizers from its existing plants. To support the higher volumes, the Company is expanding
its infrastructural facilities including product handling equipment, raw material storage
facilities etc.

The Company also continued its efforts at brand building and expanded its retail network and
developed relationship with “Self-Help Groups” (SHG) to strengthen the distribution channel.
The Company has opened its first branded Agri retail sales and service center, 'Mana Gromor'
in Guntur district, Andhra Pradesh in April 2007. Apart from selling Agri inputs like Fertilizers,
Pesticides etc., the retail center would offer training to farmers on soil conditioning, water

34
management, crop timing and optimum input use. Each center will be equipped with a soil
testing laboratory to analyses soil samples collected by trained personnel from field. More such
Centers will be opened in the coming year in order to be closer to the farmers and provide “One
stop Solution” to them. With the acquisition of FICOM Organics, the Company has a wide
range of products in the Pesticides business and has made entry into public health business
segment. The Company has also developed a strong dedicated team of marketing professionals
for the Pesticides business. As per the terms of the 'Business Assistance Agreement' signed
with M/s. Foskor, South Africa, the Company has deputed a number of its senior technical and
management executives to that Company to assist them in improving their operations and
increase the production of phosphoric acid. This has proved to be mutually beneficial.

Strengths of Coromandel:

 CIL is promoted by two internally renowned US multinationals dealing in fertilizers

and petrochemicals.

 Good manpower, productivity and industrial relations.

 Low capital cost hence cost of productivity is low. Down time in plant.

 Excellent maintenance practices and timely planned replacement decreasing.

 Reliable supply of raw materials, long time contract with suppliers for supply of raw
materials.

 Well located in respect of raw materials and market.

 Own berthing facilities for handling imported rock phosphate and sulphur in shiploads
these facilities can be offered to outsiders by giving scope for income generation to the
company.

 Adequate storage at the factory.

 Company enjoys a good brand image and value.

 Good revenue from by-products such as gypsum, fluorine etc.

Principles of Coromandel :

 To propagate and adhere the group values and beliefs.

 To achieve cost effective operations through profitable funds management and efficient
financial control.

35
  To create cost and quality consciousness at all levels.

 To increase levels of employee motivation, commitment and sense of belonging.

 To strictly adhere to all statutory norms on environmental protection, pollution control

and ensure total safety to employee and neighbourhoods.

PRODUCTS & SERVICES:

Coromandel has multi-locational production facilities and manufactures & markets a wide
range of Phosphatic Fertilisers, Crop Protection Products, Speciality Nutrients like Sulphur
Pastelles, Water Soluble Fertilisers, Micro Nutrients and Organic Fertilisers. The Company
exports its Crop Protection products to countries across the globe. Coromandel also provides
agri input solutions to the farmers and offers life-style products through its rural retail centers.
The Company is managed by competent and committed professionals and is known for
fostering a climate of high performance and continuous improvement.

Fertilizers: Coromandel is a leading manufacturer of phosphatic fertilisers with plants

located at Visakhapatnam & Kakinada in Andhra Pradesh and Ennore & Ranipet at Tamil
Nadu. The range of products from Coromandel are popularly known by the brand GROMOR.

1. GROMOR 14-35-14: Unique grade Contains Nitrogen, Phosphorous and Potassium.

Highest total nutrient content among NPK fertilizers (63%). N & P ratio same as DAP. In
addition, GROMOR 14-35-14 has extra 14% potash. High in Phosphorous content (35%). Best
for almost all kinds of crops like Cotton, Groundnut, Chilly, Soya bean, Potato. Not suitable
for Tobacco and Grapes.

2. GROMOR 28-28-0: Unique grade Complex with highest N & P in 1:1 ratio. Unique
granulation by coating prilled urea with Ammonium Phosphate layer. Such granule
configuration ensures efficient utilisation of nutrients. Highly suitable for Paddy & Wheat.

3. GROMOR 20-20-0-13: This is the most popular grade among the farming community.
Launched by Coromandel in March 2003. It is granular in nature and can be easily applied by
broadcasting, placement or drilling. Hygroscopic nature is much less and it is suitable to a
variety of soils and crops. It is an excellent fertiliser for all crops grown in Sulphur deficient
soils and is highly suitable for Sulphur loving crops such as Oil seeds.

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4. GROMOR Paramfos 16-20-0-13: Unique grade. Ammonium Phosphate Sulphate
containing Nitrogen, Phosphorous and Sulphur. It is the most preferred Fertiliser in drill-sown
areas. Sulphur present in GROMOR Paramfos also improves the soil heath. By virtue of the
free-flowing nature of its granules, GROMOR Paramfos is the most preferred fertiliser in drill-
sown areas.

5. GROMOR Parry Super / GROMOR Double Horse Super (Single Super Phosphate):
First chemical fertiliser to be manufactured in India. Contains 16 % Phosphate, 11 % Sulphur
and 19 % Calcium. Favoured fertiliser for dry land areas. Increases productivity. Increases oil
content in oil seed crops especially in Groundnut, Sunflower etc.

6. GROMOR Godavari DAP (Di Ammonium Phosphate): DAP (N:P 18:46) containing two
major plant nutrients - Nitrogen and Phosphorus having highest total nutrients (64%). Nitrogen
and Phosphorous are available in 1: 2.5 ratio. Almost entire (15.5%) Nitrogen is almost
available in Ammonical form. GROMOR Godavari DAP can be used in any type of soil, light
or heavy and under all agro-climatic conditions. It is an ideal and suitable complex for all crops
for basal application. Paddy, Jowar, Maize, Sugarcane, Tobacco, Cotton, Chillies, Groundnut
& Soyabean.

7. GROMOR 17-17-17: It contains all three major plant nutrients in equal proportion. Supplies
all three major nutrients 17% each of nitrogen, phosphate & potash to the crops. Ideally suited
for vegetable crops. Preferred grade in South India.

8. GROMOR 10-26-26: It contains all the three major plant nutrients. It contains Phosphorous
and Potassium in the ratio of 1:1. very popular among the Sugarcane farmers of Maharashtra,
Karnataka and Andhra Pradesh and Potato farmers of West Bengal & Uttar Pradesh. Also
suitable for Fruit crops.

9. GROMOR 12-32-16: It contains all three major plant nutrients. It is an ideal complex for
Soya bean, potato and other commercial crops which require high phosphate during the initial
stages of growth. It helps the young plants to establish faster, even under adverse soil or
climatic conditions & also in greater root penetration and better root system even in poor soils
of unstable structure resulting in higher yield from such soils.

10. GROMOR Godavari Urea: Contains highest percentage of Nitrogen (46%). Most
preferred fertilizer among the farmers for basal application as well as top dressing Does not
contain any filler materials.

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11. GROMOR MOP: Muriate of Potash: Potassium chloride by chemical nature. Contains
highest percentage of potash (60%). Entire potash is in water soluble form. Improves quality
of the produce apart from increasing yield. Increase strength of the crops and improves
resistance against pests & diseases. Counteracts ill effect of over application of nitrogen.

Fortified Fertilizers: It is observed that despite the recommendations for usage of

Secondary & Micronutrients, not many farmers/ growers are aware of the usage benefits of
these rapidly declining nutrients in Indian soils. CIL working towards improving the nutrient
balance not only to promote Primary nutrients but also to check the deficiencies of Secondary
& Micronutrients in order to improve the overall productivity-therefore creating nutrient
balance.

1. GROMOR ULTRA DAP: Fortified Di Ammonium Phosphate produced by Coromandel.

This is first of its kind in India where DAP has been fortified with the most essential micro
nutrient Zinc. It provides 18% Nitrogen & 46% phosphate along with 0.5% Zinc. It is highly
suitable for cereals like Paddy, Wheat and Maize. Suitable for Zinc deficient soils.

2. GROMOR ULTRA 24-24-0-8: It is Urea Ammonium Phosphate fortified with 8% sulphur.

It supplies both Nitrogen (Urea & Ammonical) and Sulphur (Sulphate & elemental form) in 2
forms. Gromor 24 -24-0-8 along with 24% Nitrogen, 24% Phosphate, 8% Sulphur. Gromor 24-
24-0-8 supplies Nitrogen & Phosphorous in 1:1 ratio. Highly suitable for Sulphur loving crops
like Onion, Soya Bean, Paddy, Sugarcane, Cotton, Tomato.

3. GROMOR Parry Super (Fortified with Boron): It is Single Super Phosphate (SSP)
fortified with Boron. Multi-nutrient fertilizer which contains 16% phosphate, 11% sulphur,
19% Calcium and 0.15% - 0.2% Boron. Entire phosphate is in water soluble form which is
easily available to crops. Highly suitable for sulphur loving crops like Oilseeds, Pulses, Chillies
and Onion etc. Boron loving crops like Cabbage, Cauliflowers, Chillies, Potato, other
Vegetables and Fruits etc. Ideal for Boron deficient soils.

Crop Protection: The Crop Protection business produces insecticides, fungicides,

herbicides and markets these products in India and abroad. By taking over M/s Sabero Organics
in 2011, Coromandel has added many technicals to its range of products and has climbed to a

38
coveted position among top 5 Indian companies in Indian Pesticide Industry. The Company
has global registrations in 62 countries and has strong presence in export markets of Latin
America, SE Asia & Africa. In India, the company is offering about 50 crop protection products
for protecting diverse crops. Marketed under Hexamar & Parry brands, the Coromandel Crop
protection brands have been synchronized to emerge under a stronger brand “GROMOR
SURAKSHA”. This vast product range under the flagship brand ‘GROMOR SURAKSHA”
touches millions of farmers everyday helping them address their crop protection related
problems.

Retail Services: The retail arm of Coromandel was started in the year 2007 with 2 outlets
in Andhra Pradesh and by 2013-14 the business expanded to over 665 retail centers in rural
Andhra Pradesh and Karnataka. Coromandel's retail centers are located at Mandal headquarters
(Mandal is a revenue unit in Andhra Pradesh, which is 1/50th of a district). Each retail center
has an average area of 1750 square feet with a catchment area of 30-40 villages and about 5,000
farmer families. Objective: To be the leader in farm solution business in geography of choice,
providing world class Agri solutions, leading to transformation of farming and satisfaction of
farmers, suppliers and all other external and internal stakeholders.

Speciality Nutrients: These are necessary for the Hidden hunger for secondary nutrients
and micronutrients in India is high. If corrected, the crop yield can go up by 20-25%. The need
for complete nutrient solutions to the farmers. The future of the farming community and
fertiliser companies depends on SND products.

Major Nutrient Management Issues: Inadequate and unbalanced use of fertilisers. Increasing
deficiencies of secondary and micronutrients. Nutrient mining: Potassium mining a major
threat. Low fertiliser use efficiency. Low factor productivity.

Coromandel's current SND offering: All the SND products have been chosen with a specific
need and hidden demand of Indian farming.

 Bentonite Sulphur - Gromor Sulphur

 Water Soluble fertilisers
- Gromor Spray for Foliar Application
39
 - Gromor Power for Fertigation
 Micronutrients
- Gromor Sulpho-Zinc (Elemental S 65%, Zinc 18%)
- Gromor Granubor (Granular Boron 15%)
- Folibor (20% Boron )
- Chamatkar (12% chelated Zinc)
- Carat (Zinc Sulphate Monohydrate 33%)
 Organic Fertilisers
- Godavari Gold
- Phos Gold
- Nrich
- Kash

ACCOUNTING POLICIES:

The accounts have been prepared primarily on the historical cost convention and in
accordance with the mandatory accounting standards. The significant accounting policies
followed by the company are stated below:

1. Fixed Assets: Fixed Assets are shown at cost or valuation less depreciation. Cost comprises
the purchase price & other attribute expenses. Fixed assets other than leasehold land/improvement.
Office equipment, furniture & fittings, certain vehicles and roads had been revalued on 31st March
based on a valuation by an approved value. The indices, if any used are not stated in the valuation.
2. Depreciation on Fixed Assets: Depreciation has been provided on straight-line method.
Depreciation on all assets (except those revalued and certain vehicle and equipment) has been
provided over the useful lives of the assets derived from the rates prescribed in schedule of the
companies act, 2013 or at the rates given in the schedule. Certain vehicles and equipment are
depreciated at 20% per annum in certain equipment (incl. material handling equipment) or
depreciated at 12.5% or 20% per annum. Depreciation on assets revalued as at 31st March is
provided on the basis of the residual technical life as ascertained by the value. Leasehold Land is
being amortized over the lease period.
3. Foreign Currency Transactions: Transactions made during the years in foreign currency
are recorded at the exchange rate prevailing at the time of transactions. Assets and Liabilities

40
related to foreign currency transactions remaining unsettled at the year-end are translated at
contract rates, when covered by foreign exchange contracts and at year end rates in other assets.
4. Investments: Investments are valued at cost of acquisition and related expenses.
5. Inventories: Stores and spares are valued at monthly weighed average cost. Other inventories
are valued at lower of cost and net realized value. The method of determination of cost of various
categories of inventory is as follows:
a. Raw Material: First in first out method. Cost includes purchase cost and attributable
expenses.
b. Finished goods and work-in-process: Weighted average cost of production which
comprises of direct material costs, direct wages and appropriate overheads.
c. Goods for resale: Weighted average cost.
6. Sundry Debtors and Advances: Specific debts and advances identified as irrecoverable
and doubtful are written off or provided respectively.
7. Revenue Recognition:
a. Sale of goods recognized at the point dispatch to customers. Sales excludes amount recovered
excise duty and sales tax.
b. Dividend income from investments is accounted for when declared.
c. Subsidies: Credit for Government subsidies has been taken on the basis actual sales made by
the company.

Risk Management: The company recognizes that there are several risks that impact the
business. The company has constituted a risk management committee headed by the CEO and
comprising of the senior management personnel. The committee meets periodically and
reviews the various risks associated with the business and the effectiveness of the mitigation
measures. The report of the committee is presented to the board of directors for its review.

Quality Management System: On line with the company mission of becoming

leading supplier of quality Phosphate complex fertilizer in the world CIL implemented the
quality management system conforming to ISO 9002-1194 stands and has received the
certification from Det Norske Veritas, an international organization. The company is now the
process of changing over to 9002-2000 version.

41
SHE: Coromandel gives top most priority to Safety, Health and Environment (SHE)
performance and standards across all our plants. Coromandel regularly assesses and works
towards making sure that all our plants achieve best standards in terms of SHE performance.
When operations involve handling of chemical products, following health, safety and
environment procedures becomes a necessity and a responsibility. At Coromandel, we give
utmost importance to the concept of employee health and safety given the nature of
manufacturing operations. We have voluntarily adopted the Process Safety Management
System (PSMS) to prevent hazardous incidents. Coromandel also follows ISO 9001 , ISO
14001 and OHSAS 18001 standards.

Corporate Social Responsibility(CSR): Coromandel's business interest is not

limited to commercial profit alone. Its corporate responsibility does not stop with merely
increasing shareholders value. Coromandel associates with various community development
activities in the communities around its manufacturing facilities as well as in the markets in
which it operates. Activities such as Education, Health Care, Community Development,
Support in Natural Calamities, Research & Development.

Marketing Activities: The company sells the finished product mainly in the four states of
India i.e., Andhra Pradesh, Orissa, west Bengal and Madhya Pradesh. the sale is through EID
(parry) one of the promoters of the company that belongs to the Murugappa group . They are the
selling agents of the company. The distribution pointed located at various centers across the
country. As far as the pricing of the fertilizers is concerned, until the pre 1992 economic scenario
the government allowed subsidy on the process of the fertilized under the retention price scheme.
In the past 1992 scenario the pricing of the fertilizers underwent a sea change. The fertilizer
industries were allowed to compete in the opine market. The P2O5 is presently to the extent of 465
in DAP.

FOCUS AREAS:
Manufacturing:
 To beat low fertilizers manufacture.
 Emphasis on safety and environment improvement.

42
  Thrust on energy conservation.
Marketing:
 Ensure quality and timely positioning of product as per market needs.
 Minimum distribution cost and lead time.
 Explore new markets and crop areas.
 Provide meaningful information to management in time.
Human Resource Development:
 Organization restructure through re-skilling and re-development.
 Training in core competency areas.

SAFETY MEASURES:
Our company as a responsible corporate citizen has always ensured that “safety” is given foremost
priority. As a policy, the company aims at achieving high standards of personal safety, makes
every effort to create a healthy work environment for its employees and neighboring communities,
and ensures protection to the company’s property from loss or accidents. Coromandel has never
compromised on safety awareness and safety consciousness at all times-24 hours a day and 365
days. Our safety record are mean an achievement.

SAFETY POLICY:
It is the policy of CIL to conduct its activities in manner which ensure health, work environment
and safety to its employees. Management has the responsibilities to ensure that all process,
equipment and facilities are designed, constructed, operated and maintained in safe condition.
Cost considerations or the demands of production and operations must not overshadow safety
considerations. It is the obligation of every employee to KNOW and FOLLW our safety rules and
procedures; to TEACH what we know to others; to REPORT promptly hazardous or unsafe
practices and conditions to concerned department head; to protect the company properly from the
loss or accident and to PERFORM his or her tasks to ensure the health and safety of themselves,
fellow employees and the neighboring communities. At one time plant secured the first place on
the international fertilizer industries sectional contest among 162 participating companies. In June

43
1998, CIL won a five star rating from the British safety council for its safety management systems
for year 1995-96.

NON-FERTILIZER ACTIVITIES:
 Sale of intermediates, such as Sulphuric acid, phosphoric acid and Hydrofluosillic acid.

 Sale of fertilizer raw material such as Sulphur, rock phosphate, potash etc.,

 Sale of by-product, viz., gypsum and carbon dioxide.

 Handling of other cargo at our berth.

CONCERN FOR ENVIRONMENT:

CIL is a leader in its chosen area of activity. This is directly attributable to the program of
technology upgradation and modernization our impressive product quality and the resultant strong
market presence that we command. Leadership implies that we be conscious of our
responsibilities, in particular of being and Eco-friendly corporate citizen.
CIL demonstrates keen concern towards environment and other pollution control methods and has
implements several measures, from time to time, by adopting the latest technologies viz.,
switching over to DCDA process in sulphuric acid plant; total recycling of effluents, installation
of fluorine recovery unit and installation of bag filters in phosphoric acid plant etc. the fluorine
recovery unit converts the pollutant gases into a useful by-product called “Hydrofluosilicic acid”
which is sold to a neighboring ancillary unit. Therefore, this unit not only reduces pollution but
saves the lime treatments cost of effluents and gives value-addition as well. This is clear example
of the slogan “Pollution Prevention Paysl”.
CIL believes that environmental protection and pollution control is a continuous process and
always looks forward to adapt new systems & practices that minimizes the impact of its activities
on the environment. The company has since obtained the ISO 14001 certification for its
Environmental Management System from M/s Det Norske Veritas an Internationally accredited
organization. It also committed to improving the environment through continuous green belt
development. It has implemented rainwater harvesting schemes to recharge groundwater, thereby
increasing the yield of bore wells.

44
AWARDS & RECOGNITIONS:
Over the years, Coromandel has received a number of awards and recognitions including the
British Council 'Five Star' rating for Safety Management Systems and being adjudged one of
the 'Ten Greenest Companies in India' by a joint survey of TERI and Business Today magazine.
Some of the awards and recognitions received by Coromandel include:
 CII EXIM-BANK Business Excellence Award for 'Strong Commitment to Excel' for
Vizag & Kakinada Plants.
 CNBC Award for Most Engaged Workforce.
 DMA - Erehwon National Award for Innovation in HR.
 Public Relations Society of India National Award (1st Prize) for The VOICE,
Coromandel's in-house magazine, received for the 4th time.
 International Award for The VOICE magazine.
 FAI Best Production Performance Award for the Phosphoric Acid Plant at Vizag received
for the 9th time.
 FAI Best Production Performance Award for Complex (P2O2) Fertilizers for Kakinada
Plant.
 Video Film Award received for the 6th time.
 Coromandel Visakhapatnam has won ‘Environment Protection award for Complex
Fertilizer Plant with Captive acids’ from Fertilizer Association of India during the year.
 National Energy Conservation Award (Commendation Certificate) for efforts in Energy
Conservation from Ministry of Power, New Delhi, for Kakinada Plant.
 Ranked among the Top 20 Best Employers to work for by Business Today.
 Best Management Award for the three times from Ministry of Labor, Government of AP.
 CII Energy efficient unit for the 6 times out of 16 annual awards conferred.
 First prize in State Conservation Award from NREDCAP, Govt of AP in 2012-2013.
 ‘Silver Shield - ICAI Awards’ for Excellence in Financial Reporting for 2016-17.
 Coromandel Ennore and Visakhapatnam sites won 4 STAR award from CII – Southern
region for its ‘EHS Excellence 2017’
 National CSR Awards from ‘Public Relations Society of India (PRSI)’ in the category
of Best CSR project for Childcare for the intervention in the Pediatric ward in the
Government General Hospital in Kakinada.
 ‘ET NOW CSR Leadership Award’ for Best CSR practices.

45
 CHAPTER-IV
CONCEPTUAL FRAME WORK

46
 RATIO ANALYSIS:

Ratio Analysis is widely used tool of financial analysis. The term “Ratio” refers to the
numerical and quantitative relationship between two or group of variables connected to each
other in some logical manner. It may be defined as the indicated quotient of two mathematical
expressions and as the relationship between two or more things. This relationship can be
exposed as:-

 Percentages
 Fractions
 Proportion of numbers.
Ratio analysis is defined as the systematic use of the ratio to interpret the financial statements,
so that the strengths and weaknesses of a firm, as well as its historical performance and current
financial position can be determined. It is helpful to know about the liquidity, solvency, capital
structure and profitability of an organization & also to summarize the large quantities of a
financial data and to make qualitative judgments. Accounting ratios are a very useful tool for
grasping the true message of the financial statements and understanding them. In financial
analysis, a ratio is used as a bench mark for evaluating the financial position and performance
of a firm.

According to Batty J. Management Accounting “Ratio can assist management in its basic
functions of forecasting, planning coordination, control and communication”.

Steps in Ratio Analysis:

The Following are the four steps involved in the ratio analysis:

1. Selection of relevant data from the financial statements depending upon the objective
of the analysis.
2. Calculation of appropriate ratios from the above data.
3. Comparison of calculated ratios of the same firm in the past, or the ratios developed
from projected financial statements or the ratios of some other firms or the comparison
with ratios of the industry to which the firm belongs.
4. Interpretation of the ratios.

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CLASSIFICATION OF RATIO’S:-

Several ratios calculated from the accounting data, can be grouped into various classes.
Management is interested in evaluating every aspect of the firm’s performance. There are
different parties interested in the ratio analysis for knowing the financial position of a firm for
different purposes. In view of the requirement of the various users of ratios, we may classify
them into the following important categories:

1. Liquidity Ratios
2. Activity Ratios
3. Solvency Ratios
4. Leverage Ratios
5. Profitability Ratios

1. LIQUIDITY RATIOS:- Analysis of Short-Term Financial Position.

Liquidity ratios measure the ability of the firm to meet its current obligations. In fact, analysis
of liquidity needs the preparation of cash budgets and cash and funds flow statements; but
liquidity ratios, by establishing a relationship between cash and other current assets to current
obligations (Liabilities), provide a quick measure of liquidity. A firm should ensure that it does
not suffer from lack of liquidity and also that it does not have excess liquidity. The most
common ratios, which indicate the extent of liquidity (or) lack of it, are

a. Current Ratio
b. Quick Ratio (or) Acid Test Ratio
c. Absolute Liquid (or) Cash Ratio

a. Current Ratio:

Current Ratio explains the relationship between current assets and current liabilities. The ratio
is also known as working capital ratio. The current ratio is a measure to make analysis of short
term liquidity. It indicated the availability of current assets in rupees for every one rupee of
current liability. Current ratio is calculated by dividing current assets and current liabilities.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

48
It includes the availability of current assets in rupees for every one rupee of current liability.
The current ratio represents a margin of safety for creditors. Higher the current ratio, greater
the margin of safety. If the ratio is greater than 2:1, then that company is generally considered
to have good short-term financial strength. If the ratio is less than 2:1, it indicates lack of
liquidity and shortage of working capital.

b. Quick Ratio:

Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. An
asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of
value. Cash is the most liquid asset, and other included in quick assets are debtors and bills
receivables and marketable securities (temporary quoted investments). The quick ratio is found
out by dividing quick assets by current liabilities.

𝑄𝑢𝑖𝑐𝑘𝑎𝑠𝑠𝑒𝑡𝑠
𝑄𝑢𝑖𝑐𝑘𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Where Quick Assets = Current Assets-(Inventories + prepaid expenses)

It is widely accepted as best available test of the liquidity position of a firm. A quick ratio of
1:1 is generally considered to represent a satisfactory current financial condition. High quick
ratio is an indication that the firm is liquid and has the ability to meet its current or liquid
liabilities and a low quick ratio represents that the firms liquidity position is not good.

c. Absolute Liquid (or) Cash Ratio:

Cash is the most liquid asset. Absolute liquid ratio or Cash ratio is relation between absolute
liquid assets & current liabilities. Absolute Liquid Assets includes Cash and Bank balances and
short-term marketable securities. Trade investment is marketable securities of equivalent of
cash. Cash Ratio is perhaps the most stringent Measure of liquidity.

Cash & Bank balances + Marketable Securities

Absolute Liquid (or) Cash Ratio =
Current liabilities

The ideal absolute liquid ratio is taken as 1:2 or 0.5 i.e. the company has the reserve borrowing
power there’s nothing to be worried about the lack of cash.

49
2. ACTIVITY / EFFICIENCY RATIOS:

(Current Assets Movement or Asset Management Ratios)

Funds are invested in various assets in business to make sales and earn profits. Activity Ratio’s
measure the efficiency or effectiveness with which a firm manages its resources or assets.
These ratios are also called as turnover ratios because they indicate the speed with which assets
are converted or turned over into sales. Some of the significant activity ratios are:

a. Inventory turnover ratio

b. Working capital turnover ratio
c. Debtors turnover ratio
d. Average collection period
e. Creditors turnover ratio
f. Average payment period.

a. Inventory Turnover Ratio:

Every firm has to maintain a certain level of inventory of finished goods so as to meet the
requirements of the business. Inventory turnover ratio is also known as stock velocity. It
indicates the number of times the stock has been turned over during the period and evaluates
the efficient with which a firm is able to manage its inventory. This ratio establishes
relationship between costs of goods sold and average inventory.

Cost of goods sold Net Sales

Inventory turnover ratio = (or)
Average Inventory Average Inventory

opening inventory + closing inventory

Average Inventory =
2

It measures the velocity of conversion of stock into sales. Usually, A high ratio indicates
efficient, management because more frequently the stocks are sold, the lesser amount of money
is required to finance the inventory. A low ratio indicates an inefficient management of
inventory and also implies over-investment in inventories i.e. poor quality, slow moving goods.

b. Working Capital Management:

Working capital refers to the capital required by the firm to run its day to day operations and

50
directly relates to sales. To run the day to day operations, the company needs certain type of
assets such as inventories, receivables, cash etc. This ratio establishes a relationship between
net sales and working capital.

Sales
Working capital turnover ratio =
Net working capital
Where, net working capital = current assets – current liabilities.

It measures the sufficiency with which the working capital is being utilized. In general, higher
ratio indicates more efficient utilization of working capital and a low ratio indicates otherwise.

c. Debtors/Receivables Turnover Ratio:

This ratio expresses the relationship between net credit sales and trade debtors. It is a test of
the liquidity of the debtor of a firm. It indicates the velocity of debt collection of firm and also
indicates the number of times average debtors are turned over during a year.

Net annual credit sales

Debtors Turnover Ratio =
Average trade debtors

opening trade debtors + closing trade debtors

Average trade debtors =
2
Where, Trade debtors = Sundry Debtors + Bills Receivables+ Accounts Receivables

Generally, Higher the ratio implies more efficient management of debtors/sales or more liquid
debtors. A lower ratio implies inefficient management of debtors/sales or less liquid debtors

d. Average Collection Period:

The average collection period represents the average number of days for which a firm has to
wait before its receivables or converted into cash. It measures the quality of debtors.

No. of working days

Average collection period =
Debto𝑟s turnover ratio

Generally, the shorter collection period implies the better quality of debtors and quick payment
by debtors. A higher collection period implies as inefficient collection performance which
affects the liquidity or short-term paying capacity of a firm.

51
e. Creditors/Payables Turnover Ratio:

This ratio expresses the relationship between net credit purchases and trade creditors. The
analysis for creditor’s turnover is basically the same as of Debtors Turnover ratio. The ratio
indicates the velocity with which the creditors are turned over in relation of purchases.

Net Credit Annual Purchases

Creditors Turnover Ratio =
Average Trade Creditors

opening trade creditors + closing trade creditors

Average trade Creditors =
2

Where, Trade debtors = Sundry Debtors + Bills Receivables+ Accounts Receivables

Generally, higher the ratio is better. Otherwise, lower the ratio is less favorable are the results.

f. Average Payment Period:

The average payment period represents the average number of days taken by the firm to pay
its creditors.

No. of working days

Average payment period =
creditors turnover tatio

Generally, lower the period, the better is the liquidity position of the firm. Higher the period,
less liquidity position of the firm. But a higher payment period also implies greater credit period
enjoyed by the firm and consequently larger the benefit reaped from credit suppliers.

3. SOLVENCY RATIOS: Analysis of Long-Term Financial Position

It refers to the ability of a concern to meet its long term obligations. the long-term indebtedness
of a firm includes debenture holders, financial institutions providing medium and long-term
loans and other creditors selling goods on instalment basis. These ratios indicate a firm ability
to meet the fixed interest and costs and repayment schedules associated with its long-term
borrowings. These ratios serve the purpose of determining solvency of the firm or concern.

52
 a. Debt-Equity Ratio
b. Proprietory (or) Equity Ratio
c. Solvency Ratio
d. Fixed Assets to Net Worth (or) Proprietor’s Funds Ratio
e. Fixed Assets Ratio
f. Ratio of Current Assets to Proprietor’s Funds
g. Interest Coverage (or) Debt Service Ratio

a. Debt-Equity Ratio:

Debt equity ratio also known as external-internal equity ratio. This ratio indicates the
relationship between the outsider’s funds and shareholder’s funds. It is calculated to measure
the relative of outsiders and the owners against the firm’s assets. It is also a measure of
company’s ability to repay its obligations.

Outsiders Funds
Debt Equity Ratio =
Shareholder ′ sFunds

The ratio reflects the relative contribution of creditors and owners of business in its financing.
A debt equity ratio of 2:1 is considered ideal. Firms with a debt equity ratio of 2 or less indicate
its creditors too relatively less risk and vice versa.

b. Proprietory (or) Equity Ratio:

It establishes relationship between the proprietors fund or shareholders fund to total assets of a
firm. This ratio is also known as Net worth (or) Equity (or) Total Assets Ratio. This ratio
indicates the extent to which the assets of the company can be lost without affecting the interest
of creditors of the company.

Shareholder ′ s Funds
Proprietary Ratio =
Total Assets

Higher the ratio, better the long term solvency (financial) position of the company. A low
ratio indicates that the company is already heavily depending on debts for its operations.

53
c. Solvency Ratio: (Ratio of Total Liabilities to Total Assets )

This Ratio is a small variant of equity ratio and indicates the relationship between the total
liabilities to outsiders to total assets of a firm.

Total Liabilities to Outsiders

Solvency Ratio =
Total Assets

Generally, lower the ratio is more satisfactory, stable is the long-term solvency position of firm.

d. Fixed Assets to Net Worth (or) Proprietor’s Funds Ratio:

The Ratio establishes the relationship between fixed assets to shareholder’s funds. It indicates
the extent to which shareholder’s funds are sunk into the fixed assets.

fixed assets (after depreciation)

fixed assets to net worth ratio =
shareholder ′ s funds

If the ratio is less than 100%, it implies that owners funds are more than total fixed assets and
a part of working capital is provided by shareholder’s. When the ratio is more than 100%, it
implies that owners funds are not sufficient to finance the fixed assets and the firm has to
depend upon outsiders to finance the fixed assets.

e. Fixed Assets Ratio: (Fixed Assets to Total Long Term Funds)

A variant to the ratio of fixed assets to net worth is the ratio of fixed assets to total long term
funds. It indicates the extent to which the total of fixed assets are financed by long term funds
of the firm.

Fixed Assets (After Depreciation)

Fixed Asset Ratio =
Total Long term Funds

Generally the ratio should be 100%. But in case the fixed assets exceed the total of long term
funds it implies that the firm has financed a part of fixed assets out of current funds or the
working capital which is not a good financial policy. And if the total long-term funds are more
than total fixed assets, it means that a part of working capital requirement is met out by long
term funds of the firm.

54
f. Ratio of Current Assets to Proprietor’s Funds:

The ratio is calculated by dividing total of current assets by amount of shareholder’s funds. The
ratio indicates the extent to which proprietors funds are invested in current assets.

Current Assets
Ratio of Current Assets to Proprietor′s Funds =
Shareholder′s Funds

g. Interest Coverage (or) Debt Service Ratio:

This Ratio is used to test the debt-servicing capacity. This ratio indicates the number of times
interest is covered by the profits available to pay the interest charges and how much safety
margin is available to the shareholders.

Net Profit (before interest & taxes)

Interest Coverage Ratio = Fixed Interest

The ratio of around 6 is considered ideal. The higher the ratio, more safe are the long-term
creditors because even if earnings of the firm fall, the firm shall be able to meet its commitment
of fixed interest charges and also a sign of low burden of borrowings and lower utilization of
borrowing capacity.

4. LEVERAGE RATIOS: (Analysis of capital Structure)

These are calculated to judge the long term financial position of the firm. As a general rule,
there should be an appropriate mix of debt and owner’s equity in financing the firm’s assets.
This ratio represents proposition of debt and equity financing the firm’s assets. It also indicates
the relative interest owners and creditors in a business. Leverage ratios are calculated to
measure the financial risk and the firm’s ability of using debt to shareholder’s advantage.

a. Total Investment to Long-term Liabilities Ratio

b. Ratio of Fixed Assets to Funded Debt
c. Ratio of Current Liabilities to Proprietor’s Funds
d. Ratio of Reserves to Equity Capital

55
a. Total Investment to Long-term Liabilities Ratio:

This Ratio is calculated by dividing the total of long-term funds by the long-term liabilities.

𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐹𝑢𝑛𝑑 + 𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑡𝑜 𝐿𝑜𝑛𝑔𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 =
𝐿𝑜𝑛𝑔 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

As a general rule the proportion of long-term liabilities should not be very high.

b. Ratio of Fixed Assets to Funded Debt:

The Ratio measures the relationship between the fixed assets and the funded debt. It is very
useful to the long-term creditors.

𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠
𝑅𝑎𝑡𝑖𝑜 𝑜𝑓 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠 𝑡𝑜 𝐹𝑢𝑛𝑑𝑒𝑑 𝐷𝑒𝑏𝑡 =
𝐹𝑢𝑛𝑑𝑒𝑑 𝐷𝑒𝑏𝑡

c. Ratio of Current Liabilities to Proprietor’s Funds:

This Ratio establishes the relationship between current liabilities and proprietor’s funds. It
indicates the amount of long-term funds raised by the proprietors as against short-term
borrowings.

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑡𝑜 𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑜𝑟𝑠 𝑓𝑢𝑛𝑑𝑠 𝑅𝑎𝑡𝑖𝑜 =
𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑜𝑟𝑠 𝐹𝑢𝑛𝑑

d. Ratio of Reserves to Equity Capital:

The Ratio establishes relationship between Reserves and Equity Capital. It indicates that how
much profits are generally Retained by the firm for future growth.

𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠
𝑅𝑎𝑡𝑖𝑜 𝑜𝑓 𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 =
𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

Generally, Higher the ratio, better is the position of firm.

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5. PROFITABILITY RATIOS: (Analysis of Profitability)

Primary objective of a business undertaking is to earn profits. Profit earning is considered to

be essential for the survival of the business. Profitability ratio’s are calculated to measure the
overall efficiency of the business. Generally profitability ratios are calculated either in relation
to ales or in relation to investment.

I. General Profitability Ratios

a. Gross Profit Ratio

b. Net Profit Ratio
c. Operating Ratio
d. Operating Profit Ratio

II. Overall Profitability Ratios for Investment Analysis

a. Return on Shareholder’s Investment (or) Net Worth

b. Return on Equity Capital
c. Earnings Per Share (EPS)
d. Return on Assets
e. Capital Turnover Ratio
f. Fixed Assets Turnover Ratio
g. Total Assets Turnover Ratio

III. Market Test (or) Valuation Ratios:

a. Dividend Yield Ratio

b. Dividend Pay-Out Ratio
c. Price Earning Ratio (P/E)
d. Earning Yield Ratio
e. Market Value to Book Value Ratio

I. General profitability Ratios:

a. Gross Profit Ratio:

Gross ratio shows the relationships between gross profits with net sales and usually presented

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as a percentage. Gross Profit is simply excess of net sales over cost of goods sold. It indicates
the extent to which selling prices of goods per unit may decline without resulting in losses on
operations of a firm and reflects the efficiency with which a firm produces its products.

Gross profit
Gross profit ratio = × 100
Net sales

Higher the Ratio better the result. It should be adequate to cover the operating expenses & to
provide fixed charges, reserves, dividends. A low ratio, generally indicates high cost of goods
sold due to unfavorable purchasing policies, lesser sales, etc.

b. Net Profit Ratio:

This ratio measures the relationship between net profit (after taxes) and net sales, and indicates
the efficiency of the management in all the activities. This Ratio is the overall measure of
firm’s profitability. It indicates the firm’s capacity to face adverse situations/conditions.

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥

Net profit ratio = × 100
Net sales

Higher the ratio, the better is profitability of the business. A low ratio indicates poor financial
planning and low efficiency. Low the ratio, firm may not be able to achieve a satisfactory return
on its investments.

c. Operating Ratio:

This ratio establishes a relationship between cost of goods sold plus operating expenses and
sales. It indicates the percentage of net sales that is consumed by operating cost. This ratio is
considered to be a yardstick of operating efficiency of the firm. It measures the cost of
operations per rupee of sales.

Cost of Goods Sold + Operating Expenses

Operating ratio = × 100
Net Sales

Higher the ratio, the less favorable it is, because it would have a small margin to cover interest,
income tax, etc. 75-85 percent may be considered to be good for manufacturing undertaking.

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d. Operating Profit Ratio:

This ratio establish relationship between operating profit and net sales. This ratio is calculated
by dividing operating profit (i.e., net sales-operating cost) by sales.

Operating Profit
Operating Profit Ratio = × 100
Net sales

Where, operating profit ratio = 100- operating ratio

Operating Profit = Net Sales – (CGS + Admin & Office Exp + Selling & Distribution Exp)

II. Overall Profitability Ratios for Investment Analysis

a. Return on Shareholder’s Investment (or) Net Worth:

It is also known as Return on Investment (ROI) is a relationship between net profit (after
interest and tax) and proprietors’ fund. It is used to calculate the overall efficiency of a firm as
the objective of business is to maximize its earnings. Shareholder’s funds includes paid-up
equity share capital, share premium and reserves and surplus less accumulated losses.

Net Profit ( after interest and tax)

Return on Net Worth = × 100
Shareholder′s Funds

This ratio reveals how well the resources/investments of the firm are being used, higher the
ratio better the results as the investor would like to invest only where the return is higher.

b. Return on Equity Capital:

Return on Shareholder’s Equity is calculated to see the profitability of owner’s investment. It

is the relationship between profits of a company and its paid-up equity capital. It expresses the
return earned by the equity shareholders on their investment.

Net Profit after Tax − Preference Dividend

Return on Equity Caital =
Equity Share Capital (Paid up)

This ratio reveals how well the equity capital of the firm are being used, higher the ratio better
the results as the investor would like to invest only where the return is higher.

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c. Earnings Per Share (E.P.S):

Earning Per Share (E.P.S) is a measure of profitability and calculated for a number of years
indicates whether earning power of company has increased or not.

Net Profit After Tax − Preferance Dividend

E. P. S =
Number of Equity Shares

d. Return on Assets:

It is the relationship between net profit (after taxes) and assets employed to earn that profits. It
measures the profitability of the firm in relation to assets employed in the firm.

Net profit After Tax

Return on Assets =
Average Total Assets

e. Capital Turnover Ratio:

It is the relationship between cost of goods sold (or) sales and the capital employed. It is
calculated to measure the efficiency or effectiveness with which a firm utilizes its resources or
the capital employed.

Cost of Goods Sold (or) Sales

Capital Turnover Ratio =
Capital Employed

f. Fixed Assets Turnover Ratio:

This ratio shows the relationship between net sales and fixed assets (after depreciation). This
ratio states the extent of which the company’s plant and equipment are efficiently utilization.

Net Sales
Fixed Assets Turnover Ratio =
Fixed Assets

A high ratio indicates more efficient and better utilization of the fixed assets. A low ratio is
indicative of the poor management & utilization of the existing plant machinery.

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g. Total Assets Turnover Ratio:

This ratio indicates the relationship between net sales and total assets. This ratio explains the
extent of which the total assets are efficiently utilized or not.

Net Sales
Total Assets Turnover Ratio =
Total Assets

A high ratio indicates more efficient management & better utilization of the total assets. A low
ratio is indicative of the poor management & utilization of the assets.

III. Market Test (or) Valuation Ratios:

a. Dividend Yield Ratio:

As Shareholders are the real owners, they are interested in the earnings distributed and paid to
them as dividend. This ratio is calculated to evaluate the relationship between Dividend per
share and the market value of the share.

Dividend per Equity Share

Dividend Yield Ratio =
Market Value per Share

b. Dividend Pay-Out Ratio:

This Ratio is calculated to find the extent to which earnings per share have been retained in the
business. It is an important ratio because ploughing back of profits enables a company to grow
and more dividends in future.

Dividend per Equity Share

Dividend Payout Ratio =
Earnings per Share

c. Price Earning Ratio (P/E):

This ratio is between Market price per equity share and earnings per share. It is calculated to
make an estimate of appreciation in the value of a share & widely used by investors to decide
whether or not to buy shares.

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 Market Price per Equity Share
Price Earning Ratio =
Earnings per Share

Generally, Higher ratio, the better it is. If the P/E Ratio falls, the management should look into
the causes that have resulted into the fall of this ratio.

d. Earning Yield Ratio:

This ratio shows the relationship between Earnings per share and Market value of share.

Earnings per Share

Earning Yield Ratio = ∗ 100
Market Price per Share

e. Market Value to Book Value Ratio:

This Ratio is the relationship between market value per share of company and book value per
share. It is used to analyze its stock market position.

𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑡𝑜 𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

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