CHAPTER I

INTRODUCTION
A. LIQUIDITY MANAGEMENT IMPORTANCE :
It is extremely essential for a frm to be able to meet its
obligations as they became due. Liquidity Management explains the
ability of the frm to meet its current obligations.
A frm should ensure that it does not sufer from lack of
liquidity and also that it does not have excess liquidity. The failure
of a company to meet the obligations due to lack of sufcient
liquidity, will result in a poor credit worthiness, loss of creditors
confdence, or even in legal tangles resulting in the closure of the
company. A very high degree of liquidity is also bad; idle assets
earn nothing. The frms funds will be unnecessarily tied up in
current assets. Therefore, it is necessary to strike a proper balance
between high liquidity and lack of liquidity.
1
The term liquidity commonly used for the capital required for
day-to-day operations of the business. Such as meeting day-to-day
expenditure, salaries, wages, rents, rates, advertising etc. Generally
the liquidity (working capital) has two aspects Gross Working
Capital concept and Net Working Capital concept.
Gross working capital concept refers to the total current
assets. It includes cash and bank balances, receivables, inventory,
loans and advances, sundry debtors etc.
Net working capital refers to the diference between the total
current assets and total current liabilities. The net working capital
may be positive or negative.
Positive net working capital refers to excess of current assets
over current liabilities. Where the current assets are less than the
current liabilities then it is called negative net working capital.
On the basis of both aspects (Gross and Net Working Capital)
having equal importance for management. One is quantitative and
the other is qualitative. The gross capital focuses the attention on
the optimum investment in fnancing of current assets. Where as
2
the net working capital indicates the liquidity position of the frm
and suggests extent to which working capital needs may be
fnanced by permanent sources of funds.
Every organization wants to invest smaller amounts as
working capita. It must be adequate, as well it help to runt he
business transactions smoothly. The working capital shows the
liquidity position of the company. The companys liquidity position
indicates the availability of funds when they required for the
business operations.
B. FERTILIZER INDUSTRY IN INDIA :
Fertilizers are defned as "Any material", organic or inorganic
nature or synthetic, which supplies one or, more of the chemical
elements required for plant growth. "Fertilizer helps the growth of
agricultural production. Fertilizers are of basically two types. One is
organic and the other chemical. The product lines of the fertilizer
unit provide the chemical elements which are considered as plant
nutrients essential for healthy growth & desired yield of food
grains. Pulses, edible oils, etc. in the promoting plant growth
3
various element play a vital role. Among this Carbon, Phosphorous,
Nitrogen & Potash are required in bulk. Other elements required in
much smallest dosages are calcium, magnesium. Sulphur, Zinc,
iron, manganese etc., India is a vast country with huge population
standing 2
nd
World. Most of the people here depend on agriculture
for employment.
Due to the heavy population the need for food is also more the
food grains must be so that to met the needs/hunger of the whole
population. So, food grains must be grown plenty. Good fertilizers
are to be used for the growth of food grains. To meet the acute
shortage of food, Government of India had; decided to set up a
fertilizer plant at Sindri in 1951 to produce Ammonium Sulphate.
The greater use of fertilizers enable the plant to increase the crop
production by absorbing greater amount of nutrients percent in the
soil. Hence, the fertilizer sector is one of the vital sectors in the
economy of the country.
i. Fertilizers - Classifcation
Fertilizers may be classifed into:
4
(a) Natural Fertilizer
(b) Chemical Fertilizer
Natural Fertilizers are nothing but "compost and Maure". The
action of soil bacterial in breaing down dead organisms and dung of
animals into nitrogenous compounds easily assiable by plants
makes these dead, decaying matter and excreta of animals a very
good source of 'Natural Fertilizers'. When large areas of land area
brought under cultivations and when natural fertilizers are
inadequate to compensate the soil of it's rapid decreasing nutrient
values, artifcial fertilizers have to be added to the soil.
A good fertilizer should possess the following characteristic
features:
Easily soluble in water
Stable so that is can be stored
Able to maintain the required acidity or alkalinity or the soil
Easily assimilated by the plants
5
In fertilizers, nitrogen is made available in the form of
ammonia, urea etc. Nitrogen i.e., denoted by 'N' Nitrogen is used in
plant biology for its optimum growth and commonly expressed as
'N' Phosphorous plays an important role in 'root development'
especially in the early stages of plant growth and usually expressed
as "P
2
05", - Potassium helps information of Chlorophyll, which
helps in every stage, of metabolizes in the plant biology besides
grain formation, cell formation and berating mechanism of plants
and expressed as "N
2
0".
ii. Uses of Fertilizers :
a. To Agriculture:
Agriculture growth Food security
Income and employment in rural areas Rural Equity
Foreign exchange saving or earning
b. To Industry
Development of fertilizer industry promotes
6
No- Use of domestic resources like natural gas, rock
phosphate, Sulphur potash
Technology transfer and development
Employment in core industry
c. To Service
Marketing and Distribution' of fertilizer products promotes
Domestic and world trade. Credit and bank service Research
and extension
Transport and storage services
d. To Environment
Proper use of fertilizer products can help in
Maintenance of soil structures
Prevention of soil erosion and degradation
Control of degorestation
iii. Consumption of Fertilizers in India & World Wide :
India is basically an agricultural country. Nearly 70% of the
population lives in rural areas depending on agriculture. Still our
7
country is facing a big food shortage because crop yield from our
Indians soil is very poor. The problem is that all the more acute
because of increased population. The fertilizer consumption in
India is perhaps the lowest in the world. The consumption of
chemical fertilizer in India is only 29.6 Kg / hectare of all plants
nutrients as against the world average consumption of 77.1 Kg /
hectare.
Indian's Consumption 29.6 Kg / hect.
Korea's Con~umption 333.6 Kg / hect.
USA's Consuinption 110.6 Kg / hect.
Germany's Consumption 478.8 Kg / hect.
Egypt's Consumption 212.1 Kg / hect.
Japan's Consumption 477.7 Kg / hect.
The above statistics show that there is a great need for
fertilizer consumption and hence production in India.
iv. The Fertilizer Industry Its Role and signifcance
The Fertilizers are of immense value to man. They help the
growth of agriculture production. India is primarily an agricultural
or an agro-based country. Hence, it provides an immense role in
providing support to millions of people of the country.
8
The use of Fertilizers enables the plant to increase the crop
production by absorbing greater amount of nutrients present in the
soil. Hence, the fertilizers sector is one of the vital sectors in the
economy of the country.
Of late, a large number of Private & Public sector fertilizer
plants have come up in the country. These plants engage
themselves in the production of several simple and complex
fertilizers such as urea, ammonium phosphate and other complex
nitrogenous & phosphate Fertilizers, which playa strategic role in
catering to the needs of the various sectors of the society.
Some of the major fertilizer making companies are Nagarjuna
Fertilizer and Chemicals Ltd., Coromandel Fertilizer Ltd., is a major
Phosphoric plant in the country, in fact, all the other Fertilizer
plants in the country are either nitrogenous or potash based. This
is only integrated Fertilizer plant in the country.
a. Need for production of more Fertilizers in India :
We have already discussed that three types of nutrients are
required for proper growth N.P. and K. However, Indian soil is not
9
very seriously defcient in Potassium. It is estimated that India at
present needs a minimum of 6,00,000 tonnes of nitrogen per year,
23,40,000 tonnes of P205 per year, 13,10,000 tonnes ofK20 per
year. Their present production capacity is only about 50% of our
requirements and the remainder is being imported from other
countries. With increased consumption, it is obvious that India
must greatly increase the production capacity of fertilizers.
b. Factors afecting Fertilizer Consumption
Some of the factors afecting fertilizer consumption are:
Weather
Adequate moisture - through irrigation and assured rains
Location imbalance - Ready and timely availability of
fertilizers
Credit availability
Seasonality of fertilizers consumption
Inadequate movement facilities
Other cost economics
10
v. About Fertilizer Industries in India :
In India, the frst fertilizer plant was established at Ranipet in
Tamil Nadu in 1906, by Mis. Parry & Co., (Presently called as M/s.
EID Parry Ltd., Under Murugappa group of companies) to produce
super phosphate from acidulation of gushed bones with and
annual capacity of 6400 tonnes. FACT is India's frst large scale
fertilizer unit set up in 1943 in the private sector in Udagamandal,
Cochin in 1960. It became a public sector company in 1962 with
Government of India as its major share - holder. From a modest
beginning in 1943, FACT had expanded and diversifed into multi
dimensional corporation. The Udagamandal division has undergone
four stages of expansion between 1943 and 1972. C.F.L. and Indo -
American joint venture was set up to produce high - grade complex
fertilizers which went into commercial production in 1964 with an
installed capacity of 2.50 lakh tones of complex fertilizer.
FCI Ramangundam was set up by the Government of India in
1980 in Andhra Pradesh to manufacture 5 Lakh tones of urea on
its coal - based plant. For few year FCI could produce well and
11
several factors such as raw material problems, manpower problems,
power crisis had afected the production and presently the plant is
unable to meet the emerging requirement. IFFCO, a multi unit in
the cooperative sector and engated in the production of chemical
fertilizers was started in 1067, with the commissioning of two
Kandla and Kandal in Gujarat in 1975 the fertilizer industry
withnessed the entry of this pioneer fertilizer manufacturer in the
cooperative sector. IFFCO expanded its production facilities in 1981
by commissioning two more streams of phosphate fertilizer units at
Kandla and new urea plant at Sambalpur. To meet the growing
demand a gas based plant was commissioned in 1988 - 89 by
IFFCO at Arola (D .P) in record time with considerable saving in the
cost. Presently IFFCO has an installed capacity of producing 16.3
Lakhs tones of Nitrogenous fertilizers.
Godavari Fertilizers and Chemicals Ltd is a joint venture of
Government of Andhra Pradesh and IFF CO with holding of 26%
and 25% respectively went into commercial production in 1988 and
presently GFCL is producing around 4 Lakhs tones of DAP. As a
12
part of diversifcation, GFCL started producing and marketing it's
'Pesticides'. Nagarjuna Fertilizers and Chemicals Ltd (NFCL),
another Jewel in the Andhra Pradesh Fertilizer Industry was set up
in 1992 in private sector with an installed capacity of 5.5 Lakh
tones of urea using abundantly available natural gas from the near
by wells of Konaseema. In order to serve the farmer better, NFCL
recently started marketing "Seeds" by the brand name
"Dhanasagar".
vi. Importance of Fertilizer Sector:
In the matter of investment of fertilizer sector, it is the biggest
in the chemical industry and is next to the steel industry in the
country. Owing to the greater importance attached to the fertilizers
highest priority was accorded to the fertilizer sector in the second,
third & Fourth Five - year Plans. Since 1947, when the frst major
fertilizer plant went to production in India, the production and
consumption of fertilizer has steadily growth. The 1
st
synthetic
Nitrogen unit was established at Belgola in Mysore State in the year
1939. The capacity of the frst plant was 5- Tonnes per day of
13
Ammonium sulphate. From then, many fertilizer factories with
higher capacities have gone into production; many more are still
needed to meet our demand for fertilizers. -Now there are 42
Nitrogenous and Complex plant and 5 BSSP plant in operation in
addition to the triple super Phosphate plants.
Some of the major fertilizer making companies are:
Nagarjuna Fertilizers and Chemicals Ltd.
Paradip Phosphate Ltd.
Coromandel Fertilizers Ltd. Zuari Agro Chemicals Ltd.
Coromandel Fertilizers Ltd is a major phosphatic fertilizer
plant in either nitrogenous or potash based. This is the only
integrated fertilizer plant in the country.
vii. Fertilizer Subsidy :
The average Indian farmer is poor and is not a position to
absorb violent fuctuations in fertilizer prices. The Indian
Government's policies have always attempted to encorage
consumption of diferent types of fertilizers by the average farmer.
14
This is necessary to ensure adequate agricultural production to
feed the growing population. Left to market forces, the fertilizer
consumption is likely to be afected on account to fuctuations in
fertilizer prices. The apprehensions on account fertilizer
consumption may be on account of the following:
The Input cost increase the cost of production of fertilizers.
This may have adverse impact on the price.
International prices of inputs and fnished fertilizer products
are susceptible to wide ranging fuctuations based on demand
supply factors.
In situations of Balance 'of Payments crisis, the country may
face difculty in meeting the import bill on account of
fertilizers.
Congestion at the existing ports may also contribute of
problems due to the inability to move the material at the right
time.
New investment in the fertilizer industry may be discouraged
on account of un-remunerative returns.
15
Since any rise in prices can not be fully absorbed by the
farmers, the prices of fertilizer products have to be made afordable
to them. Direct subsidy to farmers is an administratively difculty
task. An alternative mechanism was evolved by which fertilizer
industry was provided with a compensatory mechanism. This had
given rise to a two pronged strategy of maintaining selling prices of
fertilizers at afordable level while at the same time assuring a
reasonable return on investment to the domestic fertilizer industry.
It is assumed that both production and consumption would be
encouraged as result of this approach.
Retention Pricing Scheme (RPS) was the mechanism by which
the above objectives were proposed to be achieved by subsidizing
the farmers indirectly through fertilizer producers. This approach
proved successful in increasing the production capacities in the
country as well as consumption of fertilizers by farmers. During
eighties and nineties, substantial investments had come up in
Public, Co-operative and Private sectors. In addition, India emerged
as a major producer and consumption of various types of fertilizers.
16
However, the subsidy Burden that resulted particularly in the
nineties called for fresh Policy initiatives. These had major
consequences for both the production and consumption of mineral
fertilizer in the country.
C. ROLE OF FERTILIZERS IN AGRICULTURE INDIAN
CONTEXT
Agriculture is a vital sector of Indian economy. It accounts for
32% of the country's GDP, provides employment to 65% of the work
force and earns 27% of the India's foreign exchange. Growth of
Agriculture is an indicator of the health of the overall economy. The
most important factor that contributes to the growth of agriculture
is the use of fertilizer.
The development of fertilizer industry in India has been
synonymous with rapidly growing agriculture.
About 50% of the increase in crop productivity in recent time
can be credited to the use of fertilizer.
India has diferent kinds of soils and agro-climatic regions.
17
To advise and educate farmers about the use of fertilizer and
ensure the supply of' qualitative products, a number of soil
testing laboratories have been set up.
In 1977, the government introduced a retention price scheme
for nitrogenous fertilizer, which was later extended to other
fertilizer.
In the running year is 2000, July the Indian Government has
planned to modify the existing fertilizers policy by raising
Urea prices every year through partial decontrol. This means
simultaneous reduction of subsidies to tackles the
burgeoning fscal defcit. Phosphoric and Potassium fertilizer
prices have already been decontrolled. The aim is to attain
totally free Urea prices by the year 2000 by this process.
To make adequate quantity of fertilizer available to farmers in
time, Government also gave a Freight subsidy, which covered
the movement of fertilizer to the block head quarters.
Due to ample mishandling interference's, Government gave
cup all those plans and gave permissions for decontrol of
18
Phosphatic and Potassic fertilizer from 25,h, 1992 and gave
adhoc subsidies on indigenous Phosphatic fertilizer.
At present there are 63 large size fertilizer units in the
country, manufacturing a wide range of nitrogenous and
phosphatic fertilizer. Out of these, 38 units produce. Urea
where as 9 produce Ammonium Sulphate as a by-product.
Besides, there are about 79 small and medium scale units
producing single Super phosphate. The total installed
capacity of the fertilizer production in the country which was
10.45 million tonnes of nitrogenous and 2.905 million tonnes
of phosphate as on November 31
st
, 1998 has risen to 10.5
million tonnes of Nitrogen and 3.1 million tonnes of
Phosphate as November 31
st
, 1998.
19
CHAPTER II
THE PRESENT STUDY
A. COROMANDEL FERTILIZERS LTD. - A PROFILE :
Once a small village, Visakhapatnam has attained
international importance because of its surrounding abundant
natural resources & thanks to the vision of industrial experts. The
chola dynasty once ruled the east coast of the Indian Peninsula
during 9tll to 13tl century. Since then the historians called the east
coast as 'Cholamandalam Coast'. In due course, this coast has
attained its name as 'Cholamandalam Cost' or Coromandel Coast'
and hence the fertilizer plant located at Visakha was christened as
COROMANDEL FERTILIZERS Ltd.
CFL, Visakhapatnam is a private sector company jointly
promoted by M/s. International & Chemicals Corporation USA and
Madras based Murugappa Group. The company was incorporated
in 1964 with a capital investment of Rs.50 crores.
The plant is situated in a 500 acres site at Visakha, about 5
kms from the Harbour. The site is fased from Visakha Port Trust for
20
50 years to with renewal options. The major productions of tire
Company are complex fertilizers market in the brand name
'Gramor'.
It is an integrated fertilizer complex where all the intermediate
products required are manufactured there itself.
i. CFL and its Logo
Coromandel emblem depicts the farmer with a branch of
seven leaves on one hand for who the company strices to serve,
providing him the fertilizers to ensure that his crops grow better
and more abundantly.
The registered trademark "GROMOR" is a catchword depicting
the company's intention to grow more food. The Coromandel farmer
appears on all the packages of the products 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 share holding by M/s EID Parry (India)
Ltd., CFL, formed a part in the Murugappa Group of companies
whose logo is "PEACOCK". Murugappa Group has varied business
21
branches both nationally and internationally starting from a
chocolate, cycle inflling unit to big machinery manufacture. Out of
the 12 companies, Muruguappa Group is holding CFL claims frst
in revenue earnings and hence it has been rightly placed the
plumage of the peacock symbol.
ii. Corporate Vision
To be one of the leaders in the fertilizer industry with an all
India presence through
High quality products and Brand Image
Modern cost efective and energy efcient manufacturing
facility
Sustained growth in proftability;
High level of satisfaction to all shareholders
iii. Objectives of the Company:
Adhere to ethical norms in all dealing with shareholders,
employee customers, supplies fnancial institutions and
Government.
22
1. Provide value for money to customers through quality
products and services.
2. Treat our people with respect and concern; Provide
opportunities to learn, contribute and advance recognize and
reward initiative, innovativeness and creativity.
3. Manage environment efectively for harnessing opportunities.
4. Discharge responsibilities to various sections of society and
preserve environment.
5. Grow in an accelerated manner consistent with values and
beliefs by continuous organizational renewals
iv. Financial Assistance :
Export - Import bank of Washington USA
Industrial Development Bank of India (IDBI)
The capital was contributed in cash by the time promoter
compames & they receive non - cash shares issued towards
compensation of technical knowledge. The rest of the share capital
23
was contributed by the General Public & Financial Institutions like
ICICI, APIDC, IFCI, UTI & PNB etc.
v. CFL Plant Capacities :
Ammonium 1,05,000 MT/YR
Urea 74,000 MT/YR
Sulphuric acid 3,65,450 MT/YR
Phosphoric acid 1,13,059 MT/YR
Complex (28:28:0) 4,00,000 MT/YR
vi. Production :
Produce line gromor brand
14.35.14 (N P K Complex)
28.28-0 (Urea ammonium phosphate)
20.20.0.15 (Ammonium phosphate sulphate)
10.26.26 (N P K Fertilizer complex)
Gromor 14-35-14
Contains nitrogen, phosphate and potash.
Highest total nutrient content (63%)
24
N&P ratio same as DAP as 14-36-14 has extra 14% potash.
Very high in phosphate (34%)
Best for cotton, groundnut, chilly, soybean, potato etc.
Not suitable for tobacco and grapes.
Gromor 28-28-0
The complex Fertilizers with highest N&P in 1:1 ratio.
Unique granulation by coating prilled urea with ammonium
phosphate layer.
Such granule confguration ensures efcient utilizationof
nutrients.
Highly suitable for paddy, wheat.
Does not contain any fller. It contains 100% nutrients
containing nutrients.
Gromor 20-20-0-15
Ammonium phosphate sulphate with N&P in 1:1 ratio.
Its special feature is 15% sulphur, which not available in most
other Fertilizers.
25
It contains 20% nitrogen (N), 20% phosphorus (P), and 15%
sulphur.
The response to the sulphur has been very encouraging in
many crops particularly oil seeds and pulses in sulphur
defcient_soil.
Gromor 10-26-26
A high analysis complex fertilizer containing all the three
major nutrients N,P,K, was launched by CFL in march 2003
Contains phosphate and potash in the ratio of 1:1
Unique features:
1. 7% nitrogen available in ammonical form.
2. 22% phosphate available in water-soluble form.
Ideal for crops requiring high phosphate and potassium and low
nitrogen, and is
1. A very popular grade in west Bengal for potato and paddy.
2. The farmers choice in maharastra for sugarcane and banana
crops.
3. Extensively used in sugarcane belt of Karnataka state.
26
vii. Market Share :
Andhra Pradesh - 64%
Orissa - 17%
West Bengal - 11%
Madhya pradesh - 02%
Chandigarh - 04%
Others - 02%
viii.Role of CFL in Indian Agriculture:
From the very beginning Coromandel proved to be a boon to
the Indian Farmers. It brought to India the world - class production
facilities with a new generation of fertilizers products. Coromandel's
vision had started playing a vital role in the resurgence of Indian
agriculture.
Coromandel introduced a branded product Gromor that is
high analysis complex fertilizer. It is the frst in the world to
produce high analysis NP complex fertilizers in the highest 1:1
ratio. This was implemented when most of the fertilizers products
available in India were not balanced in nutrient contents.
Gromor in a short of time established itself as a popular
brand where an entire generation of farmers has grown up with it
in a number of states using it with wide variety of crops.
27
Gromor 28:28:0 is one of the best of its kind in the world. It
has a unique granule confguration where is a urea prill at the
center is coated with ammonia phosphate, which ensured nitrogen
availability to the crop over a longer duration of times.
ix. CFL Its role in the society :
In marketing the environment cleaner, concern for the
environment has been an ongoing continuous process where
regular monitoring is carried out.
It aims at providing a pollution free atmosphere for its
employees and the neighborhood.
It has switched over to DCDA process, which redness the
emission levels of Sulphur dioxide drastically. There by meeting the
specifed levels set by pollution control board.
It has achieved the recovery of rock dust by installing flters.
Extensive forestation programs have been undertaken at various
place in the plant premises and fertilizers berths with over 50,000
trees planted in an area covering about 18.5 hectares.
28
It has installed a fuorine recovery plant at a cost of Rs. 3
crores, to minimize fuorine levels and to convert fuorience efuent
into Hydrofourine acid, which is a value addition.
x. CFL Its Credentials :
CFL is the frst company to -
Take up proactive measures at farmers level by adopting over
500
0
villages in A.P. and Orissa.
Take up free soil testing activities and successful village
adoption programs and ofers free agricultural advice to
farmers.
Participating in state Government farmer education
programs.
xi. Historical Developments :
LANDMARKS IN INDIAN FERTILIZER INDUSTRY
Year Landmarks
1906 Fertilizers production Started
1943 Grow More Food Campaign launched in the wake of
great famine in Bengal.
29
1944 Central Fertilizer Pool created.
1947 Independent India's emphasis on improving domestic
production of fertilizer.
1957 Fertilizer Control Order Enactment under Essential
Commodities Act (ECA) 1955.
In 1964 Govt. of India appointed Sivaraman Committee to
examine problems in fertilizer distribution.
1966 Inclusion of Private Trade in Marketing of fertilizers.
1971-72 The Govt. of India brought contr01 on distribution of
fertilizer in view of shortage after oil crisis.
1973 Fertilizer Movement Control Order enacted.
1977 Retention Price and Subsidy Scheme was introduced.
1w 1980-81 Block Delivery Scheme introduced.
1961 Calcium Ammonium Nitrate NFL, Nangal (Punjab)
1965 Nitro phosphate RCFL Bombay
1967 Diammonium Phosphate GSFC Ltc., Baroda (Gujarat)
1968 Triple super phosphate DMCC, Ambemath
30
(Maharashtra)
1968 Urea Ammonium Phosphate CFL, Vizag (AP)
1968 Nitro Phosphate with Potash RCFL, Bombay
(Maharasthra)
xii. CFL Awards :
The Coromandel Company continues to receive
awards/applauds from the industry associations. During this year
the company received the following awards.
1. FAI's best overall performance of an operating phosphoric
acid plant for the year 2001-2002. The company received this
award for the 6 times in the last 8 years.
2. "National Award for excellence in energy management" from
the confederation of Indian Industry (CII) for the 3
rd
consecutive year.
B. NEED FOR THE STUDY :
Management of liquidity means the problem of decision
making regarding investment in current assets with an objective of
31
maintaining the liquidity of funds of the frm to meet the day-to-day
business transactions.
Liquidity Management generally encompasses the
management of deciding optimal level of investment in current
assets.
Management of deciding the optimal mix of current and
fxed assets.
Management of short term and long term sources for
working capital. The Management of working capital has
been studied under the
Management of cash balance.
Management of accounts receivables
Management of inventory
The study of liquidity Management is incomplete unless we
have an overall look on the management of current liabilities.
Deterring the appropriate level of current assets and current
liabilities, the level of working capital involves fundamental
32
decisions regarding frm liquidity and the composition of frms
debts.
C. OBJECTIVES OF THE STUDY :
The following are the objectives set
for the present study :
1. To enquire into the profle of the organisation ;
2. To evaluate the working capital infuence on income of CFL ;
3. To assess the liquidity position with reference to various
Current Assets of the organisation by using Ratio Analysis
approach; and
4. To draw meaningful conclusions and to make appropriate
suggestions to improve the liquidity position of organisation.
D. METHODOLOGY :
Primary data :
Primary data are those that are collected specifcally for the
research situation at hand. Primary sources usually provide more
detailed information than the secondary sources. This is partly
33
because methods of data collection and the tools used can be
tailored more precisely to the information need of the researcher.
This also contributes to the fexibility of analysis for the research
purpose at hand. The user in case of primary data can judge the
degree of confdence that he may place on the data because he has
an asccurate idea of the to9ols and methodology used and their
limitations.
Secondary Data :
Secondary data are already published data collected for
purposes other than t he specifc research needs at hand. On the
basis of location of sources, secondary data may again be classifed
a internal or external data. The data originating within or available
within the organization as a byproduct of the MIS or the routine
reporting system is called internal data of any given marketing
research problem, initial data collected for purposes other than the
specifc problem could be termed internal secondary data.
34
The data collected through internet, annual reports and
through various books serves as a secondary data to do this
project.
E. CHAPTERIZATION :
Chapter I : Introduction
Chapter II : The Present Study
Chapter III : Liquidity Management Theoretical Study
Chapter IV : Liquidity Management in CFL
Chapter V : Summary and Suggestions
F. LIMITATIONS OF THE STUDY:
The time is limited to a period of eight weeks for the research
study, which was not sufcient to collect more details about
the company in fnancial area.
The study is mostly be relied upon the data, which was
available in the company records, and information provided
35
by the company and its ofcials and hence may be subjected
to their bias.
Most of the information has been kept confdential and as
such is not passed as part of policy of company.
The data was collected for 5 years from 2002 to 2006. Year
2002 was chosen as starting point because during the period
2003-04, the companies Farm Inputs Division, M/s EID parry
India the were merged with CFL and it took the acquisition of
Godavari Fertilizers Limited.
36
CHAPTER III
LIQUIDITY MANAGEMENT
THEORETICAL FRAMEWORK
The term liquidity commonly used for the capital required for
day-to-day operations of the business. Such as meeting day-to-day
expenditure, salaries, wages, rents, rates, advertising etc.
Generally the liquidity (working capital) has two aspects Gross
Working Capital concept and Net Working Capital concept.
The term gross working capital, also referred to as working
capital, means the total current assets.
The term net working capital can be defned in two ways. (i)
the most common defnition of net working capital (NWC) is the
diference between current assets and current liabilities; and (ii)
alternate defnition of NWC is that portion of current assets which
is fnanced with long-term funds.
The task of the fnancial manager in managing working
capital efciently is to ensure sufcient liquidity in the operations
of the enterprise. The liquidity of a business frm is measured by its
ability to satisfy short-term obligations as they become due. The
37
three basic measures of a frms overall liquidity are (i) the current
ratio, (ii) the acid-test ratio, and (iii) the net working capital. The
suitability of the frst two measures has already been discussed in
detail in chapter 4. In brief, they are very useful in interfrm
comparisons of liquidity. Net working capital (NWC), as a measure
of liquidity, is not very useful for comparing the performance of
diferent frms, but it is quite useful for internal control. The NWC
helps in comparing the liquidity of the same frm over time. For
purpose of working capital management, therefore, NWC can be
said to measure the liquidity of the frm. In other words, the goal of
working capital management is to manage the current assets and
liabilities in such a way that an acceptable level of NWC is
maintained.
NWC can alternatively defned as that part of the current
assets which are fnanced with long-term funds. Since current
liabilities represent sources of short-term funds, as long as current
assets exceed the current liabilities, the excess must be fnanced
with long-term funds.
38
A. NEED FOR CURRENT ASSETS :
The need for working capital (gross) or current assets cannot
be overemphasized. Given the objective of fnancial decision making
to maximize the shareholders, wealth, it is necessary to generate
sufcient profts. The extent to which profts can be earned will
naturally depend, among other things, upon the magnitude of the
sales. A successful sales programme is, in other words, necessary
for earning profts by any business enterprise. However, sales do
not convert into cash instantly; there is invariably a time-lag
between the sale of goods and the receipt of cash. There is,
therefore, a need for working capital in the form of current assets to
deal with the problem arising out of the lack of immediate
realization of cash against goods solid. Therefore, sufcient working
capital is necessary to sustain sales activity. Technically, sufcient
working capital is necessary to sustain sales activity. Technical,
this is referred to as the operating or cash cycle. The operating
cycle can be said to be at the heart of the need for working capital.
The continuing fow from cash to suppliers, to inventory, to
39
accounts receivable and back into cash is what is called the
operating cycle. In other words, the term cash cycle refers to the
length of time necessary to complete the following cycle of events.
1. Conversion of cash into inventory.
2. Conversion of inventory into receivables
3. Conversion of receivables into cash.
The operating cycle, which is a continuous process, is shown in
Figure.
The operating cycle consists of three phases. In phase-I, cash
gets converted into inventory. This includes purchase of raw
materials, conversion of raw materials into work-in-progress,
fnished goods and fnally the transfer of goods to stock at the end
Phase 2
Phase 1
Phase 3
Inventory
Receivables
CASH
40
of the manufacturing process. In the case of trading organizations,
this phase is shorter as there would be no manufacturing activity
and cash is directly converted into inventory. The phase is, of
course, totally absent in the case of service organizations.
In Phase-II of the cycle, the inventory is converted into
receivables as credit sales are made to customers. Firms which do
not sell on credit obviously not have phase-II of the operating cycle.
The last Phase-III, represents the stage when receivables are
collected. This phase completes the operating cycle. Thus, the frm
has moved from cash to inventory, to receivables and to cash again.
B. CASH MANAGEMENT:
Cash management is one of the key areas of working capital
management. Apart from the fact that it is the most liquid current
asset, cash is the common denominator to which all current assets
can be reduced because the other major liquid assets that is,
receivables and inventory get eventually converted into cash. This
underlines the signifcance of cash management.
41
i. Motives for holding Cash :
The term 'cash' with reference to cash management is used in
two senses. In a narrow sense, it is used broadly to cover currency
and generally accepted equivalents of cash, such as cheques, drafts
and demand deposits in banks. The broad view of cash also
includes near-cash assets, such as marketable securities and time
deposits in banks. The main characteristics' of these is that they
can be readily sold and converted into cash. They serve as a reserve
pool of liquidity that provides cash quickly when needed. They also
provide a short-term investment outlet for excess cash and are also
useful for meeting planned outfow of funds. Here the term cash
management is employed in the broader sense. Irrespective of the
form in which, it is held, a distinguishing feature of cash, as an
asset, is that it has no earning power. If cash does not earn any
return, why is it held? There are four primary motives for
maintaining cash balances: (i) Transaction motive; (ii)
Precautionary motive; (iii) Speculative motive; and (iv)
Compensating motive.
42
Transaction Motive :
Is a motive for holding cash/ near cash to meet routine cash
requirements to fnance transaction in the normal cause of
business.
Precautionary motive :
Is a motive for holding cash/near cash as a cushion to meet
unexpected contingencies/demand for cash.
Speculative motive :
Is a motive for holding cash / near cash to quickly take
advantage of opportunities typically outside the normal course of
business.
Compensating motive :
Is a motive for holding cash / near cash to compensate banks
for providing certain services or loans.
ii. Objectives of Cash Management :
The basic objectives of cash management are two-fold: (a) to
meet the cash disbursement needs payment schedule; and (b) to
minimise funds committed to cash balances. These are conficting
and mutually contradictory and the task of cash management is to
reconcile them.
43
The importance of sufcient cash to meet the payment
schedule can hardly be over emphasized. The advantages of
adequate cash are: it prevents insolvency or bankruptcy arising out
of the inability of a frm to meet its obligations; the relationship
with the bank is not strained; it helps in fostering good relations
with trade creditors and suppliers of raw materials, as prompt
payment may help their own cash management; a cash discount
can be availed of if payment is made within the due date
Minimising Funds Committed to Cash Balances
The second objective of cash management is to minimise cash
balances. In minimising the cash balances, two conficting aspects
have to be reconciled. The aim of cash management, therefore,
should be to have an optimal amount of cash balances.
iii. Cash Management in CFL
In CFL, cash requirement is planned and arrived at in the
following manner.
1. Incoming budget information received from various
departments/cost centres, after being vetted by the HOD will
be directed to the budget section to formulate a master budget
44
for the particular year and the yearly/monthly budget
allocation is done for each section/cost centre.
2. Upon completion, the Managing Director places the fnal
budget to the Board of Directors for their approval. Upon
approval from the Board with changes if any, the same will
then be circulated to all departments for their adherence.
3. At the end of each month, the actual performance versus the
projected budget is put-up in detail, to all the members of the
Board.
4. The Cash budget is prepared based on the approved budget.
The budget for raw material purchases and stores purchases
are arrived at based on the opening and closing inventory on
monthly basis and cash outfow for raw material and stores
purchase is arrived at.
5. The expenditure budget is arrived month wise to know the
cash outfow for the expenditure. The interest and principal
repayment on monthly / quarterly basis is arrived at for the
purpose of arriving at the cash budget.
45
The receipts from the Customers are arrived on the basis of
sales and the credit period allowed to the customer.
Finally all the receipts and payments are consolidated to
arrive at the fnal cash budget.
iv. Sources of Funds in CFL:
a. Against Sales:
The main sources of funds to the Company are receipts from
the Marketers, Agri-Institutions and Government Subsidy. Since
CFL is not into Direct Marketing and more than 80% of its sales are
through its Marketer viz., EID Parry India Ltd, the main and bulk
infow is from EIP Parry only. The other bulk infow is from he
Government in the form of Subsidy income against the Company's
Sales. Apart from these, there would be irregular scanty infows
against sales made to the Agri Institutions.
b. From Banks :
Since Fertilizer industry is a seasonal industry and
dependent on monsoon, sales would virtually pickup, only upon on
set of monsoon, hence the cash fows are not even throughout the
46
year. Therefore, the Company in order to mitigate the shortfall opts
to borrow other forms of Working Capital as FCNR-B, Commercial
Paper, Buyer's Credit and WCDL.
The company not only to overcome the shortfall in the cash
fows, but also to replace the high cost borrowing with that of the
low cost one is undertaking these kinds of alternative arrangement.
As mentioned, the sources of funds are from the marketers
and the Government. As regards the marketers, the funds are being
sent either through TT from SBI Chennai to the credit of our CC
account with SBI-IFB Hyd, are through HDFC Bank Account
Transfer. With SBI, the Company has a tie-up from transfer of
funds at a concessional rate irrespective of the size of amount
transfer. With HDFC Bank also the Company has a similar tie up
and the funds get credited on the same day on which the transfer is
efected.
With regard to subsidy, the funds are received from the FICC,
New Delhi. As stipulated by the Government, the company has an
account with State Bank of Patiala, New Delhi, into which the
subsidy amount is being credited. As per the standing instructions
47
of the Company with State Bank of Patiala, the funds are
automatically transferred to SBI-IFB Hyderabad to the credit of the
Company Account.
Besides, the Company has tie up with Citi Bank for collection
of their sales proceeds through Cash Management Service (CMS) at
Bhopal, Bhubeneswar, Raipur and Calcutta. Despite the sales
receipts from this route are very irregular' and of small quantum
the Company has availing this facility at a very competitive rate.
C. RECEIVABLES MANAGEMENT :
The term receivables is defned as debt owed to the frm by
customers arising from sale of goods or services in the ordinary
course of business. When a frm makes an ordinary sale of goods or
services and does not receive payments, the frm grants trade credit
and creates accounts receivable which could be collected in the
future. Receivables, management is also called trade credit
management. Thus accounts receivables represent an extension of
credit to customers, allowing them a reasonable period of time in
which to pay for the goods received.
The objective of receivables management is to promote sales
and profts until that point is reached where the return of
48
investment in further funding receivables is less than the cost of
funds raised to fnance that additional credit (i.e. cost of capital).
CREDIT POLICY OF CFL:
With regard to Credit Policy of CFL, as it is not in the direct
marketing in a big way, the company has an agreement with its
marketer ie., EID Parry (I) Ltd for selling their products. As agreed
upon the credit period is 30 days from the date of sale of the last
day of the week. The agreement will also specify the due dates for
every month for the next 12 months for the sales efected in the
preceding month.
In case of any advance payment, there is an agreed rate on
which interest has to be paid by CFL to EID Parry(l) for the number
of days payment has been received in advance than against the due
date. Similarly for delayed payment also CFL received interest on
the agreed rate from its marketer. This apart the credit period
sometimes gets extended after mutually concurring upon, to
promote CFL's products during heavy competition and bad season
as happened in the current year.
D. INVENTORY MANAGEMENT :
49
Inventory, as a current assets, difers from other current
assets because only fnancial managers are not involved. Rather, all
the functional areas, fnance, marketing, production and
purchasing, are involved. The views concerning the appropriate
level of inventory would difer among the diferent functional areas.
The job of the fnancial manager is to reconcile the conficting the
viewpoints of the various functional areas regarding the
appropriate inventory levels in order to fulfll the overall objective of
maximising the owners wealth. Thus inventory management, like
the management of other current assets, should be related to the
overall objective of the frm.
Efcient management of inventory should ultimately result in
the maximization of the owners wealth. (i) to minimize investment
in inventory. (ii) to meet a demand for the product by efciently
organizing the production and sales operations. These two
conficting objectives of inventory. That the frm should minimize
investment in inventory implies that maintaining inventory involves
50
costs, such that the smaller the inventory, the lower is the cost to
the frm.
The basic function of inventories is to act as a bufer to
decouple or uncouple the various activities of a frm to so that all
do not have to be pursued at exactly the same rate. The key
activities are (1) purchasing, (2) production and (3) selling.
Inventories enable frms in the short run to produce at a rate
greater than purchase of raw materials and vice-versa, or to sell at
a rate greater than production and vice-versa.
OPERATING CYCLE :
The operating cycle may be defned as the time duration
starting from the procurement of raw materials and ending with
the sales realization. The length and nature of the operating cycle
may difer from one frm to another depending upon the size and
nature of the frm. In a trading concern, there is a series of
activities starting from procurement of goods (saleable goods) and
ending with the realization of sales revenue (at the time of sale itself
in case of cash sales and at the time of debtors realization in case
51
of credit sales). Similarly in the manufacturing concern, this series
starts from procurement of raw materials and ending with the sales
realization of fnished goods (after going through the diferent
stages of production). In both the cases, however there is a time gap
between the happening of the frst event and the happening of the
last event. This time gap is called the operating cycle.
Operating cycle is the time duration required to convert sales,
after the conversion of resources into inventories into cash. The
operating cycle of a manufacturing company involves three phases.
1. Acquisition of resources, such as raw material, labour, power,
fuel etc.
2. Manufactured of the product which includes conversion of
raw material into work-in-process into fnished goods.
3. Sales of the product either for cash or a credit. Credit sale
creates book debts for collection.
The operating cycle begins with the acquisition of raw
materials and ends with the collection of the receivables. It may be
broadly classifed into the following four groups.
52
1. Raw material conversion period (RMCP)
2. Work in process conversion period (WIPCP)
3. Finished goods conversion period (FGCP)
4. Book debts (or) receivables conversion period (BDCP)
The length of operating cycle of manufacturing frm is the seem
of:
1. Inventory conversion period
2. Book debts (or) receivables conversion period (BDCP)
The total of inventory conversion period and book debt
conversion period referred to as gross operating cycle (GOC).
The duration of the cycle for the purpose of estimating the
working capital requirement is equivalent to the sum of the
duration of each of the stages less the credit period allowed by the
suppliers of the frm i.e., payables deferral period (PDP).
The diference between GOC and PDP is net operating cycle
(NOP).
Operating cycle = ICP+ BDCP
53
ICP = RMCP + WIPCP + FGCP
Operating cycle = RMCP + WIPCP + FGCP + BDCP PDP
Each of the components of the operating cycle can be
calculated as follows.
1. Raw material conversion period = average stock of materials
and stores /average raw material and stores consumption per
day.
2. Finished goods conversion period = average fnished stock
inventory / average cost of goods sold per day.
3. Book debts conversion period = average book debts / average
credit sale per day.
4. Payable deferral period = average trade creditors / average
credit purchases per day.
After computing the period of the operating cycle, the total
number of operating cycle that can be completed during a year can
be computed up dividing 365 days with the number of operating
days in the cycle. The total operating expenditure in a year when
54
divided by the number of operating cycles in a year will give average
amount of working capital requirements.
55
CHAPTER IV
LIQUIDITY MANAGEMENT IN CFL
The importance of adequate liquidity in the sense of the
ability of f rim to meet current/short-term obligations when they
become due for payment can hardly be overstressed. In fact,
liquidity is a prerequisite for the very survival of a frm. The short-
term creditors of the frm are interested in the short-term solvency
or liquidity of a frm. But liquidity implies, from the view point of
utilization of the funds of the frm, that funds are idle or they earn
very little. A proper balance between the two contradictory
requirements, that is, liquidity and proftability, is required for
efcient fnancial management. The liquidity ratios measure the
ability of a frm to meet its short-term obligations and refect the
short term fnancial strength solvency of a frm. The ratios which
indicate the liquidity of a frm are : (i) net working capital, (ii)
current ratios, (iii) acid test/quick ratios, (iv) super quick ratios,
(v) turnover ratios, (vi) defensive-interval ratios and (vii) cash fow
from operations ratio.
56
57
A. CURRENT RATIO :
The Current ratio generally measures frms short-term
solvency. It indicates the availability of current assets in rupees for
every one rupee of current liability. If that ratio is more than one
then it means that the frm has more current assets then current
claims against them. Every frm has to maintain ideal current ratio
of 2:1.
Current Assets
Current Ratio = ----------------------------
Current Liabilities
Table 5.1 : Current Assets & Current Liabilities for the years
2002-2006
Year Current Assets Current Liabilities Current Ratio
2002 18681.93 10058.66 1.86
2003 26031.87 10414.55 2.49
2004 36103.21 28580.61 1.26
2005 32393.78 31652.24 1.02
2006 52638.86 55590.46 0.94
Source : Annual Reports of CFL for the year 2002 2006
58
1.86
2.49
1.26
1.02
0.94
0
0.5
1
1.5
2
2.5
R
a
t
i
o

i
n

t
i
m
e
s
2002 2003 2004 2005 2006
Years
Current Ratio
The ideal current ratio for the organization is 2:1. The C.F.L
current ratio is fuctuating every year. The ratio is maximum in
year 2003 but thereafter it has been decreased. This is due to the
fact that Current Liabilities have been on rise.
59
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.
Quick Assets
Quick Ratio = --------------------------
Current liabilities
Table 5.2 : Quick Assets & Current Liabilities for the years ended
20022006
Year Quick Assets Current Liabilities Quick Ratio
2002 8498.48 10058.66 0.84
2003 13548.53 10414.55 1.30
2004 34134.21 28580.61 1.19
2005 13283.89 31652.21 0.41
2006 13108.09 55590.46 0.23
Source : Annual Reports of CFL for the year 2002 2006
60
0.84
1.3
1.19
0.41
0.23
0
0.2
0.4
0.6
0.8
1
1.2
1.4
R
a
t
i
o

i
n

T
i
m
e
s
2002 2003 2004 2005 2006
Years
Quick Ratio
From the table 5.2, it is understood that the ideal quick ratio
for the organization is 1:1. The C.F.Ls quick ratio is also
fuctuating every year. Quick Ratio is maximum in year 2003 and
decreased in the year 2004, even though it is reasonable. But from
the year 2005 onwards, it is on decline, thanks to sudden jump in
current liabilities.
61
C. WORKING CAPITAL TURNOVER
RATIO :
This ratio indicates whether or not working capital has been
efectively utilized in making sales. In case a company can achieve
types volume of sales with relatively small amount of working
capital it is an indication of the operating efciency of the company.
Sales
Working capital turn over ratio = ------------------------
Net working capital
Table 5.3 : Sales and Net Working Capital for the years end
2002 2006
Year Sales Working Capital Ratio
2002 65060.17 14693.10 4.43
2003 57624.51 222673.69 2.53
2004 121156.93 27522.6 4.40
2005 152507.59 2774.54 5.49
2006 184690.64 29951.6 6.16
Source : Annual Reports of CFL for the year 2002 2006
62
4.43
2.53
4.4
5.49
6.16
0
1
2
3
4
5
6
7
R
a
t
i
o
2002 2003 2004 2005 2006
Years
Working Caita! Turn "#er Ratio
This ratio is lowest in the year 2003 but otherwise it is
increase every year. This ratio is very high in the years 2005 and
2006. This is due to the fact that steep increase in sales and deep
in Working Capital. Working capital decreases due to increase of
current assets.
63
D. INVENTORY TURNOVER RATIO (I.T.R) :
Inventory Turnover ratio is also known as stock velocity is
normally calculated as Sales/average inventory or cost of goods
sold/average inventory. It would indicate whether inventory been
efciently used or not. The purpose is to see whether only the
required minimum funds have been locked up in inventory.
Inventory Turnover Ratio (I.T.R.) indicates the number of time the
stock has been turned over during the period and evaluates the
efciency with which a frm is able to manager its inventory.
Cost of Goods Sold
Inventory Turnover ratio = ------------------------
Average Inventory at cost
Table 5.4 : Cost of Goods Sold and Average Inventory for the year
ended 2002 2006
Year Cost of
GoodsSold
Average Inventory Ratio
2002 51,171 18,681 2.55
2003 51,840 26,031 1.77
2004 109,046 36,103 2.65
2005 140,747 32,393 3.31
2006 169,825 29,320 5.80
Source : Annual Reports of CFL for the year 2002 2006
64
2.55
1.77
2.65
3.31
5.8
0
1
2
3
4
5
6
R
a
t
i
o
2002 2003 2004 2005 2006
Years
$n#entor% Turno#er Ratio
Inventory Turnover Ratio measures the velocity of converns of
stock into sales. The analysis of I.T.R. of CFL it is under stood that
I.T.R. is being increase years after year except in the year 2003.
This increase I.T.R. indicates the position signal of efcient
management inventory because more frequently the stocks are
sold, the lesser amount of money is required to fnance the
inventory.
65
E. CURRENT ASSETS TURNOVER
RATIO :
The current assets turnover ratio is calculated by the cost of
goods sold by average current assets.
Net Sales
Current Assets Turnover Ratio = ------------------------
Current Assets
Table 5.5 : Net Sales and Current Assets for the year ended
2002 2006
Year Net Sales Current Assets Ratio
2002 47,752 18,681 2.55
2003 46,316 26,031 1.77
2004 95,779 36,103 2.65
2005 107,504 32,393 3.31
2006 121,216 52,638 2.30
Source : Annual Reports of CFL for the year 2002 2006
66
2.55
1.77
2.65
3.31
2.3
0
0.5
1
1.5
2
2.5
3
3.5
R
a
t
i
o
2002 2003 2004 2005 2006
Years
Current &ssets Turno#er Ratio
The current assets turnover ratio is the ratio of net sales to
current assets. The higher the ratio the lower is the investment in
current assets and higher would be proftability. The current
assets turnover ratio is higher in the year 2005. But again this
ratio decreased in 2006 due to steep increase of current assets.
67
CHAPTER V
SUMMARY AND SUGGESTIONS
A. SUMMARY :
Fertilizers are of immense value of mankind. They help the
growth of agriculture produce. India is primarily an agricultural or
an agro-based country.
Fertilizers may be defned as any material, organic or
inorganic material or natural or synthetic which supplies one or
more of the chemicals req2uired for plant growth. Fertilizers are
basically of two types. One organic and the other is chemical.
The humble beginning of the Indian Fertilizer industry would
be traced to 1906, when EID parry Limited entered the scene of the
frst Fertilizers factory in India at Ranipet, Tamilnadu.
Coromandel Fertilizers Limited was established in the year
1964 at Visakhapatnam near Sriharipuram. It is a Private sector
company jointly promoted by M/s International Minerals and
Chemicals Corporations. U.S.A and Madras based Murugappa
Group. The company started with an initial capital investment of
Rs.50 Crores. The fnancial assistance to the company was
68
provided by EXIM Bank of Washington, U.S and Industrial
Development Ban of India (IDBI). The plant started its production
from December 1967.
The plant is situated in an area of 500 acres at a distance of 5
km. from the harbour. The site is leased from Visakhapatnam Port
Trust for 50 years with renewal options.
The study conducted gives an insight into the fnancial health
of COROMANDEL FERTILIZERS LIMITED. The company over the
fve years period (2002-2006) has been performing well in terms of
liquidity, proftability and activity. This is interpreted from the
study of the various ratios. Basing on the analysis of Financial
Statements of CFL it could be concluded that the overall position is
satisfactory.
There is inclination and declination in Liquidity Ratios.
However the performance of the company has been satisfactory and
is able to meet their short term obligations.
The company is also been to enhance the capacity and
operating efciency of the various processes plants which have
performed reasonably well despite their age, due to timely
69
replacement of crucial equipment. The improved performance of
CFL is due to the constant development work in the areas of
production, in plant modifcation, maintenance and above all the
Human Resource Training.
B. SUGGESTIONS :
It is found that the expenditure on major assets is showing
increasing trend. It is therefore suggested to introduce cost
control system and it is possible by purchasing bulk material
from suppliers.
Since the company as a very good brand name, and it has
wide infrastructure in importing raw materials, it should
encash these strengths in doing more trading activities.
The overall performance of the company is good. The
company should maintain this level to stand in competition
by efcient liquidity management practices.
The company needs to improve current ratio of the frm in
order to acquire the standard norms of current ratio of 2:1.
The company needs to reduce the cost of production by
reducing carrying costs and other cost associated with
inventory.
70
Since the ratio between sales and cash is decreased in the
latest year of the study, more attention to be paid in cash
management.
71
BIBLIOGRAPHY
Financial Management
- I.M. Pandy
Financial Management
- Khan & Jain
Financial Management
- V.K. Bhalla
Financial Management
- Shashi. K. Gupta, R.K. Gupta
Coromandel Fertilizers Limited
Annual Reports from 2002 2006
Websites:
www.clf.murugappa.com
72