CERTIFICATE

This is to certify that Ms. Anisha Khan, student of Masters of Business

Administration, have successfully completed the Report project on the topic
Working Capital Management.
This report has been submitted in fulfillment of the
requirements for the award of the degree of Masters of Business Administration
(MBA) from Devi Ahilya Vishwa Vidhyalaya, Indore.
To the best of my knowledge and belief this work
has not been submitted by them anywhere else for the award of any degree or
diploma without proper citation.

----------------

Prof. Vikas Pathak

(H.O.D.)

(MBA Department)

Grasim Industries Ltd.

SIMS, Indore

ACKNOWLEDGEMENT
Gratitude is the hardest of emotions to express and often does not find adequate
words to convey all that what we feel. I owe gratitude to several people who
helped me in my course of project.
I would like to thank Dr. Naresh Singh, who gave me this opportunity to
undergo the training at Grasim Industries Ltd and also thankful and obliged to
Prof. Vikas Pathak, Who allotted us this project and helped completing it by
providing their help wherever needed. I am also highly thankful to Prof. V.S.
Gualti who helped me a lot to understanding the whole concept and working of
Working Capital Management. I shall be grateful to them because of all the
encouragement and support they gave us for completing this project
successfully
My heartiest thanks are due to for providing all facilities during the project. I
express my heart felt thanks to Mr.KUNDAN LODHA (Asst Vice PresidentF&A) for granting me permission to do my training in finance dept. I am also
grateful to my project guide Mr. M.P AGRAWAL (Dy. General ManagerTaxation & Insurance) for his generous guidance and full co-operation to me
despite of his hectic schedule.
I would like to thank Sanghvi Institute of Management and Science, Indore
for allowing us to do the marketing research by giving us an opportunity to
work in an external organization.
Anisha Khan

EXECUTIVE SUMMARY
Books are the treasure of knowledge and a theoretical base is pivotal for
understanding the realities of practical field. But, at the same time, practical
knowledge is crucial for having an insight into the implementation of theory in
corporate world.
With the privilege of an opportunity provided to me by Grasim Industries, for
the fulfillment of my purpose bridging the gap between theory and practical, I
undertook summer training at finance dept. of Staple Fibre Division of Grasim
Industries Limited, Nagda. During this training, I conducted a study of project
about WORKING CAPITAL MANAGEMENT.
Under the project Working capital management, first of all annual reports of
two years was provided to me to analyze it and so that I could get acquainted
with the terms relating to the staple fibre business, financial condition depicted
by balance sheet, cost sheet and profit and loss account of the co., figure
relating to import and export etc. Using the working capital, we then conducted
a compare analysis of ratio of five years, and on the basis of these, interpreted
the financial position of company.
We also determined the comparative statement, ratio analysis and cash flow
analysis for the company

CONTENT
SECTION 1-

INTRODUCTION OF THE COMPANY

Aditya Birla Group of company - Profile

Grasim & its Subsidiaries / JVs
Grasim history
Products
SFD, Nagda
SECTION 2-

INTRODUCTION TO STUDY

SECTION 3-

OBJECTIVE OF STUDY

SECTION 4-

WCM THEORITICAL PERSPECTIVE

Concepts of working capital

Components of working capital
Working capital cycle
Key working capital ratios

Advantages of working capital

SECTION 6-

OBSERVATIONS

SECTION 7-

ASSESSMENT AND ANAYSIS

SECTION 8-

RECOMMENDATIONS

SECTION 9-

CONCLUSION

ADITYA BIRLA GROUP A BRIEF PROFILE

An US $28 billion corporation, the Aditya Birla Group is in the league of
Fortune 500. It is anchored by an extraordinary force of 100,000 employees,
belonging to 25 different nationalities. In India, the Group has been adjudged
"The Best Employer in India and among the top 20 in Asia" by the HewittEconomic Times and Wall Street Journal Study 2007. Over 50 per cent of its
revenues flow from its overseas operations.
The Group operates in 25 countries India, UK, Germany, Hungary, Brazil,
Italy, France, Luxembourg, Switzerland, Australia, USA, Canada, Egypt, China,
Thailand,

Laos,

Indonesia,

Philippines,

Dubai,

Singapore,

Myanmar,

Bangladesh, Vietnam, Malaysia and Korea.

Globally the Aditya Birla Group is:
A metals powerhouse, among the world's most cost-efficient Aluminum
and copper producers. Hindalco-Novelis is the largest Aluminum rolling
company. It is one of the three biggest producers of primary Aluminum in
Asia, with the largest single location copper smelter
No.1 in viscose staple fiber.
The fourth largest producer of insulators.
The fourth largest producer of carbon black.
The 11th largest cement producer globally and second largest in India.
Among the world's top 15 BPO companies and among India's top four.
Among the best energy efficient fertilizer plants.

In India:
A premier branded garments player.
The second largest player in viscose filament yarn.
The second largest in the chlor-alkali sector.
Among the top five mobile telephony companies.
A leading player in life insurance and asset management.
Among the top three supermarket chains in the retail business.

Beyond business The Aditya Birla Group is:

Working in 3,700 villages
Reaching out to seven million people annually through the Aditya Birla
Centre for Community Initiatives and Rural Development, spearheaded
by Mrs. Rajashree Birla

Focusing on: health care, education, sustainable livelihood, infrastructure

and espousing social causes Running 41 schools and 18 hospitals.

GRASIM & ITS SUBSIDIARIES / JVS

Grasim Industries Ltd.

Viscose Staple Fibre, Cement,

Sponge Iron, Chemicals, Textiles

Subsidiaries
Ultra Tech Cement Ltd.
Dakshin Cement Ltd
Ultra Tech Ceylinco Pvt Ltd.
Grasim Bhiwani Textiles Ltd
Harish Cement Ltd.
Samruddhi Swastik Trading And
Investment Ltd.
Sun God Trading And Investment Ltd.

Cement
Textiles
Cement
Investment
Investment

Joint Ventures
Idea Cellular Ltd.
A V Cell Inc.
A V Nackawic Inc.
Birla Jingwei Fibre Co. Ltd.
Birla Lao Pulp & Plantation Co. Ltd.

Telecom
Pulp
Pulp
Fibre
Plantation & pulp

Associate
Aditya Birla Science & Technology
Co. Ltd

Research & Development

BOARD OF DIRECTORS

Mr. Kumar Mangalam Birla, Chairman

Mrs. Rajashree Birla
Mr. M. L. Apte
Mr. B. V. Bhargava
Mr. R. C. Bhargava
Mr. Cyril Shroff
Mr. S. G. Subrahmanyan
Mr. Shailendra K. Jain (Whole-time Director)
Mr. D. D. Rathi (Whole-time Director & CFO)
Business Heads
Mr. Shailendra K. Jain, Viscose Staple Fibre
Mr. Saurabh Mishra, Cement
Mr. Ravi Kastia, Sponge iron
Mr. Vikram Rao, Textiles
Mr. K. K. Maheshwari, Chemicals
Chief Financial Officer
Mr. D. D. Rathi, Whole-time Director & CF
Company Secretary

 Mr. Ashok Malu

GRASIMS OVERVIEW

Grasim was incorporated as the Gwalior Rayon Silk Manufacturing and Weaving
Co. Ltd on 25th aug.1947 and was established by late shri G.D. BIRLA,
grandfather of late shri ADITYA V. BIRLA. In 1986, the company was renamed
GRASIM INDUSTRIES LIMITED to reflect the diversified nature of its business.
Starting as a textiles manufacturer in 1948, today Grasim's businesses comprise
Viscose Staple Fibre (VSF), cement, sponge iron, chemicals and textiles. Its core
businesses are VSF and cement, which contribute to over 90 per cent of its
revenues

and

operating

profits.

It is also the second largest producer of caustic soda (which is

used in the production of VSF) in India. Grasim Industries Limited, a flagship
company of the Aditya Birla Group, ranks among India's largest private sector
companies, with consolidated net turnover crossed US$ 4 billion(Rs.16,974) ,up
by 21%,while net profit at Rs.2655 crores reflects an impressive growth of 35%
(FY2008) . In cement(grey cement and white cement), Grasim along with its
subsidiary Ultra Tech Cement Ltd. has a capacity of 30 million TPA and is a
leading cement player in India. In July 2004, Grasim acquired a majority stake
and management control in Ultra Tech Cement Limited. One of the largest of its
kind in the cement sector, this acquisition catapulted the Aditya Birla Group to
the

top

of

the

league

in

India.

Viscose staple fibre

The Aditya Birla Group is the world's largest producer of VSF, commanding a 24
per cent global market share. The company meets India's entire domestic VSF
10

requirements. V.S.F production commences at Nagda (M.P) in 1954 near Ujjain

city. It is situated on a 150 acre site and is the largest in the world. The company
has its 3 plants located in India at Nagda in M.P as SFD, Kharach in Gujarat as
Birla cellulose and Harihar in Karnataka as Grasilene division with a combined
installed capacity of 220,775 tones per annum and two plants located abroad at
Thailand as TRC and IBR in Indonesia.

Cement
Grasim ventured into cement production in the mid 1980s, setting up its first
cement plant at Jawad in Madhya Pradesh and since then it has grown to become
cement major. With the acquisition of the L&T cement business, it increased its
capacity to 31 million TPA. The constituent of Vikram cement were
commissioned in the year 1985, 1987, and 1991.Grasim is Indias third largest
cement producer. The brand VIKRAM PREMIUM CEMENT, has established as a
brand leader of premium products, capitalizing on its consistent superior quality
and a reputation for strength and perfection. The Aditya Birla Group is the 11th
largest cement producer in the world and the seventh largest in Asia.
Sponge iron
In 1993, Grasim ventured into this segment with the commissioning of a gasbased sponge iron plant at Salav in Alibag, Maharashtra. The plant has a current
capacity of 900,000 tones per annum, and is the third largest gas-based sponge
iron plant in India. This 100% import substitution project uses the most advanced
technology and cost effective process of Dvay Dravo, a division of Davy Mckee
corp. of U.S.A. and HYLSA S.A. de C.V of Mexico. It is the largest merchant
producer of sponge iron in India.

11

Chemicals
Grasim has India's second largest caustic soda .To achieve a reliable unit and
economical supply of rayon grade caustic soda an important raw material in VSF
production Grasim set up a caustic soda unit at Nagda in 1972, with an initial
capacity of 33,000 TPA.This has since grown to 190,800 TPA.
Sodium Sulphate
Grasim is also Indias largest producer of sodium sulphite, a by-product of V.S.F
manufacture and employee the process of crystallization, which helps in reducing
the adhering impurities. This chemical is widely used in paper and pulp,
detergent glass and textile industries. Grasim also exports Sodium Sulphate to
both developed and developing countries.
Textiles
The Grasim textile division is located 127 kilometers south west of Delhi at
Bhiwani, Haryana. This composite textile unit has its own spinning, weaving and
processing units under one roof. In order to render services to customer all over
the country, the co. has over 1,000 retail outlets through the country. The leading
range of fashion fabrics, marketed under the brand name GWALIOR SUITING,
GRAVIERA SUITING, ADONIS, SUMO &WALL ST. continue to enjoy an excellent

market reputation. The successful introduction of worlds leading suiting brand

SCABAL, and the launching of superfine worsted suiting have helped the co. to
consolidate its position in the premium segment. Its premium brands, the Grasim
and Graviera range of fabrics, have distinctively positioned themselves as 'the
power of fashion'.

12

VALUES
Integrity

: Honesty in every action

Commitment

: Deliver on the promise

Passion

: Energized action

Seamlessness

: Boundary less in letter and spirit

Speed

: One step ahead always

VISION
To be a premium conglomerate with a clear focus at each business level

MISSION
To pursue the creation of value for our customer, shareholders, employees and
society at large

13

14

BRIEF DESCRIPTION OF THE MANUFACTURING PROCESS

Rayon grade pulp is steeped in caustic soda solution and excess lye is drained in
slurry presses to obtain a mat of alkali cellulose. After shredding, alkali cellulose
is reacted with carbon di sulphide to yield cellulose xanthate. The xanthate so
formed is dissolved in dilute caustic soda to give viscose, which is filtered,
deaerated and ripened, before extrusion through spinnerets in to a spinning bath
containing sulphuric acid and special additives. Cellulose is regenerated in the
form of fine filaments. The filaments are cut in to the required staple length,
washed, desulphurised, bleached, soft finished and dried to obtain Viscose Staple
Fiber, which is then baled in bailing press.

15

INTRODUCTION

Working capital is the usable excess of your current assets such as purchasable
invoices, or sale of future credit card processing receipts.
In the end, youll have the most funding at the most affordable repayment
discount. With a strong pool of funding sources, we bypass stringent
requirements of traditional bank loans and put you back in control of your
business.
Well review your situation and come up with a solution that meets your
immediate cash needs. Well also structure a relationship that is set up for the
long-term.
No two business financing situations are alike. Thats why our dedicated financial
advisors resource a broad range of funding programs to help you get the funding
you need, on time, and at an affordable price.
Hence while selecting the project for training; I thought it fit to get insight into
the management of working capital by a diversified company Grasim and the
preparation of CMA data by them.
It would be noteworthy to mention that SFDs working capital limit is presently
73.31 corers and is provided and provided by a consortium of 8 banks with SBI
being the main emphasis shall be on probing into the working capital
management and preparation of CMA data by Grasim.

16

PROJECT OBJECTIVE

A consortium of bank finances working capital need of Grasim. Consortium

sanctions its financing limits according to reserve bank of India guidelines.
Company is required to send is report on working capital needs annually to the
consortium.
Consortium analyzes working capital needs of the company on the basis of the
report, which is said credit monitoring agreement.
The main objective of the project is to assist in preparing CMA report and make
assumptions, other object are:1. To practically understand the concept of working capital studied in academic
sessions.
2. To study and analyze the working capital requirements of the company.
3. To analyze the soundness of the company with the help of financial
management tools.
4. To study the financing of its working capital needs.
5. To study the trends and reasons for deviation.

17

CONCEPTS OF THE WORKING CAPITAL

Decisions relating to working capital and short term financing are referred to as
working capital management. These involve managing the relationship between a
firm's short-term assets and its short-term liabilities. The goal of Working capital
management is to ensure that the firm is able to continue its operations and that it
has sufficient cash flow to satisfy both maturing shortterm debt and upcoming operational expenses.
Concept of working capital:
Gross concept
Net concept
Positive Working Capital
Negative Working Capital
Gross Working capital
Firms investment in current assets. Current assets, are the assets, Witch can be
converted into cash within an accounting year, and include cash, short-term
securities, debtors, bills receivables and stock.
Net Working Capital

Current liabilities are those claims of outsiders, which are expected to mature for

18

payment within

accounting year and include creditors bills payable and

outstanding expenses.

Positive Working Capital

A positive change in working capital indicates that the business has paid out cash,
for example in purchasing or converting inventory, paying creditors etc. "Any
change in the working capital will have an effect on a business.
Positive working capital means that the company is able to pay off its short-term
liabilities.
Negative Working Capital
Any increase in working capital will have a negative effect on the business's cash
holding. However, a negative change in working capital indicates lower funds to
pay off short term liabilities (current liabilities), which may have bad
repercussions to the future of the company."

19

Working Capital Cycle

Cash flows in a cycle into, around and out of a business. It is the business's life
blood and every manager's primary task is to help keep it flowing and to use the
cash flow to generate profits. If a business is operating profitably, then it should,
in theory, generate cash surpluses. If it doesn't generate surpluses, the business
will eventually run out of cash and expire.
There are two elements in the business cycle that absorb cash - Inventory (stocks
and work-in-progress) and Receivables (debtors owing you money). The main
sources of cash are Payables (your creditors) and Equity and Loans. Each
component of working capital (namely inventory, receivables and payables) has

20

two dimensions TIME and MONEY. When it comes to managing working capital TIME IS MONEY.

Sources of Additional Working Capital

Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash)

Payables (credit from suppliers)

New equity or loans from shareholders

Bank overdrafts or lines of credit

Long-term loans

21

Calculation of working capital Management

Working Capital = Current Assets Current Liability
Year

Current Assets

Current
Liabilities

Working
Capital

2003-04
2004-05
2005-06
2006-07
2007-08

1496.01
1853.93
2026.76
2342.39
2959.08

946.37
1108.93
1273.37
1450.06
2144.38

549.64
745.00
753.39
892.33
814.70

Interpretation:The main objective of Working Capital Management is to ensure Optimum

Investment in Current Assets, so as per the datas current assets is always more

22

than current liabilities so if we take working capital as a individual year so

position of the company is better, but if we take subsequent year working capital
of the company increased upto 2007 and in the current year 2008 the working
capital goes down which is not good for the organization.
Ratio Analysis
Ratio Analysis is a technique of analysis and interpretation of financial
statements. It is the process of establishing and interpreting various ratios for
helping in making certain decisions. Ratio analysis is only a means of better
understanding of financial strengths and weaknesses of a firm. Ratio Analysis is
one of the best possible techniques available to the management to impart the
basic functions like planning and control. Ratio is also calculated for inter firm
and intra firm comparison, for budgeting, to estimate the future requirement. It is
also helpful in managerial decision making, for financial forecasting and
planning, helps in controlling communicating and co-ordination.
Types of Ratio:a. Liquidity Group
b. Turnover Group
c. Profitability Group
d. Overall Profitability Group
e. Miscellaneous Group

23

INTERPRETATION AND ANALYSIS

a. Liquidity Group
I. Current Ratio:-

Current assets
Current liabilities

Year

Current Assets

Current Liabilities

Ratio

2003-04
2004-05
2005-06
2006-07
2007-08

1496.01
1853.93
2026.76
2342.39
2959.08

946.37
1108.93
1273.37
1450.06
2144.38

1.58
1.68
1.59
1.61
1.38

Interpretation:Current Ratio indicates the backing availability to Current Liabilities in the

form of Current Assets. Higher the Current Ratio betters the position of the
organization. A Current Ratio is of 2:1 is supposed to be standard and ideal.

24

In Grasim as the data Current Ratio is decrease in 2008 in

comparison to the previous year, which is not good for the organization. It
indicate the Current liabilities is more then the current asset.
II. Liquid Ratio:-

Liquid Asset
Liquid Liabilities

Year

Liquid Assets

Current Liabilities

Ratio

2003-04
2004-05
2005-06
2006-07
2007-08

1036.55
1175.34
1276.03
1518.25
1980.64

946.37
1108.93
1273.37
1450.06
2144.38

1.09
1.05
1.00
1.05
0.92

Interpretation:Liquid Ratio indicates the backing availability to Liquid Liabilities in the form
of Liquid Assets. Higher the Liquid Ratio indicates that there are sufficient
assets available to the organization. A Liquid Ratio of 1:1 is supposed to be
standard and ideal.
25

In Grasim as the data Liquid Ratio is decrease in 2008 in

comparison to the previous year, which is not good for the organization. It
indicate the Liquid liabilities is more then the current asset.
b. Turnover Group:I. Fixed Assets Turnover Ratio:- Net Sales
Fixed Assets
Year

Net Sales

Net Fixed Assets

Ratio

2003-04
2004-05
2005-06
2006-07
2007-08

5213
6339
6653
8572
10215

3195.70
3194.81
3298.27
4582.79
7049.82

1.63
1.98
2.01
1.87
1.45

Interpretation: A high fixed assts turnover ratio indicates the capability of the organization to
achieve maximum sales with the minimum investment in fixed assets. Higher
the fixed assets turnover ratio better will be the situation.

26

In Grasim industries as the data fixed assets turnover ratio increases in 2005 and
in 2006 but after that it decreases over the period of time, which is not good for
the organization. It means fixed assets have to utilize by the organization to
increase the fixed assets turnover ratio.

II. Current Assets Turnover Ratio:Year

2003-04
2004-05
2005-06
2006-07
2007-08

Net Sales
5213
6339
6653
8572
10215

Net Sales
Current Assets

Current Assets
1496.01
1853.93
2026.76
2342.39
2959.08

Ratio
3.48
3.42
3.28
3.66
3.45

27

Interpretation:A high Current assts turnover ratio indicates the capability of the organization
to achieve maximum sales with the minimum investment in Current assets.
Higher the Current assets turnover ratio better will be the situation.
In Grasim current assets turnover ratio decrease up to 2005 suddenly
increases in 2006 and again decreases in 2007 which is not good for the
organization.

III. Working Capital Turnover Ratio :-

Net Sales
Working capital

Year

Net Sales

Working Capital

Ratio

2003-04
2004-05
2005-06
2006-07
2007-08

5213
6339
6653
8572
10215

549.64
745
753.39
892.33
814.70

9.48
8.51
8.83
9.61
12.54

28

Interpretation:A high working Capital turnover ratio indicates the capability of the
organization to achieve maximum sales with the minimum investment in
working capital. Higher the ratio better will be the situation.
In Grasim Working capital turnover ratio was decreases in
2005, but after that it increases over the period, which is very good for the
organization.
IV. Inventory/ Stock Turnover Ratio:-

Cost of Sales
Average Inventory
Year

Cost of Sales

Average Inventory

Ratio

2003-04
2004-05
2005-06
2006-07
2007-08

3863
4583
5159
6065
6898

484.63
522.01
750.73
824.14
978.44

7.97
8.78
6.87
7.36
7.05

29

Interpretation:A higher inventory turnover ratio indicates that maximum sales turnover is
achieved with the minimum investment in inventory, so higher inventory
turnover ratio is desirable.
In the organization as the data indicate the inventory
turnover ratio is decreased as compared to the previous year, these indicate over
investment in inventory, improper inventory management.
c. Profitability Group :
I.
Years
2004
2005
2006
2007
2008

Gross Profit Ratio = Gross Profit *100

Sales
Gross Profit
1350
1646
1494
2507
3317

Sales
5213
6229
6653
8572
10215

Ratio (in %)
25.90
26.42
22.46
29.25
32.47

Interpretation:The gross profit ratio indicates the relation between production cost sales and
the efficiency with which the goods are produced or purchased. A high gross
30

profit may indicate that the organization is able to produced or purchase at a

relatively lower cost. As such higher gross profit ratio is desirable.
The above data shows that the gross profit ratio is keep on increasing
though it has been decreased in 2005-06 because of decrease in G.P. due to high
purchase of finished goods and other products but it has again improved in
2006-07and 2007-08 reaches to 32.47%.
II.

Operating Ratio :-

Operating Ratio = Cost of Sales + Other Operating Expenses *100

Sales
Years
2004
2005
2006
2007
2008

Cost of
sales
3863
4583
5159
6065
6898

Other operating
expenses
825.46
938.46
1139.59
1505.69
1701.73

Sales

Ratio (in %)

5213
6229
6653
8572
10215

89.94
88.64
94.67
88.32
84.19

Interpretation:31

Operating ratio indicates the percentage of net sales that is consumed by

operating cost. In other words, it measures the cost of operations per rupee of
sales. Higher the operating ratio, the less favorable it is. However, 75 to
85%may be considered to be a good ratio.
In Grasim Operating ratio has been continuously declining and reaches to
84.19% in 2008 because cost of sales has been declining and in relation to this
sales has increased. The overall position indicates cost consciousness of the
management of the concern.
III. Net Profit Ratio :Net Profit ratio = Net Operating profit *100
Sales
Years
2003
2004
2005
2006
2007

Net Operating Profit

779.26
885.71
863.21
1535.81
2233

Sales
5213
6229
6653
8572
10215

Ratio (in %)
14.95
14.22
12.97
17.92
21.86

Interpretation:-

32

It establishes a relationship between N.P. and Sales, and indicates the efficiency
of the management in manufacturing, selling, and other activities of the firm.
This ratio is very low in 2003 but show a great improvement. It rises from 13.03
in 2006 to 17.85% in 2007 because Selling and distribution expenses increases
by 27% and Sales increased by 29% as compared to 21% and 6.6% in 2006.
This ratio increased in 2007 because of increase in Interest and dividend income
by 40.38% and because of this net profit ratio increase in 2008 upto 21.86%.
d. Miscellaneous group:
I. Earning Per Share
Earning Per Share = Net Profit after Tax& Preference Dividend
No. of Equity Shares

Year

Net Profit

No. of Equity Shares Ratio (in Rs.)

2004
2005
2006
2007
2008

7792600000
8857100000
8632100000
15360000000
22330000000

91689485
91689485
91689485
91689485
91689485

84.99
96.59
94.14
167.52
243.54

Interpretation:-

33

Earning per share is a small variation of return on equity capital. The earning
per share is a good measure of profitability and it gives a view of earning power
of the firm.
From the above data it is clear that earning per share has increased
from Rs. 84.99 in 2004 to Rs. 243.54 in 2008. This shows that earning power of
the company has increased year by year.
Return on Investment
Return on Investment = Net profit (after interest and tax)
Shareholders Funds

II.

Year

Net Profit

Shareholders Fund

Ratio (in %)

2004
2005
2006
2007
2008

779.26
885.71
863.21
1535.81
2232.60

3610.83
4328.35
4982.08
6230.04
8140.71

21.57
20.47
17.32
24.65
27.43

Interpretation:-

34

This ratio is one of the most important ratios used for measuring the overall
efficiency of a firm. This ratio is of great importance to the present and
prospective shareholder as well as the management of the company. This ratio
reveals how well the resources of the firm are being used.
This ratio shows a down fall after 2003 and reaches upto 17.32% in 2006 and
after that it increases upto 27.43% in 2008. From this an opinion can be formed
that the investments in the firm are attractive and investors can get a higher
return.
Working Capital Advantages:

Over 90% approval rates.

Easy application, minimal requirements.

Get approved in 24 hours.

We fund businesses from $5,000 to $1 million dollars.

Money wired to your bank shortly after approval.

NO application fees or closing costs.

You choose your repayment schedule at an affordable discount.

No financial/tax returns required.

May be tax deductible.

Poor credit no problem.

We'll take 2nd (subordinate) position. Layer our working capital solution
over your existing loans.

No collateral.

OBSERVATIONS
The observations and understanding can be summarized as under:
35

Inventory at GRASIM is divided into following areas:

*

Raw material

Work in progress

Consumable

Finished Goods

Spares

Inventory of all raw materials is consumed on FIFO (First in first out)

basis.
Minimum Stock level :

This represents the quantity which must be maintained in hand at all times. If
stocks are less than the min level then which will stop due to shortage of
material. Following factors are taken in to account while fixing minimum stock
level:1. Lead timeA parching firm requires some times to process the order & time is also
required by the supplying firm to execute the order. The time taken in
processing the order and then executing is known as lead time.
2. Rate of ConsumptionIt is the average consumption of material in the factory.
3. Nature of Material
The nature of material also affects the minimum level.
Effective Working Capital Management
The company has been continuously reducing its working capital over the last
three years. The reduction is mostly attributable to the lower inventory in VSF
36

business. The debtor collection period, which stood at 51 days in 2002,

decreased to 32 days in 2004. A marginal increase was seen in creditor payment
period from 62 days to 53 days for the same period.
Huge Non operating Cash Flow
This includes income from investing activities. High dividend is received from
investments in Mutual Funds and other Strategic Investments. Higher interest
income contributed to higher non-operating Cash Flow.
Huge investments through acquisitions
The investment portfolio comprises 40% of the total assets. The investments of
the company increased by 41% from Rs17.9bn FY03 to Rs25.4bn in FY04. The
company has been creating the value for money for its shareholders by getting
out of business they are not familiar with and investing in the business where
their core competency lies. This can be seen by the acquisition of L&Ts
cement division and getting out of Indo Gulf and MRPL. They are also willing
to sell in AT&T on finding a suitable buyer.
Reduced in Debt Levels
The Net Long Term Debt decreased to Rs913mn as the company has repaid
high cost debentures. Further, the company raised an ECB Loan of Rs2, 332mn
(US$50mn).The short-term debts increased to Rs1, 131mn. The company
reduced the cost of borrowing from 13% in FY01 to 7% in FY04.
Improvement in Power
Grasim is further setting up a thermal power plant of 12.5MW of its cement
division. With these additions, the proportion of its captive power plant will rise
37

to 67% from the existing 61%. This will generate tremendous saving in value
terms to the company. Cost of captive thermal generation is nearly half the cost
of power purchased off the grid. The company also plans to replace DG Sets
with thermal power plants.
Cost Control
Companys financial strength and reputation gives it a edge over others while
negotiating over rates or payment terms. Cost control is taken care of right from
placing order till receipt of materials and making payment.
Timely Payment
Company strictly follows the policy of timely payment. All due payments
against purchase of stores and spares, raw materials, contractors bill, salary are
made on time to avoid extra cost in form of int. or penalty.

A Write up on MIS Report

Management information system report is prepared daily and monthly, report
helps management in analysis, decision making and strategy formation. The
main objective of this report is calculation of days gain and loss and comparison
of it with the target.

ASSESMENT AND ANALYSIS

Comparative Balance sheet
38

GRASIM INDRUSTRIS LTD, NAGDA

Rs. In crores Rs.In

Amount

Percentage

Current

crores

Increase(+)

Increase(+)

Year 2008

previous

Decrease(-)

Decrease(-)

Year 2007
SOURCES OF FUNDS
Shareholders funds
Share Capital
Employee stock options out

91.69
4.90

91.69
-

4.90

8044.12
8140.71

6138.35
6230.04

1905.77
1910.67

31.05
30.67

Deferred Tax Liabilities

2350.40
851.47
3201.87
606.87

2291
660.56
2951.56
582.55

594
190.91
250.31
24.32

25.92
28.90
8.48
4.17

TOTAL

11949.45

9764.15

2185.30

22.38

7588.40
3564.89
4023.51
3026.31
7049.82
Fixed asset held for disposal 4.14

6770.97
3380.53
3390.44
1192.35
4582.79
14.33

817.43
184.36
633.07
866.04
2467.03
(10.19)

12.07
5.45
18.67
28.62
53.83
(71.10)

Investments
Current Assets, Loans and

4274.70

(193.91)

(4.54)

standing
Reserves and Surplus
Loan funds
Secured Loans
Unsecured Loans

APPLICATION OF
FUNDS
Fixed assets
Gross Block
Less: Depreciation
Net Block
Capital work-in-progress

4080.79

Advances
39

Interest accrued on
investments
Inventories
Sundry debtors
Cash and Bank Balances
Loans and Advances

0.70

0.70

978.44
711.98
127.47
1140.49
2959.08

824.14
576.48
116.38
824.14
2342.39

154.30
135.50
11.09
316.35
616.69

18.72
23.50
9.53
38.38
26.32

1604.17
540.21
2144.38
814.70
11949.45

1266.86
183.20
1450.06
892.33
9764.15

337.31
357.01
694.32
(77.63)
2185.30

26.62
66.09
32.38
(8.70)
22.38

Less:
Current Liabilities and
Provisions
Liabilities
Provisions
Net current Assets
TOTAL

Interpretation:1.

The comparative balance sheet of the company reveals that during 2008
there has been an increase in fixed assets of 2467.03crore i.e. 53.83% while
long-term liabilities to outsiders have relatively increased by 337.31crore i.e.
26.62%. This fact depicts that the policy of the company is to purchase fixed
assets from the long -term sources of finance thereby not affecting the working
capital.

2.

The current assets have increased by 616.69crore i.e. 26.32%. There has
been an increase in inventories amounting to 135.50crore. The current liabilities
has increased by 694.32crore i.e. 32.38%. This shows that there is an
improvement in the liquidity position of the company.

40

3.

Reserves and Surpluses have increased from 1905.77crore i.e. 31.05% and
these is created from profit which mean there is increase in profitability of the
company.

4.

There is excess of current assets over current liabilities. The working capital
is decreased from 814.70 to 814.70crore i.e. 8.70%. The decrease in working
capital will mean company need to improvement in current financial position of
the business.

5.

Shareholders fund has increased by 1910.67crore , loan fund i.e. secured

and unsecured loan has increased by 250.31crore and deferred tax liabilities
decreased by 4.17% while companies investments has decreased by
(193.91)crores, fixed assets by 2467.03crore, current assets by 616.69crore.
companies net current assets has decreased by (77.63)i.e. (8.70)%
Comparative Income and Expenditure Statement
Rs. In crores

INCOME
Net Sales
Interest and

Rs. In crores

Amount

Percentage

Previous years Current years Increase(+)

Increase(+)

Year 2005-06

Year 2006-07 Decrease(-)

Decrease(-)

8603.59
113.27

1905.98
45.74

29.32
67.73

168.49
(16.44)

16.08
(27.04)

10.55
62.19

6829.07

8868.91

2039.84

29.87

1822.69
1580.34

2219.32
1744.33

396.63
163.99

21.76
10.38

6652.61
Dividend 67.53

Income
Other Income
152.41
Increase / (Decrease) in (43.48)
Stocks
EXPENDITURE
Raw Materials consumed
Manufacturing Expenses

41

Purchase of finished and 240.15

321.16

81.01

33.73

other products
Payments to and provision 407.64

459.40

51.76

12.69

for employees
Selling,
Distribution, 1181.33

1505.69

324.36

27.46

103.38
and 291.64

111.84
317.91

8.46
26.27

8.18
9.00

5627.17
Tax 1201.90

6679.65
2189.26

1052.48
987.36

18.70
82.15

&Exceptional Items
Surplus on pre-payment 4.13

(4.13)

(100.00)

of sales tax loan

Write back of provision -

37.10

37.10

100.00

for diminution
Profit before Tax
Provision for current Tax
Deferred Tax
Profit after Tax
Debenture
redemption

2226.36
(692.38)
1.83
1535.81
38.56

1020.33
(322.56)
25.17
672.6
29.94

84.60
87.22
93.22
77.92
347.33

0.05

(0.2)

(80.00)

Required
Balance b/f from previous 815.35

878.37

63.02

7.73

year
Profit

2452.79

765.36

45.36

Administration and Other

expenses
Interest
Depreciation
Amortization
Profit

before

Reserve

No

Required
Investment
Reserve

1206.03
(369.82)
27
863.21
8.62

Longer
Allowance 0.25

No

Longer

available

for 1687.43

appropriation
Appropriations:
42

Interim Dividend
Proposed Dividend
Corporate Dividend Tax
General Reserve
Balance
Carried
to

183.35
25.71
600
878.37

252.10
35.36
1200
965.33

252.10
(183.35)
9.65
600
86.96

100.00
(100.00)
37.53
100.00
9.90

2452.79
167.5

765.36
73.36

45.36
77.93

Balance Sheet
1687.43
Basic and diluted earnings 94.14
per share
Interpretation:-

1. The comparative income statement reveals that there has been increase in net
sales 1983crore i.e. 29.95% while cost of goods sold has increased by
18.92%.The increase in sales is more than increase in cost of goods sold
shows the profitability of the company is increasing.

2. The gross profit has increased by 1013crore i.e. 68.8%. Although operating
expenses of the company has increased by 27.46%. The increase in gross
profit is sufficient to compensate for the increase in operating expenses.

3. The comparative income statement reveals that Interest and dividend income
has increased by 67.73% and other income by 10.55%.So, the main source
of income for the company is interest and dividend income.

4. Consumption

of raw material of Grasim Industries has increased by

396.63crore i.e. 21.76% and manufacturing expenses increased by 10.38%.

Another expenditure item Interest has increased by 8.18% and depreciation
by 9%. Purchase of finished goods which is more expensive for the

43

company has increased by 81.01crore i.e. 33.73% and selling and

distribution expenses by 324.36crore i.e. 27.69%.

5. There is an increase in net profit after tax amounting to Rs. 672.6crore i.e.
77.92%. It may be concluded that there is a sufficient progress in the
company and the overall profitability of the company is good.

44

Comparative Cash Flow Statement

Rs.

In Rs. In crores Amount

Percentage

crores

Current

Increase(+)

Increase(+)

Previous

year

Decrease(-)

Decrease(-)

year

Year

2006-

Year 2005- 07
06
Cash

Flow

from

Operating Activities
a. Net profit before tax and 1201.90

2189.26

987.36

82.15

exceptional item
Adjustment for:Depreciation
Interest Expenses
Interest Income
Dividend Income
Profit/Loss on sale

317.91
111.84
(31.84)
(81.43)
(4.62)

26.27
8.46
(2.36)
(43.39)
(8.61)

9.01
8.18
(8.01)
(114.06)
(215.79)

Fixed Assets
Profit on sale of Long (62.57)

(2.70)

(59.87)

(95.68)

Term Investment
Profit on sale of current (7.27)

(49.41)

(42.14)

(579.64)

Investments
b. Operating Profit before 1463.55

2449.01

985.46

67.33

working capital changes

Adjustments for:Trade
and
other 116.66

(314.56)

(431.22)

(369.64)

receivables
Inventories
Assets held for disposal
Trade Payables

(73.41)
(1.57)
306.17

(1.27)
(2.54)
146.47

(1.76)
(261.85)
91.71

291.64
103.38
(29.48)
(38.04)
of 3.99

(72.14)
0.97
159.70

45

c. Cash generated from 1668.74

2365.64

696.90

41.76

operations
Direct taxes paid
(380.42)
Net cash from Operating 1288.32

(632.97)
1732.67

(252.56)
444.35

(66.39)
34.49

(1660.72)
62.52
93.82

(1251.92)
53.23
213.13

(306.24)
572.98
178.63

32.60
81.43
(2131.23)

3.49
43.39
(1249.72)

11.99
114.06
(141.77)

1293.61
(346.06)
(109.39)
(417.73)
(61.07)
359.36

1165.36
(164.48)
9.19
(272.48)
(40.49)
687.29

90.08
(90.58)
7.73
(187.59)
(196.74)
206.34

financing activities
Net increase/(decrease) in 68.88

(39.20)

(108.08)

(156.91)

cash and cash equivalent

Cash and cash equivalent 86.70

155.58

68.88

79.45

at beginning of the year

Cash and cash equivalent 155.58

116.38

(39.2)

(25.19)

Activities
Cash
Flow

from

Investing Activities
Purchase of fixed assets
(408.80)
Sale of fixed assets
9.29
Investments/Advances in (119.31)
Joint ventures, subsidiaries
& others
Interest received
29.11
Dividend received
38.04
Net cash from/(used in) (881.51)
investing activities
Cash
Flow

from

Financing Activities
Proceeds from borrowings
Repayments of borrowings
Interest paid
Dividends paid
Corporate dividend tax
Net cash from/(used in)

128.25
(181.58)
(118.77)
(145.25)
(20.58)
(337.93)

at end of the year

Interpretation:
46

 The cash flow statement given above reveals that the Cash from
operating activities increases by 444.35crore i.e. 34.39%, net profit
increases by 987.38 i.e.82.15%, Interest expenses increases by 8.18%
while interest income increase by 8.01% and Dividend income by
114.06%. Profit on sale of fixed assets increases by 215.79%, Trade
payable increases by 91.71% and Direct tax by 66.39%.
Net cash used in Investing activities increases by 1249.72 i.e. 141.77%.
As purchase of fixed asset increases by 1251.92crore i.e.306.24% so
depreciation also increases by 26.27crore i.e. 9.01%. Sale of fixed assets
increases by 572.98% and Dividend received increased by 114.06%.

Net cash from Financing activities increases by 687.29crore i.e.

206.34%. Proceeds from borrowing shows a tremendous rise
1165.36crore i.e. 90.08% and repayment of borrowing has also increases
by 90.58%. Dividend paid increases by 187.59%.

There is net decrease in cash and cash equivalent 108.08crore i.e.

156.91%. Cash and cash equivalent at the beginning of the year increases
but 68.88crore the year decreases by 39.2crore i.e. 25.19%.

47

COMMENTS
Raw material and stores storage period is slightly less in comparison to
previous years. The main reason for this is the plant shutdown during the
current year due to water shortage to maintain higher level of finished goods
inventory, so that sales continue during this period.
Company has achieved success in constantly reducing the work in
process period as well as in the finished goods inventory goods this
represents good management by the company .
Usually off the shelve inventory of finished goods but inventory of
Staple Fiber increased for utilization during plant shutdown in summers
since last few years.
48

Creditors collection period has remained same during the two years
which is good for the company but debtors collection period has increased
which can be dangerous for the company. This highly needs attention.
When we see the overall operating cycle, it has decreased in year
under review. This is dew to efficient management by the company people.

RECOMMENDATIONS
Viscose and Grasim have long synonymous. The overbearing presence of
Grasim industries Ltd. In staple fiber market long been acknowledged by the
textile industry. Structural health of working capital of the company is
improving continuously. Based on my analysis and observation, following
areas requires attention:
Companys raw material storage period can further be reduced as it
blocks funds and company has to incur extra carrying cost.
Stores and spares inventory holding time is also which can be
controlled through proper planning and vigilance.

49

 Introduction of B-to-B, E-commerce for exchange of documents with

suppliers, clients and partners. B-to-B speed up the workflow in the
organization. A complete B-to-B transaction almost eliminates the
cost involved in proper work and printing as entire procedure is in
electronic format. With dew B-to-B Company can considerably in
archiving.
In case of Export/Import, EDI (Electronic Data interchange) can be effective
tool for transfer of data, invoice and to make payments, till will not only reduce
the lead time and inventory holding period, even cost will fall.
Introduction of e-commerce will not only make company
competitive but also reduce inventory holding period and extra cost.

CONCLUSION
In order to conclude, it can be said that working capital management is
effective only through proper blend of cash management, receivables
management, inventory management and payables management. Companys
policy regarding management of all these are very clean cut. Company keeps
its position secure in case of debtors and creditors. Constant efforts are made
and co. achieved success in reducing the inventory level considerably. This
also reduced the cost.

50

Cash flow monitoring is done on daily basis and minimum cash balance is
maintained and revenue earning is maximized through proper planning and
investment of funds.
Few transactions occur on credit; as a result, debtors are few. Constant
monitoring and persuasion with the parties is needed in case of debtors to
avoid bad debts. The incidence of bad debts in lower in V.S.F.
Structural health of working capital is improving continuously.

BIBILIOGRAPHY
Books:
1. Pandey, I.M. Financial Management. New Delhi: Vikas Publishing
House, 2000.
2. Khan,

M.Y.

and

Jain,

P.K.

Financial

Management.

New Delhi: Tata McGraw-Hill.

3. Financial Management , symbiosis Study Material (2007-2009)
51

4. Annual Reports of Grasim Industries Ltd.

Websites:
www.grasim.com. ,
www.adityabirla.com.
www.investorworld.com

www.cashdirectone.com

www.finance.cch.com

www.studyfinance.com

52