SYNOPSIS

ON
WORKING CAPITAL MANAGEMENT
OF
NATIONAL FERTILIZERS LIMITED
SUBMITTED PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE DEGREE
OF MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY :
GAURAV VERMA
ROLL NO. : 137966636
MBA (FINANCE)

INDIRA GANDHI NATIONAL OPEN UNIVERSITY

INTRODUCTION
The Major Objective of this study is to understand the working capital management of National
Fertilizers Limited and to suggest necessary measures to overcome the shortfalls if any in the
industry
The project Working Capital Management of National Fertilizers Limited describes about how
the company manages its working capital and the various steps that are required in the
management of working capital. Cash is the lifeline of a company. If this lifeline deteriorates, so
does the company's ability to fund operations, reinvest and meet capital requirements and
payments. Understanding a company's cash flow health is essential in making investment
decisions. A good way to judge a company's cash flow prospects is to look at its Working Capital
Management (WCM).
Working capital refers to the cash of a business requires for day-to-day operations or, more
specifically, for financing the conversion of raw materials into finished goods, which the
company sells for payments. Other important items of working capital are levels of inventory,
accounts receivables and accounts payables. Analysts look at these items for signs of a
company's efficiency and financial strength. Since working capital is an important yardstick to
measure the companys operational and financial efficiency the company should have a right
amount of cash and lines of credit for its business needs at all times.
There are numerous instances in the history of business world where inadequacy of working
capital i.e. when a firm finds it difficult to meet day to day affairs, has led to business failures.
Operating expenses may have to be postponed, operating plans will go out of gear and enterprise
objectives on investment slumps the suppliers and creditors of the firm may have to wait longer
to raise their dues and will hesitate to extend further credit to the firm.
Thus efficient management of working capital is an important prerequisite for successful working
of the business. It reduces the chances of business failures, and generates a feeling of security
and confidence in the minds of stakeholders. This assures steadiness in the organization.
BRIEFGROUND AND RATIONALE OF THE TOPIC CHOSSEN FOR THE PROJECT

National Fertilizers Limited is the second largest producer of Nitrogenous Fertilizers in the
Country with 15.8% share in domestic production of Urea achieved in the country during 201314. NFL has been upgraded as a schedule A company because of its constant good performance.
It was incorporated on 23rd August 1974 with an authorized capital of Rs. 500 Crores and a
capacity of 10.36 lakhs MT Nitrogen at its two manufacturing units at Bathinda and Panipat.
Subsequently, on the reorganization of Fertilizer group of Companies in 1978, the Nangal Unit of
Fertilizer Corporation of India came under the NFL fold. The Company expanded its installed
capacity in 1988 by installing and commissioning of its Vijaipur gas based Plant in Madhya
Pradesh.
TOPIC CHOSSEN FOR THE PROJECT

This project is helpful in knowing the companys position of funds maintenance and setting the
standards for working capital inventory levels, current ratio level, quick ratio, current asset

turnover level and size of current liability etc.

This project is also useful as it combines the present year data with the previous year data and

thereby it shows the trend analysis, i.e. increasing or decreasing funds.

The project is done as a whole and will give an overall view of the organization and it is
usefulness in further expansion decision to be taken by management.
PROBLEM STATEMENT

To understand the working capital management in National Fertilizers Ltd.

To analyze the liquidity position of NFL.
To study the different factors that affects the working capital of the company.
To assess the impact of working capital on profitability
To examine the combine effect of the ratios relating to working capital management and
profitability with the assistance of multiple correlation coefficient and multiple correlation
coefficient and multiple regression equation and to test the significance of the regression

coefficients.
To determine the working capital leverage for examining the sensitivity of ROE to changes in the
level of gross working capital of the company

OBJECTIVE

The major objective of the study was to understand the working capital management of National
Fertilizers Limited and its impact on the operating performance of the company. We also try to
understand the liquidity position of the company and how stringent the company is to face the
short term liabilities in this competitive business environment. Different factors were also
identified which showed impact on the working capital of the company. The impact of working
capital on profitability was also analyzed during the study. In addition to the above the effects of
the ratios (Working Capital Ratio, Acid Test Ratio, Current Assets to Total Assets Ratio, Current
assets to Sales Ratio, Working Capital Turnover Ratio, Inventory Turnover Ratio, Debtors
Turnover Ratio and Cash Turnover Ratio) relating to working capital management and
profitability were also analyzed. In the end we also tried to the working capital leverage for
examining the sensitivity of ROE to changes in the level of gross working capital of the
company.
RESEARCH METHDOLOGY

HYPOTHESIS
H1: There is a significant impact of working capital on the profitability of the company
H2: There is a significant impact that is created by the ratios (Working Capital Ratio, Acid Test
Ratio, Current Assets to Total Assets Ratio, Current assets to Sales Ratio, Working Capital
Turnover Ratio, Inventory Turnover Ratio, Debtors Turnover Ratio and Cash Turnover Ratio)
relating to working capital management and profitability on the company.
H3: There is a significant sensitivity of ROE to changes in the level of gross working capital of
the company.
RESEARCH DESIGN
METHEDOLOGY

Methodology may be a description of process, or may be expanded to include a philosophically

coherent collection of theories, concepts or ideas as they relate to a particular discipline or field
of inquiry. This project requires a detailed understanding of the concept Working Capital
Management. Therefore, firstly we need to have a clear idea of, what is working capital, how it is
managed in National Fertilizers Limited, what are the different ways in which the financing of
working capital is done in the organization etc. In order to understand further data was collected
from departments Finance and Accounting and Marketing department at corporate office.
COLLECTION OF DATA
There are two ways of collecting data Primary data and secondary data.
Primary Data
The first handed information collected through various methods is known as primary data. The
primary data was gathered through personal interaction with various functional and technical
personnel of NFL. Some information was also collected by observation.
Secondary Data
Secondary data is data collected by someone other than the user. Common sources of secondary
data for social science include censuses, surveys, organizational records and data collected
through qualitative methodologies or qualitative research. Secondary data was collected from
various reports, annual reports, documents charts, internet etc.
The analysis of the information gathered has been made on the basis of the clarifications sought
during the personal discussions with the concerned people and perception during the personal
visits to the important areas of services. In marking observations identifying problems and
suggesting certain remedies such emphasis was given on the basis of opinions gathered during
the personal discussions and with the personal experience gained during the academic study of
M.B.A course.
LIMITATIONS OF THE STUDY

Whenever there is a task to be completed, it cannot be perfect because of a lot of

constraints behind its completion. There are lot of areas which are not covered in the
project. However I have tried my best to collect relevant information, yet there are some
limitations which are enumerated below:

It takes a lot of time to understand the working capital of a company but the time frame
of the training was just eight weeks. Still I have tried my best to know much more about

the company.
It was not possible to see the data of the company because of its sensitivity.
Estimates are based upon predictions only.

FUTURE DIRECTION FOR THE PROJECT

Better credit policies and collection policies can help the company is reducing the
average collection period and also expand on the number of people who can go for credit
purchase and in turn increase the receivables and the customer reach. Company can use

legal ways or through collection agencies to keep a strict check on the defaulters.
NFL has a high inventory holding period, considering that the production is done with
gas and coal. With the conversion of all plants to gas based plant, the company should
strive for a minimum inventory concept, as pipelines are used to provide these plants with

gas continuously.
The D/E ratio of the company is low and it wants to be a zero debt company. But with the
low supply of fertilizer in the Indian market, NFL can use this opportunity to expand its
production and market share in the Indian market, which is the mission of the company.
With a low D/E ratio, company is in a good position to get loans at low interest rate,

which can be a good opportunity of NFL.

Liquidity of the company is good, but can be considered on a little higher side. So
company should try to make use of every opportunity to make use of the available liquid

money for some investments.

Since petroleum products form part of the raw materials, company can use hedging

methods to counter the variation in its prices.

The amount of sundry debtors forms 44 percent of the current assets. Company should
find ways to reduce it and make use of this money for expansion plans which will bring
NFL more sales.

There are various global challenges that are faced by every company n the present
competitive environment and NFL is not any exemption. To face the present global
challenges the human resources department should be develop to improve various skills
among the employees specially the motivational skills and having the regular training for

the employees about various developments in the market.

NFL right now has only three zonal offices Chandigarh, Lucknow and Bhopal.
Company should try to expand its zones to the south too, as they are also one of the most
farming intensive states.

REFERENCES
1.
2.

Annual report of National Fertilizers Limited. (From 2012-13 to 2013-14)

National Fertilizers Limited, About Us, Retrieved April 16,

3.

www.nationalfertilizers.com/about.htm
National Fertilizers Limited, Industrial Products, Retrieved April 16, 2014 from

4.

www.nationalfertilizers.com/indlprod.htm
National Fertilizers Limited, Financial Performance, Retrieved April 16, 2015 from

5.

www.nationalfertilizers.com/production.htm
National Fertilizers Limited, Major Awards and Recognitions, Retrieved April 16, 2011

6.

from www.nationalfertilizers.com/awards.htm
A. Vijay Kumar & Dr. A. Venkata Chalam (1995), "Working Capital & Profitability -an

7.

empirical analysis", The Management Accountant, October 95, Vol. 30 No.10, pp 748- 50
A.Vijay Kumar (2014), Working Capital Management, Northern Book Centre, New Delhi

2014

from