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TRACY BAZIL
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I the under signed TRACY BAZIL declare that the project report entitled “A
STUDY ON WORKING CAPITAL MANAGEMENT IN HINDUSTAN
NEWSPRINT LIMITED, KOTTAYAM” submitted by me under the guidance of
Mr JAISHU ANTONY MANAVALAN in partial fulfillment of the requirement
for the award of the degree in MBA is my original work. The impartial findings in
the report are based on the data collected by myself and I have not copied from any
report submitted to any university either this or in the previous report year.
PLACE:
CHAPTER ITEMS
PAGE NO:
List of tables
List of figures
1 Introduction
• Research methodology
• Research design
• Data source
2 Industry profile
• Paper
• World scenario
• Indian scenario
• State scenario
3 Company
• Production summary
• Financial results
• Introduction
• Current ratio
7 Bibliography
Annexure
EXECUTIVE SUMMARY
This study concentrates on the main components of working capital like inventory
management, accounts receivable management and cash management of HNL for the period F.Y
2004-2009. The tools used in this study includes ratio analysis, trend analysis and percentage
method.
CHAPTER-1
INTRODUCTION
INTRODUCTION:
Every business whether big, medium or small, needs finance to carry on its
operations and to achieve its target. Infact, finance is so indispensable today that its
rightly said to be the lifeblood of an enterprise. Without adequate finance, no
enterprise can possibly accomplish its objectives. So this chapter deals with
studying various aspects of working capital management that is necessary to carry
out the day-today operations. The term working capital refers to that part of firm’s
capital which is required for financing short term or current assets such as cash,
marketable securities, debtors and inventories funds invested in current assets
keep revolving fast and are being constantly converted in to cash and this cash
flows out again in exchange for other current assets. Hence it is known as revolving
or circulating capital. On the whole, Working Capital Management performs a key
function and is of top priority for every finance manager. All managers must,
however, keep in mind that n their pursuit to liquidity, they should not lose sight of
there basic goal of profitability. They should be able to attain a judicious mix of
liquidity and profitability while managing their working capital.
PRIMARY OBJECTIVE:
1. To analyze the firm’s Working Capital position.
SECONDARY OBJECTIVE:
3. To study the financial performance of the company for the last 5 years.
The study is on working capital management of Hindustan Newsprint Ltd, Kottayam. The study
furnishes the management of idea about the performance of working capital of the company.
Management of working capital refers to management of current assets, current liabilities and
relationship between them. The basic goal of working capital is to maintain the satisfactory level
of working capital. A sound working capital policy ensures higher profitability and proper
liquidity of a firm. Every business needs funds for two purposes: for its establishment and to
carry out its day to day operations. Similarly HNL also need funds to carry out its operation and
establishments. For this purpose it is important for the company to manage its short term assets
and liability.
Working capital is quite essential for the working of any business. For a good
manufacturing company, some basic capital for producing the goods is required before it starts
selling them. It has to take care of production expenses, administration expenses as well as
selling expenses. Moreover, since business is usually done on credit, there is a time lag between
the date of sale and date of receipt of revenues, which can be as high as 90 days at times.
Considering all these, it is essential that a company has sufficient capital to keep it going before
it coverts its purchases into goods and then finally into cash.
Each and every study has its own scope. This project intends to study the working capital
position of the HNL.This study helps to identify the areas that could be improved. Further
suggestions were quoted which the company could use it in the future program enhancing better
utilization of all resources.
METHODOLOGY
The study exhibits both descriptive and analytical character. Regarding the theoretical concept it
is descriptive since it interprets and analysis the secondary data in order to arrive at appropriate
conclusion, it is also analytical in character. The interpretation of data is done based on ratio and
percentage
PRIMARY
Primary data has been obtained through personal discussions with managers and senior officials
of the organization.
SECONDARY
Secondary data’s has been obtained from published reports like the annual reports of the
company, balance sheets, and profit and loss account, booklets, records such as files, reports
maintained by the company. Mainly the annual report consists of two parts;
2) Balance Sheet
Profit and loss account reveals the income and expenditure of the company. Balance Sheet
reveals the financial position of the organization. Those two statements are prepared by the
highly qualified and experts with the help of available information or data.
1. Trend Analysis
2. Ratio Analysis
PERIOD OF STUDY
The present study deals with the data collected from the annual reports and other relevant
documents for the period commencing from 2004-2005 to 2008-2009.
LIMITATIONS
The data’s were collected mainly on the basis of secondary data. So all the limitations of
secondary data are applicable.
INDUSTRY PROFILE
INDUSTRY PROFILE
Paper is one of the important industrial products used for the production of books, magazines
and newspaper. Educational, government and industrial sectors cannot operate without paper.
Other important paper products include cardboard, which is used in packing and adsorbent paper
such as tissue and towels. The different type of the paper being produced is paper, paperboards
and newsprint. Newsprint is a major material input into production of newspapers. During the
course of analysis of the paper industry there is an imperative need to study the prospects of
newsprint industry.
Prior to 1956, India did not have any newsprint mill. Hence, imports alone met the demand
for newsprint in India. It was only in early 1956 that the first mill, owned by government, came to
produce newsprint in India. Since then additional government-owned and many private mills had
sprung up. At present, the newsprint manufacturing industry consists of 73 mills. Five of the mills
are “large”, and these account for about one-third of the total installed newsprint capacity in India.
However, by current international trends it is debatable whether all five mills can be regarded as
“large.” The industry, consisting of many small mills that use obsolete technology and machines,
is further characterized by relatively high costs of papermaking fibre, energy and transport.
India turned into a significant net importer of newsprint in 2005, when it was the world’s fifth
largest importer of newsprint. The top four world importers in descending order were the United
States of America, the United Kingdom, Germany and China. Leading suppliers of newsprint to
India were Canada and Russia, together accounting for 60-70 per cent of India’s total imports.
In 2005, India’s net imports satisfied 53 per cent of its total consumption of 1.3 million tons
of newsprint. To put India’s newsprint consumption in perspective, Australia’s newsprint
consumption for the same year was 0.8 million ton and Korea’s 1.0 million ton. Continuing with
international comparison: India was the third largest consumer of newsprint in Asia, with Japan
the second largest at 3.9 million tons and China the largest at 4.1 million tons.
Based on the estimated model and specific assumptions about future prices of newsprint and
economic growth rates, we forecast that consumption of newsprint in India could be 3.1 to 3.7
million tons by 2010.
The demand of the newsprint is dependable on literacy rate of the population, number of
magazines and newspaper etc. The increase in rate of literacy now will hike newsprint demand.
It’s estimated that newsprint segment will grow by 6-7% in the next coming years.
WORLD SCENARIO
International trade in the paper industry has not been significant. In the world, United States
consumption of paper and cardboard averages about 300 kilogram per person each year. Nearly
64 million metric tons of paper and cardboard are produced in the United States annually. Paper
industry tends to be concentrated in those countries that are industrially advanced and have
abundant supplies of fibrous raw material wood.
There is large-scale international trade for wood pulp; pulpwood is flowing from those countries
with large forest resources to those countries that are under-developed. The Chinese are credited
with the invention of paper in AD 105. From China the knowledge of papermaking traveled
gradually westward and the Arabs are known to have made paper in the eighth century. As the
art progressed westward through Morocco and through Spain in Europe, the process was
constantly improved.
The major restructuring programmes embarked upon world’s leading paper companies in 2005
will not begin to be reflected in full year results until the end of the 2006 financial year. Hence
International Paper, Stora Enso and Svenska Cellular (SCA) retained their one-two-three spot in
Paper and Pulp International top 100 for 2005 and each with an increase in net sales. For the top
100 as a whole, net sales from pulp paper and converting operations were up 3.7% and $ 281,
175.6 million. Earning however remained depressed at a combined total of $ 17, 905.1 million,
compared to $ 19,764.4 million for same for same top 100 companies year earlier.
The future of this industry is very bright. Word paper and board demand has grown rapidly over
three consecutive years reaching to a record of 359 million tons in 2004. The growth has been in
the east and south, namely Asia-Pacific, Eastern Europe and South America. The new forecast
for long term paper demand and supply looks at what seems contradictory-a slowing demand but
an explosive growth. The shift in growth from west to east and from north to south was particular
dramatic in 2001 to 2204. In this period Asia accounted for 64% of the global demand growth,
while North America and Western Europe contributed only 11% and 10% respectively. Eastern
Europe only has 4% of global market, but earned 9% of the global demand growth in that period.
If prospects are modest in the industrial west, they are dramatic in the BRIC countries with
Asia’s share of global production raising from 35% to 42% Asia will be responsible for 60% of
the growth of which china and India will be the leaders.
INDIAN SCENARIO
Newsprint is a special type of paper used in newspaper and magazines. At present there are 22
newsprint-manufacturing units in our country with a total capacity of 600000 TPA, of which 5
public sectors unit alone constitutes 63% of the total capacity. Demand for newsprint, which is
dependent on the literacy rate and growth of newspaper and magazines publishing industry has
increased every year. Imports have a significant impact on the industry. Newsprint pricing is
expected to grow by around 6.5% per annum while supply may grow at a much slower pace The
total manufacturing capacity of 6 Lakhs tons constitutes by 22 mills manufacturing newsprint in
the country, of which 5 are public sector units. Wood based units constitute about 58% of the
total capacity while agro and waste paper based unit’s accounts for 23% and 19% of the
newsprint capacity respectively. All public sector units with the exception of TNP are wood
based.
The paper industry in India is more than a century old. At present there are over 600 paper mills
manufacturing a wide variety of items required by the consumers.
These paper mills are manufacturing industrial grades, cultural grades and other specialty
papers. The paper industry in India could be classified into 3 categories according to the raw
material consumed.
1. Wood based
2. Agro based &
3. Waste paper based
While the numbers of wood based mills are around 20 and balance 580 mills are based on non-
conventional raw materials.
The Govt. of India has relaxed the rules and regulations and also relicensed the paper industry to
encourage investment into this sector and joint ventures are allowed and some of the joint
ventures have also started in India. The paper industry in India is looking for state-of-art
technologies to reduce its production cost and to upgrade the technology to meet the international
standards.
It is estimated that the paper industry would be growing at the present rate of 7-8% of
compounded rate and would require 9.5-10 million MT by the end of the decade from the
existing production of around 6.7 million tones.
• The demand is growing @ 7% to 8% CAGR per Annum and is likely to reach to 9.5-10
million MT by the end of decade
• Projected Demand in Million Tones is 8.100 by 2006-07, 8.500 by 2007-08 and 9.00
respectively.
The Indian paper industry has been exposed to direct competition from international players in
the recent times after import duties where lowered to favor the entry of such competitors. From
a height of 140%, the duties were reduced to a low of 20% in as span of 5 years. The import
duties have been currently fixed at 30%. The newsprint mills have been adversely affected by
this decision of the government. Due to overall all rise in costs, the paper mill began activities to
generate the economies of scale .Several of the mills went on a cost cutting measure by
generating their own power and electricity via co-generation. The medium sized paper mills too
followed the suit observing the success of the large scaled mills. In spite of these measures being
taken ,the Indian paper industry still confronts various other challenges, such as uncertain
market condition. Due to these reasons some small companies are compelled to shut down as
they could not meet the rising cost of operation and could not confirm to the norms and standards
set by Pollution Control Board.
The share of newsprint in the total cost of production of newspapers is likely to vary across
newspapers and over time. However, the fact that this share for the Hindustan Times group of
newspapers in India is currently around 40 to 50 per cent shows that newsprint is a major
material input into production of newspapers (HT Media Ltd, 2006).
Over the 25 years, production, imports, exports and consumption of newsprint in India have all
had rising trends . Some computed trend growth rates indicated that the average annual growth
rate of production was 7.6 per cent, imports 5.4 per cent and consumption 6 per cent. In the first
half of the period, the consumption growth rate was 3.8 per cent a year; the rate more than
doubled to 8.8 per cent in the second half, indicating acceleration in newsprint consumption by
India's newspapers.
STATE SCENARIO
Hindustan newsprint ltd is a government company in the central public sectors. Hindustan
Newsprint Ltd was incorporated as a wholly owned subsidiary of the Hindustan Paper
Corporation limited (HPC) on June 07, 1983. HNL produces exceptional quality newsprint for
the Indian and International market. The strength properties of HNL newsprint are comparable to
the best in world market. In 1998, HNL became the first newsprint manufacturers in the country
to achieve the coveted ISO-9002 certification.
CHAPTER-3
PROFILE
COMPANYPROFILE
The core competence of HNL lies in its highly skilled technical manpower, which is rated as the
best in the domestic Newsprint industry and the quality of its product , which is comparable with
international standards. The fact that HNL maintains its profitable track record in a very
challenging post-liberalized business environment characterized by abysmally low import duties
(3%) which is quite lower than even the WTO bound rates (25%) without any protection, support
or preferential treatment stands testimony to the international competitiveness of the company.
Business mission
“The objective of HNL is to be a dominant player in Indian pulp and paper industry by adopting
world class environment friendly technologies and best practices”.
Today, HNL produces exceptional quality newsprint for the Indian and International market. The
strength properties of HNL newsprint are comparable to the best in world market. It is a matter
of great pride for the company that its product is always compared with imported newsprint.
HNL, with its state-of-the-art technology, has emerged in its short span of operations as a
company that is truly contemporary in a global context.
The Quality Management System has been recertified to ISO 9001: 2000 in November 2002.
HNL is also certified to ISO 14001: 1996 in October 2000 for its Environment Management
System. The QMS was recertified in 2003. Fully integrated enterprise resource planning (ERP)
system in vogue since the year 2001 has enabled the company to streamline the processes and
procedures and made it an agile user of IT.
Presently, the company is in the process of implementing a strategic business plan for up scaling
its production capacity with up gradation of the product portfolio. Cabinet committee on
economic affairs (CCEA), Government of India has accorded approval for the project on May 9,
2006. The expansion cum diversification project(EDP),includes a 1,70,000 tons per annum paper
machine ,100 tons per day De-inking plant and a power block consisting of a 150 tons per hour
boiling and a 25 MW Turbo generator with all the associated facilities.
EDP is a brown field project. It would closely integrate the present manufacturing facility with
the proposed one. The EDP configuration is tightly optimized by maximizing the utilization of
present space, land, infrastructure, and auxillaries etc.Environment-friendly and state -of -the -art
technology solutions are formulated as part of the process configuration. The product grades
from the EDP are slated to compete with the best in class . Maphlitho/non-surface sized paper,
copier paper and film coated varieties are included in the product portfolio of EDP.
With the launch of EDP, HNL expects to seize the emerging opportunities in the writing and
printing segments of the industry. In addition, EDP will upscale the capacity to reasonable levels
while significantly mitigating the risks inherent with a single product.
The Company has established an OH&S Management system in accordance with the
requirement of OHSAS standard, 18001:2007. The Occupational Health and Safety Assessment
Series (OHSAS) specification gives requirement for an Occupational Health and Safety
Management System to enable the organization to control its OH&S risk and improve its
performance. A system of this kind enables an organization to develop an OH&S policy,
establishes objectives and processes to achieve the policy commitments, take action needed to
improve its performance and demonstrate the conformity of the system to the requirements
OHSAS standards to support good OH&S practices, in tune with Socio-Economic needs.
HNL’S credentials in pollution control and in piloting environment friendly methodologies for
newsprint production have been widely acknowledged. Kerala state pollution control Board has
awarded the company with first place among among large scale industries in the year 2005 and
second place in 2006 in making substantial and sustained efforts in pollution control. HNL has
been ranked with ‘two leaves ‘rating in the green rating exercises conducted in the years 1999
and 2004 by centre for science and environment (CSE) New Delhi.
At HNL, pollution control is an integral part of production. In tune with National priorities and
social obligations, HNL has adopted a policy of reciprocating the gifts of nature.
The effluent treatment system initially installed at a cost of Rs.46 million has been upgraded in
1994 with an additional investment of Rs.52 million. Annually the company spends Rs.25
million for effluent treatment. In-plant control measures have substantially lowered fresh water
consumption. Generation of waste water is minimal and in keeping with the national standards.
HNL is the only mill in the country, which, in addition to meeting all parameters for effluent
treatment, decolorizes the effluent before discharge. HNL is also the first to substitute 90% of
chlorine in bleaching with environment friendly Hydrogen peroxide thereby reducing toxic
discharges.
• HNL has been successful in bringing down solid waste to near zero level.
• Entire fly ash has been utilized by an auxiliary unit for producing Portland Pozzolona
cement.
• Lime sludge is reburned to produce the lime required in the production process.
• Chipper waste, DIP sludge and effluent sludge are utilized as secondary fuel in FBC boilers.
HNL has Electro Static Precipitators (ESP) and Dust Collectors to control atmospheric
pollution and to preserve the lush green vegetation of over 30,000 trees around the plant, this is
no small achievement. The United Nations Environmental Programme (UNEP) has selected
HNL as the model paper mill in the Asia Pacific Region under its NIEM programme. Besides
this, HNL has bagged the Kerala State Pollution Control awards in 1997-98, 1999-2000 and
2002 for the best pollution control measures and processes adopted in the mill.
A survey of the Indian Pulp and Paper Industry, the first-ever "Green Rating" exercise in the
country by the Centre for Science and Environment (CSE) and supported by the Union Ministry
of Environment and Forest and the United Nations Development Programme (UNDP) has rated
HNL among the first five environment friendly paper mills.
• Suitable to run with the modern high printing process without any break.
• Capacity to absorb instantaneously the mineral oil present in the printing ink to avoid
blurring of impression.
The Environmental Management System which has been ISO 14001 certified since October
2000 is in place in the company, focusing on continual improvement in pollution abatement
measures and adhering to the norms prescribed by the Kerala State Pollution Control Board. The
Company has already met the majority of action points as per charter on Corporate
Responsibility for Environmental Protection (CREP).
The company has given due importance to the development of Human Resources by imparting
need based training to the employees to equip them to meet their individual task demands as well
as organizational objectives.
Management of the company is vested in the hands of Board of Directors, including a chairman.
The number of directors of the company should not be not less than two and more than twelve.
The chairman and M.D of HPC (Hindustan Paper Corporation) shall be chairman of the
company and all other directors are appointed by HPC with the approval of the President of
India. Presently,Sri. Raji Philip is the chairman and Sri. N. P. Prabhu is the MD of the company.
AWARDS
MOU Excellence Award
Hindustan Paper Corporation was bestowed with the prestigious MoU Excellence Award for
performance during the FY 2005-06.
Hindustan Newsprint Limited has been selected for the certificate of Merit in the Pulp and Paper
sector for the National Energy Conservation Awards-2005.
Hindustan Newsprint Limited bagged the second prize for pollution control activities in the
category of large-scale industries, instituted by Kerala State Pollution Control Board for the year
2007.The award was a true recognition to the sustained efforts and commitment of HNL in
preserving the environment
Productivity Award
Hindustan Newsprint Limited got productivity award for the year 2007-2008.
Production Process
a) Input Requirements
• Old Newspaper (ONP) and Old Magazines (OMG) for De-Inking Plant
• Chemicals used in pulp and paper making like caustic soda, hydrogen peroxide etc.
HNL meets a major portion of its requirement for fibrous raw materials from forest sources. The
credit for the superior quality of HNL newsprint goes to the unique raw material: Reed
(Ochlandra travancorica) which is a specialty of Kerala forests. The company has a long-term
agreement with the Government of Kerala for the supply of Eucalyptus wood and Reed from
state forests. Dwindling forest resources has led to this supply getting diminished in the past few
years.
• Raising captive plantations using own resources and technical know-how on land allotted
for that purpose by Govt. of Kerala, and also on vacant land made available by various
institutions like Railways.
• Procuring raw materials from neighbouring states where they are available.
• Buying Eucalyptus, Bamboo and other 'pulpable' raw materials from local suppliers and
farmers directly under "Purchase at Gate" scheme.
• High yielding clonal pulp wood plantlets developed at HNL clonal complex are also
distributed at subsidised rates. Approximately 155 lakh seedlings have been distributed
through this scheme among farmers all over Kerala.
Newspapers printed on HNL newsprint greet millions of Indians daily morning. It is the
information carrier to millions. HNL Newsprint is preferred by the major publishing houses in
the country. Malayala Manorama, Mathrubhumi, Deshabhimani, Kerala Kaumudi, Mangalam,
Madhyamam, The Hindu, The New Indian Express, Sanmarg, Ananda Bazaar Patrika, Eenadu,
Vartha, Andhra Jyothi, Vijay Anand Printers, Deccan Chronicle, Deccan Herald, Lokprakashan,
Dinamalar, Sandesh, Thuglak, Kalki, Rashtra Deepika, Chandrika etc. are the majors among
HNL customers across the country. HNL is also establishing its market in Srilanka and Malaysia.
HNL has a rich pool of qualified and experienced managerial and technical personnel with
total staff strength of 1035 permanent employees, out of which 761 employees (74% of the total
manpower) are technical staff, 89 supervisors and seniors, 185 officers. The company has a good
strength of contract workers also. The company has a harmonious industrial relation with the
management and trade unions.
The following four shifts are practicing at HNL i.e. General shift, A Shift, B Shift, C
Shift. The timing is as follows:
A Shift: 6 AM to 2 PM
B Shift: 2 PM to 10 PM
C Shift: 10 PM to 6AM
HNL has made steady progress in all its activities ever since its commissioning in the early
1980’s. Production, productivity and profitability were continuously registering upward trends.
During the year, 2003-04, HNL could achieve a peak production of 1, 12,555 tonnes of 49/45
GSM Newsprint. In matters of Human Resource development, HNL has made spectacular
progress. The officers and employees have been continuously upgrading and sharpening their
knowledge skills and innate capabilities. They form a dedicated and committed team. It is this
dedicated team of officers and employees, which is responsible for the continuous progress made
by the company in fulfilling its objective.
PRODUCT PROFILE
HNL produces a wide range of newsprint grades. Initially, the company was producing 52 GSM
(Grams per Square Meter) newsprint. Later, to meet changing market demands, HNL
commenced production of 48.8 GSM newsprint. As requirement for newsprint with still lower
GSM increased, HNL started production of 45 GSM newsprint also. HNL maintains consistent
quality in all grades of newsprint that it manufactures. At the time of commissioning in 1982,
HNL was producing newsprint having brightness of just 48-50 % ISO. Later, it switched over to
a superior and eco-friendly technology in bleaching using Hydrogen Peroxide (H202). This
change enhanced the brightness to 53-55% ISO. The company’s competitors soon followed suit.
Always a step ahead, HNL further advanced the brightness levels and is at present producing
newsprint with 55 - 58 % ISO.
Salient Features
Grammage 48.8 / 45 GSM
Colour Standard / Pink
Brightness 55 - 58 % ISO
Size of reel 34 cm to 163 cm
Today, brightness level is at par with that of imported newsprint. Further improvements are
possible by putting a premium value on the product.
In terms of quality, HNL newsprint has an enviable position in the domestic newsprint market
being comparable to the world-class product standards. HNL is highly customer focused and
cherishes good relationship with them. Regular visits are made by HNL’s production managers
to newspaper establishments to understand the customers’ demands. It is found that press room
operators favour HNL newsprint for its excellent runability and printing properties. The
production technology at HNL is modified to match exacting requirements of sophisticated high-
speed printing machines. The quality of the product is given primary importance in the quality
policy at HNL.
Newsprint is the major input for the newspaper industry. Quality newsprint provides excellent
prints to satisfy the discerning and demanding readers - the ultimate customers of the product
HNL commands leadership position in the domestic newsprint market. HNL’s current product
range is from 48.8 GSM to 45 GSM, standard and pink newsprint. Quality of HNL newsprint is
well accepted in the market and services of HNL's marketing department have been appreciated
by customers across the country.
Today, HNL produces exceptional quality newsprint for the Indian and International market.
The strength properties of HNL newsprint are comparable to the best in world market. It is a
matter of great pride for the company that its product is always compared with imported
newsprint. HNL, with its state-of-the-art technology, has emerged in its short span of operations
as a company that is truly contemporary in a global context.
During the year 2008-2009 under review company could reach almost equal levels of operational
performance when compared with previous year. The company as a whole was dismaying with
the production of 1,08,005MTY as against the highest ever achieved production of 1,16,111 MT
in the previous year and sales of 87,476MT with sales turn over of Rs 297.67in the year ending
31st march 2009against 116111MT at a value of Rs 298.61 crore during the previous year.
The highlights performance of the company during financial year 2008-2009 together with
corresponding figure for the previous year are given below:
PRODUCTION SUMMARY
2008-2009 2007-2008
INSTALLE
PARTICULA D PRODUCTIO CAPACITY PRODUCTIO CAPACITY
Saleable news
print 100000 108005 108 116111 116
Chemi
mechanical 60000 50118 84 50846 85
pulp
FINANCIAL RESULTS
Interest 59 134
• Establishment section.
• Work section.
• Sales section.
• Cash section.
• Purchase bill section.
• Price stored ledger section.
• Raw material section.
• Compilation section.
• Costing and MIS section.
• Insurance
• Establishment section:
The establishment section‘s function are the preparation of salary, PF accounting, income tax,
ESI accounting, leave accounting, accounting of loans and advances, bonus calculations,
incentive calculation etc. The functions of this section are:
• Work section.
Work section deals with various contracts for issuing the work order and also checks the bills
received from contractors duly certified by concerned departments and makes the payments.
Work section also prepares the journal entries for general ledger. The entries are done manually.
Making payments for civil, mechanical, electrical and other contract bills.
Maintaining the EMD and security deposit register.
Maintaining records for bank guarantee.
Preparation of contractor sub ledger.
Preparation of annual accounts closing schedules.
• Sales section
Sales section receives the dispatch advices, RNI allocation etc from the distribution section and
forwards to the compilation section for preparing invoice and sales accounting. Based on the
output received from compilation section the necessary journal entries are prepared for general
ledger. Computer section also maintains sundry debtors sub debtor.
• Cash section.
Cash section prepares all bank vouchers for the receipt. All the cash/bank vouchers for payment
are received in the cash section from various sections. These vouchers are sent to the compilation
section. This data is maintained in the compilation section for the general ledger.
Making payments for purchase of the spare parts, consumable stores, diesel oil, lubricant
chemical, craft paper, stationery, items, medicines, coal, capital items, and imported items.
Payment of transportation bills of authorization transporter.
Marinating EMD and SD register.
Marinating records for bank guarantees follow up action for extension.
Deduction and remittances of income tax.
Valuation of GRV’s and adjusting advances.
Compilation of purchase analysis and preparation of journal vouchers for final accounts.
Preparation of sundry creditors sub ledger.
Preparation of closing schedules.
To ensure adequate insurance cover for all the fixed assets, stock, plantation, cash, goods-in-
transit etc.
Reduce cost o insurance premium.
To ensure claims for the loss risen at times.
To follow up the claims to ensure speedy settlement.
CHAPTER -3
THEORETICAL REVIEW
BACKGROUND OF THE STUDY
In our present day economy, finance is defined as the provision of money at time when it
is required. Every business whether big, medium or small, needs finance to carry on its
operations and to achieve its target. Infact, finance is so indispensable today that its rightly said
to be the lifeblood of an enterprise. Without adequate finance, no enterprise can possibly
accomplish its objectives.
Working capital management deals with the most dynamic fields in finance, which needs
constant interaction between finance and other functional managers. The finance manager acting
alone cannot improve the working capital situation.
In recent times,a few case studies regarding management of working capital in selected
companies have been in order to make in-depth analysis of the several experts of working capital
management, The finding of such studies not only throws new lights on the technical loopholes
of management activities of the concerned companies , but also helps the scholars and
researchers to develop new ideas ,techniques and methods for effective management of working
capital.
An effort has been made to make an in-depth study of working capital management with special
reference to Hindustan Newsprint Limited, Kottayam.
LITERATURE REVIEW
WORKING CAPITAL MANAGEMENT
The funds required by every business organization can be broadly classified in to fixed
capital and working capital. Fixed capital is need for the acquisition of fixed assets. Fixed assets
constitute the basic tools or the means of production. Investment in fixed assets by itself is dead
investment and the funds so locked up do not circulate. In the same every business organization
requires some funds to carry on its operations and to produce goods for sale to earn profit. These
funds, which are represented by the current capital used through the various stages of production
and distribution, are invested in current assets.
“Working Capital” is the capital invested in different items of current assets needed for
the business, Viz, inventory, debtors, cash and other current assets such as loans & advances to
third parties. Those current assets are essential for smooth business operations and proper
utilization of fixed assets. The firm should maintain sufficient level of working capital to
produce upto a given capacity and maximize the return on investment in fixed assets. Shortage of
working capital leads to lower capacity utilization, lower turnover and hence lower profits.
Working capital, in excess of the amount required to produce to full capacity, is idle and
consequently leads to decline in profits. Hence the dictum “Adequacy is a virtue, surfeit is not”.
If the firm has inadequate working capital, it is said to be under-utilized. Such a firm runs
the risk of insolvency. This is because, paucity of working capital may lead to a situation where
the firm may not be able to meet its liabilities. It is interesting to note that may firms which are
otherwise prosperous (having good demand for their products and enjoying profitable marketing
conditions) may fail because of lack of liquid resources.
ON THE BASIS OF
ON THE BASIS OF TIME
CONCEPT
Under the Balance Sheet concept, there are two interpretations of working capital:
In a narrow sense, the term working capital refers to the net working capital. Net working capital
is the excess of current assets over current liabilities.
Net working capital may be positive or negative. When the current assets exceed the current
liabilities, the working capital is positive and the negative working capital results when the
current liabilities are more than the current assets.
The task of the financial manager in managing working capital efficiently is to ensure sufficient
liquidity in the operations of the enterprise. The liquidity of a business firm is measured by its
ability to satisfy short term obligations as they become due. Net working capital as a measure of
liquidity is not very useful for comparing the performance of different firms, but it is quite useful
for internal control. The net working capital helps in comparing the liquidity of the same firm
overtime. For purpose of working capital management, therefore, net working capital can be said
to measure the liquidity of the firm. In other words, the goal of working capital management is to
manage the current assets and liabilities in such a way that an acceptance level of net working
capital is maintained.
Working capital management is concerned with the problems that arise in attempting to manage
the current assets, the current liabilities and the interrelationship that exists between them. The
term current assets refer to those assets which in the ordinary course of business can be, or will
be, converted into cash within one year without undergoing a diminution in value and without
disrupting the operations of the firm. The major current assets are cash, marketable securities,
accounts receivable and inventory. Current liabilities are those liabilities which are intended, at
their inception, to be paid in the ordinary course of business, within a year, out of the current
assets or earnings of the concern. The basic current liabilities are accounts payable, bills payable,
bank overdraft, and outstanding expenses.
The goal of working capital management is to manage the firm’s current assets and liabilities in
such a way that a satisfactory level of working capital is maintained. The current assets should be
large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each
of the short term sources of financing must be continuously managed to ensure that they are
obtained and used in the best possible way. The interaction between current asset and current
liabilities is, therefore, the best main theme of the theory of working capital management.
Working capital is very essential to maintain the smooth running of a business. No business can
run successfully without an adequate amount of working capital. Working capital management is
concerned with the problems that arise in attempting to manage the current assets, current
liabilities and the inter-relationship that exists between them. In other words, it refers to all
aspects of administration of both current assets and current liabilities.
The sources of working capital can be divided as Long-term source of working capital and
Short-term source of working capital. Long-term funds are required to create production
facilities through purchase of fixed assets such as plant and machinery, land and building, etc.
Investments in these assets represent that part of firm’s capital is blocked on a permanent or
fixed basis and is called fixed capital. Short-term funds are needed to manage the day-to-day
operations of the organization. It is a temporary working capital.
Working capital for the long-term purposes can be obtained by several ways. There are different
sources of long-term working capital:
1. Issue of shares.
2. Issue of debentures
3. Retained earnings
2. Credit paper.
3. Bank credit.
4. Public deposits.
5. Government assistance
6. Customer credit
The need of working capital varies from month to month, year to year. For determining the
working capital needed by a business unit there is no set of rules to formulate. In order to
determine the proper or optimum amount of working capital of a business unit various factors
should be considered carefully as each of them having own importance and the importance of
various factors changes for a business unit overtime.The main factors that determine the working
capital requirements of the organization are as follows:
c) Production cycle
d) Business cycle
e) Production policy
f) Credit policy
i) Profit level
k) Depreciation policy
The size of business has also an important impact on its working capital needs. Size of a business
unit may be measured in terms of a scale of operation. Bigger the size of business unit, the larger
will be the amount of working capital required as because the larger business units are required
to maintain huge inventories and also spend more in carrying out the business operations
smoothly. A business unit carrying on activities on a small scale needs less working capital.
c) Production cycle
It refers to the time involved in the manufacture of goods. It covers the time-span between the
procurement of raw materials and the completion of the manufacturing process leading to the
production of finished goods. Funds have to be necessarily tied up during the process of
manufacture, necessitating enhanced working capital. The longer the time-span the larger will be
the tied-up and therefore the larger is the working capital needed and vice versa.
d) Business cycle
The working capital requirements are also determined by the nature of business cycle. Business
fluctuations leads to a cyclical and seasonal changes that, in turn cause a shift in the working
capital position, particularly for temporary working capital requirements. The variations in
business conditions may be in two directions;
Upward phase: When boom conditions prevail, Downswing phase: When economic activity is
marked by a decline. During in the upswing of business activity, the need for working capital is
likely to grow to cover the lag between increased sales and receipt of cash as well as to finance
purchase of additional material to cater to the expansion of the level of activity.
e)Production policy
The quantum of working capital is also determined by the production policy. The case of certain
lines of business, the demand for the product is seasonal. In such a case there are two options:
either they confine their production only to periods when goods are purchased or they follow a
steady production policy throughout the year and produce goods at a level to meet the peak
demand. The former option is inconvenient. The second option would require a sufficient
amount of working capital.
f) Credit policy
The credit policy relating to sales and purchases also affects the working capital. The credit
policy influences the requirements of working capital in two ways. (1) Through credit items
granted by the firm to its customers; (2) the credit term available to the firm from its creditors.
As a company grows, the working capital requirements will be more. It is very difficult to
determine the relationship between the volume of business of a company and the increase in its
working capital. The composition of working capital in a growing company also shifts with
economic circumstances and corporate practices. Other things being equal, growing industries
require more working capital than those that are static.
The availability or otherwise of certain raw materials on a continuous basis without interruption
would sometimes affect the requirement of working capital. There may be some raw materials
which can’t be procured easily either because of their sources are few or they are irregular. To
sustain smooth production, therefore, the firm might be compelled to purchase and stock them
far in excess of genuine production needs. This will result in an excessive inventory of such
materials. Hence the volume of working capital to be kept will be increased.
i) Profit Level
The level of profits earned differs from enterprise. Higher profit margin would improve the
prospects of generating more internal funds thereby contributing to the working capital pool. The
net profit is source of working capital to the extent that it has been earned in cash.
k) Depreciation policy
The depreciation policy through its effect on tax liability and retained earnings has an influence
on working capital. Depreciation is tax deductible. Higher the amount of depreciation the lower
the tax liability and more the cash profit. Similarly, the amount of net profits will be less if
higher depreciation is charged. If the dividend policy is linked with net profits, the firm can pay
fewer dividends by providing for more depreciation. Thus, depreciation is an indirect way of
retaining profits and preserving the firm’s working capital position.
There are two steps involved in working capital management. They are
a. Management of inventory.
c. Management of cash.
a. Management of inventory
Establishing time schedules, procedures and lot of sizes for new orders.
Arranging the receipts, disbursements and production and procurement of materials and
It is the process of weighting the benefits as well as the costs of investments on accounts
receivables and taking such steps as regards as investment on accounts receivable which will
result in maximum results or benefits to the firm.
In other words, it means the maintaining of the accounts receivables at an optimum level or point
i.e., at such a level or point at which there is a trade off or balance between profitability and
costs.
It involves:
• Control of the maintaining the accounts receivables at the minimum possible level.
c. Management of cash
Cash management involves the efficient collection and disbursement of cash and any temporary
investment of cash while it resides with the firm. It is concerned with the managing of cash flows
into and out of the firm, cash flows with in the firm, and cash balances held by the firm at a point
of time by financing deficit or investing cash surplus.
There are two methods which are usually followed in determining working capital requirements.
There are:
1. Conventional method
According to the conventional method cash inflows and outflows are matched with each other.
Greater emphasis is laid on liquidity and greater importance is attached to current ratio, liquidity
ratio, etc…which pertains to the liquidity of a business.
In order to understand what gives rise to differences in the amount of timing of cash flows, one
should first think of the length of time which is required to convert cash into resources, resources
into final product, final product into receivables, receivables back into cash. The length of the
operating cycle is a function of a nature of a business. There are four major companies of the
operating cycle of a manufacturing company. These are:
• The cycle starts with free capital in the form of cash and credit, followed by investment in
materials, manpower and other services
• Production phase
• Storage of the finished products terminating at the time –finished product is sold
• Cash or accounts receivables collection period, which results in and ends at the point of dis-
investment of the free capital originally committed. New free capital then becomes available
for productive reinvestment. When new liquid capital becomes available for recommitment
to productive activity, a new operating cycle begins.
In this method, all transactions are shown in the working capital forecast on cost basis. For
forecasting working capital, the following information is required.
• Length of which time during raw materials are to remain in stock before they are put to
production.
• Length of sale cycle denoting the period of time finished goods have to stay in the ware
house before sale
In this method a forecast is made of the various assets and liabilities. Thereafter, the difference
between the two is taken out the difference will indicate the deficiency or surplus of cash.
The length of operating cycle or working capital cycle may differ from one firm to another,
depending upon the nature of the business.
A business firm can adapt any of the following working capital policies:
Under Conservative approach, the firm carries high investment in current assets such as cash,
marketable securities and carries large amount of inventories and grants generous terms of credit
to customers resulting in a high level of debtors. The consequences of conservative working
capital policy are quick deliveries to customers and more sales due to generous credit terms.
Under Aggressive working capital policy, investment in current assets is very low. The firm
keeps less amount of cash and marketable securities, manages with less inventories and tight
credit terms resulting in low level of debtors. The consequences of aggressive working capital
policy are frequent production stoppages, delayed deliveries to customers and loss of sales. A
trade off between two costs namely carrying cost and shortage cost determines the optimal level
of current assets. Costs that rise with current assets i.e. that cost of financing a higher level of
current assets form carrying costs. Shortage costs are in the form of disruption in production
schedule, loss of sales and loss of goodwill.
The optimum level of current assets is denoted by the total costs (= carrying costs + shortage
costs) minimized at that level
After determining the level of current assets, the firm must determine how these should be
financed.
A firm requires a certain amount of current assets to meet even the minimum level of sales where
as temporary current assets reflects a variable component that moves in line with seasonal
fluctuations. Several strategies are available for financing capital requirements
The fixed proportion of working capital should be generally financed from the fixed capital
sources while the temporary or variable working capital requirements of a firm may be met from
the short term sources of capital. Based on this idea, we have 3 strategies possible.
Strategy A
Long term financing is used to meet fixed asset requirement as well as peak working capital
requirement. When the working capital requirement is less than its peak level, the surplus is
invested in liquid assets (cash & marketable securities)
Strategy B
Long term financing is used to meet fixed asset requirements, permanent working capital
requirement, and a portion of Fluctuating working capital requirement. During seasonal
upswings, short term financing is used. During seasonal downswings, surplus is invested in
liquid assets.
Strategy C
Long term financing is used to meet fixed asset requirement and permanent working capital
requirement. Short term financing is used to meet fluctuating working capital requirement.
2. What should be the ratio of long term and short term financing?
Question 1 tells one what should be the level of current assets to be maintained by the firm and
hence it gives rise to three types of current asset policy namely
a. Conservative approach : It is carrying more amount of current assets in relation to sales which
results in more carrying costs, relaxed credit terms and period and hence less turnover.
MODERATE
MODERATE
APPROACH
APPROACH
CURRENT
CURRENT
ASSET
ASSET
AGRESSIVE
AGRESSIVE
APPROACH
APPROACH
SALES
SALES
Question 2 is about how the currents should be financed, either long term or short term
financing. Current assets being financed using long term funds namely Equity shares, Debentures
results in more costs of capital and relatively less profits whereas short term financing namely
short term loans from banks and financial institutions, overdrafts, trade credit, commercial paper
etc. results in more profits and relatively less costs A judicious mix of Current Asset policy and
Current Asset Financing Policy gives rise to an integrate Working Capital policy.
Working capital management is concerned with the problems that arise in attempting to manage
current assets; the current liabilities and the relationship arise between them. It is one of the
important aspects of the overall financial management. Working capital is the business lifeblood.
Every manager’s primary task is to help keep it flowing, and use the cash flow to generate
profits. If a business is operating profitably, then it should in theory, generate cash surplus if it
doesn’t generate surpluses, the business will eventually run out of cash and expire. Proper
management of working capital is very important for the success of an enterprise. Just a
circulation of blood is essential in the human body for maintaining life; working capital is very
essential to maintain the smooth running of a business.
It’s also an important yardstick to measure a company's operational and financial efficiency. This
aspect must form part of the company's strategic and operational thinking. Efforts should
constantly be made to improve the working capital position. This will yield greater efficiency
and improve customer satisfaction.
CHAPTER- 4
Table 1
Rs. In Lakhs)
INTERPRETATION
The total current asset in the year 2004-2005 was RS13152 Lakhs. In the last year 2008-2009 the current
asset was RS 21914 Lakhs. If it is largest amount compared to other years. The reason in that current asset in
the year 2009 was increased with inventories and sundry debtors.
GRAPHICAL REPRESENTATION OF CURRENT ASSETS OF HNL
45000 Inventory
40000
35000 Debtors
30000
25000
20000 Cash & Bank
15000
10000 Other Current Assets
5000
0
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
Loans& Advances
Figure 1
CURRENT LIABILITY DETAILS
INTERPRETATION
In the year 2009; the current liability was RS 8152LAKHS. It is the largest amount compared to
all previous year. The major reason for increased current liability was increased the amount of
sundry creditors and security deposits.
The smallest amount of total current liability was in the year 2004. It was RS 4054 LAKHS The major reason
for decreased current liability in the year 2004 was decreased the amount other liability &advance from custom.
GRAPHICAL REPRESENTATION OF CURRENT LIABILITY DETAILS
Table 3
(Rs in Lakhs)
From the year 2004-05 there was an increasing trend in the level of Working Capital, in the
2004-05 the Working Capital stood at Rs 9096 Lakhs. The increasing trend in the period there
after was due to the increase in the level of Current Assets. In the 2008-2009 the Level of
Working Capital reached to Rs 13295 Lakhs.
GRAPHICAL REPRESENTATION OF WORKING CAPITAL = CURRENT ASSETS –
CURRENT LIABILITIES
14000
12000
10000
8000
WorkingCapital
6000
4000
2000
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Figure3
Table showing schedule of changes in Working Capital for the year 2004-2005 and 2005-2006
Table-4 Rs in Lakhs
CURRENT
ASSETS
Assets
advances
CURRENT
LIABILITY
customers
government
WC 8378.07 8860.53
9000
8800
8600 8860.53 Series1
8400 Series2
CURRENT
ASSETS
Assets
advances
CURRENT
LIABILITY
customers
government
WC 8921.78 9557.09
TABLE2
9600
9400
9557.09 Series1
9200
9000 Series2
CURRENT
ASSETS
Assets
advances
CURRENT
LIABILITY
customers
government
WC 10428.53 10944.96
TABLE3
11000
10900
10800
10700 10944.96
10600 Series1
10500 Series2
10400
10300 10428.53 Series2
10200 Series1
10100
1 2
Table showing schedule of changes in Working Capital for the year 2007-2008 and 2008-2009
Table-7 Rs in Lakhs
PARTICULAR 2007-2008 2008-2009 INCREASE DECREASE
S
CURRENT
ASSETS
Assets
advances
CURRENT
LIABILITY
customers
government
WC 10944.96 13760.82
14000
12000
10000
13760.82
8000 Series1
6000 10944.96 Series2
4000
2000 Series2
Series1
0
1 2
RATIO ANALYSIS
a) Liquidity ratio:- Liquidity refers to affirms ability to meet its obligations in the short
term, usually one year. These ratios are based on the relationship between current assets
and current liabilities. The important ratios are current ratio, acid test ratio and cash ratio.
1.CURRENT RATIO
Current Ratio is the ratio of Current Assets to the Current Liabilities. It shows the ability of a
firm to cover its Current Liabilities with the Current Assets.
Table 8
(Rs in Lakhs)
2.5
2
Working
1.5 Ratio
1
0.5
0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Inference
Current ratio is optimum at 2:1 i.e. Current Assets should be 2 times that of Current Liability.
But this rule need not work well in real life situation as it depends on many other factors.
Since the availability of the raw materials are seasonal in nature and the industry uses imported
Materials and Stores the Company have to stock them for a longer period to avoid lead time.
Both these components make the Inventory level very high in turn resulting in a higher Current
Assets level over the Current Liability, this in turn lead to a higher Current Ratio.
Over the period of analysis the Current Ratio of the company never went below 2.5:1. For the
last 5 years i.e. from the year 2004-2009, the Company was stable in maintaining its Current
Ratio. In the year 2009 the Companies Current Ratio was at 2.54:1 which is best as per the above
rule.
Table-9 Rs in Lakhs
Year QUICK ASSETS CURRENT QUICK RATIO
LIABILITIES
1.5
QuickRatio
1
0.5
0
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
2002 2003 2004 2005 2006 2007 2008 2009
Inference
The Liquid Ratio shows the actual liquidity of a firm. As a convention the Liquid Ratio of 1:1 is
considered satisfactory. The company has been efficient in maintaining its Liquid Assets over its
Current liability.
Over the period of analysis the Company has maintained its Quick Assets more than its Current
Liabilities till 2008.But in the year2009 the company had stepped into severe liquidity crisis and
the quick ratio had gone below the ideal ratioi.e 0.87 The Company was successful in
maintaining its Liquid Ratio below 2:1 after the year 2004-05 thereby increasing the efficiency
of the firm. The Liquid Ratio of the Company is not at a satisfactory level. The Company is not
in a safe position.
b) LEVERAGE RATIO
Financial leverages refer to the debt finance. Leverage ratios helps in assessing the risk
assessing the risk arising from the use of debt capital. The important ratios are debt equity
ratio, debt assets ratio, interest coverage ratio, and fixed coverage ratio.
1) Debt equity ratio=outsiders fund/shareholders funds
03 3
04 4
05 5
06 6
07 7
08 8
9
20 200
20 00
20 200
20 200
20 200
20 00
20 200
00
-2
-2
-2
-
-
01
20
INFERENCE
This ratio shows the relative contribution of the creditors and owners. In general, the lower this
ratio the higher the degree of protection enjoyed by the firm. So the company was having a low
ratio till 2007-2008 i.e. 0.03 which is favorable. But in the year 2008-09 it rose to 0.14.This ratio
ascertains the soundness of long term financial policies of the company.
03 3
04 4
05 5
06 6
07 7
08 8
9
20 00
20 00
20 00
20 00
20 00
20 00
20 00
00
-2
-2
-2
-2
-2
-2
-2
-2
01
20
INFERENCE
This ratio measures the extent to which borrowed funds support the firm’s assets. It is related to
the debt equity ratio and so the lower the ratio the more sound the form is said to be. As shown
this ratio is high during 2003-2004, but decreased during 2005-2006 and continued this decline
till 2007-2008 but then rose to0 .12 in the year 2008-09 which is not favorable.
Table 12
(Rs in Lakhs)
1.5
Current
1 Assets
Turnover
Ratio
0.5
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Inference
The Current Assets Turnover Ratio shows the number of times the Current Assets are being
turned over in a stated period. It also shows how well the Current Assets are being used in the
business. A high ratio indicates high degree of efficiency in asset utilization
The Company was found satisfactory with the level Current Assets turnover ratio. There was an
increasing trend in the ratio till the 2005-06 after that the ratio gradually started decreasing; this
was because of the increase in the level of Current Assets during the period. In the year 2008-
2009 current asset turnover ratio was 1.36.
A high or increase working capital turnover is usually a positive sign, showing the company
is better able to generate sales from its Working Capital. Either the company has been able to
gain more Net Sales with the same or smaller amount of working capital, or it has been able
to reduce its working capital while being able to maintain its sales. Efforts to streamline the
operations of the company will often show favorably in this ratio.
Inference
This ratio measures the number of times the Working Capital is turned over. The Company could
maintain a satisfactory level of Working Capital Turnover Ratio in the period of analysis.
The Working Capital Turnover Ratio stood at the highest level in the year 2005-06. Owing to
lower Unit Net Sales Realization during the year 2007-08 the Working Capital turnover of the
Company decreased to 2.72 from 3.02 in the 2006-07.It further decreased to 2.24 in the year
2008-2009.
d) Profitability ratio:- Profitability reflects the final results of the business operations. There
are two aspects of profitability ratios: profit margin ratio and rate of return ratios. Profit
margin ratio shows the relationship between profit and sales. Rate of return ratio reflects the
relationship between profit and investments.
0.12
0.1
0.08
0.06
0.04 Net profit
0.02 Margin
Ratio
0
-0.02
04 4
06 6
08 8
02 2
03 3
05 5
07 7
9
20 200
20 200
20 200
20 200
20 200
20 200
20 200
00
-2
-0.04
-
-
-
-
-
-
-
01
20
INFERENCE
This ratio explains the per rupee profit generating capacity of sales. If the cost of sales is
lower than the net profit will be higher and then we divide it with the net sales, the result is
the sales efficiency. This ratio is very useful for proprietors and prospective investors
because it reveals the overall profitability of the firm. The ratio was high in the year2006-
2007 but in the year 2007-2008 it has declined to 0.04 and still continuing so there is a
chance of increasing the ratio through improved efficiency of the concern
OPERATING CYCLE ANALYSIS
The Creditors payment period is the time taken to set off the Creditors of the Company. It starts
from the date at which the purchases are made and ends when the payments are made to the
Creditors.
Table -15
80
70
60
50
40 Creditors
Payment Period
30
20
10
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
INFERENCE
The Creditors payment period is the time taken to set off the Creditors of the Company. It
starts from the date at which the purchases are made and ends when the payments are made
to the Creditors. The average creditor’s payment period is between 45-90 days .So the
Creditors payment period is considered satisfactory at HNL.
DEBTORS COLLECTION PERIOD
The Debtors collection period is the time taken for the collection of Debtors. It starts from the
sale of finished goods to the customers on credits till the collection of receivables from them.
Table-16
(Days) (Days)
60
50
40
Debtors
30 Collection
Period
20
10
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
INFERENCE
The Debtors collection period is the time taken for the collection of Debtors. It starts from the
sale of finished goods to the customers on credits till the collection of receivables from them. Till
2007-08 the analysis reveals that the company is able to collect its dues rapidly from its
customers. On an average of 35 days the company’s funds are locked up with their customers,
which indicate the soundness of the credit policy of the company is not satisfactory. Debtors
collection period was high in the year 2008-09;as it rose to 44.4 days. So effective collection
methods should be adopted.
RAW MATERIAL INVENTORY PERIOD
Raw Material inventory period is the time period for which the Raw Materials are kept in the
inventory. The duration of the Raw material stage depends on the regularity of supply,
transportation time, degree of perish ability, price fluctuation and economies of bulk purchases.
Table-17
(Days)
180
160
140
120
100 Raw Materials&
StoresInventory
80 Period
60
40
20
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
INFERENCE
Raw Material inventory period is the time period for which the Raw Materials are kept in the
inventory. The duration of the Raw material stage depends on the regularity of supply,
transportation time, degree of perish ability, price fluctuation and economies of bulk purchases.
It was low in the year 2005-06 but in 2008-09 it showed an inclined trend.
WORK IN PROCESS INVENTORY PERIOD
The WIP inventory period is time taken for the conversion of a Raw Material into finished
product. The duration of the WIP inventory period depends on the length of manufacturing cycle,
consistency in capacities at different stages, and efficient coordination of various inputs.
Table-18
Period
(Rs in
1.6
1.4
1.2
1
Work in Process
0.8
Inventory Period
0.6
0.4
0.2
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
INFERENCE
The WIP inventory period is time taken for the conversion of a Raw Material into finished
product. The duration of the WIP inventory period depends on the length of manufacturing cycle,
consistency in capacities at different stages, and efficient coordination of various inputs. Five
years of analysis reveals that the company is showing an favorable work in process inventory
period.
The Finished goods inventory is the time period for which finished products are stored in
godown. The duration of this stage depends on the pattern of production and sales.
Table-19
Finished
Period
Year
(Rs in
(Days)
Lakhs)
(Rs in
Lakhs)
2004-2005 0 60.59 0
2005-2006 0 61.33 0
2006-2007 0 60.40 0
2007-2008 0 63.95 0
60
50
40
30 Finished goods
inventory period
20
10
0
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
INFERENCE
The Finished goods inventory is the time period for which finished products are stored in
godown. The duration of this stage depends on the pattern of production and sales .The finished
goods inventory period was 55 days in the year 2008-09 as its finished stock level was high as
20529 MT as on 31.3.2009 as against the track record of NIL stock position at the end of the
immediately preceeding 4 financial years.
OPERATING CYCLE
300
250
200
150 Duration of
operating cycle
100
50
0
Inference
The Working Capital requirement depends on the level of operations and the length of the
operating cycle. Monitoring the duration of the operating cycle is an important ingredient of
Working Capital control.
In the period of analysis it was found the HNL has an operating of 90.180days which is fairly
normal. But the operating cycle was lengthiest during 2008-2009 since there was increase in the
creditors payment period and debtors collection period compared to previous years So the
duration of operating cycle rose to 257days.Higher the ratio the less favorable it is because it
would have a similar margin of operating profit for the payment of dividend and the creation of
reserves.
Working capital leverage reflects the sensitivity of return on investment to change in the
level of current assets. To express the formula for working capital leverage the following
symbols can be used:-
• WCL = CA/(TA+ACA)
If there is an increase in the level of Current Assets
• WCL = CA/(TA-ACA)
If there is a decrease in the level of Current Assets
Year CA Δ CA FA TA WCL
0.52
0.5
0.48
0.46
Working
0.44 Capital
Leverage
0.42
0.4
0.38
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Inference
There is an increase in the level of Working Capital Leverage of the Company in the year 2008-
09. A higher level of Working Capital Leverage means that the Firm is more sensitive to the
changes in Current Asset.
The Company is having its Working Capital Leverage below 1 on all the years which means that
the Companies Return on Investments are not affected to a great extend by the changes in the
Current Assets.
PRODUCTION HIGHLIGHTS
Table 22
(Rs in Lakhs)
118%
116%
114%
112%
110% Capacity
Utilization
108%
106%
104%
2004- 2005- 2006- 2007- 2008-
2005 2006 2007 2008 2009
Inference
During the year 2007-08 the Company could reach higher levels of operational performance by
establishing record in production at 116111 MT as against 112565MT in the year 2006-07 with a
sales turnover of Rs 298.61 crores which was less by Rs 16.58 crores compared to the highest
ever turnover of Rs 315.19 achieved during the previous year .But in the year 2008-09 the
company’s operational performance declined to 108% owing to lower Unit Net Sales
Realization. The Company could not maintain the NIL stock position
CHAPTER- 5
FINDINGS
SUGGESTIONS AND CONCLUSIONS
FINDINGS
1. The company has performed exceptionally well during the year 2008-2009 inspite of
economic meltdown which had hit the domestic newsprint market badly.
2. Actual production has been increasing consistently but was low in 2008-2009 when
compared with the previous year.
3. Upkeep of machinery and equipments has been one of the impeding factors in realizing
production target.
5. The current ratio of HNL is satisfactory .The company is fully utilizing its assets.
6. The quick ratio is also satisfactory because the ratio is nearest to the ideal ratio.
7. The debt equity ratio is not favorable from long term creditor’s point of view.
8. The debt asset ratio is not favorable in the year 2008-2009 so there will be adverse affect in
the financial strength of the business enterprise.
10. The company could notch up impressive capacity utilization of 108% during the year 2008-
2009.
11. The company has exercised control over its fixed expenses through extensive cost cutting
measures.
12The Company has accumulated lossess of 0.04lakhs for the sale of fixed assets in the current
financial year.
13. Cash position of HNL has declined from 5610.37 to 374.70 in the current financial year.
14. The company was not successful in maintaining a satisfactory operating cycle.
15. The company has maintained proper records showing full particulars, including
The company has a sound working capital managements system. The company continued to
maintain higher levels of operational and financial performance by achieving production and
sale of 108005 MT as against 116111 MT last year and setting new record in sales turnover at
Rs.297.61 crores inspite of the onset and onslaught of economic melt down in general and
removal of customs duty on imported newsprint in particular badly hit the domestic newsprint
market.
In our opinion and to the best of knowledge of information about the company does not have
accumulated losses as at the end of the financial year and the company has not incurred cash
losses in the current financial year and in the immediately preceding financial year.
The major sources of Working Capital of HNL are Sundry Debtors, Sundry Creditors, and
Advances from customers and Provisions. A large chunk of working capital is blocked in the
HNL. The internal control procedures need to be more ad equals so as to be commensurate
with the size of the company and the nature of its business with regard to accounting, handling,
control and valuation of inventories, so that it does not block a huge amount of money in
inventory.
The bad/doubtful debts for the last five years are showing an increasing trend. This should be
given due attention as it implies the provision for bad debts made in the previous years were
not sufficient as compared to the reality. So effective collection methods should be adopted.
Quick ratio of HNL from 2004-2005 to 2007-08 is more than ideal ratio 1:1.But in the year
2008-09 it has declined to 0.87 .So. Management has to take actions to maintain the ratios at
the standard level as it is important for the concern to keep its liquid assets at least equal to the
liquid liabilities at all times. The cash position should be improved as early as possible since it
is at an alarmingly low level.
CONCLUSION
A study conducted in Hindustan Newsprint LTD Kottayam; enable to get practical touch to the
topic Working Capital Management of the company. The management of working capital plays
an important role in maintaining the financial health of the company during the normal course
of business. The company should maintain sufficient level of working capital to produce upto a
given capacity and maximize the return on investment in fixed assets .Shortage of working
capital leads to lower capacity utilization.
To maintain the solvency of the business and continue production,it is necessary that adequate
funds be available to pay the bills for material , labor ,selling and administrative expenses and
other cost of doing business .The prompt payment of b ills to suppliers of materials ensures a
continued supply of raw materials and established credit for the future or for reasonable
operations.
A skilled inventory management helps the company to maintain inventories at an optimum
level, thereby keeping the inventory cost minimum and at the same time ,there is no stock out
cost , which may result in loss of sale or stoppage of production.
The maintenance of receivables involves direct and indirect costs .Direct cost includes the cost
of investments allowances and con cessions to customers and also losses on account of bad
debts. Prompt collection reduces the receivables to the minimum dictated by the credit policy
and helps the management to optimize the investment in receivables. In fact the receivables in
an organization should be managed in a way that the sales are expanded to an extent where risk
remains within the acceptable limits.
The goal of working capital management is to ensure that a firm is able to continue its
operations and that it has sufficient ability to satisfy both maturing short term debt and
upcoming operational expenses.
CHAPTER-7
BIBLIOGRAPHY
BIBLIOGRAPHY
REFERENCES
BOOKS
[1] Dr. Prasanna Chandra (IIM B), Financial Management Theory and Practice, Second Edition,
Tata Mc-Graw Hill Publications, New Delhi, pp- 245-265
WEBSITE
[1]http://www.hnlonline.com
OTHER SOURCES