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Working Capital Management at RCF
- 1. WORKING CAPITAL MANAGEMENT AT RCF JYOTI KOLI FINANCE SPECIALIZATION ROLL NO. 19
- 2. FERTILIZER INDUSTRY IN INDIA
- 3. RASHTRIYA CHEMICALS & FERTILIZERS LIMITED (RCF)
- 4. RCF The capital structure of the company is as follows: • Authorized Capital - 800.00 crores • Paid up Capital - 551.69 crores The shareholding pattern of RCF: • Government of India: 80% • Floating: 20%
- 5. WORKING CAPITAL MANAGEMENT • According to PriceWaterhouse Coopers, “Fundamental principles of working capital management are very clear: reduce the capital employed and improve efficiency in the areas of receivables, inventories and payables”
- 6. NEED & IMPORTANCE • Strengthen the Solvency - by providing un- interrupted flow of production • Enhance Goodwill - because all current liabilities and operating expenses are paid on time • Easy Obtaining Loan • Regular Supply of Raw Material- Suppliers are satisfied by the payment on time • Smooth Business Operation
- 7. COMPONENTS • Inventory • Accounts Receivables • Accounts Payables • Cash
- 8. RCF’S POLICIES FOR FUNDING WORKING CAPITAL • Long Term Sources : Long Term funds from banks like SBBJ, New India Co-operative Bank Ltd, Kotak Mahindra Bank & HSBC. It takes foreign currency loans from HSBC & Calyon Credit Agricole CIB Singapore (Calyon). • Short-term Sources: Short Term borrowings mainly from SBI
- 9. FINANCIAL HIGHLIGHTES OF RCF Particulars 2012-13 2011-12 Turnover 7102.49 6662.36 Profit after tax 280.90 249.24 Working capital 1199.67 1116.04 Capital Employed 4132.74 3433.26 Net worth 2355.29 2171.20 Rs. In crores
- 10. Particulars 2012-13 2011-12 Inventories 1205.06 1177.71 Trade Receivables 2579.21 1978.24 Cash And Bank Balances 175.74 592.28 Short Term Loans And Advances 71.36 85.04 Other Current Assets 30.25 41.07 Short Term Borrowings 1456.84 909.95 Trade Payables 738.07 1264.13 Other Current Liabilities 475.57 473.56 Short Term Provisions 191.47 146.51 Rs. In crores
- 11. WORKING CAPITAL OF RCF Particulars 2012-13 2011-12 Current Assets 4016.62 3874.34 Current Liabilities (2861.95) (2794.15) Working Capital 1199.67 1116.04 Rs. In crores
- 12. TURNOVER & WORKING CAPITAL TRENDS OF RCF 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 Rs.incrores Years Turnover & Working Capital Trends Working capital Turnover
- 13. RATIOS • Days of Inventory for raw materials consumed= Average Stock / Raw Materials consumed *365 133.18 110.34 0 50 100 150 2011 - 2012 2012 - 2013 Days Years Days of Inventory for Raw materials consumed Days Days of inventory for Raw materials consumed Days
- 14. • Days of Inventory for Traded Products on Sales= Average Stock / Sales *365 33.13 82.41 0 20 40 60 80 100 2011 - 2012 2012 - 2013 No.ofdays Years Days of Inventory for Traded products on sales Days Days of inventory for traded products on sales Days
- 15. • Days of Inventory for Finished Goods= Average stock / Sales *365 11.39 17.37 0 5 10 15 20 2011 - 2012 2012 - 2013 No.ofdays Years Days of Inventory for Finished goods Days of inventory for finished goods Days
- 16. • Days of Claims to subsidy= Claims /Subsidy *365 211.48 256.26 0 50 100 150 200 250 300 2011 - 2012 2012 - 2013 AxisTitle Axis Title Days of Claims to Subsidy Days Days of claims to subsidy Days
- 17. • Days of Debtors to Sales = Debtors / Sales *365 28.79 40.72 0 10 20 30 40 50 2011 - 2012 2012 - 2013 No.ofdays Years Days of Debtors to Sales Days Days of debtors to sales Days
- 18. PERCENT SHARE OF CURRENT ASSETS IN WORKING CAPITAL 31% 51% 15% 2% 1% % Share of current assets in working capital 2011-12 inventories trade receivables Cash/bank balance short term loans & advances other current assets 30% 63% 4% 2% 1% % Share of current assets in working capital 2012-13 inventories trade receivables Cash/bank balance short term loans & advances other current assets
- 19. PERCENT SHARE OF CURRENT LIABILITIES IN WORKING CAPITAL 33% 45% 17% 5% % Share of current liabilities in working capital 2011-12 short term borrowings trade payables short term provisions other current liabilities 51% 26% 16% 7% % Share of current liabilities in working capital 2012-13 short term borrowings trade payables short term provisions other current liabilities
- 21. OPERATING CYCLE • The average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods • Operating cycle = 372.55 days
- 22. OPERATING CYCLE
- 23. CASH FLOW ANALYSIS Particulars 2012-13 2011-12 Cash Flow from Operating Activities (587.68) (155.47) Cash Flow from Investing Activities 229.07 (787.00) Cash Flow from Financing Activities 307.07 620.50 Rs. In crores
- 24. CONCLUSION
- 25. THANK YOU
Editor's Notes
- SBBJ: State Bank of Bikaner And Jaipur Calyon: Bank headquartered in Chicago CIB: Corporate and investment banking
- From the above graph we can see that working capital and turnover of RCF are moving in similar direction over the years. We can see that average working capital required is approximately Rs.1200 crores. As RCF is able to maintain the average requirements we can say that the working capital management of RCF is effective.
- The ratio shows the decrease in in number of days from 133.18 to 110.34 days but 110.34 is still higher than the average. Considering the size & scale of operation of RCF the average number of days should be 90 days. The reason for lower ratio is decrease in average inventories and increase in consumption. Most of the raw materials required for manufacture of complex (phosphatic) fertilizers are imported for which the minimum quantity is a vessel/ship size and lead time from order to delivery is also high due to which the Company has to maintain an optimum level of inventory to ensure continuous production without any stock out of raw materials. Associated gases are excluded from the raw materials consumed as they are non-stock items
- From the above graph & calculation we come to know that the days have increased from 33.12 days to 82.41 days which shows the ratio has weakened as it takes more time to sell the traded products. The increase in the number of days is due to the carrying of the inventory of traded products which were procured for last year i.e. 2011-12 and the sales increased because of the opening inventories. Thus, further improvement is needed. Sales figure includes sales plus subsidy.
- From the above graph & calculation we come to know that the days have increased from 11.39 days to 17.37 days which is an indicator that the ratio has been deteriorated over the year. The sales had increased over the year but were not in proportion with the increase in the average stock of finished goods but this was due to the cut throat competition faced by RCF during the year i.e. 2012-13 so the company needs to improve on its inventory management.
- From the above graph & calculation we come to know that the days have increased from 211.48 to 256.26 days i.e. the ratio has worsened. The ideal days for subsidy claims are around 90-120 days for this industry. As can be seen on comparison with Tata Chemicals & NFL, that the average for the year 2012-13 is more or less comparable. However, for the year 2011-12, the average for RCF is worse than the other 2 companies. The claims management of RCF needs further improvement
- From the above graph & calculation we come to know that the days have increased from 28.79 to 40.72 days due to increase in debtors as well as sales figures in current year. It is very good ratio, which indicates that the debtors management of RCF is excellent.
- Operating cycle = Average number of days for raw materials+average number of days for finished goods+average number of days for receivables-average number of days for payables Taking the values from above workings Operating cycle (2012-13) = 110.34+17.37+ (256.26+40.27) - 51.69 =372.55 days From the above calculation of operating cycle, we come to know that the company needs 372.55days for the inventory to be converted into cash.Net Sales given in the statements are considered to be as Credit Sales.
- Even though the cash flow from operating profit before Working Capital changes had increased from 525.17 crores to 604.07 crores, but the working capital changes amounts have also increased from (155.47) crores to (587.68) crores due to decrease in payables and increase in receivables. So to fund this deficit, the company used cash to bridge the gap. The cash flow from investing activities have become positive from negative of the previous year 2011-12 i.e. (787) crores to 229.07 crores. The reason for this is due to investment made in FDs during the previous year which matured in the current year. The cash flow from financing activities has considerably reduced from 620.50 crores to 307.07 crores due to repayments of term loans & interest paid in 2012-13. Hence, the working capital changes i.e. (605.41) crores to (1114.28) crores have caused the cash and cash equivalents to get reduced considerably when compared to the previous year with (84.05) %.