cash management in national fertilizer limited

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CASH MANAGEMENT IN NATIONAL FERTILIZERS LIMITED
PROJECT REPORT
On
CASH MANAGEMENT IN NATIONAL FERTILIZERS
LIMITED
Submitted in partialfulfilment of the requirement for the award of the degree of
POST GRADUATE DIPLOMA IN MANAGEMENT
SUBMITTED BY:-
DEEPAK KHANDELWAL
(BM-016077)
SUBMITTED TO
(INDUSTRY MENTOR)
MR.BIDYADHAR DEHURY
DEPUTY MANAGER (F&A)

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CERTIFICATE
This is to certify that the project on “CASH MANAGEMENT IN
NATIONAL FERTILIZERS LIMITED” submitted for the partial
fulfillment of the award of Post Graduate Diploma In Management of
Institute Of Management Studies(Ghaziabad) is an original work
carried out by Mr. Deepak Khandelwal, Roll No.BM-016077 during
May 2017 to June 2017 under my guidance and supervision. I am pleased
to say that He has carried out the work very sincerely during the period
and the project report is very useful to the company.
I wish her all the success for his bright career and future.
(FACILITY GUIDE) (INDUSTRY GUIDE)
DR. PANKAJ KUMAR AGARWAL MR.BIDYADHAR DEHURY
Deputy Manager
(F&A)
NATIONAL FERTILIZERS LIMITED,CO, NOIDA

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ACKNOWLEDGEMENT
I takethisopportunityto expressmygratitudeto allthepeoplewhohaveguided and
helped me directly or indirectly in the course of my project It gives me immense
pleasure and satisfaction in expressing my heartiest thanks to my company guide
MR.BIDYADHARDEHURYdeputy Manager(F&A),NFL, CO, NOIDA for providing
and sharing his practical experience with me.
I would also express my sincere thanks to Mr. ROHIT SEGHAL (CRC), IMS
(GHAZIABAD) for giving me an opportunity to take me an opportunity to take up
this project.
I takethisopportunityto expressmydeepsenseof gratitudeto my facultyguide Dr.
PANKAJ KUMAR AGARWAL, IMS (GHAZIABAD)for his constant support
and guidance. Hervaluablesuggestionsand helping hand hashelped meto complete
my project successfully.
I also owe my gratitude to my parents and friends for encouraging me during the
course of completion of the project.
DEEPAK KHANDELWAL
ROLL NO. BM-016077
IMS GHAZIABAD

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DECLARATION
I do hereby declare that this project report entitled “CASH
MANAGEMENT IN NFL”, NATIONAL FERTILIZERS LIMITED
is prepared by me on the basis of the information collected by me
during the month of May 1st 2017– June 27th 2017, for partial
fulfillment of the award of the POST GRADUATION DIPLOMA at
INSTITUTE OF MANAGEMENT STUDIES, GHAZIABAD.
I further declare that the project report has not been submitted
earlier to any institution university for any Degree or diploma.
Place: DELHI Signature
Date:27TH JUNE 2017 DEEPAK KHANDELWAL
ROLL.NO.– BM-016077

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CONTENTS
S.NO PARTICULARS
1 EXECUTIVE SUMMARY
1.1 INDUSTRY PROFILE.
1.2 COMPANY PROFILE
1.3 NEED FOR THE STUDY
1.4 OBJECTIVES OF THE STUDY
1.5 SCOPE OF THE STUDY
1.6 LIMITATIONS OF THE STUDY
1.7 METHODOLOGY
1.8 FINDINGS
1.9 SUGGESTIONS
1.10 CONCLUSION
2 2.1 INTRODUCTION OF STUDY
2.2 INDUSTRY PROFILE
2.3 COMPANY PROFILE
3 RESEARCH METHODOLOGY
3.1 SCOPE OF THE STUDY
3.2 OBJECTIVE OF THE STUDY
3.3 METHDOLOGY
4 WORKING CAPITAL MANAGEMENT
4.1 INTRODUCTION
4.2 CONCEPTS OF WORKING CAPITAL
4.3 PRINCIPLES OF WORKING CAPITAL
4.4 CLASSIFICATION OR KINDS OF WORKING CAPITAL
4.5 NEED OR OBJECTS OF WORKING CAPITAL

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4.6 FACTORS DETERMINING WORKING CAPITAL
REQUIREMENTS
4.7 MANAGEMENT OF WORKING CAPITAL
4.8 APPROACHES
4.9 OPERATING CYCLE OF WORKING CAPITAL
4.10 SOURCES OF FUND
4.11 ESTIMATION
4.12 COMPONENTS OF WORKING CAPITAL
5 CASH MANAGEMENT
5.1 INTRODUCTION
5.2 OBJECTIVE
5.3 FUNCTIONS
5.4 NFLCONTROL OBJECTIVES, RISKS & KEY CONTROLS –
Cash & Bank
5.5 MISCELLANEOUS
6 ANALYSIS
6.1 RATIO ANALYSIS
6.2 CASH MANAGEMENT ANALYSIS
7 7.1 FINDINGS
7.2 SUGGESTIONS
7.3 CONCLUSION
8 BIBLIOGRAPHY

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PREFACE
Education becomes more meaningful when its theoretical aspects are combined
with the practical experience. This provides an opportunity to the students to
improve their understanding of the studies.
A student has to undergo “vocational training” in a reputed organization as a
part of the purpose of training is to expose students to real business situation
and to provide insight into the various function carried out within the
organization.
I am fortunate enough to get the opportunity of vocational training from the
esteemed organization, National Fertilizers limited, CO,Noida (UP)-201301.

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PART :- 1
 INDUSTRY PROFILE.
 COMPANY PROFILE.
 NEED FOR THE STUDY.
 OBJECTIVES OF THE
STUDY.
 SCOPE OF THE STUDY.
 LIMITATIONS OF THE
STUDY.
 METHODOLOGY.
 FINDINGS.
 SUGGESTIONS.
 CONCLUSION

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Title of study
“The study of Cash Management in National Fertilizers Limited”
As a part of curriculum, every student studying POST GRADUATE DIPLOMA IN
MANAGEMENT has to undertake a project on a particular title assigned to him/her. Accordingly
I have been assigned the project work on the study of CASH MANAGEMENT in NATIONAL
FERTILIZER LIMITED (CORPORATE OFFICE), NOIDA.
In working capital management all working capital (current assets – current liability) and short
term finance. It involves the relationship between a firm’s short-term assets and its short term
liabilities.
The goal of working capital management is to ensure that the firm is able to continue its operation
and that it has sufficient fund flow to satisfy both maturing short term debt and upcoming
operational expenses.
Working capital is used in. NATIONAL FERTILIZER LIMITED, for the following purpose:-
1. Purchase of raw material (purchase of coal, purchase of gas etc.)
2. Interest payment of loans(short term & long term)
3. Payment to units for expenditure
4. Payment of wages
5. Maintaining WIP
The NATIONAL FERTILIZER LIMITED, finance certain funds which is generated
according to the requirements of maintaining current assets.
The various information regarding “Cash management” such as classification, determinants,
sources have been discussed relating to NATIONAL FERTILIZER LIMITED.

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For ratio analysis we use Financial Information for last five accounting years i.e. from 2012-13to
2016-17. Ratios like:-
1. Working capital Turnover Ratio
2. Quick Ratio
3. Current Ratio
4. Inventory Turnover Ratio
5. Debtor Turnover Ratio
6. Creditors turnover ratio
At NFL the working capital management has shown fluctuations in the period of study. And cash
management shows decrease in short term borrowed funds. This shows working capital is managed
effectively and all the other departments are working in perfect co-ordination to ensure the progress
of NFL but I have given some Suggestions & Conclusions on the basis of my Project Study

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INDUSTRIAL PROFILE
Brief Fertilizer Profile
India is the second biggest consumer of fertilizer in the world next only to China. According
working group report on fertilizer industry for twelfth five-year plan all India demand forecast of
fertilizer.
COMPANY PROFILE
National Fertilizers Limited (NFL) is a Mini Ratna (Cat-1) company is a major Indian producer
of chemical fertilizers, organic fertilizers and industrial chemicals. NFL, incorporated in 1974 is
India's largest Central Public Sector Enterprise (Government of India Undertaking)
in Fertilizer Sector with a turnover of over Rs. 75 billion. Coming under the administrative control
of Ministry of Chemicals and Fertilizers, it is the second largest producer of the key
fertiliser Urea in India.NFL has five gas based Ammonia-Urea plants viz Nangal & Bathinda in
Punjab,Panipat in Haryana and two at Vijaipur (Madhya Pradesh).

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NEED FOR THE STUDY
 The study has been conducted for gaining practical knowledge about Working Capital
Management & Cash Management activities of National Fertilizers Limited (NFL).
 The study is undertaken as a part of the PGDM curriculum from 01st May 2017 to 23rd July
2017 in the form of summer in corporate office training for the fulfillment of the
requirement of POST GRADUATE DIPLOMA IN MANAGEMENT.
OBJECTIVES OF THE STUDY
 To study the sources and uses of the working capital.
 To study the liquidity position through various working capital related ratios.
 To study the working capital components such as cash credit, commercial paper, short term
loan, inter corporate deposits and special banking arrangements and .
 How they manage their cash requirements.
 To make suggestions based on the finding of the study.
SCOPE OF THE STUDY
The main scope of the study was to put into practical the theoretical aspect of the study into real
life work experience. The study of working capital is based on tools like Ratio Analysis, Statement
of changes in working capital. Further the study is based on last 5 years Annual Reports of
National Fertilizers Limited.
LIMITATIONS OF THE STUDY
 The study duration (summer in corporate office) is short.
 The analysis is limited to just five years of data study (from year 201222013 to year 2017)
for financial analysis.
 Limited interaction with the concerned heads due to their busy schedule.
 The findings of the study are based on the information retrieved by the selected unit.

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METHDOLOGY
In preparing of this project the information collected from the following sources.
Primary data
The primary data has been collected from personal interaction with employees of finance
department i.e. Deputy Manager Mr. Bidyadhar dehury and other Staff Members.
Secondary data:
The major source of data for this project was collected through annual reports, profit and loss
account of 5 year period from 2012-2017, cash flow statements, internal sources of company &
some more information collected from internet and text sources.
SAMPLING DESIGN
Sampling unit : Financial Statements.
Sampling Size : Last five years financial statements.
FINDINGS
 Cash management of national fertilizers limited is very effective and very cost effective
 National fertilizers limited mostly use commercial papers for rising their funds for working
capital management because it is the cheapest source they have.
 The major source of income of national fertilizers limited is subsidy from central
government.

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SUGGESTIONS
 They may change their credit payment and debtor’s receivable policy to improve their cash
management.
 Cash management planning is very accurate.
CONCLUSION
The study on working capital management and cash management conducted in National Fertilizers
Limited to analyze the financial position and cash management policy of the company. The
company’s financial position is analyzed by using the tool of annual reports from 2012-13to 2016-
17. The financial status of National Fertilizers Limited. is good. In the last year the inventory
turnover has decreased, this is not a good sign for the company. The fund management policies
are excellent in the company.
On the whole, the company is moving forward with good management. But they have to make
their policies more effective for recovery of money from market.

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PART :- 2

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INTRODUCTION TO THE STUDY
BACKGROUND OF STUDY
"From the economic point of view, working capital is made up of the net current assets and
permanent short-term liability". Working capital management refers to the management of
current or short-term assets and short-term liabilities. Components of short-term assets include
inventories, loans and advances, debtors, investments and cash and bank balances. Short-term
liabilities include creditors, trade advances, borrowings and provisions. The major emphasis is,
however, on short-term assets, since short-term liabilities arise in the context of short-term assets.
It is important that companies minimize risk by prudent working capital management.
Cash management is a broad term that refers to the collection, concentration, and disbursement of
cash. The goal is to manage the cash balances of an enterprise in such a way as to maximize the
availability of cash not invested in fixed assets or inventories and to do so in such a way as to avoid
the risk of insolvency. Factors monitored as a part of cash management include a company's level
of liquidity, its management of cash balances, and its short-term investment strategies.
STATEMENT OF THE PROBLEM
This project deals with the study about “Working Capital Management and Cash
Management” in “NATIONAL FERTILIZERS LIMITED”
IMPORTANCE OF THE STUDY
There are numerous aspects of working capital management that makes it an important topic for
the study.
The management of assets in any organization is an essential part of overall management. The
enterprise, at the time of formation attaches great importance to fixed assets management, as a part
of investment decision-making. However, in the overall day-to-day financial management, after
the initial investment, the management gives more importance to managing working capital. If we

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look at any financial statement it will be evident that the investment in fixed assets remains more
or less static but the working capital is constantly changing. A healthy working capital position is
the sine-qua-non of a successful business. This is reflected in adequate inventories, lowest level of
debtors, minimum utilization of bank facilities for working capital, etc. thus the study of working
capital management occupies an important place in financial management.
In some ways, managing cash flow is the most important job of business managers. If at any time
a company fails to pay an obligation when it is due because of the lack of cash, the company is
insolvent. Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such a
dire consequence should compel companies to manage their cash with care. Moreover, efficient
cash management means more than just preventing bankruptcy. It improves the profitability and
reduces the risk to which the firm is exposed.
Cash management is particularly important for new and growing businesses. Cash flow can be a
problem even when a small business has numerous clients, offers a product superior to that offered
by its competitors, and enjoys a sterling reputation in its industry. Companies suffering from cash
flow problems have no margin of safety in case of unanticipated expenses. They also may
experience trouble in finding the funds for innovation or expansion. It is, somewhat ironically,
easier to borrow money when you have money. Finally, poor cash flow makes it difficult to hire
and retain good employees.

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INDUSTRIAL PROFILE
HISTORY
Fertilizer is defined as any substance which is organic or inorganic, natural or artificial, supplies
one or more of the chemical elements required for plant growth. Carbon, oxygen and hydrogen are
directly supplied by air and water and therefore not treated as nutrients by the fertilizer industry.
One of the vital industries for the Indian economy is the Indian Fertilizer Industry as it
manufactures a very critical raw material for agriculture which is the major occupation of the
country. The fertilizers especially like the ammonia urea plants are energy demanding in their
operation.
Fertilizer-Pesticides Indian fertilizer industry's main objective is to ensure the supply of primary
and secondary nutrients in the required quantities. The Indian Fertilizer Industry is the most energy
intensive sectors according to the context of environmental discussions. As there is increasing
productivity through the implementation of competent and pollution free technologies in the
manufacturing sector it would be desirable in combining economic, environmental and social
development objectives. Today the Indian fertilizer industry in the past 50 years has grown in size
and stature as it ranks third in the world.
In 1950-51 in India the per hectare consumption of fertilizer was less than 1/4th of the global
average. During this particular period the production was by and large in the purview of public
sector and co operative sector. Government introduced the Retention Price Scheme (RPS) in the
year 1977 with the goals of providing fertilizers to farmers at reasonable rates without affecting
the profitability of the manufacturers.
Fertilizer-Urea The government under this policy would pay the manufacturers, the difference
between the administered price (sale price) and the retention price (cost of production).Over and
above the retention price subsidy, the equated freight subsidy was introduced to enable the
manufacturers to cover the cost of transportation. Economic liberalization Policy had its effect on

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the fertilizer industry too. Where the government had the move to aim at reducing subsidy and
decontrolled all the phosphatic and potassic fertilizers in 1992 the ratio of fertilizer utilization was
strained.
INDIAN FERTILISERS INDUSTRY SCENARIO
Brief Fertilizer Profile
Size of the industry 57 large fertilisers plants, 57 large
sized and 64 medium and small
sized chemical fertilisers
production units in india
Types of fertilisers Urea, DAP, Complex Fertiliser,
Ammonium Sulphate(AS) and
Calcium Ammonium
Nitrate(CAN) are produced in
india
Position in the world Ranks 3rd in the World of fertiliser
production
Market Capitalisation 25% of the GDP
FERTILISERS INDUSTRY STRUCTURE-
MONITORING OF FERTILIZERS:
1. The movement of all major subsidized fertilizers is monitored throughout the country
by an online web based monitoring system (www.urvarak.com) which is also known
as Fertilizer Monitoring System (FMS).
2. Further one step ahead DoF introduced another web based monitoring system (mFMS)
which is showing the availability of fertilizer up to retailer/ wholesaler level.

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3. Weekly Video conference is conducted jointly by DAC, DoF, Ministry of Railways
with State Agriculture Officials, corrective actions are taken to dispatch fertilizer as
indicated by the State Governments.
4. The gap in the requirement and indigenous production of Fertilizers is met through
imports.
5. DoF ensures availability of fertilizers at State level, State Governments are responsible
for equitable distribution as per District/ Block level requirement.
FOREIGN TRADE-
IMPORT OF FERTILIZERS:
1. Import of urea for direct agriculture use is made on Government Account through STEs
viz. STC, MMTC & IPL to bridge the gap between indigenous availability and assessed
demand.
2. The Steering Committee of Secretaries (SCOS) under the chairmanship of Secretary
(Fertilisers) and consisting Secretary (Agriculture), Secretary (Expenditure), Commerce
Secretary, Secretary (Shipping) and Chairman Railway Board as members, decides the
quantity of urea to be imported in each cropping season i.e. Kharif & Rabi.
3. Government of India, through Department of Fertilizers (DoF), has entered into a long
term Urea Off-Take Agreement (UOTA) with Oman India Fertilizer Company
(OMIFCO), Sur, Oman to lift its entire production of granular urea in first 15 years of
the production of the company. Import of urea from OMIFCO is made through M/s
IFFCO & KRIBHCO. The rated capacity of OMIFCO plant is 1.652 million MTs per
annum. At present OMIFCO is producing about 2 million MTs granular urea per annum.
4. P&K Fertilizer (DAP, MOP and NPK) are under Open General Licence (OGL) as per
Foreign Trade Policy.

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LISTS OF FERTILIZERS INDUSTRIES
S.NO NAME
PUBLIC SECTOR UNDERTAKINGS
1. Brahmaputra Valley Fertilizer Corporation Limited
2. Fertilisers and Chemicals Travancore Ltd.
3. Madras Fertilizers Ltd.
4. National Fertilizers Ltd.
5. Paradeep Phosphates Ltd.
6. Pyrites,Phosphates And Chemicals Ltd.
7. Rashtriya Chemicals and Fertilisers Ltd.
COOPERATIVES
1. Indian Farmers Fertilisers Cooperative Ltd.
2. Krishak Bharati Cooperative Ltd.
PRIVATE LIMITED
1. Chambal Fertilisers Chemicals Ltd.
2. Deepak Fertilizers And Petrochemicals Ltd.
3. Kanpur Fertilizer and Cement Ltd
4. Godavari Fertilizers Chemicals Ltd.
5. Gujrat Narmada Valley Fertilisers Co. Ltd.
6. Gujrat State Fertilizers Company Ltd.
7. Indo-Gulf Fertilizers and Chemicals Corporation Ltd.
8. KRIBHCO Shyam Fertilizers Ltd.
9. Mangalore Chemicals and Fertilizers Limited
10. Nagarjuna Fertilizers and Chemicals Ltd

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11. Oswal Chemicals and Fertilizers Ltd.
12. Southern Petrochemicals Inds. Corporation Ltd.
13. Tata Chemicals Ltd.
14. Zuari Industries Ltd.
JOINT VENTURE
1. Indo-Jordan Chemicals Company Ltd., Jordan
2. Oman India Fertiliser Company,

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COMPANY PROFILE
HISTORY OF THE COMPANY
NFL, a Schedule ‘A’ & a Mini Ratna (Category-1) Company was incorporated on 23rd August
1974 for setting up two Fuel Oil / LSHS based Urea plants at Panipat & Bathinda with annual
capacity of 5.11 LMT each which commenced production in the year 1979. Nangal plant of
Fertilizer Corporation of India was also merged with NFL in 1978 (with present annual installed
capacity of 4.785 LMT of Urea) after re-organization of FCI group of plants. Subsequently first
inland gas based plant on HBJ gas pipe line was set up by the company at Vijaipur in district Guna
(Madhya Pradesh) with re-assessed annual capacity of 8.65 LMT which commenced commercial
production in July 1988 and thereafter the capacity of this plant was doubled by commissioning of
its expansion plant in the year 1997. In line with the directives of GoI, the company revamped its
three Fuel Oil plants at Panipat, Bathinda & Nangal for changeover of its feedstock from Fuel Oil
to eco-friendly fuel i.e. natural gas with a total investment of Rs. 4066 crore during the year 2013
which not only reduced the energy consumption / carbon footprints but also helped in reducing the
subsidy burden on GoI. The company also revamped its both the plants at Vijaipur in the year 2012
for capacity augmentation and energy saving which has enabled the company to produce Urea
beyond re-assessed capacity of the plants to improve the profitability of the company. The present
annual installed capacity of the company is 35.68 LMT of Urea.

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EVOLUTION
Year EVOLUTION Urea
Cap.
(LMT)1974: Incorporated on 23-08-1974 to set up Fuel Oil based
plants at Panipat & Bathinda
-
1978: Nangal Plant merged with NFL in April 1978 on
regrouping of FCIL. Capex - ` 300 cr.
3.30
1979: Panipat & Bathinda Plants started commercial
production in 1979. Capex - ` 687 cr.
13.53
1988: Vijaipur-I plant commenced commercial
production in July 1988. Capex - ` 516 cr.
(Vijaipur-I is the First Inland gas based plant on
HBJ gas pipeline).
22.17
1997: Vijaipur-II commenced commercial production in
March 1997. Capex - ` 1071 cr.
30.82
2001: Nangal Plant revamped for Capacity
enhancement from 3.30 LMT to 4.79 LMT. Capex
- ` 140 cr.
32.31
2012: Vijaipur-I & II revamped for Cap. enhancement &
Energy saving. Capex- ` 677 cr.
35.68
2013: Panipat Bathinda & Nangal Unit revamped for Feed
Stock Changeover from Fuel Oil to Gas. Capex- `
4066 cr.
35.68
2015: Formed JV Company namely RFCL with
M/s EIL & M/s FCIL on 14-01-2015 for
revival of Ramagundam Plant with annual
installed capacity of 12.71 LMT. (Est. Capex-
5254 cr. (NFL’s Equity – 26%)
35.68

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PLANT LOCATIONS & MARKETING TERRITORY

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PROFILE OF NATIONAL FERTILIZERS LIMITED
Name of the company NATIONAL FERTILIZERS LIMITED
Year of establishment 23rd August 1974
Chairman Sh. Manoj Mishra
Type of company Public Sector Unit
Area of operation  Nangal
 Panipat
 Bathinda
 Vijaipur I
 Vijaipur II
Nature of Business Production and Sale of:-
1) Kisan Urea
2) Neem Coated Urea
3) Bio-Fertilizer
1. Rhizobium
2. Phosphate Solubilising Bacteria (PSB)
3. Azetobactor
4) Industrial Products

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1. Nitric Acid Dilute (HNO3)
2. Ammonium Nitrate (NH4NO3)
3. Anhydrous Ammonia (NH3)
4. Sodium Nitrite (NaNO2)
5. Sodium Nitrate (NaNO3)
5) Traded Products
1. City Compost
2. Certified Seeds
3. Agrochemicals
Export places N/A
No. of departments 9
Number of employees 3595 employees ( 1697 executives and 1898 non-executives)
Number of working days 5
Production capacity 1) Urea production : 37.99 LMT
2) Bio-fertilizers of 567 MT

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CAPITAL STRUCTURE OF NATIONAL FERTILIZERS LIMITED
1. Authorized share capital
100,00,00,000 Equity Shares of Rs 10 each
2. Issued, Subscribed and Paid -up
49,05,78,400 Equity Shares of Rs 10 each fully paid up
DEFERRED GOVERNMENT GRANT
As per last Balance Sheet 3373.01+7.45- 186.85 = 3193.61
VISION AND MISSION OF NATIONAL FERTILIZERS LIMITED
VISION
"To be a leading Indian company in fertilizers and beyond, with commitment to all stakeholders."
MISSION
A dynamic organization committed to serve the farming community and other customers to their
satisfaction through timely supply of fertilizers and other products & services; continually striving
to achieve the highest standards in quality, safety, ethics, professionalism, energy, conservation
with a concern for ecology and maximizing returns to stakeholders".

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COMPANY OWNERSHIP
S.no. Share holders No of shares % of Total
Shares
1. Central Govt. 440116292 89.71
2. Public
Shareholding
(Institutions)
31770749 6.48
3. Public
Shareholding
(Non-
Institutions)
18691359 3.81
BOARD OF DIRECTORS
S.no. Name Directorship DIN
1. Shri D.S Auja Director
(Technical)
DIN
02820429
2. Shri Rajiv Kumar
Chandiok
Director
(Finance)
DIN
05146544
3. Shri Dharam Pal Joint
Secretary,
DoF
DIN
02354549
4. Shri Gurinderjit Singh
Sandhu
Independent
Director
DIN
01790828
5. Smt. Bhavnaben
Kardambhai Dave
Independent
Director
DIN
07557056

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MANAGING DIRECTOR
 Shri Manoj Mishra (DIN 06408953)
CORPORATE HEADS (S/SHRI)
Vigilance D. K.,Teotia IFS Chief Vigilance
Joint Secretary, DoF
Marketing A.K. Asija Executive Director
- Industrial Products, Agri. Business N.K. Sharma General Manager
and Imports
- Sales & Distribution and FMS Sohan Lal General Manager
- Finance and Accounts N.S. Verma General Manager
Human Resources M. K. Agarwal General Manager
Technical Anil Goel General Manager
Finance and Accounts - C.O. Y. P. Bhola General Manager
Materials J. P. Sachdev General Manager
Internal Audit, Law & MS R. K. Gogia General Manager
Information Technology S.M. Vashisht General Manager
Company Secretariat Raj Kumar Company Secretary

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UNIT HEADS
UNIT HEADS DESIGNATION
S.K. Jindal Executive Director
Panipat Unit
D. S. Ahuja Executive Director
Bathinda Unit
R. K. Chopra Executive Director
Vijaipur Unit
AUDITORS
NAME COMPANY
HDSG & Associates Chartered Accountants,
New Delhi
Chandiok and Guliani Chartered Accountants,
New Delhi

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OBJECTIVES OF NATIONAL FERTILIZERS LIMITED
The Corporate Objectives of NFL are:
In terms of Memorandum of Association, NFL was set up to manufacture and market chemical
fertilizers, other chemicals and by-products as well as to provide the allied services. In order to
achieve and maintain the leading position in the production and marketing of fertilizers, the
following micro objectives have been intensified:
1. PRODUCTIVITY
To achieve the best possible levels of production and economy in the use of inputs while ensuring
safety and proper maintenance of plant and machinery and pollution control. More specifically
a) To strive to raise capacity utilization.
b) To improve upon consumption norms consistently.
2. RESEARCH & DEVELOPMENT
To carry out R&D activities for-
a) Increasing plant availability.
b) Saving use of energy in different forms.
c) Better recovery of saleable by-products.
d) Process improvement/development.
e) Increasing efficiency utilization on a sustained basis in the application of chemical
fertilizers in combination with other agricultural inputs.

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3. PROFITABILITY
To manage the assets, men and materials in most effective and efficient manner ensuring
a) Reasonable return on investment commensurate with the principles laid down by the
Government from time to time
b) Generation of increasing internal resources.
4. MARKETING & CONSUMER SERVICES
a) provide to the farmers high quality products in right time and in adequate quantities and
with a package of modern agricultural practices.
b) To further intensify promotional efforts for increased use of fertilizers and to maximize
distribution of Company’s products within the areas covered by the company consistent
with Government Policy.
5. ORGANIZATION
To develop and maintain an organizational environment for encouraging individual and group
initiative, innovation and productivity and also sustain fair deal and humane approach.
6. GROWTH
a) To achieve reasonable and consistent growth in the business of manufacture and marketing
of fertilizers and chemicals compatible with needs of the market.
b) To work out diversification/expansions schemes to increase profitability of the Company
and meet the changing needs of the customers.

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7. OBLIGATIONS TO SOCIETY
a) To conduct the business of NFLin accordance with ethical and legal standards and to under
take socio-economic activities, consistent with Government policies, in order to generate
good environment, in which Company operates.
b) To promote development of ancillary industries.
PRODUCT PROFILE:-
1. Kisan Urea
2. Neem Coated Urea
3. Bio-Fertilizers
4. Industrial Products
5. Traded Products
Kisan Urea
Kisan Urea is a highly concentrated, solid, nitrogenous fertilizer,
containing 46.0% Nitrogen. It is completely soluble in water hence
Nitrogen is easily available to crops.It contains Nitrogen in a milder
form which changes to ammonical forms and is retrieved by soil
colloids for longer duration. Urea is available in granular form and
can be applied by drill and broadcasting. Kisan Urea is ideally
suitable for all types of crops and for foliar spray which instantly
removes nitrogen deficiency. Kisan Urea also has a strong and long
lasting effect on crop resulting in bumper crops Carbonic acid present in Kisan Urea helps in
absorption of other nutrients like phosphate and Potash by roots of crop.

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Neem Coated Urea
Agronomical trial on Paddy and Wheat crops with Neem coated
Urea as source of Nitrogen has produced significantly higher
yield at research and farm level. Looking into the potential of
Neem Coated Urea and its acceptance by the farmers, Ministry of
Agriculture in July 2004, included the Neem Coated Urea in FCO.
The use of Neem Coated Urea has been found to improve the
uptake of N, P and K significantly. Since 2008 the, Ministry of
Chemicals and Fertilizers allowed Neem Coated Urea
manufacturer to sell NCU at 5% above the MRP, to recover the
cost of coating, however cost of Neem kernel Oil and production
as such of Neem Coated Urea has increased significantly. As per recent notification dated
25.05.2015 all the urea producers in country shall now be producing 100% urea as NCC in order
to improve crop productivity and reduce the subsidy.
Bio-Fertilizer
NFL manufactures and markets three types of Bio-
Fertilizers,
1. Rhizobium
2. Phosphate Solubilising Bacteria (PSB)
3. Azetobactor
Starting with a mere 23 MT production in 1995-96, the production has risen to 231 MT (Approx)
in 2010-11. The Company presently markets its bio-fertilizers in Madhya Pradesh, Maharashtra,
Uttar Pradesh, Uttrakhand, Chattisgarh, Bihar, Jharkhand, Himachal Pradesh, Jammu & Kashmir,
Punjab, Haryana & Rajasthan.

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Industrial Products
1. Nitric Acid Dilute (HNO3)
2. Ammonium Nitrate (NH4NO3)
3. Anhydrous Ammonia (NH3)
4. Sodium Nitrite (NaNO2)
5. Sodium Nitrate (NaNO3)
Traded Products
1. City Compost
Compost is plant matter that has been decomposed and recycled as a fertilizer and soil amendment.
Compost is a key ingredient in organic farming. Modern, methodical composting is a multi-step,
closely monitored process with measured inputs of water, air and carbon- and nitrogen-rich
materials. The decomposition process is aided by shredding the plant matter, adding water and
ensuring proper aeration by regularly turning the mixture. Aerobic bacteria manage the chemical
process by converting the inputs into heat, carbon dioxide and ammonium. Ammonia in the bio-
mass is further refined by bacteria into plant-nourishing nitrites and nitrates.
Compost can be rich in nutrients. It is used in gardens, landscaping, horticulture and agriculture.
The compost itself is beneficial for the land in many ways, including as a soil conditioner, a
fertilizer, addition of vital humus or humic acids, and as a natural pesticide for soil. In ecosystems,
compost is useful for erosion control, land and stream reclamation, wetland construction and as
landfill cover. The compost we are selling is further enriched with biofertilizers.
2. Certified Seeds
Certified seeds of various crop varieties are being sourced from three leading / major State Seed
Agencies / Cooperatives viz. State Farms Corporation Ltd (SFCI), Uttaranchal Seeds & Tarai

37
Development Corp (UAS & TDC), M/s National Seeds Corporation (NSC) etc.We have entered
into an agreement with all above Government bodies’ state wise for procurement of certified seeds.
Besides this in all the major states where we are operating we have prequalified many seed
processing units/suppliers for purchase of seeds through tender process.
We have initiated seed multiplication programme in the state of Madhya Pradesh in the current
Rabi season in 200 acres and expect to expand this programme in other states like Punjab, Haryana
and Uttar Pradesh from the ensuing Kharif 2011.This will enable us to supply quality seeds to
farmers to sustain growth and development. Primary objective of the programme is to operate as
an economically viable and profitable venture and at the same time fulfill the society’s social
obligation. The other secondary objectives are production of Foundation and Certified seed
through registered seed growers to ensure its availability as per plan; to provide quality seeds to
farming community and to sustain national food grain production by producing quality seeds.
3. Agrochemicals
To promote the concept of single window we have ventured into sales of agrochemicals/pesticides.
As a pilot project during kharif 2010 we took up trading of agrochemicals in the state of Punjab
and Haryana and based on our Kharif 2010 experience we have ventured into trading through state
/Government agencies like Hafed, markfed and Hindustan Insecticides Limited in our total
marketing territory.
Agrochemicals constitute a variety of products such as Herbicides - These chemicals control weeds
and may pre emergence or post emergence and crop specific. Fungicides - They normally are used
in controlling diseases like smuts rust etc. Insecticides - They control different types of insect pests
like shoot and root borers and are crop specific, other Chemical fertilizer marketed and proposed
to be marketed by NFLare Potassium Chloride (Muriate of Potash), Diammonium Phosphate (18-
46-0), Nitro Phosphate (20-20-0), NPK 12-32-16

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UNITS
NANGAL UNIT PANIPAT UNIT
BATHINDA UNIT VIJAIPUR-I & II UNITS

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NANGAL UNIT
Consequent upon the reorganization of FCI group of plants, Nangal Plant was transferred to NFL
& subsequently expansion plant of Nangal Unit was commissioned with an installed capacity of
3.30 LMT. Further in order to sustain and enhance the company’s growth, NFL successfully
revamped Urea Plant of the Nangal Unit & Commercial Production was commissioned after
revamp w.e.f. 1st Feb 2001 thus enhances the Annual installed Capacity from 3.30 LMT to 4.785
LMT . As per guidelines of GOI, in order to reduce subsidy burden & Carbon footprint, NFL
revamped the Nangal Unit on LSTK basis for changeover of Feedstock from LSHS/FO to Natural
Gas and commercial production on Gas was commenced during April 2013.
SALIENT FEATURES OF NANGAL UNIT
Installed Capacity 478500 MTPA
Capital Investment 229.19 Crores
Commencement of Production November 1, 1978
PROCESS
Ammonia KBR SMR(Steam Methane Reforming) with
Purifier Technology
Urea Technimont Total Recycle Process
Raw material Coal , LNG/ RLNG, Power, Water

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PANIPAT UNIT
Panipat unit of NFL was commissioned on 1st Sept 1979 based on gasification technology of Feed
Stock on LSHS /Fuel Oil with the annual installed capacity of 511500 MT of Urea. Subsequently
as per guidelines of GOI, in order to reduce subsidy burden & Carbon footprint, NFL revamped
the Panipat Unit on LSTK basis for changeover of Feedstock from LSHS/FO to Natural Gas and
commercial production on Gas was commenced during Jan 2013.
SALIENT FEATURES OF PANIPAT UNIT
Installed Capacity 511500 MTPA
Capital Investment 338.27 Crores
Commencement of Production September 1, 1979
Commencement of Production on Gas
after Revamp
March 28th, 2013
PROCESS

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Ammonia
HTAS Steam Methane Reforming (SMR)
Technology
Urea Mitsu Toastsu total Recycle C Improved
Captive Power Plant 2 x 15 MW
BATHINDA UNIT
Bathinda unit of NFLwas commissioned on 1st Oct 1979 based on gasification technology of Feed
Stock on LSHS /Fuel Oil with the annual installed capacity of 511500 MT of Urea. Subsequently
as per guidelines of GOI, in order to reduce subsidy burden & Carbon footprint, NFL revamped
the Bathinda Unit on LSTK basis for changeover of Feedstock from LSHS/FO to Natural Gas and
commercial production on Gas was commenced during Jan 2013.
SALIENT FEATURES OF BATHINDA UNIT
Installed Capacity
511500 MTPA
Capital Investment
349.41 Crores
Commencement of Production
October 1, 1979
after Revamp
March 11, 2013

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PROCESS
Ammonia HTAS Steam Methane Reforming
(SMR) Technology
Urea Mitsu Toastsu total Recycle C Improved
VIJAIPUR UNIT I & II
National Fertilizers Ltd, Vijaipur unit is one of the four units of M/S National Fertilizers Limited.
With the commencement of commercial production of the Expansion project the gas based unit at
Vijaipur now comprises of two 1520 ton per day (tpd) Ammonia streams and four 1310 tpd Urea
streams and related off-site facilities. The gas is being received from the HBJ gas pipe line being
operated by M/s Gas Authority of India Ltd (GAIL) another government of India undertaking .
The Ammonia stream completed under the Expansion Project can also be operated with 50 % feed
of Naphtha in case of shortage of the gas supply. The line one plants (one stream of Ammonia and
two streams of Urea ) were built with a total cost of Rs 533 Crores and the cost of the Expansion
Unit (one stream of Ammonia and two streams of Urea) is estimated at Rs 1067 Crores. For both
streams of Ammonia plants the consultant have been M/S Haldor Topsoe of Den-Mark and M/S
Projects Development India Ltd. (PDIL), and for all the four streams of Urea consultant have been
PDIL and M/S Snam Progetti of Italy.
SALIENT FEATURES OF VIJAIPUR UNIT – I

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In order to further reduce energy consumption & augment capacity of the Vijaipur Plant, Company
has revamped both the plants at Vijaipur as a result. The annual installed capacity of Vijaipur Units
have been enhanced by 3.40 LMT (16% in case of Vijaipur -I and 23% in case of Vijaipur-II )
with the total capacity of the company has been incresed from 32.31 LMT to 35.68 LMT.
Installed Capacity
999900 MTPA
Capital Investment
516.00 Crores
Commencement of Production
November 1, 1988
after Revamp
April 24, 2012
PROCESS
Ammonia: Steam reforming of NG / Naptha
Urea: Ammonia Stripping
Raw material NG / Naptha, Power, Water

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SALIENT FEATURES OF VIJAIPUR UNIT – II
Installed Capacity: 1066230 MTPA
Capital Investment: 1071.00 Crores
Initial Commencement of Production: March 31,1997
Commencement of Revamp: July 31, 2012
PROCESS
Ammonia: Steam reforming of NG / Naptha
Urea: Ammonia Stripping
Raw material: NG / Naptha, Power, Water
Captive Power Plant: 3 x 17 MW
AWARDS & ACCOLADES
1. Safety Award (First prize) from National Safety Council of India (NSCI) to Panipat
Unit.
2. “Chal-Vaijayanti Shield” (First Prize) for excellent work in Official language for the
year 2014-15 from Town Official Language Implementation Committee, Noida.
3. First Award towards best pavilion in Kisan Agri Expo held in Jaipur.
4. Third Level Suraksha Puraskar (Bronze Trophy) for 2015 to Bathinda Unit under
Group-B manufacturing sector by NSCI.

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5. Sarvashreshtha Suraksha Puraskar (Golden Trophy) to Panipat Unit under Group B in
manufacturing sector from NSCI.
6. “Icon of the Year Award” to C&MD, NFL by The Institute of Cost Accountants of
India for significant contribution to the profession as well as society.
7. NFL has record its best ever operational performance by producing 38.10 Lakh MT of
urea with an overall capacity utilization of 118% uring 2016-17.
8. NFL unveils new logo.
9. Starts skill training program under CSR.
10. Construct 14 toilets under CSR 2016-17.
11. Unveiling of foundation stone of RFCL (joint venture of NFL) by Hon’ble Prime
Minister Shri Narendra Modi
SWOT
Strength
 Large player in domestic Urea Production (16% contribution in total production of the
country). Well established “KISAN” Brand.
 Sovereign ownership (90% equity held by GoI).
 All the Plants based on gas as feed stock for Ammonia with latest technology.
 Competitive cost structure (Plants almost depreciated)
 Low risk as entire short term debt is backed by receivables from GoI.
 Three plants located in the most intensive fertilizers consuming States i.e. Punjab and
Haryana.
 Large distribution and sales network (2000 Dealers).
 One of the few manufacturers of Bio-fertilizers.
 Skilled & Experienced workforce.
 Adequate Infrastructure for future expansion.

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Weakness
 The major source of income is from government
 Prices is fixed by government
 Subsidy is based on receipt bases
 Due to late subsidy receipt company take loans to meet the cash requirements it incured
heavy finance cost burden
Opportunities
 Growing agricultural economy and Urea demand.
 Incentive for higher production under NUP-2015.
 Opportunity for New Investments under NIP-2012.
 Scaling up production of Bio-Fertilizers.
 Scope for production & sale of certified seeds.
 Leverage of existing marketing network for undertaking trading and other businesses.
 Scope for Increase in capacity utilization of Nitric Acid & Ammonium Nitrate Plants at
Nangal.
 Reduction in gas price enabling additional production.
 Introduction of Direct Benefit Scheme to Farmers for Urea subsidy to improve cash flow
and reduce borrowings.
 Customized, fortified, water soluble & liquid fertilizers for balanced fertilization.
Threats
 Lower international price of Urea making additional production unremunerated.
 Inadequate subsidy budget of the Government.
 Increased Government regulations & procedures.
 Strict energy norms in 2018-19 under NUP-2015.
 Inadequate availability of domestic natural gas.
 Adverse demand supply scenario of Fertilizers due to adverse agro Climatic condition.
 Volatility in prices of Industrial Products.
 Decontrol of Urea.

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FINANCE AND ACCOUNTS DEPARTMENT
Accounting and finance play an existential role in the management of any business. In the words
of John Nessel, president of the Restaurant Resource Group, "If you can't count it, you can't
manage it." He means that companies operate on money, and if you don't control that money, you
don't control your business. By properly accounting for your company's income and expenses, you
can manage the flow of money and thereby direct the course of your business
ROAL OF FINANCE AND ACCOUNTS DEPARTMENT IN NFL
1. TREASURY MANAGEMENT
2. COST CONTROL
3. BILLING AND CREDIT CONTROL
4. INVESTMENT APPRAISAL
5. HANDLING TAX ISSUES
6. PREPARATION OF FINANCIAL STATEMENT ETC.

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SUB DEPARTMENTS OF FINANCE AND ACCOUNTS DEPARTMENT
CENTER ACCOUNTS
TREASURY
CWB
PF
TAX
FICC/SUBSIDY
MISCELLANEOUS

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DEPARTMENTAL BRIEF
1. CENTER ACCOUNTS
In this department all accounts are prepared. And maintain all records
Role of center accounts
(a) Preparation of journals
(b) Preparation of ledgers
(c) Preparation of final accounts
(d) Preparation of balance sheet
(e) Preparation of P/L accounts
2. TREASURY
This department take cares of cash management and working capital management.
Role of treasury
1. Working capital planning
2. Payments to creditors
3. Raising funds
4. Interest payment
5. Repayment of short term loans
6. Avail cash credits from banks
7. Issue commercial papers etc.
There are only online transactions are made in the organization. No cash payments and
receipts are made in organization.

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3. CWB(CONGRUENCE,WORKS AND BILLINGS)
Role of CWB
1. Insurance
2. Import of spare parts
3. Approval for purchase of local corporate office
4. Clarification of gas payments
4. PF(PROVIDENT FUND)
Taking cares of whole payment of provident fund of employees part as well as
organization part
5. Tax
This department make all the transactions of tax. Calculate all direct and indirect
tax. On time payments of advance tax. Make planning about cenvet credit. Make
provisions for taxation. Tax planning etc.
6. FICC
This is the department who apply for the subsidy to the avail it timely. Calculate
the amount of subsidy. All subsidy is based on production and it is calculated on
the basis of production of the fertilizer.
7. MISCELLANEOUS

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They calculate and maintain all the day to day expense like tea coffee etc.

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PART :- 3
 SCOPE OF THE STUDY
 OBJECTIVE OF THE STUDY
 METHDOLOGY

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SCOPE OF THE STUDY
The scope of the study is identified after and during the study is conducted. The main scope of
the study was to put into practical the theoretical aspect of the study into real life work experience.
The study of working capital is based on tools like Ratio Analysis, Statement of changes in working
capital. Further the study is based on last 5 years Annual Reports of NATIONAL FERTILIZER
LIMITED.
OBJECTIVES OF THE STUDY
 To study the sources and uses of the working capital.
 To study the liquidity position through various working capital related ratios.
 To study the working capital components such as receivables accounts,
Cash management, Inventory management.
 To make suggestions based on the finding of the study.
RESEARCH METHDOLOGY
INTRODUCTION:
A research method is a systematic plan for conducting research. Sociologists draw on a variety of
both qualitative and quantitative research methods, including experiments, survey research,
participant observation, and secondary data. Quantitative methods aim to classify features, count
them, and create statistical models to test hypotheses and explain observations. Qualitative
methods aim for a complete, detailed description of observations, including the context of events
and circumstances.
“The procedures by which researcher go about their work of describing, explaining and predicting
phenomenon are called methodology”.

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TYPE OF RESEARCH:
This project “A Study on Working Capital Management of NATIONAL FERTILIZER
LIMITED” is considered as an analytical research.
Analytical Research is defined as the research in which, researcher has to use facts or information
already available, and analyze these to make a critical evaluation of the facts, figures, data or
material.
SOURCE OF RESEARCH DATA:
There are mainly two through which the data required for the research is collected.
PRIMARY DATA:
The primary data is that data which is collected fresh or first hand, and for first time which is
original in nature.
In this study the Primary data has been collected from Personal Interaction with DUPTY
MANAGER F&A DEPARTMET“BIDYADHAR DEHURI”. AND CHIEF MANGER “S.K.
PRAJAPATI” and other staff members.
SECONDARY DATA:
The secondary data are those which have already collected and stored. Secondary data easily get
those secondary data from records, annual reports of the company etc. It will save the time, money
and efforts to collect the data.
The major source of data for this project was collected through annual reports, profit and loss
account of 5 year period from 2012-2017 & some more information collected from internet and
text sources.

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SAMPLING DESIGN
Sampling unit : Financial Statements.
Sampling Size : Last five years financial statements.
Tool Used for calculations: - MS-Excel.
TOOLS USED FOR ANALYSIS OF DATA
The data were analyzed using the following financial tools. They are
 Ratio analysis.
 Statement of changes in working capital.
 Cash management planning
LIMITATIONS OF THE STUDY
 The study duration (summer in corporate office) is short.
 The analysis is limited to just five years of data study (from year 2012 to year 2017) for
financial analysis.
 Limited interaction with the concerned heads due to their busy schedule.
 The findings of the study are based on the information retrieved by the selected unit.

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PART :- 4
 INTRODUCTION
 CONCEPTS OF WORKING CAPITAL
 PRINCIPLES OF WORKING CAPITAL
 CLASSIFICATION OR KINDS OF WORKING
CAPITAL
 NEED OR OBJECTS OF WORKING CAPITAL
 FACTORS DETERMININGWORKINGCAPITAL
REQUIREMENTS
 MANAGEMENT OF WORKING CAPITAL
 APPROACHES
 OPERATING CYCLE OF WORKING CAPITAL
 SOURCES OF FUND
 ESTIMATION
 COMPONENTS OF WORKING CAPITAL

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WORKING CAPITAL
INTRODUCTION
Working capital is a measurement of an entity’s current assets, after subtracting its liabilities.
Sometimes referred to as operating capital, it is a valuation of the amount of liquidity a business
or organization has for the running and building of the business. Generally speaking, companies
with higher amounts of working capital are better positioned for success. They have the liquid
assets needed to expand their business operations as desired. Sometimes, a company will have a
large amount of assets, but have very little with which to build the business and improve processes.
Even a profitable company may have this problem. This can occur when a company has assets that
are not easy to convert into cash.
Working capital can be expressed as a positive or negative number. When a company has more
debts than current assets, it has negative working capital. When current assets outweigh debts, a
company has positive working capital.
Changes in working capital will impact a business’ cash flow. When working capital increases,
the effect on cash flow is negative. This is often caused by the liquidation of inventory or the
drawing of money from accounts that are due to be paid by the business. On the other hand, a
decrease in working capital translates into less money to settle short-term debts.
Working capital is also of interest in the context of a business valuation, for at least two reasons.
First, when using a discounted cash flow approach, the appraiser will often consider changes
expected in working capital over the projected periods to convert income figures into cash flows.
Second, an excess amount of working capital, particularly cash, is sometimes grounds for
additional value being quantified, above and beyond that which would result from the income
capitalization component of the valuation. This is because companies of a given standard industrial
classification code, or industry type, are commonly thought of as requiring a certain level of
working capital to operate under normal circumstances. Companies that vary significantly from
the norm may be considered to have excess or inadequate working capital, and therefore warrant
an adjustment. Working capital can be provided by several sources:

58
1. Net income, plus noncash expenses;
2. Financing activities, including loans and equity infusions;
3. Decrease in noncurrent assets, e.g., the sale of fixed assets.
Most business activities affect working capital, either consuming or generating it. Sales made at a
positive margin increase working capital, as they increase one current asset (accounts receivable
or cash) more than they decrease another current asset (inventory). Starting up a new product line
may require higher levels of working capital, as inventory and receivables must be built up to some
steady-state level. Changes in credit terms, either that the company gives on its receivables, or that
it gets on its payables, will affect working capital. For example, extending more favorable credit
terms to one's customers will require higher amounts of working capital, as accounts receivable
will build without any compensating changes to make up the difference. The repayment of a long-
term debt (bonds, capital leases, etc.) will result in a reduction, or use of working capital. This
occurs as a current asset (cash) is used to reduce a noncurrent liability.
CONCEPTS OF WORKING CAPITAL:
There are two definitions of working capital:
(1) Gross working capital
(2) Net working capital
Gross working capital refers to working capital as the total of current assets, whereas the net
working capital refers to working capital as excess of current assets over current liabilities. In other
words net working capital refers to current assets financed by long term funds accordingly,

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Gross working capital = Total current assets
Net working capital = Current assets – Current liabilities
The net working capital position of the firm is an important consideration, as this will determine
the firm’s profitability and risk. Here the profitability refers to profits after expenses and risk refers
to the probability that a firm will become technically insolvent where it will be unable to meet
obligations when they become due for payment.
A finance manager has to make an appropriate financing mix, which will limit the risk and increase
the profitability. Financing mix refers to the proportion of current assets financed by current
liabilities and long term funds.
There are two approaches which determine the financing mix (1) Aggressive approach (2)
Conservative approach.
According to aggressive approach the long term funds are used to finance only the core or fixed
portion of current assets (e.g., minimum level of finished goods inventory, raw material etc.) and
the other portion i.e. temporary and seasonal requirements are financed by short term funds. This
is of high risk and high profit financing mix.
According to conservative approach the total current assets are financed from long term sources
and short term sources are used only in emergency situation i.e. when there is an unexpected cash
outflow. This is of low-risk and low-profit financing mix.
As we observed two methods of financing mix, one method is of high risk high profit and other is
of risk low profit. A finance manager has to trade-off between these two extremes.

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PRINCIPLES OF WORKING CAPITAL
There are four principle of working capital management. They are being depicted as below:
(I) Principle of Risk Variation: - The goal of WC management is to establish a suitable trade
between profitability and risk. Risk here refers to a firm's ability to honor its obligation as and
when they become due for payments. Larger investment in current assets will lead to dependence.
Short term borrowings increases liquidity, reduces risk and thereby decreases the opportunity for
gain or loss. On the other hand the reserve situation will increase risk and profitability and reduce
liquidity thus there is direct relationship between risk and profitability and inverse relationship
between liquidity and risk.
(ii) Principle of Cost Capital: - The various sources of raising WC finance have different cost
of capital and the degree of risk involved. Generally higher the cost lower the risk, Lower the risk
higher the cost. A sound WC management should always try to achieve the balance between these
two.
(iii) Principle of Equity Position: - This principle is considered with planning the total
investment in current assets. As per this principle the amount of WC investment in each component
should be adequately justified by a firm’s equity position every rupee contributed current assets
should contribute to the net worth of the firm the level of current assets may be measured with the
help of two ratios. They are:
• Current assets as a percentage of total assets.
• Current assets as a percentage of total sales.
(iv) Principle of Maturity Payment: - This principle is concerned with planning the source of
finance for WC. As per this principle a firm should make every effort to relate maturities of its
flow of internally generated funds in other words it should plan its cash inflow in such a way that
it could easily cover its cash out flows or else it will fail to meet its obligation in time.

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CLASSIFICATION OR KINDS OF WORKING CAPITAL
Working capital may be classified in two ways:
(a) On the basis of concept
(b) On the basis of time
On the basis of concept working capital is classified as gross working capital and net working
capital. On the basis of time working capital may be classifies as Permanent or fixed working
capital and Temporary or variable working capital.
Permanent or Fixed working capital
It is the minimum amount which is required to ensure effective utilization of fixed facilities and
for maintaining the circulation of current assets. There is always a minimum level of current assets
which it’s continuously required by enterprise to carry out its normal business operations. As the
business grows, the requirements of permanent working capital also increase due to increase in
current assets. The permanent working capital can further be classified as regular working capital
and reserve working capital required to ensure circulation of current assets from cash to
inventories, from inventories to receivables and from receivables to cash and so on. Reserve
working capital is the excess mount over the requirement for regular working capital which may
be provided for contingencies that may arise at unstated periods such as strikes, rise in prices,
depression etc.
Temporary or Variable working capital
It is the amount of working capital which is required to meet the seasonal demands and some
special exigencies. Variable working capital is further classified as seasonal working capital and
special working capital. The capital required to meet seasonal needs of the enterprise is called
seasonal working capital. Special working capital is that part of working capital which is required

62
to meet special exigencies such as launching of extensive marketing campaigns for conducting
research etc.
Importance or Advantages of Adequate Working Capital
Working capital is the life blood and nerve center of a business. Hence, it is very essential to
maintain smooth running of a business. No business can run successfully without an adequate
amount of working capital. The main advantages of maintaining adequate amount of working
capital are as follows:
1. Solvency of the Business: Adequate working capital helps in maintaining solvency of
business by providing uninterrupted flow of production.
2. Goodwill: Sufficient working capital enables a business concern to make prompt payments
and hence helps in creating and maintaining goodwill.
3. Easy Loans: A concern having adequate working capital, high solvency and good credit
standing can arrange loans from banks and others on easy and favorable terms.
4. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts
on purchases and hence it reduces cost.
5. Regular Supply of Raw Material: Sufficient working capital ensure regular supply of raw
materials and continuous production.
6. Regular payment of salaries, wages and other day to day commitments : A company
which has ample working capital can make regular payment of salaries, wages and other
day to day commitments which raises morale of its employees, increases their efficiency,
reduces costs and wastages.
7. Ability to face crisis: Adequate working capital enables a concern to face business crisis
in emergencies such as depression.
8. Quick and regular return on investments: Every investor wants a quick and regular
return on his investments. Sufficiency of working capital enables a concern to pay quick
and regular dividends to be investor as there may not be much pressure to plough back
profits which gains the confidence of investors and creates a favorable market to raise
additional funds in future.

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EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate working capital to run its business operations. It
should have neither excess working capital nor inadequate working capital. Both excess as well as
short working capital positions are bad for any business.
DISADVANTAGES OF EXCESSIVE WORKING CAPITAL
1. Excessive working capital means idle funds which earn no profits for business and hence
business cannot earn a proper rate of return.
2. When there is a redundant working capital it may lead to unnecessary purchasing and
accumulation of inventories causing more chances of theft, waste and losses.
3. It may result into overall inefficiency in organization.
4. Due to low rate of return on investments, the value of shares may also fall.
5. The redundant working capital gives rise to speculative transaction.
6. When there is excessive working capital, relations with banks and other financial
institutions may not be maintained.
DISADVANTAGES OF INADEQUATE WORKING CAPITAL
1. A concern which has inadequate working capital cannot pay its short-term liabilities in
time. Thus, it will lose its reputation and shall not be able to get good credit facilities.
2. It cannot buy its requirements in bulk and cannot avail of discounts.
3. It becomes difficult for firm to exploit favorable market conditions and undertake
profitable projects due to lack of working capital.
4. The rate of return on investments also falls with shortage of working capital.
5. The firm cannot pay day-to-day expenses of its operations and it created inefficiencies,
increases costs and reduces the profits of business.

64
NEED OR OBJECTS OF WORKING CAPITAL
The need for working capital arises due to time gap between production and realization of cash
from sales. There is an operating cycle involved in sales and realization of cash. There are time
gaps in purchase of raw materials and production, production and sales, and sales and realization
of cash. Thus, working capital is needed for following purposes.
1. For purchase of raw materials, components and spares.
2. To pay wages and salaries.
3. To incur day-to-day expenses and overhead costs such as fuel, power etc.
4. To meet selling costs as packing, advertisement
5. To provide credit facilities to customers.
6. To maintain inventories of raw materials, work in progress, stores and spares and
finished stock.
Greater size of business unit large will be requirements of working capital. The amount of working
capital needed goes on increasing with growth and expansion of business till it attains maturity. At
maturity the amount of working capital needed is called normal working capital.
FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS
The following are important factors which influence working capital requirements:
1. Nature or Character of Business:The working capital requirements of firm depend upon
nature of its business. Public utility undertakings like electricity, water supply need very
limited working capital because they offer cash sales only and supply services, not
products, and such no funds are tied up in inventories and receivables whereas trading and
financial firms require less investment in fixed assets
2. Size of Business/Scale of Operations: Greater the size of a business unit, larger will be
requirement of working capital and vice-versa.

65
3. Production Policy: The requirements of working capital depend upon production policy.
If the policy is to keep production steady by accumulating inventories it will require higher
working capital..
4. Manufacturing process / Length of Production cycle: Longer the process period of
manufacture, larger is the amount of working capital required. The longer the
manufacturing time, the raw materials and other supplies have to be carried for longer
period in the process with progressive increment of labour and service costs before finished
product is finally obtained.
5. Credit Policy: A concern that purchases its requirements on credit and sell its
products/services on cash requires lesser amount of working capital.
6. Business Cycles: In period of boom i.e. when business is prosperous, there is need for
larger amount of working capital due to increase in sales, rise in prices etc.
7. Rate of Growth of Business: The working capital requirements of a concern increase with
growth and expansion of its business activities.
8. Earning Capacity and Dividend Policy. The firms with high earning capacity generate
cash profits from operations and contribute to working capital. The dividend policy of
concern also influences the requirements of its working capital.
9. Price Level Changes: Changes in price level affect the working capital requirements.
Generally, the rising prices will require the firm to maintain large amount of working
capital as more funds will be required to maintain the same current assets.
10. Working Capital Cycle: In a manufacturing concern, the working capital cycle starts with
the purchase of raw material and ends with realization of cash from the sale of finished
products.
MANAGEMENT OF WORKING CAPITAL
Working capital refers to excess of current assets over current liabilities. Management of working
capital therefore is concerned with the problems that arise in attempting to manage current assets,
current liabilities and inter relationship that exists between them. The basic goal of working capital
management is to manage the current assets and current of a firm in such a way that satisfactory
level of working capital is maintained i.e. it is neither inadequate nor excessive.

66
1. Dimension I is concerned with formulation of policies with regard to profitability, risk and
liquidity.
2. Dimension II is concerned with decisions about composition and level of current assets.
3. Dimension III is concerned with decisions about composition and level of current liabilities
Principles of Working Capital Management
1. Principle of Risk Variation: Risk refers to inability of firm to meet its obligation as and when
they become due for payment. Larger investment in current assets with less dependence on short-
term borrowings increases liquidity
2. Principle of Cost of Capital: The various sources of raising working capital finance have
different cost of capital and degree of risk involved. Generally, higher the risk lower is cost and
lower the risk higher is the cost
3. Principle of Equity Position: This principle is concerned with planning the total investment in
current assets. According to this principle, the amount of working capital invested in each
component should be adequately justified by firm’s equity position. Every rupee invested in
current assets should contribute to the net worth of firm. The level of current assets may be
measured with help of two ratios.
 Current assets as a percentage of total assets and
 Current assets as a percentage of total sales.
4. Principle of Maturity of Payment: This principle is concerned with planning the sources of
finance for working capital. According to this principle, a firm should make every effort to relate
maturities of payment to its flow of internally generated funds. Generally, shorter the maturity
schedule of current liabilities in relation to expected cash inflows, the greater inability to meet its
obligations in time.

67
APPROACHES
1. The Hedging or Matching Approach
2. The Conservative Approach
3. Aggressive Approach
The Hedging or Matching Approach: The term ‘hedging’ refers to two off-selling transactions
of a simultaneous but opposite nature which counterbalance effect of each other. With reference
to financing mix, the term hedging refers to ‘process of matching of maturities of debt with
maturities of financial needs’. According to this approach the maturity of sources of funds should
match the nature of assets to be financed. This approach is also known as ‘matching approach’
which classifies the requirements of total working capital into permanent and temporary working
capital.
The Conservative Approach: This approach suggests that the entire estimated investments in
current assets should be financed from long-term sources and short-term sources should be used
only for emergency requirements.
Distinct features of Conservative approach are:
 Liquidity is greater
 Risk is minimized
 The cost of financing is relatively more as interest has to be paid even on seasonal
requirements for entire period.
Aggressive Approach: The aggressive approach suggests that entire estimated requirements of
current asset should be financed from short-term sources even a part of fixed assets investments
be financed from short-term sources. This approach makes the finance – mix more risky, less costly
and more profitable.

68
Estimate of Working Capital Requirements
“Working Capital is the life blood and controlling nerve center of a business.” No business can be
successfully run without an adequate amount of working capital. To avoid the shortage of working
capital at once, an estimate of working capital requirements should be made in advance so that
arrangements can be made to procure adequate working capital. But estimation of working capital
requirements is not an easy task and large numbers of factors have to be considered before starting
this exercise. There are different approaches available to estimate the working capital requirements
of a firm which are as follows:
1. Working Capital as a Percentage of Net Sales: This approach to estimate the working
capital requirement is based on the fact that the working capital for any firm is directly
related to the sales volume of that firm
 To estimate total current assets as a % of estimated net sales.
 To estimate current liabilities as a % of estimated net sales, and
 The difference between the two above, is the net working capital as a % of net
sales.
2. Working Capital as a Percentage of Total Assets or Fixed Asset: This approach of
estimation of working capital requirement is based on the fact that the total assets of the
firm are consisting of fixed assets and current assets. On the basis of past experience, a
relationship between (I) total current assets and (ii) total fixed assets
Both the above approaches to the estimation of working capital requirement are simple in
approach but difficult in calculation.
3. Working Capital based on Operating Cycle: In this approach, the working capital
estimate depends upon the operating cycle of the firm. A detailed analysis is made for each
component of working capital and estimation is made for each of these components. The
different components of working capital may be enumerable as follows:

69
Current Assets Current Liabilities
Cash and Bank Balance Creditors for Purchases
Inventory of Raw Material Creditors for Expenses
Inventory of Work-in-Progress
Inventory of Finished Goods
For manufacturing organization, the following factors have to be taken into consideration while
making an estimate of working capital requirements.
Factors Requiring Consideration While Estimating Working Capital
1. Total costs incurred on material, wages and overheads
2. The length of time for which raw material are to remain in stores before they are issued
for production.
3. The length of production cycle or work in process i.e. the time taken for conversion of
raw material into finished goods.
4. The length of sales cycle during which finished goods are to be kept waiting for sales.
5. The average period of credit allowed to customers.
6. The amount of cash required to pay day to day expenses of the business.
7. The average amount of cash required to make advance payments, if any.
8. The average credit period expected to be allowed by suppliers.
9. Time lag in the payment of wages and other expenses.
From the total amount blocked in current assets estimated on the basis of the first seven items
given above, the total of the current liabilities i.e. the last two item, is deducted to find out the
requirements of working capital. In case of purely trading concern, points 1, 2, 3 would not arise
but all other factors from points 4 to 9 are to be taken into consideration. In order to provide for

70
contingencies, some extras amount generally calculated as a fixed percentage of the working
capital may be added as margin of safety.
Suggested Performa for estimation of working capital requirements under operating cycle is given
below:
Estimation of Working Capital Requirements
I. Current Assets: Amount Amount Amount
Minimum Cash Balance ****
Inventories:
Raw Materials ****
Work-in-Progress ****
Finished Goods **** ****
Receivables
Debtors ****
Bills **** ****
Gross Working Capital (CA) **** ****
II. Current Liabilities : Amount Amount
Creditors for purchases ****
Creditors for Wages ****
Creditors for Overheads ****
Total Current Liabilities (CL) **** ****

71
Excess of CA over CL ****
+ Safety Margin ****
Net Working Capital Requirement ****
OPERATING CYCLE OF WORKING CAPITAL:
The working capital cycle reserves to the length of time between the firm paying cash for materials
etc., this working capital also known as operating cycle. Working capital cycle or operating cycle
indicates the length or time between companies paying for materials entering into stock and
receiving the cash from sales of finished goods. The operating cycle (Working Capital) consists of
the following events. Which continues throughout the life of business?
RAW
MATERIALS
WORK-IN-PROGRESSFINISHED STOCK
DEBTORS
CASH

72
1. Conversion of cash into raw materials.
2. Conversion of raw materials into work in progress.
3. Conversion of work in progress into finished stock.
4. Conversion of finished stock into accounts receivables(Debtors)through sale and
5. Conversion of account receivables into cash.

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MAJOR SOURCES OF FUND INFLOW AND OUTFLOW
FUND INFLOW
1) Subsidy (FICC Of Government)
2) Marketing
a) Lucknow
b) Bhopal
c) Chandigarh
FUND OUTFLOW
1. Gas payments
2. Coal payments
3. Railway freight
4. Tax payment
5. Interest on loans
6. Repayment of loans/bonds/other credits
7. Transfer of funds to units
8. Other miscellaneous expenditure

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ESTIMATION
ESTIMATION OF CURRENT ASSETS
1. Raw Material Inventory:
The Investment in Raw Material can be computed with the help of the following formula:-
Budgeted Cost of Raw Average Inventory
Production x Material(s) x Holding Period
(In units) per unit (months/days)
12 months / 52 weeks / 365days
2. Work-in-progress (W/P) Inventory:
The relevant cost of determine work in process inventory are the proportionate share of
cost of raw material and conversion costs (labors and Manufacturing over Head cost excluding
depreciation) In case, full until of raw material is required in the beginning the unit cost of work
is process would be higher, i.e., cost of full unit + 50% of conversion cost compared to the raw
material requirement.
Budgeted Estimated work- Average Time Span
Production x in-progress cost x of work-in-progress
(In units) per unit inventory (months/days)

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3. Finished Goods Inventory:
Working capital required to finance the finished goods inventory is given by factors
summed up as follows:-
Budgeted Cost of Goods Produced Finished Goods
Production x per unit (excluding x Holding Period
(in units) depreciation) (months/days)
4. Debtors:
The working capital tied up in debtor should be estimated in relation to total cost price
(excluding depreciation) symbolically,
Budgeted Cost of Sales per Average Debt
Production x unit excluding x Collection Period
(In units) depreciation (months/days)
5. Cash and Bank Balances:
Apart from Working Capital needs for Financing Inventories and Debtors, Firms also find
it useful to have such minimum cash Balances with them. It is difficult to lay down the exact
procedure of determining such an amount.

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ESTIMATION OF CURRENT LIABILITIES
The Working Capital needs of business firms are lower to the extent that such needs are
met through the Current Liabilities(other than Bank Credit) arising in the ordinary course of
business. The Important Current Liabilities in this context are Trade-Creditors, Wages and
Overheads:-
1. Trade Creditors:
The Funding of Working Capital from Trade Creditors can be computed with the help of
the following formula:-
Budgeted Yearly Raw Material Credit Period
Production x Cost x Allowed by creditors
Note: - Proportional adjustment should be made to cash purchases of Raw Materials.
2. Direct Wages:
The Funding of Working Capital from Direct Wages can be computed with the help of the
following formula:-
Budgeted Yearly Direct Labor Average Time-lag in
Production x Cost x Payment of wages
12 months / 52 weeks / 365dayss

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Note: - The average Credit Period for the payment of wages approximates to half-a-month in the
case of monthly wage payment. The first days monthly wages are paid on the 30th of the month,
extending credit for 29 days, the second day’s wages are, again, paid on the 30th day, extending
credit for 28 days, and so on. Average credit period approximates to half-a-month.
3. Overheads (other than Depreciation and Amortization):
The Funding of Working Capital from Overheads can be computed with the help of the
following formula:-
Budgeted Yearly Overhead Average Time-lag in
Production x Cost x Payment of overheads
Note: - The amount of Overheads may be separately calculated for different types of Overheads.
In the case of Selling Overheads, the relevant item would be sales volume instead of Production
Volume.

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PART :- 5
 INTRODUCTION
 OBJECTIVE
 FUNCTIONS
 NFLCONTROL OBJECTIVES, RISKS & KEY
CONTROLS – Cash & Bank
 MISCELLANEOUS

79
CASH MANAGEMENT
INTRODUCTION
The accounting procedure to be followed for the receipt, custody and disbursement of cash directly
and/or through bank. Cash handling is a high risk area, there being greater need to ensure proper
authenticity, validity, documentation, authorization and control of all cash and bank transactions
and physical custody, verification etc.
National Fertilizers Ltd (NFL) has a separate Cash section in all the units / CMO / Corporate Office
(CO) which is responsible for all type of cash and bank transactions. The Cash section at the units
and the Corporate Office carry out the transactions as per their respective delegation of powers.
The Company has various sources of fund inflow and outflow, which lead to the cash and bank
transactions. The sources of funds inflow and outflow include the following:
Sources for fund inflow
• Equity participation by Government of India (GOI)
• Term loans/project loans/short term loans and bonds from banks and financial institutions.
• Loans from foreign institutions.
• Realizations of sales of fertilizers and other products from Govt. as subsidy/marketing operations.
• Cash credit/working capital demand loans from different banks.
• Deposit by suppliers/ parties as Earnest Money and Security Deposits
• Other Casual receipts such as refund of insurance claims, Renting of Batal Wagons, Receipt of refund of
advances from employees, Sales of scrap etc.

80
Disposal of fund outflow
• Debt servicing - repayment of term loans and redemption of bonds and interest there against
• Foreign payments - repayment of foreign loan and interest thereon and remittance of portion of
foreign currency to contractors and payment for import of material and machinery for construction
projects
• Other payments to suppliers, contractors, taxes, etc. of routine nature including salary and other
payments to employees, etc.
Besides the above regular transactions, the company can source the money on the sale of old,
Disposable assets, providing advisory services etc. Also the irregular out-flow may include the
Payment for Capital Expenditure etc.
OBJECTIVES
Objective of Cash Section are:-
1. Proper authorization of receipt and disbursement.
2. Proper documentation and recording of receipts and payments.
3. Adequate internal control and checks over receipts and disbursement to prevent erroneous
payments, frauds and embezzlement.
FUNCTIONS
Cash section shall perform following functions:-
a) Receive cash, cheques, demand drafts etc. from employees and outside parties against dues
to company, tender fees, earnest money and refund of advances etc. against receipt
vouchers from the concerned section.

81
b) Make payments in cash, cheques, and demand drafts to employees and other outside parties
on basis of Payment Order issued by different sections. In addition, release of payment to
vendors/ suppliers through e payment mode like NEFT, RTGS etc.
c) Make payment to imprest holders, on the basis of payment order issued by concerned
section.
d) Handling of bank deposits, withdrawal and custody of cash.
e) Maintenance of Cash and Bank books.
f) Intimate to bank names of officers authorized to operate bank accounts and send their
specimen signatures and also cancel specimen signatures of those who cease to hold
authority to operate bank accounts.
g) Send report to corporate office of all remittances made by various Area offices banks to
the account of corporate office with bank debit advice for the same shall be sent by CMO
Finance (Applicable in r/o CMO).
h) Prepare bank reconciliation statements.
i) Keep liaison with bank for the discrepancies found in bank reconciliation and for delay in
remittances to units, CMO and Corporate Office, and delay in collection & credit for
cheques/drafts/postal orders etc. sent to bank for collection.
j) Physically verify cash on daily basis and also conduct surprise check by an officer other
than Incharge of Cash Section on Monthly Basis.
k) Security arrangement for cash handling.
l) Insure cash in safe and cash in transit.
m) Safe custody of all Bank Guarantees and Fixed Deposit Receipts, and other valuable
documents
n) Maintain Register of valuable documents like bank guarantees, Call deposits etc. kept in
the safe custody.
o) Check correctness of amount charged by bank for demand drafts, issuing of bank
guarantees, Charges for RTGS/ NEFT etc.
p) Check interest charged by bank on cash credit account, and credit for interest allowed by
bank under value dating of remittances.
q) Maintenance of adequate Cash and Bank balances on daily basis.

82
NFL CONTROLOBJECTIVES, RISKS & KEY CONTROLS – Cash& Bank
Objectives Risks Controls/ Good business
practices
1. Opening and closing
new bank accounts:
• Bank accounts are • Unauthorized bank • A list of authorized signatories
opened and/ Or accounts may be should be given to each banker
closed only In opened in the and an acknowledgement
accordance with the company’s name. obtained.
company policy and
on the basis of an • Bankers should beinstructed
approved Board that new accounts should be
resolution. opened on the basis of approval
of competent authority.
• Non-operating bank accounts
should be closed at the earliest
after the approval of competent
authority.
2. Receipts General
• Responsibility for • Cash may be lost, • A locker should be used for all
cash, cheques and stolen or the collections.

83
other cash equivalent misdirected.
received Is • Cash and cash equivalents
established to ensure • Cash or cash should be reconciled on a
that cash cannot Be equivalent payments timely basis, and excess and
misdirected Or may not be shortages are investigated and
misappropriated. reported. reconciled.
• Cash shortages may • only the person made
not be detected. responsible (cashier) should do
• Cash shortages may
the cash receipts.
misstate other • There should be segregation of
accounts, as well as duty between person receiving
cash. the cash and the person
passing the entry.
• An individual not associated
with authorising and processing
payments should reconcile all
bank accounts to the general
ledger on a timely basis.
• Surprise cash counts should be
done.

84
• Reconciling items should be
cleared promptly.
• Cheques and drafts outstanding
for a considerable period of
Time are investigated
periodically.
3. Bank receipts
• Collections And • Posting to bank and • The billing and cash collection
recording of bank accounts receivable Function should be properly
receipts is performed general ledger segregated.
by individuals accounts may be
separate from The incomplete or • All cash receipts/ cheques
billing function. inaccurate. should be forwarded to the
Delays in depositing
company’s cash management
• division in a timely manner.
cash receipt
negatively impacts • Timely reconciliation of bank
the company’s cash book, journal and reports are
position and its performed routinely
potential for earning
interest.
• Cash received by the
same employee who
billed for respective
goods/ service
increases the
potential for errors
or misappropriation.
• Theft occurs
undetected.

85
• Cheques received • At the time of receiving the
may contain errors cheque/ DD it must be reviewed
or omissions, which to ensure that the cheque is in
may lead to delays the name of NFL and is drawn
in realization. correctly.
• Cheques received • Cheques should be marked as
may not be account- account payee, immediately upon
payee, thereby receipt, correction/ updation are
enabling not authorized.
misappropriation of
the funds. • All cheques/ drafts received by
Cheques, drafts, etc.
the bank section should be
• deposited in the respective banks
may not be either on the same day or latest
deposited as and by the next working day.
when they are
received, there by • At each period end, the Manager
resulting in should review the cash balances
increased working to ensure that the cheques and
capital requirement. drafts in hand are booked as
• In case of CC
“cheques in hand”.
accounts, delays in
deposits may result
in an increase in the
interest cost on the
funds.
• Cheques/ drafts

86
received at the year-
end, but not
deposited in The
bank account, may
wrongly be disclosed
As bank Balances
instead of Cheques
in hand.
4. Cash Receipts:
• All amounts collected • Cash receipts may • Formal receipts should be issued
in cash are correctly not be recorded in against each receipt of cash.
recorded in The the books and may
books of account, on be misappropriated.
the same day on • The Manager (Accounts &
which they Are • Cash Received Finance department), should
received. against a particular conduct surprise Verifications of
transaction may be cash in hand and also reconcile
recorded as Being the cash in hand with the books
received Against of account.
another transaction.
• Cash receipt book should be pre
numbered. Every Quarter the
cash receipt book should be
reconciled with the books of
account and cancelled/ torn cash
receipts in the book should be
held in original by the cashier.
5. Cut off procedures: Transactions may be The period-end cut off date is

87
Transactions are correctly
• •
processed in the adhered to.
reflected in the accounts wrong period.
of the period to which
they relate. • Revenues may not • The Manager (Accounts &
match with The Finance department) reviews the
related costs. cash and bank vouchers on the
last day of the accounting period
and clearly identifies the last
receipt and payment vouchers.
6. Security of Cash
And Bank balances:
Cash is in safe custody of • Losses may Occur • Cheque books should be kept in
the company. due to theft of cash safe custody. Access to the
from the office As cheque books Should be
well as in transit. restricted to authorised persons
Cheque books May
only.
•
be misutilised By • Cheques must be signed by at
unauthorised least two authorised signatories
persons. as per the delegated authority
limits.
• Funds may Be • Regular reconciliation of the
misappropriated cheque book should be done
from bank accounts. regarding the non usability,
cancelled, torn cheques.
• A senior official should physically
verify cash balances periodically
and differences, if any, should be

88
timely investigated.
• Cash balances (including cash in
transit) should be adequately
insured for various risks such as
theft, fire etc.
7. Liaisoning with the
bank officials:
Good relations Are • In case of any • For each bank a relationship
maintained with the bank emergency, bank manager should be identified.
officials to Ensure may not provide full One of the responsibilities of such
efficiency in Liaisoning support and co- an individual should be to liaison
with the banks. operation to the with the banks and maintain good
company; Thereby relation with the bank officials.
resulting in loss Of
opportunity Or
increase in costs.
8. Compliance with • Payments in excess • Payments may be made as per
The statutory of Rs. 20,000( The limits/provisions contained
provisions: Rs.35000/- In Case under Income Tax Act to avoid
All the statutory And
of payment made for disallowance of such payment at
plying, hiring Or the time of the assessment.
disclosure requirements Leasing Goods
are complied with. carriages ) of May
be made Otherwise
than by means of a
Crossed cheque Or
Demand draft,
aggregate to the
same person during

89
a day. The Income
tax authorities May
Disallow Such
Payments at The
Time of The
assessment.
9 Cash and Bank Payments
 Payments made are
bona fide i.e. these
are released to the
correct parties and
only on the basis of
duly authorised
supporting documents.
 Payment might be
released to
Unauthorized persons.
 Incorrect amounts
might be paid.
 Unauthorised
payments may be
made.
 Payments made may
not get recorded in the
books of account.
 There may be delays
in preparation and
handing over of
cheques.
 Cash credit limits may
not be adhered to
resulting in dishonor
of the cheques issued.
 All payments should be made on
the basis of duly approved
documents only.
 All the supporting documents
should be defaced as “paid” on
release of payment.
 All cash payments should be
released to authorized persons only
after proper identification/
verification.
 Payments should be released only
on the due dates.
 The Officer Incharge of making
payment should be aware of the
latest cash credit limits.
 Details including the party’s name
and amount, as entered in the
voucher and the cheque, are cross-

90
verified by the authorised
signatories, prior to signing the
cheque.
 Timely updation of Cash credit
limit particularly to the banks of
field offices, Zonal/ Area offices.
10 Bank Reconciliation:
 The balance in the bank
account as per the books
and as per the bank
statement is reconciled
and that bank transactions
are recorded correctly
and as and when these
occur.
 Stale cheques may be
appearing in the bank
reconciliation
showing a reduced
bank balance as per
books of account.
 Interest/ Bank
charges debited by
the bank may not get
recorded in the books
of account.
 Cheques deposited
into the bank may not
be recorded in the
books of account.
 Payments made
through a bank may
 All banks should be reconciled on
a monthly basis
with balances as per the books of
account.
 A senior accounts official should
review and sign off each bank
reconciliation statement.
 Old outstanding entries in the
reconciliation should be followed
up and resolved at the earliest.
 Stale cheques should be reversed
immediately at the ime of expiry to
show the correct bank balance in
the books of account.
 Along with the bank statement, a
bank confirmation letter should be
obtained at the end of every

91
not be recorded in the
books of account.
 Payments made
directly by the bank
on behalf of the
company may not be
recorded in the books
of account.
 Cheques deposited in
the bank may not be
cleared within
reasonable time,
resulting in increased
working capital
requirement.
financial year. The same should
be cross-verified with the Bank
Reconciliation Statement (BRS) by
the Manager.
 Interest charged by the bank
should be independently re-
calculated to ensure correctness of
the same. Bank Charges should be
recognised only if charged as per
the sanction terms of the credit.
 Bank Charges and Interest should
be backed by banks advise in this
regard.
 The Accountant responsible for
preparing the Bank Reconciliations
should not be authorised to pass
any entry in the books of accounts.

92
MISCELLANEOUS
RECEIPT OF CASH, CHEQUES AND DEMAND DRAFT ETC.
• For receipt of cash, cheques and demand draft various sections shall prepare a Receipt
Voucher and enter in the Receipt Control Register. This is a record of all receipts made
through a particular section. All receipt of cheques, demand draft etc. should be
immediately passed on to Cash Section for credit to Company’s account.
• On receipt of Receipt Voucher from different Sections Cash Section shall allot a cash
voucher number.
• Receipt Voucher shall be serially numbered & bound in books and original to be retained
in Cash Section.
DISBURSEMENT OF CASH, CHEQUE, DEMAND DRAFT ETC.
• The cheque for withdrawal of cash from bank shall be made in the favour of ‘Ourself’ and
endorsement shall be in favour of authorised cashier by name, by authorized signatory
along with attestation of signature. The amount of withdrawal should be in consonance
with insurance cover for cash in transit and the limit for cash in chest as defined in
Insurance policy. Cash withdrawn from banks is accounted for in the cash-book on the
same day.
• Cash payments are mainly made to employees relating to Tour/ travel advance,
reimbursement, petty cash etc. All payments shall be made on basis of PAYMENT
ORDERS issued by different Sections. Sections shall enter in all payment Orders in
PAYMENT CONTROL REGISTER.
• All PAYMENT ORDERS shall be entered on PAYMENT SIDE of Cash and Bank Book
as the case may be.
• EDP Section shall prepare COMPUTERISED CASH AND BANK BOOK and
FINANCIAL HEADWISE MONTHLY Transaction. These shall be filed for record
purpose.

cash management in national fertilizer limited

cash management in national fertilizer limited

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