project nfcl(2)
TRANSCRIPT
A studyOn
“RATIO ANALYSIS”IN
NAGARJUNA FERTILIZERS AND CHEMICALS LIMITEDKAKINADA
A Project Report Submitted “Andhra university” Visakhapatnam in partial fulfillment of the
requirement for the award of
MASTER OF BUSINESS ADMINISTRATION
Submitted ByR.Padmavathi
(Regd no: 20854100039)
Under the esteemed guidance of
Smt.K.Sri Devi.M.B.A.,
ADITYA INSTITUTE OF P.G STUDIES(Affiliated to Andhra University)
SURAMPALEM2008-2010
ADITYA INSTITUTE OF P.G STUDIES (Affiliated to Andhra University)Aditya nagar, ADB Road SURAMPALEM-533437, East Godavari District Phones :( 08852)252243, 252250, cell: 9866576662
CERTIFICATE
This is to certify that the project title “RATIO ANALYSIS” with reference
to NAGARJUNA FERTILIZERS AND CHEMICALS LIMITED, At KAKINADA being
submitted by R.PADMAVATHI with Regd no: 20854100039 during the period 2008-10 in
partial fulfillment of the requirement for the award of the Degree of MASTER OF BUSINESS
ADMINISTRATION in ADITYA INSTITUTE OF P.G STUDIES (Affiliated to Andhra
University) is a record of bonafide work carried out by under my guidance and supervision.
Project Guide Head of the department
Smt.K.Sri Devi.M.B.A. Mr. J. Nagendra Kumar, M.B.A
DECLARATION
I here by declare that the project work entitled “A STUDY ON RATIO ANALYSIS ”
with reference to NAGARJUNA FERTILIZERS AND CHEMICALS LIMITED
KAKINADA has been prepared by me during the period of 2009 May and June partial
fulfillment of the requirement for the award of the MASTER OF BUSINESS
ADMINISTRATION OF Andhra University.
I also declared that this project is result of my own effort and that it has not seen submitted
to other university for the award of any degree or diploma.
Date : Place : (R.PADMAVATHI)
ACKNOWLEDGEMENTS
I am extremely thankful to Mr. J. Nagendra Kumar, M.B.A, and Head of the
department of management studies for their valuable guidance and consistent supervision
through of the course of my project.
I am highly thankful to Smt.K.Sri Devi.M.B.A. Faculty guidance of Aditya institute of
P.G Studies for her timely assistance and support through out the project work in the course of
carrying out the project work.
I express my deep sense of gratitude to Mr. EVAT.BABU Sr.Managar (Training) for
their valuable guidance and consistent supervision through of the course of my project.
Finally I would like to express my deep sense of gratitude to my beloved parents as
because with out their support and encouragement I would not have finished this work. I also
express my sincere thanks to my friends and well wishers too.
.
(R.PADMAVATHI)
INDEX
CHAPTER-I 1-11
o Introduction
o Need Of Scope of The Study
o Objectives Of Study
o Methodology Of Study
o Limitations Of Study
CHAPTER-II 12-20
o Industry profile
CHAPTER-III 21-40
o Company profile
CHAPTER-IV 41-52
o Theoretical Frame Work
CHAPTER-V 53-95
o Interpretation and analysis
CHAPTER-VI 96-98
o Findings
o Suggestions
BIBLIOGRAPHY
CHAPTER – I
Introduction
Need and scope of the study
Objectives of the Study
Methodology of Study
Limitations of Study
INTRODUCTION
Finance is regarded as “THE LIFE BLOOD OF BUSINESS ENTERPRISE”. Finance function has
become so important that it has given birth to financial management as a separate subject. So, this subject is
acquiring universal applicability. Financial Management is that managerial activity which is concerned with the
planning and controlling and of the firm’s financial resources. As a separate activity or discipline is of recent
origin it was a branch of economics till 1890. Still today it has no unique knowledge of its own, and it draws
heavily on economy for its theoretical concepts.
The subject of financial management is of immense interest to both academicians and practicing
managers. It is of great interest to academicians because the subject is still developing, and there are still
certain areas where controversies exist for which no unanimous solutions have been reached as yet. Practicing
Managers are interested in this subject because among the most crucial decisions of the firm are those which
relate to finance and an understanding of the theory of financial management provides them with conceptual
and analytical insights.
An integral aspect of fundamental analysis involves performing what many would call “ratio analysis”. This
involves calculating a number of different industry standard ratios and comparing them to various benchmarks.
The benchmarks can be the ratios of other competitors, industry average ratios, or industry “rules-of-thumb”.
There’s no set procedure for performing ratio analysis because it all depends on the type of company you’re
analyzing – certain industries have industry specific ratios. Regardless, this article will give you an overview of
some of the standard ratios and what they may tell us about a company.
In this article I’ll group ratios into four categories used to evaluate the different facets of a company’s
performance and overall condition: liquidity, operating performance, leverage, and equity valuation.
SCOPE OF FINANCE MANAGEMENT:
Firms create manufacturing capacities for production for goods; some provide services to customers.
They sell their goods or services to earn profits. They raise funds to acquire manufacturing and other facilities.
Thus, the three most important activities of a business firm are:
Production
Marketing
Finance
A firm secures whatever capital it needs and employees it (finance activity) in activities that generate returns
on invested capital (production and marketing activities). A business firm thus is an entity that engages in
activities to perform the functions of finance, production and marketing. The raising of capital funds and using
them for generating returns to the supplies of funds is called the finance function of the firm.
FUNCTIONS OF FINANCIAL MANAGEMENT
Two significant contribution to the development of modern theory of financial management are:
Theory of Portfolio Management developed by Harry Markowitz in 1950, which deals with portfolio
selection with risky investment. This theory uses statistical concepts to quantify the risk-return
characteristics of holding a group/portfolio of securities, investment or assets.
The theory of Leverage and Valuation of Fire developed by Modigliani and Miller in 1958. They have
shown by introducing analytical approach as to how the financial decision making in any firm be
oriented towards maximization of the value of the firm and the maximization of the shareholders wealth.
Type of Financial Actions:
1. The Financial Management of trading or manufacturing firms
2. Financial Management of Financial Institutions.
3. Financial activities relating to investment activities.
International Finance:
Public Finance:
Functions are broadly classified into three groups. Those relating to resource allocation, those covering
the financing of these investments and theses determining how much cash are taken out and how much
reinvested.
Investment decision
Financing decision
Dividend decision
Liquidity decision
I) Investment Decision:
Firms have scarce resources that must be allocated among competitive uses. The financial management
provides a frame work for firms to take these decisions wisely. The investment decisions include not only those
that create revenues and profits (e.g. introducing a new product line) but also those that save money.
So, the investment decisions are the decisions relating to assets composition of the firm. Assets can be
classified into fixed assets and current assets, and therefore the investment decisions can also be bifurcated into
Capital Budgeting decisions and the Working Capital Management.
The Capital Budgeting decisions are more crucial for any firm. A finance
manager may be asked to decide about.
1. Which asset should be purchased out of different alternative options;
2. How to buy an asset or to get it on lease;
3. How to produce a part of the final product or to procure it from some other supplier;
4. Whether to buy or not an other firm as a running concern;
5. Proposal of merger of other group firms to avail the synergies of consolidation.
Working Capital Management, on the other hand, deals with the Management of current assets of the
firm. Though the current assets do not contribute directly to the earnings, yet their existence is necessitated for
the proper, efficient and optimum utilization of fixed assets. There are dangers of both the excessive working
capital as well as the shortage of working capital. A finance manager has to ensure sufficient and adequate
working capital to the firm.
II Financing Decisions:
As firms make decisions concerning where to invest these resources, they have also to decide how they
should raise resources. There are two main sources of finance for many firm, the shareholders funds and the
borrowed funds. The borrowed funds are always repayable and require payment of a committed cost in the
form of interest on a periodic basis. The borrowed funds are relatively cheaper but always entail risk.
The risk is known as the financial risk i.e., the risk of insolvency due to non-payment of interest or non-
repayment of capital amount. The shareholders fund is the main source of funds to any firm. This may
comprise of the equity share capital, preference share capital and the accumulated profits. Firms usually adopt a
policy of employing both the borrowed funds as well as the shareholders funds to finance their activities. The
employment of these sources in combination is also known as financial management.
III) Dividend Decisions:
Another major area of the decision marking by a finance manager is known as the Dividend decisions
which deal with the appropriation of after tax profits. These profits are available to be distributed among the
shareholders or can be retained by the firm for reinvestment with in the firm. The profits which are not
distributed are impliedly retained in the firm. All firms whether small or big, have to decide how much of the
profits should be reinvested back in the business and how much should be taken out in form of dividends i.e.,
return on capital. On one hand, paying out more to the owners may help satisfying their expectations; on the
other hand, doing so has other implications as a business that reinvests less will tend to grow slower.
Reinvestment opportunities available to the firm,
The opportunity rate of the shareholders.
The Identification of the relevant groups:
The various groups which may have stakes in the financial decisions making of a firm and therefore
required to be considered while taking financial decisions are:
The shareholders
The debt investors,
The employees,
The customer and the suppliers,
The public,
The Government, and
The Management
Objective of the Financial Decision Making
The following two are often considered as the objectives of the financial management.
The maximization of the profits of the firm, and
The maximization of the shareholders wealth
Maximization of the Profits of the firm:
For any business firm, the maximization of the profits is often considered as the implied objective and
therefore it is natural to retain the maximization of profit as the goal of the financial manager also.
The profit maximization as the objective of financial management has a built in favor for its choice. The
profit is regarded as yard stick for the economic efficiency of any firm. If all business firms of the society are
working towards profit maximization then the economic resources of the society as a whole would have been
most efficiently, economically and profitably used. The profit maximization by one firm and if targeted by all,
will ensure the maximization of the welfare of the society. So, the profit maximization as objective of financial
management will result inefficient allocation of resources not only from the point of view of the firm but also
for the society as such.
It ignores the risk.
The profit maximization concentrates on the profitability only and ignores the financing aspect of that
decision and the risk associated with that financing.
It ignores the timings of costs and returns and thereby ignores the time value of money
The profit maximization as an objective is ague and ambiguous.
The profit maximization may widen the gap between the perception of the management and that of the
shareholders.
The profit maximization borrows the concept of profit from the field of accounting and thus tends to
concentrate on the immediate effect of a financial decisions as reflected in the increase in the profit of
that year or in near future.
Maximization of Shareholder Wealth:
This objective is generally expressed in term of maximization of the value of a share of a firm. It is
necessary to know and determine as to how the maximization of shareholders wealth is to be measured.
The measure of wealth which is used in financial management is the concept of economic value. The
economic value is defined as the present value of the future cash flows generated by a decision, discounted as
appropriate rate of discount which reflects the degree of associated risk. This measure of economic value is
based on cash flows rather than profit. The economic value concept is objective in its approach and also takes
into account the timing of cash flows and the level of risk through the discounting process.
Profit Maximization Versus Wealth Maximization:
The objective of profit maximization measures the performance of a firm by a looking at its total profit.
The objective of maximization of the shareholders wealth is operational and objective in its approach. A firm
that wishes to maximize the profits may opt to pay no dividend and to reinvest the retained earnings, whereas a
firm that wishes to maximize the shareholders wealth may pay regular dividends.
THE CHANGING ROLE OF FINANCIAL MANAGEMENT:
Many changes in the contemporary world, financial management has undergone significant changes
over the years. The financial management has a very limited role in business enterprise. Finance Manger is
responsible only for maintaining financial records, preparing reports of the companies’ status, performance and
arranging funds recorded by company so that it would meet its obligations in time.
Financial Manager as a matter of act was regarded as specializes officers in the company concerned only
with administering sources of funds, he has called upon only when the company experimental the problem
relates the financial managers to locate the suitable sources for funds and additional funds. The emphasis on
decision making has continued in recent years.
First there was been increased belief the cost of capital producer the required accurate measurement of
the cost of capital.
Secondly, capital has been in short supplies the old interest in the ways of raising funds.
Thirdly, there was has been a continued managerial activity that has led to revealed interests in
takeovers.
Fourthly, accelerated progress in transportation and communication has brought the countries of the
world close together.
They in turn have stimulated interest in the international finance. Finding the firm’s appropriate role in
the efforts they solve these problems demanding on increasing the proportion of these items of financial
manger.
IMPORTANCE OF FINANCIAL MANGEMENT:
Finance Management is of greater importance on the present corporate world. It is a science of money,
which permits the authorities to go further.
SIGNIFICANCE OF FINANCIAL MANAGEMENT CAN BE SUMMARISED AS:
It assists in the assessment of financial needs of industry large or small and indicates the internal and
external resources for meeting them. It assesses the efficiency and effectiveness of the financial institution in
mobilizing individual or corporate science. It also prescribes various means for such mobilization of savings
into desirable investment channels.
It permits the management to safeguard against the interest of shareholders by properly utilizing the
funds procured from different sources and it also regulates and controls the funds to get maximize use.
OBJECTIVES OF THE STUDY
This project work is aimed to attain the following major objectives. The objectives are:
To know about the fertilizer industry and business activities of Nagarjuna Fertilizers and Chemicals
Limited, Kakinada.
To study the ability of the firm to meet its current requirements.
To study the extent to which the firm has used its long-term solvency by borrowing funds.
To study the overall operating efficiency in performance of Nagarjuna Fertilizers and Chemicals
Limited, Kakianda.
To study the efficiency with which the firm is utilizing its various assets in generating sales.
To suggest guidelines to the company for improving its financial position.
METHOLOGODY OF THE STUDY
The required for this study would be collected through two sources i.e.,
1. Primary Data:
The primary data comprises information obtained by the candidate during discussions with Heads of
Departments and from the meeting with officials and staff.
2. Secondary Data:
The secondary data has been collected from information through Annual Reports, Public Report,
Bulleting and other Printed Materials supplied by the Company.
In the present study, 1/4th of the total information of time is from primary data and the rest is from the
secondary data.
METHODS
PRIMARY DATA SECONDARY DATA
LIMITATIONS OF STUDY
The study is limited to NFCL, Kakinada; it does not relate to any other company of Nagarjuna Group or
other firm’s of Fertilizer Industry.
The smaller time frame for understanding this study is also a significant limitation.
The ratios are calculated on the basis of past data; these are not future indicators.
The scope of study is limited to the last five years balance sheets.
The analysis is made basing only on the Annual Reports of NFCL.
CHAPTER II
Industrial Profile
INDUSTRY PROFILE
India has been predominantly considered as an agricultural dependent economy. Agriculture plays a very
dominant role as more than one-fourth of our GDP come from this sector. Nearly 70% of population depends
on agriculture for their lively-hood. The basic need for an agricultural dependant economy is fertilizers and
urea is one of the main fertilizers. India is the second largest manufacturing country in the world.
All fertilizers consist of three main ingredients.
Nitrogen—(N) -- which promotes general plant growth
Phosphorous—(P) -- which promotes flowering
Potassium – (K) – which promotes strong roots.
The ingredients are mixed in various combinations because plants have different needs.
The combinations are indicated by a three number code:
The first number is the percent of nitrogen (N)
The second number is the percent of phosphorus (P)
The third number is the percent of potassium (K)
About Fertilizer:
Fertilizer is simply, plant food. Just like the human body needs vitamins and minerals, plants need
nutrients in order to grow. Plants need large amounts of three nutrients – nitrogen, phosphorus, and potassium.
These are commonly referred to as macronutrients. Fertilizer makers take those three nutrients from nature and
put them into soluble forms that plants can easily use.
Our world would be vastly different without commercial fertilizers. Following World War II, new
technologies allowed for the rapid expansion of fertilizer production. Coupled with growing food demand and
the development of higher-yielding crop varieties, fertilizer helped fuel the Green Revolution. Today, the
abundance of food we enjoy is just one way fertilizers help enrich the world around us.
While fertilizers provide many important benefits that are necessary for our way of life, the improper
use of fertilizers can harm our environment. We’ve used the most recent developments in science to study our
products and make sure safety comes first.
Fertilizer:
Fuel for growing plants just like humans and animals, plants need adequate water, sufficient food, and
protection from diseases and pests to be healthy. Commercially produced fertilizers give growing plants the
nutrients they crave in the form they can most readily absorb and use: nitrogen (N), available phosphate (P) and
soluble potash (K), Elements needed in smaller amounts, or micronutrients, include iron (Fe), zinc (Zn), copper
(Cu) and boron (B).
Each crop year, certain amounts of these nutrients are depleted and must be returned to the soil to
maintain fertility and ensure continued, healthy future crops. Scientists project that the earth’s soil contains less
than 20 percent of the organic plant nutrients needed to meet our current food production needs. Therefore,
through the scientific application of manufactured fertilizers, farmers are meeting the challenge of the future,
today.
Another component of plant DNA is phosphate, which helps plants to use water efficiently. It also helps
to promote root growth and improves the quality of grain and accelerates its ripening. And potassium,
commonly called potash, is important because it is necessary for photosynthesis, which is the production,
transportation and accumulation of sugars in the plant. Potash makes plants hardy and helps them to withstand
the stress of drought and fight off disease.
Fertilizer Types:
Because every crop is different and the soils and weather conditions crops are grown in vary
dramatically around the world, commercial fertilizers, which are manufactured from natural sources, come in
many formulations.
Combining air with hydrogen using natural gas as the feedstock makes ammonia, the building block for
nitrogen fertilizers. Ammoniated phosphates, which include mono ammonium phosphate (MAP) and
diammonium phosphate (DAP), are made by reacting ammonia with phosphoric acid. Muriate of potash, also
called potassium chloride, is made from mine ores that have been processed to remove naturally occurring salts.
Ammonium nitrate is a solid fertilizer containing approximately 34 percent nitrogen that is water soluble
and used in various fertilizer solutions. Aqua ammonia is another nitrogen-based fertilizer made by combining
ammonia with water. It contains up to 25 percent nitrogen and is either applied directly to the soil or is used to
manufacture phosphate fertilizers.
Nitrogen solutions are water solutions of ammonia, ammonium nitrate and, sometimes, urea, a solid
fertilizer containing approximately 45 percent nitrogen, and other soluble compounds of nitrogen. Nitrogen
solutions are used in ammoniating super phosphate, the manufacture of complete fertilizer and for direct
injection into the soil. They vary in composition and nitrogen content and are sometimes applied under
pressure.
Nitrogen (N):
Nitrogen is a part of all plant proteins and is a component of DNA and RNA – the “blueprints” for
genetic characteristics. It is necessary for plant growth and chlorophyll production. Nitrogen is the building
block for many fertilizers. Where does N come from? Nitrogen is present in vast quantities in the air, making
up about 78 percent of the atmosphere. Nitrogen from the air is combined with natural gas in a complex
chemical process to make ammonia.
Phosphorus/Phosphate (P):
Phosphorus as a nutrient is sometimes most valuable to plants when put near the seed for early plant
health and root growth. Plant root uptake is dependent on an adequate supply of soil P. Phosphorus is relatively
insoluble in water. The water in most soils must replace all of the P in the soil water 2 to 3 times each day to
meet the crop’s demand for P. Phosphorus compounds help in directing where energy will be used. Phosphorus
compounds are needed in plant photosynthesis to “repackage” and transfer energy. Phosphate is also a
component of DNA, so it is one of the building blocks of genes and chromosomes. Phosphorus is involved in
seed germination and helps plants to use water efficiently. Where does P come from? Phosphorus occurs in
natural geological deposits. Deposits can be found in the U.S. and other parts of the world.
Potassium/Potash (K):
Potassium protects plants against stresses. Potassium protects plants from cold winter temperatures and
helps them to resist invasion by pests such as weeds and insects. Potassium stops wilting, helps roots stay in
one place and assists in transferring food. Potassium is a regulator. It activates plant enzymes and ensures the
plant uses water efficiently. Potassium is also responsible for making sure the food you buy is fresh. Where
does K come from? The element potassium is seventh in order of abundance in the Earth’s crust.
Through long-term natural processes K filters into the oceans and seas. Over time, these bodies of water
evaporate, leaving behind mineral deposits. Although some of these deposits are covered with several
thousands of feet of earth, it is mined as potash or potassium chloride. Potash ore may be used without
complex chemical conversion; just some processing is necessary to remove impurities such as common salt.
FOOD FOR THE GROWING WORLD
Industry at a glance:
Since 1883 the industry has worked to promote the advances in the development and application of
fertilizers that have helped to feed a hungry world. The revolutionary concept of plant nutrition was born from
the discovery of the biological role of chemical elements in plant nutrition and the need to feed a growing
population concentrated away from the farm in the rising industrial centers of the world.
Because of modern fertilizers, world food production since 1960 has more than doubled, keeping pace
with the population explosion. Today, the fertilizer industry is poised to help produce the food that will be
needed to feed the world’s projected 9 billion people in 2025.
The fertilizer industry is essentially concerned with the provision of three major plant nutrients –
nitrogen (N), phosphorous (P) and potassium (K) – in plant available form. Each nutrient is responsible for
different aspects of plant growth and health.
Fertilizers:
Regulated for quality and safety like other manufactured goods, fertilizers are regulated for quality and
safety at the federal and state levels. Every state in the country, plus Puerto Rico, has its own fertilizer
regulatory program, usually administered by the state department of agriculture.
State Regulation:
State regulation is concerned with consumer protection, labeling, the protection of human health and the
environment, and the proper handling and application of fertilizers. Fertilizers are regulated at the state level
because soil conditions vary dramatically from state to state across the country. For example, the rocky, thin
soils of New England are vastly different from the deep, rich black soils of the Midwest Corn Belt. A different
level of fertilizer nutrients in the soil, different crops (potatoes versus corn, for instance) and different weather
and cropping patterns require state-specific regulation.
Assessing Fertilizer Safety:
Fertilizer research and development historically have been focused on maximizing economic crop yields
from given rates of nutrient application. Since the advent of the modern environmental movement in the 1960s,
research has also been concerned with minimizing potentially adverse human health and environmental effects
from fertilizer manufacture and application.
As part of its continuing commitment to safety, in 1996. The Fertilizer Institute initiated a
comprehensive safety assessment project to determine the risks, if any, of metals in fertilizer. Small amounts of
metals are found in phosphate and potash fertilizers due to their presence in the mined ore bodies. In addition to
phosphate and potash products, some micronutrient fertilizers.
Fertilizers Enrich our World:
Improvements in agricultural efficiency through research and technology increase food output while
protecting the environment and enriching our world in numerous ways.
Fertilizers feed the growing world. As the world’s population continues to climb toward an estimated
8.5 billion in 2040, experts estimate that food production must increase more than two percent annually to even
maintain current diets. Commercial fertilizers will be key in the fight to feed the growing world.
Fertilizers at work in industry:
Aside from their benefits to agriculture, fertilizer components are central to such industrial process as
semiconductor chip making, resin manufacture, cattle feed production, metal finishing, the manufacture of
detergents, fiberglass insulation and more, even rocket fuel.
Global Fertilizer Consumption
Major Fertilizer Producing Countries:
Million metric tons, years ending June 30*
COUNTRY 2003-04 2004-05 2005-06 2006-07 2007-08
Nitrogen
China 20.2 21.5 22.8 21.5 22.1
India 10.1 10.5 10.9 10.9 10.7
United States 13.8 13.5 11.2 9.9 10.6
Russian
Federation4.1 4.1 5.0 5.4 5.5
Canada 3.7 3.7 4.1 3.9 3.5
Phosphate
United States 9.0 9.0 8.5 7.3 7.6
China 6.4 6.7 6.4 6.7 7.4
India 3.0 3.2 3.4 3.7 3.9
Russian
Federation1.9 1.7 2.0 2.3 2.4
Brazil 1.4 1.4 1.4 1.5 1.4
Potash
Canada 9.0 9.2 8.2 9.2 8.2
Russian
Federation3.4 3.5 4.0 3.7 4.3
Belarus 3.3 3.4 3.6 3.4 3.7
Source: Food and Agriculture Association (FAO) and
The Fertilizer Institute (TFI): For countries that report their fertilizer statistics on a calendar-year basis, data are
shown under the fertilizer year that begins in that calendar year; for example, 2003 data are under 2003/04.
Major Fertilizer Consuming Countries:
In million metric tons, years ending June 30*
COUNTRY 2003-04 2004-05 2005-06 2006-07 2007-08
Nitrogen
China 23.0 22.9 24.1 22.1 22.5
India 11.0 11.4 11.6 10.9 11.3
United States 11.2 11.3 11.2 10.5 10.9
France 2.5 2.5 2.6 2.3 2.4
Pakistan 2.1 2.1 2.2 2.3 2.2
Phosphate
China 9.3 9.4 9.0 8.7 8.9
India 4.0 4.1 4.8 4.3 4.3
United States 4.2 3.9 3.9 3.9 4.20
Brazil 2.0 2.0 2.0 2.3 2.5
Australia 1.1 1.0 1.1 1.1 1.2
Potash
United States 4.8 4.5 4.5 4.5 4.5
China 3.4 3.5 3.4 3.5 4.0
Brazil 2.4 2.3 2.2 2.6 2.7
India 1.4 1.4 1.7 1.6 1.7
Source: Food and Agriculture Association (FAO) and
The Fertilizer Institute (TFI).
*For countries that report their fertilizer statistics on a calendar-year basis, data are shown under the fertilizer
year that begins in that calendar year; for example, 2003 data are under 2003/04.
CHAPTER – III
Company Profile
COMPANY PROFILE
THE NAGARJUNA GROUP
Our founder Sri K.V.K. Raju (28.11.1928 – 16.06.1993) laid the foundation of the Nagarjuna Group in
1974 with an investment of Rs. 50 millions. He was a visionary and a professional technocrat entrepreneur who
realized the importance of Core Sectors to an economy like ours. He has guided the group with his philosophy
SERVING SOCIETY THROUGH INDUSTRY
Nagarjuna Fertilizers and Chemicals Limited (NFCL) is the first gas based fertilizer factory in South
India. The plant is based on the latest fertilizer technology from M/s. Snamprogetti, Italy for Urea process with
an installed capacity of 1500 Mt/day for each unit. The ammonia process is based on technology from M/s.
Haldor Topsoe, Denmark with an installed capacity of 900 MT/day per each unit.
The feed stock for unit – I is natural gas and feed stock for Unit – II is NG/Naphtha. The current
consumption of natural gas is 2.15 million standard cubic meters per day and 500 MT of Naphtha per day. The
natural gas is being received through pipe lines from Tatipaka situated 92 Kms away from the factory and is
marketed by M/s Gas Authority of India Limited. Napththa is being supplied by M/s HPCL. The water
requirement of 6.0 Million Gallons/day is received from Samalkot Summer Reservoir through two pipelines.
Finance:
The total cost of the existing complex is Rs. 2156 crores (Rs. 1186 crores for Unit-I and Rs. 970 crores
for Unit – II). This consists of loan of Rs. 1,162 crores (Rs. 515 crores for Unit-I and Rs. 647 corores for Unit –
II) sanctioned by IDBI, IFCI, ICICI, UTI, LIC, GIC and also Banks. The foreign exchange component of Rs.
781.07 cores was met by the Indian Financial Institutions like IDBI, IFCI & ICICI and also by Italian Buyers
credit. The public and promoters
subscribed the equity portion of Rs. 332.12 crores. The internal reserves of Rs. 323 crores were utilized for
construction of Unit – II.
LIVING IN HARMONY WITH NATURE – NFCL’S CONTRIBUTION TO ECOLOGY
Environmental protection is an avowed corporate philosophy and the plant is built on the principle of
zero-effluent discharge and is totally eco-friendly. NFCL’s aim is to maintain ecological harmony, which is
NATURE’S INVALUABLE AND BEAUTIFUL GIFT TO MANKIND Man can live in harmony with the
environment only when mankind is guided by respect for the Mother Earth and all living things. Nagarjuna
Fertilizers and Chemicals Limited believe that Industry should exist in harmony with nature. In pursuance of
the corporate vision, and as a humble contribution to the Mother Nature, the complete ecological system in and
around the factory has been changed by establishing a K.V.K.RAJU SUNDARAVANAMU in an area of 747
acres surrounding the Complex.
The entire area has been covered with 4,50,000 plants consisting of 170 species, transforming a once
highly saline marshy area devoid of any vegetation into a lush green arboreal park. The establishment of 1 KM
wide KVK Sundarvanam is an integral part of overall natural ecological system consisting of eleven water
bodies for fish, habitat for animal life and sanctuary for both indigenous as well as migratory birds with the
factory nestled in the most natural and idyllic surroundings created with dedication.
An integrated Environmental Management Plan (EMP) has been incorporated in the basic design itself to
ensure strict adherence to International Standards. The investment on pollution control equipment in the Plant
is close to Rs. 110 crores of capital investment and recurring expenditure of Rs 6 crores being spent annually for
operating and maintaining the equipment.
MAIN FEATURES OF ECO-SYSTEM:
A forestation:
740 acres of area has been planted with 4.5 lakh saplings of 170 species. Weak areas have been planted
with selected species based on criteria like tolerance to salinity, availability from local sources and their ability
survive with least maintenance. A full-fledged nursery with mist chamber and sprinkler irrigation system has
been developed for supply of plants to a forestation programme.
Animal Enclosures:
A deer park with spotted deer has been set up in an area of six hectares with chain-link fence on all
sides. Separate enclosures for birds, rabbits and certain other animals are made available. Some of these
animals like jungle cat, fox, jackals, mongooses, squirrels, bats, snakes, and turtles are also being let out freely
in this eco-system as a part of our animal conservation programme.
Use of Treated Effluent:
The total treated effluent generated from the factory is being utilized through a network of over 17 KM
of PVC pipeline for sustenance of the eco-system to show the purity levels of the effluents and the technological
efficiency of the plant equipment.
Awareness Programme:
As a part of NFCL’s sincere endeavor to bring awareness about the benefits of cleaner environment on
the general standards of life, company has started “GREENING THE ROADS” of Kakinada in Phases. As a
part of this programme, flowering trees were planted on either side of the 4 km length of roads from Bhanugudi
Junction to Nagamallithota and from Nagamallithota to NFCL. This programme is being extended to further
areas in phases.
VALUES STATEMENT OF NFCL COMMITMENT
We the Associates of NFCL are committed to continuously evoking customer delight through constant
review and monitoring and delivering proactive value added solutions. We are also committed to strive for
satisfaction of all stakeholders in a balanced manner through sustainable growth and profitability
Excellence:
We shall continuously strive for Excellence in all dimensions of the Company through teamwork,
creativity and other means.
Ethics:
We shall strive for wholesome business relationships by adhering to the principles of trusteeship, fair
play and transparency in all our dealings that we shall practice a work cultural, which is performance driven and
conducive to in proving discipline, accountability and depth of character, team spirit and honesty in all our
personal and professional relationships.
We shall build a learning organization where creativity, innovation, entrepreneurship and knowledge
sharing are encouraged and fostered actively
Concern:
We consciously recognize that the development of associates is inextricably linked to the sustainable
growth and profitability of the organization. Therefore, mutual care and concern between the associates and the
organization shall be our abiding value.
NFCL’S VISION STATEMENT
SERVING SOCIETY THROUGH INDUSTRY
“For close to two decades, we at NFCL have predominantly been in the business of manufacturing and
marketing Urea, a segment of the plant Nutrition business space. Given our cumulated experience and strengths
in understanding the farmer, the agriculture, various initiatives taken in the past, the exposure of Indian
agriculture to global economy and therefore the need for Indian farmers to be globally competitive, have
realized the need to provide innovative and comprehensive Plant Nutrition Solutions.
“The leadership we refer to in our Vision Statement is in terms of providing innovative and creative
solutions.”
NFCL’S MISSION STATEMENT
We shall:
- Pioneer transformation in the approach to plant nutrition
- Deliver holistic plant nutrition solutions to the farmers
- Be the most preferred organization to be associated with
Pioneer transformation in the approach to plant nutrition we shall develop crop, site and stage specific
wholesome plant nutrition solutions. NFCL shall focus on all necessary initiatives towards this – be it
manufacturing technology, regulatory, logistics and using a mix of several sciences and skills. The most
preferred organization to be associated with in the process of providing these
solutions, NFCL shall delight all the stakeholders – employees, investors, suppliers, customers and society at
large. The stakeholders would prefer to be associated with us not only for the higher value we offer, but also
shall cherish their relationship with us due to the way we deal with them – with full commitment, responsibility
and accountability.
EMPLOYEE FOCUS:
NFCL’s aim to have the most satisfied employee base by the turn of the century through its commitment
to Personal and professional development of the individual.
Rewarding teamwork, innovation and quality behavior
Through job satisfaction
Creating and sustaining a close-knit family culture wherein every individual experience a sense of
belonging.
Marketing:
NFCL is operating in Andhra Pradesh, Orissa, West Bengal, Maharastra, Karnataka, Pondicherry
(Yanam territory). A professional team, with a wide range of products, that include Urea, traded fertilizers
(DAP, MOP, Complex fertilizers), Micro-nutrients, Pesticides, Organic fertilizers and Bio-Pesticides, has taken
NFCL very close to the farmers and made NAGARJUNA a household name among the farming community
Keeping pace with the changes in agricultural practices NFCL has developed organic-fertilizers and bio-
pesticides with support from NARDI. A new concept in fertilizers i.e., Customized Fertilizer Granules (CFGs)
has been developed and the product is in trials.
NFCL’s Development activities focus on imparting training to farmers and dealers on the latest package
of practices in various crop sand technology transfer. Training programs are carried out both on campus at
KVK, Kakinada and off-campus at villages and towns. A Well-equipped and trained development tem
organizes the programs using audio-visual vans, jeeps, slide projectors.
PERFORMANCE HIGHLIGHTS
YEAR PRODUCTION SALES
SALES
TURNOVER
INCLUDING
SUBSIDY
NET
PROFIT
AFTER TAX
Ammonia (MT) Urea (MT)MFG Urea
(MT)(Rs. Corers) (Rs. Corers)
1992-93
(8 months)188027 308453 251599 364.48 32.11
1993-94 344498 591213 598787 606.51 127.86
1994-95 386357 675149 659094 843.14 192.89
1995-96 413390 708059 689767 882.27 221.18
1996-97 412694 716910 695154 922.49 155.24
1997-98 401627 689648 682836 795.88 122.10
1998-99 699110 1212607 1205376 1214.54 143.73
1999-00 751542 1297510 1283195 1435.96 113.50
2000-01 796024 1364794 1324497 1215.52 46.53
2001-02 706528 1221944 1217629 1062.69 39.70
2002-03 689263 1187259 1101776 748.65 57.47
2003-04 712534 1325467 1265376 1178.26 74.67
2004-05 723525 1382953 1256704 1385.63 85.35
2005-06 788471 1379220 1396927 1473.38 66.85
2006-07 756814 1324054 1310857 1843.23 31.71
2007-08 772584 1354490 1338302 2213.43 22.49
CUSTOMER FOCUS:
In recognition that business is based on quality and integrity, NFCL’s aim to have the most satisfied
customer base by enhancing farmer productivity through forward integration on the one hand, and through
catering to industrial needs on the other. Unto this end, NFCL shall:
Produce high quality products that give value for money
Offer, both products and services
Innovate to satisfy the real needs of customers
Engage in fair, open and ethical practices
SHAREHOLDER FOCUS
NFCL aim to keep its shareholders satisfied by:
Delivering the best long-term return on investment amongst all companies in the Indian agri-business
industry.
Continuous growth and excellence in business performance.
AWARDS AND HONOURS
“EPIC” Award for Anti-Pollution measures taken by the Industry by Environment Public interest
Committee, Kakinada in 1993.
Good Housekeeping Award for 1994 by National Safety Council, A.P. Chapter.
Best Industrial Canteen Award for 1994 by National Safety Council, A.P. Chapter.
Indian Chemical Manufacturer’s Association (ICMA) Award for “Environmental Control Strategies and
Safety in Chemical Plants” for the year 1994.
Award of Merit for 1994-95 by National Safety Council, U.S.A. for completing 2 Million Accident
Freeman Hours.
ISO 9002 Certification from Bureau Verities Quality International (BVQI), Netherlands, in 1995.
Golden Peacock National Quality Award by Institute of Directors, New Delhi, India for 1995.
British Safety Council’s National Safety Award for the five consecutive years, 1994, 1995, 1996, 1997 &
1998 and also for the year 2000.
“Rajiv Gandhi Parti Bhoomi Mitra” Award for 1994-96 by Wasteland Development Board, Government of
India.
National Safety Award for 1996 by National Safety Council, U.S.A.
Award for Innovative and Purposeful Programme for Social Progress for the year 1996 by Indian Chemical
Manufacturer’s Association (ICMA), Mumbai.
Merit Award for 1997 and 1998 by Royal Society for the Prevention of Accident (RoSPA)
“Best Workers” Welfare (including Family Planning) effort by an Industrial or Commercial Unit in the
State” for the year 1997-98 by Andhra Pradesh Chambers of Commerce & Industry (FAPCCI)
Golden Peacock National Award for environmental Management by World Environment Foundation for
the year 1998
Paryavarana Parirakshak Award by Rotary International at Visakhapatnam for the year 1998
VANAMITRA – 1999 from Govt., of A.P. for Developing and Maintaining Greenbelt.
Achieved 84% in OH & S – Audit conducted by British Safety Council, U.K. in January 2000.
Best School Industry Linkage Award 2000 by NCERT – an Autonomous Organization of Government of
India – December 2000.
Best Environmental Management Plan – 2000-01 in Vizag Zone by Andhra Pradesh Pollution Control
Board, Visakhapatnam.
National Safety award for 2000-01 from British Safety Council, U.K.
Best Environmental Improvement Effort by Industries located in the State in 2000-2001 from Federation of
A.P. Chamber of Commerce and Industry, Andhra Pradesh.
Bronze Award for Occupational Safety for the year 2001 by Royal Society for the Prevention of Accident
(RoSPA), UK
Commendation Trophy jointly given by National Safety Council, A.P. Chapter & Director of Factories,
A.P. for Implementing OHSAS 18001 in March 2001.
‘Environmental Protection Award’ in Nitrogenous Fertilizer plants category for the year 2001-02 from
Fertilizer Association of India, New Delhi.
“Perfect Record” in Occupational Safety/Health Award Programme for operating two million employee
hours without occupational injury or illness for the period from 10.10.01 to 13.11.02 from National Safety
Council (NSC) of USA.
Certificate of Appreciation for implementing the process safety management system (PSMS) by national
safety council, A.P. Chapter, Hyderabad in 2008
OTHER GROUP COMPANY / INSTITUTION
Nagarjuna Agrichem Limited
Nagarjuna Palma India Limited
Nagarjuna Agricultural Research & Development Institute
KVK Raju International Leadership Academy
Nagarjuna power Corporation Limited
Nagarjuna Haifa India Limited
Nagarjuna Oil Corporation Limited
Bijam Biosciences Limited
Nagarjuna Foundation
FUTURE PLANS OF THE COMPANY
1) To improve the capacity utilization and energy efficiency through technology up gradation.
2) Switching over to 100% natural gas as raw material instead of Napatha in Ammonia plant II
3) To continue to improve environmental performance under the framework of ISO 14000 – EMS.
4) To enhance the standards in the present quality management system (ISO 9002) by adopting the ISO
9001-2000 revision.
5) To widen the scope and offer technical services to various external agencies including overs as a
excitement.
Diversification:
Nagarjuna Group is on the threshold of major growth phase. Nagarjuna’s aim is not just to meet the
challenges of change, but to be the leaders in all the businesses that we are in namely, Agri Inputs/Outputs,
Energy Sector and Refinery. Nagarjuna Group will thus have significant presence in the core sectors of the
economy, which will have a multiplier effect on the industrial and socio-economic development of the
country.
NFCL is also undertaking several activities for the development of the surrounding villages by providing
free medical, educational and drinking water facilities besides supporting the mentally-retarded children.
The Kakinada facility of Nagarjuna Fertilizers and Chemicals Limited (NFCL), has achieved a record
Urea production of 113.1%, producing a total of 13.79 lakh Metric Tones of Urea during 2007-08. The Plant
has repeated this phenomenal feat, producing Urea more than its capacity, for the consecutive second year.
NFCL produces Urea in two units. While the Unit one Produced 7,03,645 Metric Tones, unit two also
surpassed its capacity by producing 6,75,571 Metric Tones making this phenomenal feat repeated during 2007-
08 too. Total capacity of the plant is 11,94,600 Metric Tones.
The Plant also has achieved this record production at a very optimal utilization of energy of 5.662
McCall/MT of Urea against Internal target of 5.67 McCall/MT, which is already much lower than the standard
Fertilizer Industry Coordination Committee’s (FICC) norm of 5.712 McCall/MT. NFCL has one more reason to
celebrate that full production of Urea i.e., 13.79 lakh Metric Tones has been dispatched to the farmers.
Along with the production, NFCL has also done well in sales and distribution wings. Its products,
which include Mahazinc, Zinc Sulphate and zeta specialty fertilizers besides Urea, have been sold out during
2007-08.
NFCL WINS GAS CONSERVATION AWARD FROM GAIL:
Fertilizer facility of Nagarjuna Fertilizers and Chemicals Limited in Kakinada has been selected for the
‘Award for Excellence in Natural Gas Conservation’ in the ‘Fertilizers Sector’ category for it’s outstanding
contribution to natural gas conservation in the country during 2006-07.
This annual award has been instituted by Gas Authority of India Limited (GAIL) as a recognition of the
excellent work done by the organizations in Gas Conservation. GAIL has been conducting a nation-wide
Natural Gas Conservation Programme, meant to spread the word of conservation of this precious natural
resource. All the natural gas using industries like power, fertilizer, steel, sponge iron, transport, glass, ceramic
and petrochemicals, would be considered for this award.
This is the 4th achievement of NFCL for it’s excellence in different departments during 2008. these
include; 5 star rating in O.H & S Audit from British Safety Council, UK. Commendation Award in “Leadership
and Excellence Awards in Safety, Health & Environment (SHE) 2006”, by Confederation of Indian Industry,
Southern Region, Chennai. Re-certification for ISO 9001:2000 by Bureau Verities Quality International
(BVAI) for quality management systems. And NFCL also received Environment Protection Award from
Fertilizers Association of India.
NFCL wins the prestigious Environment Protection Award from the Fertilizer Association of India
Nagarjuna Fertilizers and Chemicals Limited (NFCL) the flagship company of the Nagarjuna Group has won
the prestigious FAI (Fertilizer Association of India) Environment Protection Award in the Nitrogenous fertilizer
plants category for the year 2006-07. NFCL had won the same award for 2003-04 also. Going much beyond
the statutory requirements of law for environment protection, NFCL has implemented a comprehensive
protection plan in its plant at Kakinada. NFCL has been widely acknowledged for its Commitment to the
betterment of Environment and this award further adds to the long list of recognition.
NFCL has also won two more awards from FAI. A video film titled “The Sugarcane” produced by
NFCL was adjudged Runner-up in the Annual Video Film Competition by FAI for the year 2006-07. The
video film has been developed with the objective to transfer technology and to enhance the yield of sugarcane
farmers in Andhra Pradesh. For NFCL, this is the second consecutive year of winning in this category. An
article titled “From Products to Solutions – Exploring Opportunities” published in the September 2008 issue of
the Indian Journal of Fertilizers was awarded the Second prize in the category of Shriram Award for Best
article in Marketing.
Bureau Verities Quality International (BVQI) awards re-certification of ISO 9001:2000 for
Nagarjuna Fertilizers and Chemicals Limited.
Nagarjuna Fertilizers and Chemicals Limited (NFCL) has been re-certified of ISO 9001:2000 by Bureau
Verities Quality International (BVQI), for its Quality Management Systems. The Flagship Company of the
Nagarjuna Group has already been an ISO 9001:2000 organization since 1995. This re-certification, which is
valid up to February 2008, is only an extension of recognition for company’s excellent quality management
systems.
BVQI team has done the re-certification audit during February at NFCL plant Kakinada. After
conducting audit in Plant Operations and Area Marketing Offices BVQI sent a certificate to NFCL in which it
mentioned “Quality Management System of the Nagarjuna Fertilizers and Chemicals Limited has been audited
and found to be in accordance with the requirements of the standards ISO 9001:2000”.
BVQI is today the most widely recognized certification body in the world, offering solutions in the key
strategic fields of companies operations: Quality, Health and Safety, Environment and Social Responsibility. It
is recognized by more than 30 national and international accreditation bodies across the world to deliver ISO
9001 certification.
Nagarjuna Fertilizers and Chemicals Limited Awarded the prestigious 5 star Rating by the British Safety
Council, U.K:
Nagarjuna Fertilizers and Chemicals Limited (NFCL), the flagship company of the Nagarjuna Group has
been awarded the highly coveted 5 star rating by the British Safety Council, U.K. After a detailed Health and
Safety Management System Audit conducted during the month of January 2008, the British Safety Council has
awarded an ‘Excellent’ rating (Score of 92.39%) to NFCL’s manufacturing facility at Kakinada. The audit
covered eight areas of NFCL’s management systems leading to best practices, Fire Control Systems,
Measurement and Control Systems, Workplace implementation, Verification, Best practice and Continuous
improvement.
The British Safety Council (BSC) is one of the world’s leading occupational health, safety and environmental
organizations. BSC’s Five Star Health and Safety Management System Audit is a benchmark for best practices.
It provides a detailed examination of the organization’s current practices, and gives a comprehensive report and
plan for implementing, monitoring and achieving continuous improvement. It is based on the Business
excellence Model and goes beyond HS(G)65 and OHSAS 18001 to measure how far an organization has gone
towards achieving best practice.
Information Technology & Communications Department, Government of Andhra Pradesh signs MoU
with IKisan Limited
To provide agriculture related information and services through Rajiv Internet Village Centers /
(RSDPs/Rural eSeva Centers)
In its efforts towards Grameen Vikas aimed at alleviating rural poverty and ensuring agricultural
development, the Information Technology & Communications Department, Government of Andhra Pradesh
today signed a MoU with Ikisan Limited to provide agricultural related information and services to the vast
farming community of the state through Rajiv Internet Village Centers (RSDPs/Rural eSeva Centres).
The Information Technology and Communications Department has already set up 1200 kiosks spreading
across the state under the Rural Service Delivery Point Project (RSDP) in rural areas to serve as centers of e-
commerce and information dissemination. Ikisan Limited has partnered with the Information Technology &
Communications Department to provide agriculture information software and services in these kiosks. The
modules will be in Telugu and voice enabled addressing the needs of rural population comprising mainly of
farmers. The kiosk operators will be provided training by Ikisan Limited enabling them to
effectively utilize the software and other applications for the benefit of agriculturists.
Ikisan Limited is a pioneer in Agri-Portals in India. A Nagarjuna Group initiative, Ikisan.com is a
comprehensive Agri Portal addressing the Information, knowledge and business requirements of various players
in the Agri arena viz., Farmers, Trade Channel partners and Agri Input/Output companies. Leveraging
Information Technology and extensive field presence, Ikisan is positioned as an Information/Output companies.
Leveraging Information Technology and extensive field presence, Ikisan is positioned as an
Information/Knowledge exchange and an e-Marketplace. An integrated agriculture group, Nagarjuna has core
competencies in the fields of plant nutrition, plant protection, irrigation and farm services.
Our Values:
Deliver solutions that will please our customers deliver returns that motivate out investors take actions
that strengthen us and inspire the best in others (by setting an example in relationship, integrity, honesty,
humility and hard work)
By understanding the deep and fundamental needs of our people, our customers our Investors and our
Ecosystem (Alliances, Community and Environment).
The Group:
Founded in 1973 by Shri K.V.K. Raju with a modest investment of US$ 23 million, the Nagarjuna
Group Today is a prominent industrial house in India with an asset base of US$ 2.5 billion.
1974: Birth of a business group that pioneered several core sector enterprises in the coming decades.
Starting with manufacturing steel, Nagarjuna Steels Limited was launched.
1985: With focus on agriculture input business started plant nutrition business with Nagarjuna
Fertilizers and Chemicals Limited
1992: Forayed into the Crop Protection Business with Investments in Pesticide Formulations
manufacturing followed by Technical Grade Manufacturing in the year 1994.
1994: Micro irrigation business started to address the irrigation problems of farmers living in water and
energy scarce regions.
1995: Ventured into Energy Sector. Entered into power generation by setting up Nagarjuna Power
Corporation Limited.
1997: Entered into petroleum by setting up Nagarjuna Oil Corporation Limited.
Consolidating its core activities, today the Group’s major operations cover Agri and Energy sectors
The logo exemplifies the Group’s inner
strength through the circles, which stand for
the core values of the organization viz.,
concern, commitment, quality and integrity
towards its stakeholders viz., customers,
The new corporate logo of the Nagarjuna
Group symbolizes a dynamic and value-
based organization, actualizing the concept of
Trusteeship.
employees, investors and community. The
central circle symbolizes the Sun, the source
of prime energy for the solar system. The
five circles also symbolize the five elements
of the Universe and the spirit of continuity.
The triangle represents the planet
Mars. Mars, from time immemorial has
symbolized prosperity, success and
abundance of energy. The triangle in the
logo represents the upward flow of perennial
energy towards the mission of the group
“Serving Society through Industry”
WELFARE MEASURES IN NFCL:
It has taken several welfare measures to improve the general working conditions. They are given below.
A.C. Facilities
Drinking Water Facilities
Lockers given to employees for keeping their belongings
Annual Medical Examination
First Aid Boxes at several locations
Cultural Activities
Library Facilities
School for children of NFCL employees
Employees State Insurance Facilities
Uniform to all Employees
Group’s savings linked Insurance Scheme
Protective wear like helmets
Transport facilities
Canteen facilities
Housing Loan facilities
NFCL OBJECTIVES:
Performance management
High performance potential
Individual growth potential
Belief in Youth
High Result Orientation
Law procedure orientation
Entrepreneurial Development
Distinct Nagarjuna Group Ethos
High sense of respect for value of time and money Harmonious employee relations
Development of Human Resources on a continuous basi
Highest importance to human values
Objectives assessment of individual performance
Disciplined behavior of all employees
Belief in system management
Belief dynamism
Belief in multi skilled concept
Continuous monitoring cost control
FINANCE DEPARTMENT IN NFCL PLANT:
There are five sections in the project finance:
Bill section
Cash and bank section
General accounts section
Costing and FICC (fertilizers industry co-ordinate committee)
CPC
BILL SECTION:
This section receives bills from various departments in the plant. It checks the invoices as per the purchase
order/service order terms and passes. The entry voucher to cash and bank section.
CASH AND BANK SECTION:
The section checks these bills and cash payments depending on the transactions, the availability of finance. This
section decides that bills have to be paid in the order of importance. Material departments send one copy of the
invoice of the material procurement of the finance department.
GENERAL ACCOUNTS SECTION:
This section is also responsible to the maintenance of the accounts for the purpose of the internal audit. Budget
preparation initiating necessary control mechanism is also part & parcel of this department. General accounts
maintain all accounts, ledgers and other requirement for audit and looks after the entire marketing transport bills
payments.
COSTING AND FICC: Fertilizers industry co-ordination committee is formed by members from different
departments like agriculture departments, ministry of finance and representation of big fertilizer industry. It
calculates the production cost of urea and with proper documentation submits it to the FICC to fix the subsidy.
It is also responsible for maintaining other statutory requirements and sends various reports to FICC. Costing
section regularly receiving the cost thrice to eliminate unnecessary cost.
CPC: -
They will prepare salaries of the employees and employees P.F, E.P.F, and E.S.I.
CHAPTER –IV
Theoretical Frame Work
NATURE OF RATIOS
Ratio analysis is a widely used tool of finance analysis. The term ratio in it refers to the relation ship expressed
in mathematical terms between individual figures of group of figures connected with each other in some logical
manner and are selected from financial statements of the concern. The ratio analysis is based on the fact that a
single accounting figure by itself may not communicate any meaningful information but when expressed as a
relative to some other figure, it may definitely provide some significant information. The relation between two
or more accounting figures/groups is called a FINANCIAL RATIO. A financial ratio helps to express the
relationship between two accounting figures in such a way that users can draw conclusions about the
performance, strengths and weakness of a firm.
STANDARDS OF COMPARISON:
The ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in
itself does not indicate favorable or unfavorable condition. It should be compared with some standard.
Standards of comparison may consist of:
Past ratios, i.e. ratios calculated from the financial statements of the same firm.
Competitors ratios i.e. ratios of some selected firms, especially the most progressive and successful
competitor, at the same in time.
Industry ratios i.e. ratios of the industry to which the firm belongs.
ADVANTAGES OF RATIOS
Useful for evaluating performance in terms of profitability and financial stability.
Useful for intra and inter from comparison
Useful forecasting and budgeting.
It is just in a tabular form over a period of years indicates the trend of the business.
Simple to understand rather than the reading but the figures of financial statement.
Key tool in the hands of modern financial management.
Enables outside parties to assess the strength and weakness of the firm.
Ratio analysis is very useful for taking management decision and also highlights the performance in
the area of profitability, financial stability and operational efficiency.
LIMITATIONS OF FINANICIAL RATIOS
The ratio analysis is a widely used of technique to evaluate the financial position and performance of
business. But there are certain problems I using ratios. The analyst should be aware of these
problems. The following are some of the limitations of the ratio analysis:
It is difficult to decide on the proper basis of comparison.
The comparison is rendered difficult because of differences on situations of two companies or of one
company over years.
The price level changes make the interpretations of ratios invalid.
The differences in the definitions of items in the balance sheet and profit and loss statement make
the interpretation of ratios difficult.
The ratios calculated at a point of time are less informative and defective as they suffer from short
term changes.
The ratios are generally calculated from past financial statements and, thus re no indicators of future.
Differences in accounting policies and accounting period make the accounting data of two firms
non-comparable as also the accounting ratios.
It is very difficult to generalize whether a particular ratio is good or bad. For example, low current
ratio may be said BAD from the point of view of low liquidity, but a high current ratio may not be
GOOD. As this may result from inefficient working capital management.
Financial ratios provide clues but not conclusions. These are tools only in the hands of experts because
there is no standard ready-made interpretation of financial ratios.
TYPES OF RATIOS:
Several ratios calculated from the accounting date, can be grouped into various classes according to financial
activity or function to be evaluated. As stated earlier, the parties interested in financial analysis are short and
long-term creditors, owners and management.
“Short-term creditors” main interest is in liquidity position or the short-term solvency of the firm. Long-term
creditors, on the other hand, are more interested in the long-term solvency and profitability of the firm.
Similarly, owners concentrate on the firms’ profitability and financial condition. Management is interested on in
evaluating every aspect of the firms’ performance. They have to protect the interests of all parties and see that
the firm grows profitability. In view of the requirements of various users of ratios, we may classify them into
the following four important categories:
Liquidity ratios
Leverage ratios
Activity ratios
Profitability ratios
LIQUIDITY RATIOS:
The liquidity refers to the maintenance of cash, bank balance and those assets, which are easily
convertible into cash in order to meet the liabilities as and when arising. So, the liquidity ratios study the firm’s
short-term solvency and its ability to pay off the liabilities.
CURRENT RATIO: Current ratio is the ratio of current assets and current
liabilities. Current assets are assets which can be covered into cash within one
year and include cash in hand and at bank, bills receivable, net sundry debtors,
stock of raw
materials, finished goods and work in progress, prepaid expenses, outstanding and accrued incomes, and short
term or temporary investments.
Current liabilities are liabilities, which are to be repaid within period of 1 year and
include bills payable, sundry creditors, bank overdraft, outstanding expenses,
incomes received in advanced, proposed dividend, provision for taxation,
unclaimed dividends and short term loans and advances repayable within 1 year.
Current ratio = current assets/current liabilities
A current ratio of 2:1 is considered as ideal. If business has an undertaking with its bankers to meet its working
capital requirements short notices, a current ratio of its adequate.
2. QUICK RATIO:
Quick ratio is the ratio of quick assets to quick liabilities. Quick assets are assets, which can be
converted into cash very quickly without much loss. Quick liabilities are liabilities, which have to be necessarily
paid within 1 year.
Quick ratio = quick assets/quick liabilities
Quick assets = current assets – inventories
Quick liabilities = current liabilities – bank overdraft
A quick ratio of 1 is considered as ideal. A quick ratio of less than 1 is indicative of inadequate liquidity of the
business. A very high quick ratio is also not available, as funds can be more profitably employed.
3. ABSOLUTE LIQUID RATIO:
It is the ratio of absolute liquid assets to quick liabilities. However, for calculation purposes, it is taken as ratio
of absolute liquid assets of current liabilities. Trade investments or marketable securities are equivalent of cash
therefore; they may be included in the computation of absolute liquid ratio.
Absolute quick ratio = absolute liquid assets/current liabilities
Absolute liquid assets = cash in hand + cash at bank + short term investments.
The ideal absolute ratio is taken as 1:2 or 0.5.
LEVERAGE RATIOS:
Leverage ratios indicate the relative interests of owners and creditors in a business. It shows the proportions of
debt and equity in financing the firm’s assets the long-term solvency of firm can be examined by using leverage
ratios. The long-term creditors like debenture holders, financial institutions etc, are more concerned with the
firms long-term financial strength.
There are two aspects of long-term solvency of a firm.
1. Ability to repay the principal when due, and
2. Regular payment of the interest the leverage ratio are
Calculated to measure the financial rest and firms abilities of using debts.
TOTAL DEBT RATIO:
Total debt will include short and long-term borrowings from financial institutions debentures bonds. Capital
employed will include total debt and net worth.
The firm may be interested in knowing the proportion of the interest bearing debt in the
capital structure by calculating total debt ratio. A highly debt burdened firm will find difficulty in raising funds
from creditors and owners in future. Creditors treat the owner’s equities as a margin of safety.
Total debt ratio = total debt/capital employed
Total debt = secured loads + unsecured loads.
Capital employed = share capital + reserves and surplus.
2) DEBT-EQUITY RATIO:
It reflects the relative claims of creditors and shareholders against the assets of the business.
Debt, usually, refers to long-term liabilities. Equity includes preference share capital and reserves.
The relationship describing the lenders contribution for each refers of the owner’s contribution is
called debt equity ratio, a high ratio shows large of financing by the creditors relatively to the owners and
therefore, larger claim against the assets of the firm. A low ratio implies smaller claims of creditors. The debt
equity indicates the margin to satisfy the creditors so; there is no doubt that beth high nd low debt equity ratios
are not desirable. What is needed is a ratio, which strikes a proper balance between debt and equity.
Debt-equity ratio = total debt/net worth
Some financial experts opine that ‘debt’ should include current liabilities also. However, this is not a
popular practice. In case of preference share capital, it is treated as a part of shareholders funds, but if the
preference shares are redeemable, they are taken as a part of long-term debt. Shareholders are also known as
proprietor funds and it includes items equity share capital, reserves, and surplus. A debt equity ratio of 2:1 is
considered ideal.
PROPERTY RATIOS:
It expresses the relationship between net worth and total assets.
Property ratio = net worth/total assets
Net worth = equity share capital + preferential share capital + reserves fictitious assets
Total assets = fixed assets + current assets
Reserves are marked specifically for a particular purpose shouldn’t be included in calculation of net worth.
A high proprietor’s ratio is indicative of strong financial position of business. The higher the ratio, the better it
is.
FIXED ASSETS RATIO
Fixed assets= Fixed assets
Capital employed
Capital employed – Equity share capital + preference share capital + Reserves + Long term liabilities –
Fictitious assets.
This ratio indicates the mode of financing the fixed assets. A financially well-managed
company will have its fixed assets financed by long-term funds. Therefore, the fixed assets ratio should never
be more than
1. A ratio of 0.67 is considered ideal.
INTEREST COVERAGE RATIO:
This interest coverage ratio is computed by dividing earnings before interests and taxed
by interest charges.
Interest coverage=E B I T/interest
This interest coverage ratio shows the number of times of times the interest charges are covered by funds that
are or demurely available for their payments. A high ratio is desirable but too high ratio indicates that the firm is
very conservative in using debt and that is not using credit to the debt advantage of share holder. A lower ratio
indicates excessive use of debt or inefficiency operations. The firm should make efforts to improve the
operating efficiency or to retire debt to have a comfortable coverage ratio.
DEBT SERVICE COVERAGE RATIO (DSCR):
This is considered a more comprehensive and apt measure to compure debt service
capacity of a business firm. It provides the value in terms of the number of times the total debt service
obligations consisting of interest and repayment of the principle in installments are covered by the total
operating funds available after the payment of taxes.
DSCR = EAT+INTEREST+DEPRECIATION
INSTALMENT
The higher the ratio, the better it is a ratio of less than one may be taken as a sign of long term solvency
problem as it indicates that the firm does not generate enough cash internally to service debt in general, lending
financial institutions consider 2:1 as satisfactory ratio.
ACTIVITY RATIO:
Activity ratio measures the efficiency or effectiveness with which a firm manages its
resource or assets. They calculate the speed with which various assets, in which funds are blocked up, get
converted into sales.
I) TOTAL ASSETS TURNOVER RATIO:
The assets turnover ratio, measures the efficiency of a firm in managing and utilizing its
assets. The higher the turnover ratio, the more efficiency the management and utilization of the assets while
low turnover ratio is indicative of under-utilization of available resources and presence idle capacity.
The total assets turnover ratio is computed by dividing sales by total assets.
Total assets turn-over ratio= sales/total assets.
2) WORKING CAPTIAL TURNOVER RATIO: This ratio is defined as
Working capital turnover ratio =cost of goods sold/working capital
Where if cost of goods sold is not know. Net sales can be taken in the numerator.
Working capital=current Assets-current liabilities.
A high working capital turnover ratio indicates efficiency utilization of the firm’s funds. However, it
should not result in overtrading.
3) DEBTORS TURNOVER RATIO:
Debtors’ turnover ratio expresses the relationship between debtors and sales. Its is calculated
Net credit sales/average debtors
Net credit sales inspire credit sales after adjusting for sales returns. In case information no credit sale is
not available. “Sales” can be taken in the numerator. Debtors include bills receivable. Debtors should be taken
at gross value, without adjusting provisions for bad debts. In case, average debtors can’t be found; closing
balance of debtors should be taken in the dominator. A high debtor’s turnover ratio or a low debt collection
period is indicative of a sound credit management policy. A debtor’s turnover collection period of 30-36 days is
considered ideal.
4) DEBT COLLECTION PERIOD:
The debt collection period measures the quality of debtors since it indicates the speed of the collection.
The shorter the average collection period, the better the quality of debtors. Since a short collection period
implies the prompt payment by debtors.
Debt collection period = no of days in year / debt collection period
An exclusively long collection period implies very liberal and inefficient credit and collection
performance. This certainly delays the collection of each and impairs the firm’s liquidity. The average no. of
days for which debtors remain outstanding is called debt collection period or average collection period.
5) CREDITORS TURNOVER RATIO:
Creditors’ turnover ratio expresses the relationship between creditors and purchases.
Creditors turnover = net credit purchase/average creditors.
Net credit purchases imply credit purchases after adjusting for purchases returns. In case information on
credit purchases may be taken in the numerator. Creditors include bills payable. In case avenue creditors can’t
be found, closing balance of creditors should be taken in the denominator.
The creditors’ turnover ratio is 12 or more. However, very less creditors turnover ratio, or high
debt payment period, may indicate the firm’s inability in meeting its obligations in time
6) PAYMENT PERIOD RATIO:
Credit turnover can also be expressed in terms of number of days taken by the business to pay off its
debts. It is termed as debt payment period which is calculated as:
Number of days in a year/creditors turnover ratio
7) FIXED ASSETS TURNOVER RATIO: It is defined as
Net sales / fixed assets
Fixed assets imply net fixed assets i.e. after deprecation. A high fixed assets turnover ratio indicates
better utilization of the firm’s fixed assets. A ratio around 5 is considered ideal.
8) INVENTORY TURNOVER RATIO: Stock turnover ratio indicates the number of times the stock has
turned over into sales in a year.
It is calculated as = cost of goods sold / average inventory
Cost of goods sold = sales gross profit
Average stock=( opening stock +closing stock / 2)
In case, information regarding cost of goods sold is not known. Sales may be taken in the numerator.
Similarly, if average stock cant be calculated, closing stock should be taken in the denominator.
A stock turnover ratio of “8” is considered ideal. A high stock turnover ratio indicates that the stocks
are fast moving and get converted into sales quickly. However, it may also be on account of holding low
amount of stocks and replenishing stocks in large number of installments.
9) INVENTORY CONVERSON PERIOD:
It is calculated = no. Of days a year / inventory turnover ratio
Inventory or stock turnover ratio can also be expressed in terms of number of days it taken for the
stock to get converted into sales. It is called stock conversion into period.
IV) PROFITABILTY RATIO:
It measures the overall performance and effectiveness of the firm. Poor operational performance
may indicate poor sales and hence poor profit. A Lower profitability may arise due to the lack of control over
the expenses. Bankers, financial institutions and other creditors look at the profitability’s. Ratio as an indicator
whether or not the firm earns substantially more than it pays interest for the use of borrowed funds and whether
the ultimate repayment of their debt appear reasonably certain owner are interested to known the profitability as
it indicates as the return which they can get on this instrument.
Profitability ratio measures the profitability of a concern generally. They are calculated either
in relation to sales or in relation to investment.
1) NET PROFIT RATIO:
It indicates the result of the overall operation of the firm. The higher ratio, is per profitable is the
business. The net profit ratio is reassured by dividing
net profit by sales. The net profit ratio indicates management efficiency in manufacturing administrating and
selling the products. This ratio is the overall firm’s ability to turn each rupee of sales into net profit. If the net
profit margin is inadequate, the firm will fail to achieve satisfactory return on shareholder’s funds.
Net profit ratio = profit after tax / net sales
A firm with high net profit margin can make better use of favorable conditions. Such a rising
selling prices, failing the cost of products are increasing demand for the product. Such a firm will be able to
accelerate the profits at a faster rate than a firm with a low net profit margin. This ratio also indicates the firm
capacity to withstand adverse economic conditions.
2) RETURN ON NET WORTH RATIO:
It indicates the return, which the shareholders are earning on their resource invested in the business.
Return on net worth ratio = profit after tax / net worth
NET WORTH = Shareholder’s funds = Equity share capital + Preference share capital + Reserves – Fictitious
assets.
The higher ratio, the better it is for the shareholders. However, inter firm comparisons should be
made to ascertain if the returns from the company are adequate. A trend analysis of the ratio over the past few
years much is done to find out the growth or deterioration in the profitability of the business.
3) RETURN ON ASSETS RATIO: It is calculated as:
Return on Assets ratio = profit after tax / Total Assets
Total assets do not include fictitious assets. The higher ratio, better it is.
4) EARNINGS PER SHARE RATIO:
Earnings per share are the net profits of the tax and preference dividends, which is earned on the capital
representative of one equity share. It is calculated as:
Earning per share ratio = profit after tax available to equity shareholders /
no. of ordinary shares
The higher the EPS, the better is the performance of the company. The EPS is one of the diving factors in
investment analysis and perhaps the most widely calculated ratio amongst all ratio used for financial analysis.
CHAPTER- V
Interpretation and Analysis
LIQUIDITY RATIO
Liquidity ratio measures the firm’s ability to meet current obligations.
I. CURRENT RATIO:
The current ratio is the measures of the firm’s short-term solvency. It indicates the availability of current assets
in rupees for every one rupee of current liability.
Rs. Lakhs
Years Current Assets Current Liabilities Ratio
2003-04 122189.32 16174.32 7.55
2004-05 101612.94 12387.54 8.20
2005-06 87822.00 7782.51 11.28
2006-07 49876.00 10070.92 4.95
2007-08 67514.42 20151.82 3.35
2008-09 83649.53 29542.65 2.83
INTERPRETATION:
The ideal current ratio of current assets and current liabilities is 2:1.
It is tremendous increase in current ratio from the year 2003-04 to 2004-05. There is an increase in the last 3
financial years 2006-07, 2007-08 & 2008-09 even though there is a decrease in the ratio. It is good for the
organization.
CURRENT RATIO
0
2
4
6
8
10
12
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
RA
TIO
S
Ratios
2. QUICK RATIO:
Quick ratio is establishes a relationship between quick or liquid assets and current liabilities.
Rs. Lakhs
Years Quick assets Current liabilities Ratios
2003-04 103982.54 16174.32 6.43
2004-05 83270.25 + 6.72
2005-06 81664.73 7782.51 10.49
2006-07 42256.42 10070.92 4.20
2007-08 61738.22 20151.82 3.06
2008-09 82745.24 29542.65 2.80
INTERPRETATION:
The quick ratio of the company is above ideal norm i.e., 1:1
This ratio is increasing trend. Its tremendous increase in quick ratio from the year 2003-04 to 2005-06. There is
a drastic decrease from the years 2006-07 to 2007-08 & 2008-09. There is no stability in maintaining the quick
assets and quick liabilities. But the company is maintaining the idle norm and in a good position to meet its
obligations.
QUICKRATIO
0
2
4
6
8
10
12
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
RA
TIO
S
Ratios
3) ABSOLUTE LIQUID RATIO:
Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current
liabilities.
Rs. Lakhs
Years absolute liquid assets Current liabilities Ratio
2003-04 76609.43 16174.32 4.74
2004-05 73420.47 12387.54 5.93
2005-06 72482.15 7782.51 9.31
2006-07 68366.05 10070.92 6.79
2007-08 73996.27 20151.82 3.07
2008-09 75562.54 29542.65 2.55
INTERPRETATION:
The ideal absolute liquidity ratio of absolute liquid assets and current liabilities is 0.5.
The company maintains increase in absolute liquid ratio in 2003-04 to 2005-06. There is a growth trend in the
absolute liquid ratio from the years 2001-02 to 2005-06. From the last 2 years 2006-07, 2007-08 & 2008-09 it
has been a downfall trend in the last 2 years. The company is in a position to meet its obligations by
maintaining the ideal norm.
ABSOLUTELIQUIDRATIO
0
2
4
6
8
10
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
RA
TIO
S
Ratio
II) LEVERAGE RATIO:
1. TOTAL DEBT RATIO:
Debt ratio indicates the proportion of total debt in the capital structure.
Rs. Lakhs
Years Total debt Capital employed Ratio
2003-04 192966.82 281532.45 0.69
2004-05 184336.88 268482.30 0.69
2005-06 166411.79 252301.06 0.66
2006-07 149393.93 336091.18 0.44
2007-08 145327.45 3297797.41 0.44
2008-09 135534.67 410989.65 0.32
INTERPRETATION:
The proportion of the total debts in the capital structure is in alarming position in the years 2003-04 to 2005-06.
From the years 2006-07 to 2007-08 & 2008-09 maintaining the stable position but it has been reduced.
A high ratio means that claims of creditors are greater than those of owners. A high level of debt introduces
inflexibility in the firm’s operations due to the increasing interference and pressure from creditors which will
restrict management’s independent and energies.
TOTAL DEBT RATIO
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
YEARS
RA
TIO
S
Ratio
1. DEBT EQUITY RATIO:
This ratio shows the relationship between borrowed funds and owner’s capital, Which is the popular measure of
the long-term financial solvency of the firm.
Rs. Lakhs
Years Total Debt Net Worth Debt-Equity Ratio
2003-04 192966.82 88865.63 2.18
2004-05 184336.86 84145.42 2.19
2005-06 166411.79 85889.27 1.94
2006-07 149393.93 186697.26 0.80
2007-08 145327.45 184469.96 0.79
2008-09 137159.17 224545.74 0.61
INTERPRETATION:
A debt-equity ratio of 2:1 is considered ideal. Previously, company used to maintaining good debt equity. From
2003-04 to 2005-06 the lenders contribution is more than the owners as well as creditors to have faith on each
other. Where as from years 2006-07 to 2007-08 & 2008-09, previously company used to maintain good debt
equity, now it has been slightly reduced.
DEBT-EQUITY RATIO
0
0.5
1
1.5
2
2.5
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RA
TIO
S
Debt-Equity Ratio
3) PROPRIETORY RATIO:
The proportion of total assets collected through properties fund can be understood from this ratio.
Rs. Lakhs
Years Net worth Total assets Proprietory Ratio
2003-04 88565.63 334592.07 0.26
2004-05 84145.42 313417.50 0.27
2005-06 85889.27 288065.30 0.30
2006-07 186697.26 377244.71 0.49
2007-08 184469.96 375385.13 0.49
2008-09 182231.75 345475.15 0.52
INTERPRETATION:
The proprietor is not around idle norm 1:3. From the years 2003-04 to 2007-08 & 2008-09, it is an
improvement from the year by year.
It indicates that less use of proprietor fund and more use of debts funds in increasing asset structure of the firm.
This situation shows good solvency and suitable financial position of the company.
PROPRIETORY RATIO
0
0.1
0.2
0.3
0.4
0.5
0.6
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RATI
OS
Proprietory Ratio
4) FIXED ASSETS RATIO:
This ratio indicates mode of financing the fixed assets. It is used to measure the long-term financial solvency of
the firm and financial stability of the firm.
Rs. Lakhs
Years Fixed Assets Total Capital Employed Fixed Assets Ratio
2003-04 141496.69 281532.45 0.50
2004-05 140316.46 268482.30 0.52
2005-06 129224.94 252301.06 0.51
2006-07 260924.27 336091.18 0.78
2007-08 239958.44 329797.41 0.73
2008-09 277664.86 310589.09 0.84
INTERPRETATION:
The fixed assets ratio is in increasing every year .It is good for the organization. The organization will have
fixed assets financed by long-term funds.
FIXED ASEETS RATIO
00.10.20.30.40.50.60.70.80.9
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RA
TIO
S
Fixed Assets Ratio
5) INTEREST COVERAGE RATIO:
The interest coverage ratio shows the numbers of times of interest charges are covered by earning out of which
they will be paid.
Rs. Lakhs
Years DEBIT INTEREST Interest coverage ratio
2003-04 32687.53 29432.33 1.11
2004-05 Nil 26687.01 Nil
2005-06 Nil 25573.81 Nil
2006-07 19803.70 14278.63 1.39
2007-08 18453.96 13098.74 1.41
2008-09 17275.12 11397.85 1.52
INTERPRETATION:
The lower the interest coverage ratio indicates excessive use of debt and more over the companies operating
profits shows increasing position.
The company should try to decrease its debts it will improve profit margin. The ratio shows that we are using
more debt capital.
INTEREST COVERAGE RATIO
00.20.40.60.8
11.21.41.6
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RA
TIO
S
Interest coverage ratio
6. DEBT SERVICE COVERAGE RATIO (DSCR):
Debt service coverage ratio is considered more comprehensive apt measure to
compure debt service capacity of business firm.
Rs. Lakhs
Years Net profit
1
Depreciation
2
Interest
3
Cash
available
(1+2+3)=4
Term loan
5
Debt
Obligation
(3+5)=6
DSCR
(4/6)=7
2003-04 1743.82 12163.82 12799.29 26706.93 16995.61 29794.9 0.89
2004-05 2952.7 12159.1 9664.64 24776.44 10546.7 20211.34 1.22
2005-06 6685.2 20263.63 8475.58 35524.41 8543.91 17019.49 2.08
2006-07 3171.13 20656.04 8004.55 31831.82 10628.12 18632.77 1.7
2007-08 2249.08 20262.16 7886.46 30397.7 8451.65 16338.11 1.86
INTERPRETATION:
In the year 2003 -04 DSCR is less than 1 It tells that the company unable to pay loan and interest
installment in that particular year. But The DSCR in the years 2004-05 to 2007-08 is satisfactory. It
shows that the Company repays the loan installment with interest in the respective years
DEBT SERVICE COVERAGE RATIO
0
0.5
1
1.5
2
2.5
2003-04
2004-05
2005-06
2006-07
2007-08
YEARS
RA
TIO
Ratio
III) ACTIVITY RATIO:
1) The assets turn over ratio:
Activity ratio is employed to evaluate the efficiency with which the firm’s managed and utilizes its assets.
These ratios are also called turn over ratios because they indicate the speed with which assets are being
converted or turned into sales
Total assets turn over ratio: the assets turn over ratio show the firm’s efficiency of utilizing firms assets to
maximize its sales.
Rs. Lakhs
Years Sales Total assets Total assets turn over
ratio
2003-04 104367.71 334592.07 0.31
2004-05 98985.09 313470.50 0.29
2005-06 107262.11 288065.30 0.37
2006-07 126638.97 377244.71 0.34
2007-08 145294.74 374385.13 0.39
2008-09 164472.56 352426.06 0.46
INTERPRETATION:
The increase in total assets may not be an indicator in ratio. But sales help in the increase of the financial
conditions of the organization. The assets turn over ratio shows the firm’s efficiency of utilizing the firm’s
assets to maximize its sales. There is an increased position in the assets ratios from the years 2003-04 to 2007-
08 & 2008-09; it shows the effective utilization of the assets according to the requirement. The organizations
financial position is good overall. It is maintaining stability in the ratio of total assets.
TOTAL ASSETS TURN OVERRATIO
0
0.1
0.2
0.3
0.4
0.5
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RATI
OS Total assets turn over
ratio
2) WORKING CAPITAL TURN-OVER RATIO:
A firm may also like to relate net current assets or networking capital to sales. Working capital determines the
liquidity position of the firm and measures the ability of the firm to meet its current obligations.
Rs. Lakhs
Years Sales Working capital Working capital
2003-04 104367.71 106007.00 106007.00
2004-05 89985.09 89225.40 89225.40
2005-06 107262.11 80039.69 80039.69
2006-07 126638.97 39805.63 39805.63
2007-08 145294.74 47362.60 47362.60
2008-09 164412.51 65120.72 65120.72
INTERPRETATION:
The working capital idle norm is 0.75.
From the years 2003-04 to 2006-07 there is a increase in the working capital margin where as there is a slight
decrease in the year 2007-2008 & 2008-09.
The ratios are good and as per standard norms the trend indicates that the company is able to generate its
finances without outside borrowin
3) DEBIT TURN-OVER RATIO:
Debit turn-over ratio indicates the number of times debtors turn-over each year. The liquidity of company
depends on quality of debtors to a great extent.
Rs. Lakhs
Years Current sales Average debtors Debtors turn over ratio
2003-04 104367.71 51608.54 2.02
2004-05 89985.09 36945.16 2.44
2005-06 107262.11 35383.91 3.01
2006-07 126638.97 22170.64 5.71
2007-08 145294.74 31124.31 4.67
2008-09 164012.51 30057.43 5.46
INTERPRETATION:
The debtor’s turn-over ratio shows increasing trend from the years 2003-04 to 2006-07. Even though in 2007-08
& 2008-09 the debtors turn-over ratio is slightly decreased
It reflects on efficiency of the firm in managing credit of the organization though the company is in better
position to meets its obligations.
The company maintains consistency in collections and credit policy.
Debt Turn Over Ratio
0
1
2
3
4
5
6
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Years
Rat
io RATIO
4) DEBIT COLLECTION PERIOD:
The average number of days for which debtors remain outstanding is the average collection period.
Rs. Lakhs
Years Number of Days Debtors Turn-over Ratio Debit collection period
ratio in days
2003-04 365 2.02 180.69
2004-05 365 2.44 149.59
2005-06 365 3.03 120.79
2006-07 365 5.71 63.92
2007-08 365 4.67 78.16
2008-09 365 4.49 81.2
INTERPRETATION:
The debit collection period indicates the efficiency of trade credit management. A debit collection of period 30-
36 days is considered as ideal. The debtors collections period ratio in days was seen favorable during the year
2007-2008 & 2008-09 When compared to previous years. The shorter collection period implies promote
payment by debtors.
Debt Collectio Period
0
50
100
150
200
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Years
Rat
io RATIO
5. CREDITORS TURNOVER RATIO:
Creditor’s turnover ratio expresses the relationship between net credit purchases and creditors.
Rs. Lakhs
Years Net credit purchase Average creditors Creditors turnover ratio
2003-04 81842.06 9445.84 0.86
2004-05 4370.70 6593.72 0.66
2005-06 3056.70 4870.69 0.63
2006-07 10153.50 7126.83 1.43
2007-08 7856.49 12901.26 0.61
2008-09 6749.37 14642.49 0.46
INTERPRETATION:
The creditors’ turnover ratio of 12 or more indicates that the firm is not able to get the best terms of
credit. However, very less credit of turnover ratio may indicates, the firm’s inability in meeting its obligations in
time.
The creditors’ turnover ratio is 0.86, 0.66, 0.63, 1.43, and 0.61 each year respectively. The credit of turnover
ratio shows positive approach of the organization.
Creditors Turnover Ratio
00.5
11.5
2
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Years
Ratio RATIO
6) PAYMENT PERIOD RATIO:
Credit turnover rate can also be expressed in terms of number of days taken by the business to pay off its
debts.
Rs. Lakhs
Years Number of days Credit turn over ratio Payment period ratio
2003-04 365 0.61 598.36
2004-05 365 0.66 553.03
2005-06 365 0.63 280.75
2006-07 365 1.42 257.04
2007-08 365 0.61 598.36
2008-09 365 0.65 561.53
INTERPRETATION:
The debit payment period indicates the efficiency of management or organization. A debit payment
period of 0 or less number of days indicates that the firm is not able to get the best terms of credit. A high debit
payment period may indicate the firms’ inability in meeting its obligation in time. The ratio show there is an
increase in the ratio from the year 2003 -2004 to 2005-2006 and there is a decrease in the year 2007-2008 &
2008-09.The company is in a Position to make the payments in time.
PAYMENT PERIOD RATIO
0
100
200
300
400
500
600
700
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RA
TIO
S
Payment period ratio
7) FIXED ASSETS TURNOVER RATIO:
It is used to measure the managerial efficiency in which the firm has utilized its investments in fixed
assets and its overall activities. It indicates the generation of the sales per rupee investment in fixed assets.
Rs. Lakhs
Years Sales Net fixed assets Fixed assets turnover ratio
2003-04 104367.71 141496.69 0.74
2004-05 89985.09 140316.46 0.64
2005-06 107262.11 129224.94 0.83
2006-07 126638.97 260924.27 0.49
2007-08 145294.74 239958.44 0.61
2008-09 164052.51 201882.61 0.81
INTERPRETATION:
From the years 2003-04 to 2005-06 has increased and in the 2006-07 the fixed assets turnover ratio has slightly
reduced. If we compare with the year 06-07 there is increase in the fixed assets turnover ratio in the year 2007-
08 & 2008-09.
A high assets turnover ratio indicates better utilization of the firm’s fixed assets.
Fixed Assets Turnover Ratio
00.20.40.60.8
1
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Years
Rat
io RATIO
8) INVENTORY TURNOVER RATIO:
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product.
Rs. Lakhs
Years Cost of goods sold Average inventory Inventory turnover ratio
2003-04 104367.71 141496.69 5.80
2004-05 89985.09 18270.73 4.93
2005-06 107262.11 12250.08 8.76
2006-07 126638.97 6888.81 18.38
2007-08 145294.74 6698.16 21.69
2008-09 164420.51 6407.54 23.67
INTERPRETATON:
Sales are taken instead of cost of goods sold. Taking previous stock value and present stock value,
adding both values and dividing it by 2. Calculate average stock.
There is an increase in the consumption of inventory form last 5 years company must try to reduce the
inventory
INVENTORY TURNOVER RATIO
0
5
10
15
20
25
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RATI
OS
Inventory turnover ratio
9) INVENTORY CONVERSION PERIOD:
Inventory conversion period indicates the number of days. The company holds inventory.
Rs. Lakhs
Years No of days Inventory turnover ratio Inventory conversion period
(ratio in days)
2003-04 365 5.80 62.93
2004-05 365 4.93 74.04
2005-06 365 8.76 41.78
2006-07 365 18.38 19.86
2007-08 365 21.69 16.83
2008-09 365 23.67 15.42
INTERPRETATION:
From the year 2003-04 to 2004-05, has increased position in inventory conversion period. From the year
2005-06 to 2006-07, has increased position when compared to previous years. In 2005-06 the inventory
conversion period is slightly decreasing position.
INVENTORY CONVERSION PERIOD RATIO
01020304050607080
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RATI
OS Inventory conversion
period (ratio in days)
IV) PROFITABILITY RATIO:
Profitability ratio measures the profitability or the operational efficiency of the firm. These ratio’s reflect
the final results of business operations. The result of firm can be evaluated in terms of its earnings with
reference to a given level of assets or owners interest etc.
1.) Net profit ratio: - Net profit ratio indicates the overall measures of firm’s ability to turn each rupee sales into
net profit.
Rs. Lakhs
Years Profit after tax Sales Net profit ratio
2003-04 969.78 10268.81 0.01
2004-05 Nil 8998.09 Nil
2005-06 Nil 107262.11 Nil
2006-07 2952.70 126638.97 0.02
2007-08 6685.20 145294.74 0.04
2008-09 8378.50 167412.53 0.05
INTERPREATION:
The higher ratio, is the more profitable, is the business a high net profit margin would ensure adequate
the return to the owners of an organization.
There is a profit margin in the year 2008-09 it has improved from the previous years.
Profitability Ratio
00.010.020.030.040.050.06
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Years
Rat
io RATIO
2) RETURN ON NETWORTH RATIO:
Return on net worth ratio measures the profitability of equity funds invested in the firm. The return on
net worth indicates how well the firm has used the resource of owners.
Rs. Lakhs
Years Profit after tax Net worth Return on net worth ratio
(in %)
2003-04 969.78 88565.63 0.01
2004-05 Nil 84145.42 Nil
2005-06 Nil 85889.27 Nil
2006-07 2952.70 186697.26 0.02
2007-08 6685.20 184469.96 0.04
2008-09 8378.50 182231.53 0.04
INTEPRETATION:
The higher the ratio, the better is for the shareholders. From the year 2003-04 the return on net worth
ratio is increasing. From the year 2004-05 to 2005-06 there was NO return on net worth. From the year 2006-07
slightly improved position in return on net worth ratio. In 2008-09 the return on net worth ratio has been
increasing position.
The management must take necessary action and responsibility of maximizing owners’ welfare.
Return on Networth Ratio
00.010.020.030.040.05
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Years
Rat
io RATIO
3) RETURN ON ASSETS RATIO:
The return on assets ratio is used to measure the profitability of the firm in terms of assets employed in
the firm. It is also like a yard of sticks measuring a managerial efficiency in relation to the utilization of assets.
Rs. Lakhs
Years Net profit after tax Total assets Return on assets (in %)
2003-04 969.78 334592.07 0.003
2004-05 Nil 80313417.50 Nil
2005-06 Nil 288065.30 Nil
2006-07 2952.70 377244.71 0.01
2007-08 6685.20 375385.13 0.02
2008-09 8378.50 352426.06 0.02
INTERPRETATION:
The return on assets ratio reveals the relationship between profit after tax and total assets. The total
assets don’t include fictitious assets, the higher the ratio, better it is.
From the year 2003-04 the return on assets has increased position. From the year 2004-05 and 2005-06,
there was no return on assets. From the year, 2006-07 there was slight improvement in return on assets. In 2008-
09, the return on assets has been in increasing position. The return on assets ratio is in increasing trend, but we
cannot say that the company will maintain the same trend by observing 2004-05 to 2005-06.
RETURN ON ASSESTS RATIO
0
0.005
0.01
0.015
0.02
0.025
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
YEARS
RA
TIO
S
Return on assets (in %)
4) EARNING PER SHARE:
The probability of the common shareholders investment can also be measured in many other ways.
Earning per share shows the profitability of the firm per share basis. It measures the profitable available to the
equity shareholders on share basis, the amount that they can get on every share held.
Rs. Lakhs
Years Profit after tax Number of ordinary
shares
Earning per share ratio
2003-04 969.78 4170.20 0.23
2004-05 Nil 4170.20 Nil
2005-06 Nil 4170.20 Nil
2006-07 2952.70 4281.81 0.70
2007-08 6685.20 4281.81 1.56
2008-09 8378.50 4392.42 1.90
INTERPRETATION:
There is an increase in the earnings per share ratio from the year 2003-04 to 2008-09.Due to change and
uncertainties in the policy parameters or retention price the company decided to declare divided and carry on
plough back the profits.
Earnings Per Share
0
0.5
1
1.5
2
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Years
Rat
io RATIO
CHAPETER – VI
Findings
Suggestions
FINDINGS
The Indian fertilizers industry stands in fourth position in the world not only for terms of production but
also in terms of consumption of nitrogenous / phosphate nutrients.
NFCL continues to be market share in Andhra Pradesh catering more than 70% of market.
Findings with respect to liquidity ratio:
As compared to last year there is decreased in the liquidity of the firm, even though company is in a
position to meet its current obligations. There was margin safety to the creditors.
Finding with respect to leverage ratio:
NFCL leverage ratios are not in satisfactory level. Company is maintaining as stable position in the
leverage active. Company is facing heavy burdens of interest payment that affects the profit. It will lead
to serious difficulties in raising funds in future. It was impressive during the year 2007-08, because of
decrease in debt.
Findings with respect to activity ratio:
The inventory turnover ratio, average collection period has been increasing from previous year.
The debtors’ turnover ratio, payment period ratio decreased from previous year. It is not good sign to the
company.However in the year 2007-08, the inventory turnover ratio, fixed assets turnover ratio has been
significantly improved.
Findings with respect to profitability ratio:
As compared to the year profitability ratios there was a slight improvement but it is very negligible and
ratios are not satisfactory. During the year 2007-08 the interest and financing charges decreased when
compared to previous year. If we can reduce that amount we can get more profits.
Interest charges were declined due to falling of the interest rates. However net profit ratio, return on net
worth and return on assets ratio was improved during the year 2007-08 with improvement in sales.
SUGGESTIONS
The company should maintain the present level of liquidity (current ratio) in low and funds not be kept ideal, it
must be utilized efficiently.
The company should maintain responsible level of debit equity preparation in capital structure.
A high debit equity ratio exposes higher risk, because greater the loan the firm must pay even in
adverse conditions. Therefore, the firm should make efforts to improve the operating efficiency or
retire debt to have a comfortable coverage ratio.
Inventory turnover ratio showing increasing trend. Debtors’ turnovers ratio showing decline trends, the
company has to still improve and maintain good inventory management system and management in
holding the debtors.
Firm, having net profit margin, it should concentrate on improving sales by in decreasing interest charge
and cost of production to improve profit.
The company should utilize the fixed assets effectively in order to generate profit in future.
BIBILOGRAPHY
FINANCIAL MANAGEMENT - Khan and Jain
FINANCIAL MANAGEMENT - R. P. Rustasi
FINANCIAL MANAGEMENT - I. M. Pandey
FINANCIAL MANAGEMENT - Prasanna Chandra
COMPANY ANNUAL REPORTS (5 years)
Websites:-
www.nfcl.com
www.nagargunagroup.com
www.nagarjunafertilizers.com
