This project is mainy based on financial analysis(cash flow statement,Balance sheet and P&L Account). To analyze the activity ratio of the company. To analyze the liquidity ratio of the company.

1. A STUDY ON WORKING CAPITAL MANAGEMENT
Done for
Project report submitted in partial fulfillment of the requirement of DayalBagh Educational
Institute for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Under the guidance of Sumitted by:
Dr. B. CHARUMATHI Rahul Verma
Associate Professor, Roll No. 127633
Faculty Advisor – Corporate Relations and Placements, MBA-3rd
Sem
Department of Management Studies.
FACULTY OF SOCIAL SCIENCE
DAYALBAGH EDUCATIONAL INSTIUTE, AGRA (DEEMED UNIVERSITY)
DAYALBAGH, AGRA

2. CERTIFICATE
This is to certify that this project entitled “A STUDY ON WORKING CAPITAL
MANAGEMENT.” done for ADITYA BIRLA CHEMICALS (INDIA) LTD, Rehla,
Jharkhand is submitted by RAHUL VERMA, II year MBA (Roll NO. 127633) to
the Department of Management , Dayalbagh Educational Institute, Agra
in partial fulfillment of the degree requirement for the award of degree Master of Business
Administration and is certified to be an original and bonafide work.
Mrs.Reena Ahuja DR.B.CHARUMATHI
Professor & Head of the Department Associate Professor,
Department of Management Studies, Department of Management Studies,
School of Management, School of Management,
Agra University. Agra University.
Place: Agra
Date:

3. DECLARATION
I, RAHUL VERMA, MBA II Year Student of Department of Management,
Agra, hereby declare that this project report titled “A STUDY ON WORKING
CAPITAL MANAGEMENT” is an original work done by me and submitted
to the Department of Management, for the award of Master Degree in Business
Administration. I further declare that any part of this project itself has not been
submitted elsewhere for award of any degree.
Place:Agra
Date: Signature of the candidate

4. ACKNOWLEDGEMENT
I am indebted to the powerful Almighty God for the blessings he showered on me and for
being with me throughout the study.
I place on record my sincere gratitude and appreciation to my project guide
Dr.B.CHARUMATHI, Reader, Faculty Advisor – Corporate Relations and Placements,
Department of Management Studies, for her kind co-operation and guidance which enabled
me to complete this project.
I express my sincere thanks to Dr. R. P. RAYA, Head of the Department, Department of
Management Studies, School of Management, Agra University, who provided me an
opportunity to do this project.
I am deeply obliged to my External Guide CA BRIJESH KUMAR, Assistant General
Manager (Finance & Accounts), Aditya Birla Chemicals (India) Ltd, Rehla, Jharkhand for his
exemplary guidance and support for this project.
I would also like to extend my gratuitous thanks to the manager CA RAJESH RATHI, for
his valuable suggestions and timely help in completing this project. I would also like to thank
all the staffs of the Branch, for their constant support throughout the project.
I take this opportunity to dedicate this project to my parents who were a constant source of
motivation and I express my deep gratitude for their never ending support and encouragement
during this project.
Finally I thank my friends, relatives and everyone who helped me to complete this project.

5. EXECUTIVE SUMMARY
Working capital is the day to day need of any business and it can be also referred as the
lifeline of any business. There is no specific tool to know the exact amount of working capital
required by any business concern. Working capital management is widely viewed as the one
of the important jobs of the finance department of any company.
In Aditya Birla Chemicals (India) Ltd, the working capital is managed on the estimate basis.
It is taken as the estimate of the working capital for the current period as per the expenditure
of the previous year and the estimated future expenses.
The objective of the project is to analyze the working capital requirement of the Aditya Birla
Chemicals (India) Ltd.
To know the various components of the working capital, trend analysis and ratio analysis are
used in the project report.
This project is intended to make the Aditya Birla Chemicals (India) Ltd free from hassle in
the future regarding its working capital management.

6. CONTENT
CHAPTER DESCRIPTION PAGE NO.
Certificate 1
Declaration 2
Acknowledgement 3
Executive summary 4
List of tables 6
List of figures 7
1 Introduction 8
1.1 Introduction to the Topic 9
1.2 Need for the study 9
1.3 Statement of the problem 10
1.4 Objectives of the study 10
1.5 Research Methodology 10
1.6 Period of study 10
1.7 Limitations 10
1.8 Chapterization 11
2 Profiles 12
2.1 Profile of Chlor Alkali industry 13
2.2 Profile of Aditya Birla Group 14
2.3 Profile of Aditya Birla Chemicals (India) Ltd 16
3 Working capital management – An overview 23
4 Analysis and interpretation 35
5 Summary of findings, suggestions and conclusion 49
5.1 General findings 50
5.2 Specific findings
50
5.3 Suggestions
51
5.4 Conclusion
51
Bibliography
52

7. LIST OF TABLES
S.No Title Page No
3.1 Liquidity ratio 32
3.2 Activity ratio 33
3.3 Solvency ratio 33
3.4 Profitability ratio 34
4.1 Current ratio 36
4.2 Quick ratio 37
4.3 Stock turnover ratio 38
4.4 Debtor’s turnover ratio 40
4.5 Creditor’s turnover period 41
4.6 Working capital turnover 42
Ratio
4.7 Inventories 44
4.8 Cash and bank balance 45
4.9 Receivables 47
4.10 Current liabilities 48

8. LIST OF FIGURES
S.No. Title Page No.
3.1 Working capital 24
3.2 Gross working capital 26
3.3 Components of working capital 27
3.4 Types of working capital 27
3.5 Working capital cycle 30
4.1 Current ratio 37
4.2 Quick ratio 38
4.3 Stock turnover ratio 39
4.4 Debtor‟ s turnover ratio 41
4.5 Creditor‟ s turnover period 42
4.6 Working capital turnover ratio 43
4.7 Inventories 45
4.8 Cash and bank balance 46
4.9 Receivables 47
4.1. Current Liabilities 48

9. CHAPTER: 1
INTRODUCTION

10. 1.1 Introduction to the topic
Working capital management is one of the important parts of the financial management.
Working capital can also be termed as the life line of a company. It is concerned with short
term finance of the business concern which is closely related trade profitability and liquidity.
The movement of the funds from capital to income and profits and back to working
capital are one of the most important characteristics of the business. This cyclical operation is
concerned with utilization of the funds with the hope that will return with an additional
amount called income. If the operations of the company are to run smoothly, a proper
relationship between fixed capital and current capital has to be maintained.
Sufficiently liquidity is important and must be achieved and maintained to provide that
funds to pay off obligation as they arise.
The adequacy of cash and other current assets together with their efficient handling,
virtually determine the survival or demise of the company. A businessman should be able to
judge the accurate requirement of working capital and should be quick enough to raise the
required funds to finance the working capital needs.
Working capital is also called as net current assets, “it is the excess of current assets over
current liabilities.” All organizations have to carry working capital. It is important from the
point of view of both liquidity and profitability. Poor management of working capital means
that funds that are unnecessarily tied up in idle assets hence reducing liquidity and also
reducing ability to invest in productive assets such as plant and machinery and are so
affecting the profitability.
The term working capital refers to current assets, which may be defined as:
i) Those which are convertible into cash or equivalents with the period of one year
and
ii) Those which are required to meet day to day operations,
The fixed as well as current assets, both require investment of „Funds‟ . But there is no
specific method or tool by which it can be determined as how much working capital should
be maintained so that the company can fulfil all its need through out the year. The
management of working capital involve different concept and methodology than the
techniques used in fixed assets management.
1.2 Need for the study
Working capital constitutes part of the Crown's investment in a department. Associated
with this is an opportunity cost to the Crown. (Money invested in one area may "cost"

11. opportunities for investment in other areas.) If a department is operating with more
working capital than is necessary, this over-investment represents an unnecessary cost to
the Crown. From a department's point of view, excess working capital means operating
inefficiencies. To tackle with this problem there is no short cut to find out the exact
amount of the working capital which the company should maintain to meet its
obligations.
1.3 Statement of the problem
Working capital is the lifeline of any business concern. There is no specific
tool to calculate the exact amount of working capital required by any
company.
Chemical companies need to keep a considerable share of capital as working
capital. It is also necessary to have the required working capital to maintain the
liquidity of the company.
1.4 Objectives of the study
To analyze the activity ratios of the company.
To analyze the liquidity ratios of the company.
To study the trend of working capital requirement position of the company.
1.5 Research methodology
This is an analytical study. It has used primary and secondary data. Primary data has been
collected from the marketing department, finance department, and store department by
personal interaction with the various employees of the company. The secondary data were
collected from the annual report of the company, website, journal etc.
This study analyzed the liquidity position of ABC(I)L, Rehla and hence it is a case
study. The data were analyzed by using financial tools such as trend analysis and ratio
analysis.
1.6 Period of Study
The data for the study has been taken for 5 years starting from 2008-09 to 2012-13.
1.7 Limitation
Limitations of financial statement are equally applicable to the findings.

12. 1.8 Chapterization
Chapter 1 deals with the introduction of the topic, need for the study, problem statement,
objective of study, research methodology, period of study, limitation and chapterization.
Chapter 2 deals with the profile of chlor alkali business, profile of Aditya birla group and
ABC(I)L, Rehla.
Chapter 3 deals with the overview of working capital management. Chapter
4 deals with the analysis and interpretation of the data collected.
Chapter 5 contains the general findings, specific findings, suggestions and conclusion.

13. CHAPTER 2
PROFILES

14. 2.1 Profile of Chlor alkali business
The development of any company is estimated by the use of chlorine in that particular
country. The more the use of the chlorine the more developed the country is considered to be.
So the chlor alkali business is of very importance to any country.
The first in the chlor-alkali sector of India, the Aditya Birla Chemicals (India) Ltd, has been
accredited with certifications of ISO 9001, 14001, OHSAS 18001 and SA 8000, the company
has been the recipient of several awards.
The Aditya Birla Group is an Indian multinational conglomerate corporation headquartered in
Mumbai, India. It is one of the fastest growing conglomerate in India and one of the gems of
India which is also in the League of Fortune 500. It is anchored by an extraordinary force of
employees, belonging to 30 different nationalities. The group has diversified business
interests and is dominant player in all the sectors in which it operates such as viscose staple
fibre, metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals,
fertilisers, insulators, financial services, telecom, BPO, and IT services. In the year 2009, the
group was ranked among the top six great places for leaders in the Asia pacific region.
Over 60 per cent of the Group‟ s revenues flow from its overseas operation. The group
operates in 25 countries – India, UK, Germany, Hungary, Brazil, Italy, France, Luxembourg,
Switzerland, Australia, USA, Canada, Egypt, China, Thailand, Laos, Indonesia, Philippines,
Dubai, Singapore, Myanmar, Bangladesh, Vietnam, Malaysia and Korea.
For value addition and effective utilisation of chlorine, the company has commissioned a
12,000tpa aluminium chloride plant in the year 2007 and a 17,500tpa stable bleaching
powder (SBP) plant in 2008. SBP is marketed under the brand name Shaktiman. Aluminium
chloride is the principal catalyst used in the Friedel Craft reaction and widely used in
pharmaceuticals, chemical intermediates, agrochemicals, dyestuffs and pigments,
hydrocarbon resins, flavours and fragrances. SBP is used in textile mills for bleaching,
sanitation, sewage systems, tanning process, organic synthesis and other applications.

15. 2.2 Profile of Aditya Birla Group
The Aditya Birla Group is an Indian multinational conglomerate corporation headquartered in
Mumbai, India. It is one of the fastest growing conglomerate in India and one of the gems of
India which is also in the League of Fortune 500. It is anchored by an extraordinary force of
employees, belonging to 30 different nationalities. The group has diversified business
interests and is dominant player in all the sectors in which it operates such as viscose staple
fibre, metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals,
fertilisers, insulators, financial services, telecom, BPO, and IT services. In the year 2009, the
group was ranked among the top six great places for leaders in the Asia pacific region.
Over 60 per cent of the Group’s revenues flow from its overseas operation. The group
operates in 25 countries – India, UK, Germany, Hungary, Brazil, Italy, France, Luxembourg,
Switzerland, Australia, USA, Canada, Egypt, China, Thailand, Laos, Indonesia, Philippines,
Dubai, Singapore, Myanmar, Bangladesh, Vietnam, Malaysia and Korea.
The Aditya Birla Group is a global metal powerhouse among the world’s most efficient
aluminium and copper producers. The Hindalco-Novelis is one of the largest aluminium
rolling companies. It is one of the three biggest producers of primary aluminium in Asia, with
the largest single location copper smelter.
The Aditya Birla Group is a US$ 30 billion conglomerate which gets 60% of its revenues
from outside India. The Aditya Birla Group has been adjudged the best employer in India and
among the top 20 in Asia by the Hewitt-Economic Times and Wall Street Journal Study
2007. The origin of the group lies in the conglomerate once held by one of India‟ s foremost
industrialist Mr. Ghanshyam Das Birla.
Global facts about Aditya Birla Group
World’s largest aluminium rolling company.
World leader in viscose staple fibre.
One of the three biggest producers of primary aluminium in Asia.
One of the leading cement producers in India and eighth largest globally.
Fourth largest producer of carbon black in the world.
Fourth largest producer of insulators in the world.

16. Fifth largest producer of acrylic fibre in the world.
National facts
Largest premium branded Apparel Company.
Second largest producer of viscose filament yarn.
Second largest in the chlor-alkali sector.
Among the top five cellular operators.
Among the top 10 Indian BPO companies by revenue size.
Among the top 5 asset management and private sector life insurance companies.

17. LOGO
The name “Aditya Birla” evokes all that is positive in business and in life. It exemplifies
integrity, quality, performance, perfection and above all character.
Our logo is the symbolic reflection of these traits. It is the cornerstone of our corporate
identity. It helps us leverage the unique Aditya Birla brand and endows us with a distinctive
visual image. Depicted in vibrant, earthy colours, it is very arresting and shows the sun rising
over two circles. The inner circle symbolizes the internal universe of the Aditya Birla Group,
the outer circle symbolizes the external universe, and a dynamic meeting of rays converging
and diverging between the two circles.
Through its wide usage, we create a consistent, impact-oriented Group image. This
undoubtedly enhances our profile among our internal and external stakeholders.
Our corporate logo thus serves as an umbrella for our Group. It signals the common values
and beliefs that guide our behaviour in all our entrepreneurial activities. It embeds a sense of
pride, unity and belonging in all of our 130,600 colleagues spanning 27 countries and 40
nationalities across the globe. Our logo is our best calling card that opens the gateway to the
world.
2.3 ADITYA BIRLA CHEMICALS (INDIA) LIMITED
Aditya Birla Chemicals (India) Limited (formerly Bihar Caustic and Chemicals
Limited) was incorporated as a joint venture of the Aditya Birla Group and the Bihar State
Industrial Development Corporation. The unit was set up with the objective of catering to the
caustic soda requirements of Hindalco Industries Limited, and to contribute towards the
economic development of the backward region of Palamau district in Jharkhand.
Commissioned in 1984 with an initial caustic soda capacity of 33,000tpa, the company has
since grown to become the leading caustic soda producer in the eastern region of the country.

18. The company had commissioned a 30mw captive power plant in the year 2000 and
simultaneously, the caustic plant capacity was enhanced to 51,048tpa. In the year 2006, the
capacity was increased to 78,750tpa by converting the mercury cell technology to the more
environment-friendly membrane cell technology supplied by world-renowned technology
supplier UHDENORA, Germany. Presently, the installed capacity stands at 105,000tpa.
For value addition and effective utilisation of chlorine, the company has commissioned a
12,000tpa aluminium chloride plant in the year 2007 and a 17,500tpa stable bleaching
powder (SBP) plant in 2008. SBP is marketed under the brand name Shaktiman. Aluminium
chloride is the principal catalyst used in the Friedel Craft reaction and widely used in
pharmaceuticals, chemical intermediates, agrochemicals, dyestuffs and pigments,
hydrocarbon resins, flavours and fragrances. SBP is used in textile mills for bleaching,
sanitation, sewage systems, tanning process, organic synthesis and other applications.
The first in the chlor-alkali sector of India to be accredited with certifications of ISO 9001,
14001, OHSAS 18001 and SA 8000, the company has been the recipient of several awards.
2.5 RECOGNITIONS - AWARDS AND CERTIFICATIONS
LATEST AWARDS
Best Prax Compass & Rating Certification for the Best Prax Benchmark Award
in 2010
Planet award 2008 for excellence in community development.
IMC Ramakrishna Baja national Quality Award for Manufacturing Excellence
for 2007-2008.
Greentech Safety Gold Award for the year 2007-2008.
RC logo by Indian Chemical Council from January 2007 to December 2009.
FICCI Award 2003-2004 for community Development.
Indira Gandhi Memorial National Gold Award, 2003-04 for excellence in
pollution control.
CERTIFICATIONS
ISO 9001:2000 : for quality management system
ISO 14001 : 2004 : For environment management System

19. SA – 8000 : 2001 : For social Accountability
OHSAS – 18001 : 1999 : For Health & Safety Assessment management
2.6 ORGANIZATIONAL OVERVIEW
Aditya Birla Chemicals (India) Ltd is a unit of Aditya Birla Group and one of the leading
Chlor Alkali Company in India. The plant has been commissioned in 1984 and located at
Garhwa Road, Distt. PALAMAU, State JHARKHAND, India. Company‟ s detail product
range & Installed Capacity:
Caustic Soda lye : 109,500 TPA
Liquid Chlorine : 91,250 TPA
Hydrochloric Acid : 45,625 TPA
Sodium Hypo Chlorite : 1,460 TPA
Aluminium Chloride : 11,680 TPA
Stable Bleaching Powder : 17,520 TPA
The manufacturing process of the plant is the latest energy efficient and environment friendly
state-of-art Membrane Cell Technology. To meet the requirement of uninterrupted power
supply, company has a state-of-art 30 MW Captive Power Plant. Company has implemented
SAP R/3 and People Soft System.
To meet the heterogeneous business challenges, company has adopted WCM (World Class
Management) work culture. Further organization has adopted 40 villages under community
development to improve the quality of life in nearby vicinity of the factory.
Membership of International Associates
Alkali Manufacturers Association Of India (AMAI)
Indian Chemical Council (ICC)
American Chemistry Council

20. 2.7 PRODUCTS
1. CAUSTIC SODA
Caustic soda is also known as lye and Sodium Hydroxide (NaOH), which is a caustic
metallic base. It is used in many industries, mostly as a strong chemical base in the
manufacture of pulp and paper, textile, drinking water, soap, and detergents and as a drain
cleaner.
Pure sodium hydroxide is a white solid available in pellets, flakes, granules, and as a 50%
saturated solution. It is hygroscopic and readily absorbs water from the air, so it should be
stored in an airtight container. It is very soluble in water with liberation of heat. It also
dissolves in ethanol and methanol, though it exhibits lower solubility in these solvents than
does potassium hydroxide. Molten sodium hydroxide is also a strong base, but the high
temperature required limits applications. It is insoluble in ether and other non-polar solvents.
A sodium hydroxide solution will leave a yellow stain on fabric and paper.
2. LIQUID CHLORINE
Chlorine is used in the purification of drinking water, as bleaching agent in pulp, paper
and textile industries.
It is also used as raw material / intermediate chemical in the manufacture of PVC plastics,
paraffin waxes, synthetic rubbers, pesticides / insecticides, inorganic / organic chemicals,
pharmaceuticals etc.
As chlorine is dangerous so safe handling is very necessary. For the safe handling of chlorine,
avoid direct contact with chlorine as it is extremely irritating mucous membrane and
respiratory tract. If inhaled in large concentration, lung tissues are. Canister gas mask or self
contained breathing apparatus should be used. Proper means for loading and unloading of
cylinders should be used. The valves should be protected from getting damaged.
3. HYDROCHLORIC ACID
Hydrochloric acid is a solution of hydrogen chloride (HCl) in water that is a highly
corrosive, strong mineral acid with many industrial uses. It is found naturally in gastric acid.

21. With major production starting in the Industrial Revolution, hydrochloric acid is used In
the chemical industry as a chemical reagent in the large-scale production of vinyl
chloride for PVC plastic, and MDI/TDI for polyurethane. It has numerous smaller-scale
applications, including household cleaning, production of gelatine and other food
additives, decaling, leather processing, and swimming pool maintenance. About 20
million tonnes of hydrochloric acid are produced annually.
4. SODIUM HYPOCHLORITE
Sodium hypochlorite is a chemical compound with the formula NaClO. Sodium
hypochlorite solution, commonly known as bleach, is frequently used as disinfectant or a
bleaching agent
Hooker process is the only large scale industrial method of sodium hypochlorite production.
In the process, sodium hypochlorite (NaClO) and sodium chloride (NaCl) are formed when
chlorine is passed into cold and dilute sodium hydroxide solution. It is prepared industrially
by electrolysis with minimal separation between the anode and the cathode. The solution
must be kept below 40°C (by cooling coils) to prevent the undesired formation of sodium
chlorate.
Cl2 + 2 NaOH → NaCl + NaClO + H2O
Sodium hydroxide and chlorine are commercially produced by the chlor-alkali process, and
there is no need to isolate them to prepare sodium hypochlorite.
Hence, chlorine is simultaneously reduced and oxidized; this process is known as
disproportionate. The commercial solutions always contain significant amounts of sodium
chloride (common salt) as the main by-product, as seen in the equation above. Sodium
hypochlorite can be also made by electrolyzing saturated sodium chloride solution, and the
product can be tested by dropping hydrochloric acid to determine whether it is successfully
synthesized.
5. ALUMINIUM CHLORIDE
Aluminium chloride (AlCl3) is the main compound of aluminium and chlorine. It is white,
but samples are often contaminated with iron trichloride, giving it a yellow colour. The solid
has a low melting and boiling point. It is mainly produced and consumed in the production of
aluminium metal, but large amounts are also used in other areas of chemical industry. The

22. compound is often cited as a Lewis acid. It is an example of an inorganic compound that
"cracks" at mild temperature, reversibly changing from a polymer to a molecule.
6. STABLE BLEACHING POWDER
Calcium hypochlorite is a chemical compound with formula Ca(ClO)2. It is widely used
for water treatment and as a bleaching agent (bleaching powder). This chemical is considered
to be relatively stable and has greater available chlorine than sodium hypochlorite (liquid
bleach). Calcium hypochlorite is used for the disinfection of drinking water or swimming
pool water. It is used as a sanitizer in outdoor swimming pools in combination with
a cyanuric acid stabilizer, which reduces the loss of chlorine due to ultraviolet radiation. The
calcium content hardens the water and tends to clog up some filters; hence, some products
containing calcium hypochlorite also contain anti-scaling agents. Calcium hypochlorite is
also an ingredient in bleaching powder, used for bleaching cotton and linen. It is also used in
bathroom cleaners, household disinfectant sprays, moss and algae removers, and weed killers.
In addition, calcium hypochlorite may be used to manufacture chloroform. Bleaching powder
is used also in sugar industry for bleaching sugar cane juice before its crystallization. Calcium
hypochlorite is a yellow white solid which has a strong smell of chlorine. It is not highly
soluble in water, and is more preferably used in soft to medium-hard water. It has two forms:
a dry form and a hydrated form. The hydrated form is safer to handle.
Calcium hypochlorite reacts with carbon dioxide to form calcium carbonate and release
chlorine:
2 Ca(ClO)2 + 2 CO2 → 2 CaCO3 + 2 Cl2 + O2
Calcium hypochlorite reacts with hydrochloric acid to form calcium chloride:
Ca(ClO)2 + 4 HCl → CaCl2 + 2 H2O + 2 Cl2
Calcium hypochlorite is a yellow white solid which has a strong smell of chlorine. It is not
highly soluble in water, and is more preferably used in soft to medium-hard water. It has two
forms: a dry form and a hydrated form. The hydrated form is safer to handle.
Calcium hypochlorite reacts with carbon dioxide to form calcium carbonate and
release chlorine:
2 Ca(ClO)2 + 2 CO2 → 2 CaCO3 + 2 Cl2 + O2

23. Calcium hypochlorite reacts with hydrochloric acid to form calcium chloride:
Ca(ClO)2 + 4 HCl → CaCl2 + 2 H2O + 2 Cl2
7. COMPRESSED HYDROGEN
Compressed Hydrogen is very dangerous as it is inflammable at normal pressure and
temperature. But it has many uses starting from eatables to rocket propulsion. Some of the
uses are given as;
Hydrogenation of edible oils for manufacture of Vanaspati and non-edible oils for
manufacturing of soaps.
Hydrogenations of petro products for the manufacture of hard lubricants.
Sintering in the manufacture of tungsten carbide tool bits and in powder.
Metallurgy for underwater gas cutting and for plasma cutting.
For the manufacture of Hydrogen Peroxide.
Rocket propulsion.
Reducing atmosphere in furnaces with or without nitrogen
In bright annealing of copper and stainless steel.
8. POWER
Power is generated only for the company needs and not for the commercial purpose. The
power generated is sometimes not sufficient for the company itself when the company runs
on its full capacity, at that time some power is bought from market such as the Jharkhand
Electricity Board.
Power in Aditya Birla Chemicals (India) Ltd is generated by thermal process i.e., by coal.
Coal is brought from Jharkhand itself. It is one of the two raw materials which are brought
through railways.

24. CAHPTER 3
WORKING CAPITAL MANAGEMENT
AN OVERVIEW

25. 3.1 Working Capital Management
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to
fund operations, reinvest and meet capital requirements and payments. Understanding a
company's cash flow health is essential to making investment decisions. A good way to judge
a company's cash flow prospects is to look at its working capital management (WCM).
Meaning of working capital
The capital of any company can be divided into two major headings.
Figure 3.1 Working capital
Capital
Working capitalFixed capital
Fixed capital
The capital which is used for long-term investment of business concern is called as
fixed capital. For example, purchase of permanent assets. Normally it consists of non-
recurring in nature.
Working capital
It is another part of the capital which is needed for meeting day to day requirement of
the business concern. For example, payment to creditors, salary paid to workers, purchase of
raw materials etc., normally it consists of recurring in nature. It can be easily converted into
cash. Hence, it is also called as short-term capital.
3.2 Defining Working Capital
Working capital is the cash needed to pay for the day to day operation of the business. It
refers to the cash a business requires for day-to-day operations, or, more specifically, for
financing the conversion of raw materials into finished goods, which the company sells for
payment. Among the most important items of working capital are levels of inventory,

26. accounts receivable, and accounts payable. Analysts look at these items for signs of a
company's efficiency and financial strength.
The term working capital refers to the amount of capital which is readily available to an
organization. That is, working capital is the difference between resources in cash or readily
convertible into cash (Current Assets) and organizational commitments for which cash will
soon be required (Current Liabilities).
Thus:
WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES
In a department's Statement of Financial Position, these components of working capital are
reported under the following headings:
Current Assets
Current Assets are the assets of the business held in cash form (e.g. at the bank)
or which can be quickly turned into cash.
Liquid Assets (cash and bank deposits)
Inventory
Debtors and Receivables
Current Liabilities
Current Liability is the money owed by a business which will need to be paid in the next 12
months.
Bank Overdraft
Creditors and Payables
Other Short Term Liabilities
3.3 Concept of working capital
Working capital can be classified with the help of following two important concepts.
Gross working capital

27. Gross working capital is the general concept which determines the working capital
concept. Thus, the gross working capital is the capital invested in total current assets of the
business concern.
Gross working capital is simply called as the total current assets of the concern.
GWC=CA
Gross Net
working
Workin
g
capital Capital
Figure 3.2 Gross working capital
Net working capital
Net working capital is the specific concept which considers both current assets and current
liability of the concern.
Net working capital is the excess of current assets over the current liability of the
concern during a particular period.
If the current assets exceed the current liabilities it is said to be positive working capital; it is
reverse, it is said to be negative working capital.
NWC = CA - CL

28. 3.4 Components of working capital
Working capital constitutes various current assets and current liabilities. This can be
illustrated by the following chart.
Figure 3.3 Components of working capital
Working capital
Current Assets Current Liability
3.5 Types of working capital
Working capital can be classified as into three important types on the basis of time.
Figure 3.4 Types of working capital
Working capital
Temporary working
Permanent working capital Semi Variable
capital working capital
Special working Seasonal working
capital capital
3.6 Importance of Good Working Capital Management
Working capital management involves the relationship between a firm's short-term assets and
its short-term liabilities. The goal of working capital management is to ensure that a firm is
able to continue its operations and that it has sufficient ability to satisfy both maturing short-
term debt and upcoming operational expenses. The management of working capital involves
managing inventories, accounts receivable and payable, and cash.

29. Working capital constitutes part of the Crown's investment in a department. Associated with
this is an opportunity cost to the Crown. (Money invested in one area may "cost"
opportunities for investment in other areas.) If a department is operating with more working
capital than is necessary, this over-investment represents an unnecessary cost to the Crown.
There are many aspects of working capital management which make it an
important function of the financial manager
TIME Working capital management requires much
of the financial manager‟ s time.
INVESTMENT Working capital represents a large portion of
the total investments in assets.
CRITICALITY Working capital management has great
significant for all firms but it is very critical
for small firms.
GROWTH The need for working capital is directly
related to the firm‟ s growth.
3.7 Dangers of excessive working capital
The dangers of excessive working capital are as follows:
1. It results in unnecessary accumulation of inventories. Thus chances of inventory
mishandling, waste, theft and losses increase.
2. It is an indication of defective credit policy and slack collection period. Consequently,
higher incidence of bad debts results, which adversely affects profits.
3. Excessive working capital makes management complacent which degenerates into
managerial inefficiency.
4. Tendencies of accumulating inventories tend to make speculative profits grow. This
may tend to make dividend policy liberal and difficult to cope with in future when the
firm is unable to make speculative profits.

30. Inadequate working capital is also bad and has the following dangers:
1. It restricts the growth. It becomes difficult for the firm to undertake profitable projects
for non-availability of working capital funds.
2. It becomes difficult to implement operating plans and achieve the firm‟ s profit
target.
3. Operating inefficiencies creep in when it becomes difficult even to meet day to day
commitments.
4. Fixed are not efficiently utilized for the lack of working capital funds. Thus the
firm‟ s profitability would deteriorate.
5. paucity of working capital funds render the firm unable to avail attractive credit
opportunities etc,
6. The firm loses its reputation when it is not in a position to honour its short term
obligations as a result the firm faces tight credit terms.
An enlightened management should, therefore, maintain the right amount of working
capital on the continuous basis. Only then a proper functioning of business operations will be
ensured. Sound financial and statistical techniques, supported by judgment, should be used to
predict the quantum of working capital needed at different time periods.
A firm‟ s net working capital position is not only important as an index of liquidity but it is
also used as a measure of the firm‟ s risk. Risk in this regard means chances of the firm being
unable to meet its obligations on due date. The lender considers a positive networking as a
measure of safety. All other things being equal, the more the networking capital a firm has,
the less likely that it will default in meeting its current financial obligations. Lenders such as
commercial banks insist that the firm should maintain a minimum net working capital
position.
3.8 Working Capital Cycle
Cash flows in a cycle into, around and out of a business. It is the business's life blood
and every manager's primary task is to help keep it flowing and to use the cash flow to
generate profits. If a business is operating profitably, then it should, in theory, generate cash
surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and
expire. The faster a business expands the more cash it will need for working capital and
investment. The cheapest and best sources of cash exist as working capital right within

31. business. Good management of working capital will generate cash will help improve profits
and reduce risks. Bear in mind that the cost of providing credit to customers and holding
stocks can represent a substantial proportion of a firm's total profits.
There are two elements in the business cycle that absorb cash - Inventory (stocks and work-
in-progress) and Receivables (debtors owing you money). The main sources of cash are
Payables (your creditors) and Equity and Loans.
Figure 3.5 Working capital cycle
Each component of working capital (namely inventory, receivables and payables) has two
dimensions namely TIME and MONEY. When it comes to managing working capital -
TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect due
money from debtors more quickly) or reduce the amount of money tied up (e.g. reduce
inventory levels relative to sales), the business will generate more cash or it will need to
borrow less money to fund working capital. As a consequence, you could reduce the cost of
bank interest or you'll have additional free money available to support additional sales growth

32. or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit
or an increased credit limit; you effectively create free finance to help fund future sales.
If you ... Then ...
Collect receivables (debtors) faster You release cash from the cycle
Collect receivables (debtors) slower Your receivables soak up cash
Get better credit (in terms of You increase your cash resources
duration or amount) from suppliers
Shift inventory (stocks) faster You free up cash
Move inventory (stocks) slower You consume more cash
It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant,
vehicles etc. If you do pay cash, remember that this is now longer available for working
capital. Therefore, if cash is tight, consider other ways of financing capital investment -
loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash
outflows and, like water flowing downs a plug hole, they remove liquidity from the business.
More businesses fail for lack of cash than for want of profit.
3.9 Working capital analysis
As we know working capital is the life line and centre of any business concern. Adequate
amount of working capital is very much essential for the smooth running of the business. The
most important part is the efficient management of the working capital. So, a study of
changes in the uses and sources or working capital is necessary to evaluate the efficiency
with which the working capital is employed in the business. This involves the need of the
working capital analysis.The analysis of the working capital can be conducted through a
number of methods such as:
1. Ratio analysis
2. Trend Analysis

33. 1. Ratio analysis
Ratio analysis is a commonly used tool of financial statement analysis. Ratio is a
mathematical relationship between one numbers to another number. Ratio is used as an index
for evaluating the financial performance of the business concern. An accounting ratio shows
the mathematical relationship between two figures, which have meaningful relation with each
other. Ratio can be classified into various types. Classification from the point of view of
financial management is as follows:
Liquidity ratio
Activity ratio
Solvency ratio
Profitability ratio
Liquidity Ratio
It is also called as short-term ratio. This ratio helps to understand the liquidity in a business
which is the potential ability to meet current obligations. This ratio expresses the
relationship between current assets and current assets of the business concern during a
particular period. The following are the major liquidity ratio:
Table 3.1
Liquidity ratio
Table No. Ratio Formula Significant ratio
1 Current ratio Current assets 2:1
Current liability
2 Quick ratio Quick Assets 1:1
Quick/Current
Liability
Activity Ratio
It is also called as turnover ratio. This ratio measures the efficiency of the current assets
and liabilities in the business concern during a particular period. This ratio is helpful to
understand the performance of the business concern. Some of the activity ratios are given
below:

34. Table 3.2
Activity ratio
S. No. Ratio Formula
1. Stock turnover ratio Cost of sales
Average inventory
2. Debtors turnover ratio Credit sales
Average Debtors
3. Creditors turnover ratio Credit purchase
Average credit
4. Working capital turnover Sales
ratio
Net working capital
Solvency Ratio
It is also called as leverage ratio, which measures the long-term obligation of the business
concern. This ratio helps to understand, how the long-term funds are used in the business
concern. Some of the solvency ratios are given below:
Table 3.3
Solvency ratio
S. No. Ratio Formula
1. Debt-equity ratio External equity
Internal equity
2. Proprietary ratio Shareholder‟ s fund
Total Assets
3. Interest coverage ratio EBIT
Fixed Internal charges

35. Profitability Ratio
Profitability ratio helps to measure the profitability position of the business concern. Some of
the major profitability ratios are given below.
Table 3.4
Profitability ratio
S.No Ratio Formula
1. Gross profit ratio Gross profit * 100
Net sales
2. Net profit ratio Net profit after tax *100
Net sales
3. Operating profit ratio Operating net profit * 100
Sales
4. Return in investment Net profit after tax *100
Shareholder‟ s fund

36. CHAPTER 4
ANALYSIS AND INTREPRETATION

37. 4.1 ANALYSIS OF LIQUIDITY OF ABC(I)L
The liquidity position of a firm is largely affected by the liquidity of its working capital. The
appropriate tests of this important feature of working capital analysis are analyzed below.
4.1.1 CURRENT RATIO
Table-4.1
Current Ratio
Particulars 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Current Assets 9329.9 11522.12 13611.34 15681.8 19754.17
Current
Liabilities 4370.07 3347.44 2284.35 3073.18 4157.86
Current Ratio 2.13495 3.44207 5.95852 5.10279 4.75104
Inference:
Current ratio indicates that how fast a company or business is able to meet its current
liabilities. It shows the ability of the company to repay its debt. The significant ratio of
current ratio is 2:1.
Hence, the current ratio of the company is well enough to meet its requirement.

38. 4.1.2 QUICK RATIO
Table-4.2
Quick Ratio
Particulars 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Current
Assets
Inventory 1113.25 2081.11 1955.55 6641.11 9057
Current
Liabilities 4370.07 3347.44 2284.35 3073.18 4157.86
Quick Ratio 0.25474 0.6217 0.85606 2.16099 2.17828
Source: Annual Report
Inference:
Quick ratio indicates the ability of a business as how fast it can concert its assets to
liquid position to meet any urgent cost of investment. The significant quick ratio is 1:1.
Hence, the quick ratio of the company is not good and so unable to meet any urgent
requirement.

39. 4.2 ACTIVITY RATIO
The activity ratio of any business shows the how the company is doing its operations. The
activity ratio shows how well the company is able to convert its products to profit.
4.2.1 Stock turnover ratio
Table 4.3
Stock turnover ratio
Particulars 2008-09 2009-10 2010-11 2011-12 2012-13
Sales
23172.99 24354.56 26265.21 67064.06 88854.14
Average
1113.25 2081.11 1955.55 6641.11 9057inventory
Ratio
20.8156 11.7027 13.4311 10.0983 9.81055
Source: Annual Report Note: Ratios Calculated
Inference:
The stock turnover ratio indicates that how fast a company is able to convert its finished
goods to liquid position.
The stock turnover ratio of the company indicates that the company is doing very well in
converting its finished goods to liquid position.

40. 4.2.2 Debtor’s turnover ratio
Table 4.4
Debtor’s turnover ratio
PARTICULARS 2009-10 2010-11 2011-12 2012-13
i) Debts
outstanding for a
Period exceeding 55.88 51.97 9.01 16.16
6 months
ii) Other debts
1205.52 1481.95 2055.38 2488.26
iii) Sub total
1261.40 1533.92 2064.39 2504.42
Less: provision for bad
and doubtful debt
8.96 11.45 9.01 9.01
Total Debts 1252.44 1522.47 2055.38 2495.41
Debtors turnover 13.9146 13.30108 11.2344 9.75974
Average collection
period (in days)
26 27 32 37
Source: Annual Report Note: Average Collection period calculated
Debtor’s turnover ratio
Debtor's turnover ratio
40 37
35
32
26 27
30
25 Debtor's turnover ratio
20
15
10
5
0
2009-10 2010-11 2011-12 2012-13

41. Inference:
The debtor’s turnover ratio indicates that how long a company does takes to pay back its
debt to its debtor’s. Longer debtor’s period is good for a company.
The debtor’s collection period of the company has been increasing continuously which is
good for the company.
4.2.3 Creditor’s turnover period
Table 4.5
Creditor’s turnover period
Particulars 2008-09 2009-10 2010-11 2011-12 2012-13
Credit purchase 13181.4 14865.36 15858.13 58638.49 75357.16
Average credit 3084.57 2223.94 2571.49 2486.09 2983.37
Ratio 4.27335 6.68425 6.1669 23.5866 25.2591
(Source: Annual Report)
Inference:
Creditor’s turnover period indicates how fast the creditors are able to mobilize the
fund when needed. The creditor’s turnover period should be as less as possible.
The creditor’s turnover period has been increasing continuously in the last years
which are not acceptable.

42. 4.2.4 WORKING CAPITAL TURNOVER RATIO
Table-4.5
Working Capital Turnover Ratio
Particulars 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Working
Capital 4959.83 8174.68 11326.99 12608.62 15596.31
Sales 23172.99 24354.56 26265.21 67064.06 88854.14
Working
Capital
Turnover
Ratio 0.21403 0.33565 0.43125 0.18801 0.17553
Inference
Working capital turnover ratio indicates how well the working capital has been
utilized throughout the fiscal year.
The ratios indicate that however they are less but they have shown an increasing trend.

43. 4.3 TREND ANALYSIS
The financial statements may be analyzed by computing trends of series of
information. It may be upward or downward directions which involve the percentage
relationship of each and every item of the statement with the common value of 100%. Trend
analysis helps to understand the trend relationship with various items, which appear in the
financial statements. These percentages may also be taken as index number showing relative
changes in the financial information resulting with the various period of time. In this analysis,
only major items are considered for calculating the trend percentage.
Analysis of Inventories
Table 4.7
Inventories
YEAR Inventories
Increase/Decrease
Comparison
(base year – 2008- with previous
(in lakh) 09) year
2008-09 1113.25 - -
2009-10 2081.11 967.86 967.86
2010-11 1955.55 842.30 -125.56
2011-12 6641.11 5527.86 4685.56
2012-13 9057 7943.75 2415.89
(Source: annual report) Note: Deviation calculated

44. Inference:
The trend for the inventory is not showing any specific trend for the company. The trend
shown is not satisfactory and hence the company should take essential steps to make the trend
smooth and moving upward.
Analysis of cash and bank balance
Table 4.8
Cash and bank balance
CASH AND BANK Increase/Decrease
Comparison with
YEAR BALANCE
(base year – 2008- previous year
(in Lakh) 09)
2008-09 2997.12 - -
2009-10 4524.67 1527.55 1527.55
2010-11 6301.79 3304.67 1777.12
2011-12 3575.61 578.49 -2726.18
2012-13 3003.51 6.39 -572.1

45. Source: Annual report
Inference:
The trend for cash and bank balance is showing positive response w.r.t. the base year but the
trend for the same w.r.t. the previous year has shown negative trend at one place.
The trend for cash and bank balance is satisfactory.
Analysis of Receivables
Table 4.9
Receivables
RECEIVABLE
Increase/Decrease
Comparison
YEAR (base year – 2008- with previous
(in Lakh) 09) Year
2008-09 5560.47 - -
2009-10 7122.34 1561.87 1567.87
2010-11 7144.33 1583.86 21.99
2011-12 1664.68 -3895.79 -5479.65
2012-13 4574.08 -986.39 2909.4

46. (Source: Annual Report)
Inference:
The receivables are showing an upward trend for the last 5 years which is very satisfactory
for the health of the company.
Estimation of current Liabilities
Table 4.10
Current liabilities
CURRENT Increase/Decrease Comparison
YEAR LIABILITIES (base year – 2008- with previous
09) Year
(in Lakh)
2008-09 4370.07 - -
2009-10 3347.44 -1022.63 -1022.63
2010-11 2284.35 -2085.72 -1063.09
2011-12 3073.18 -1296.89 788.83
2012-13 4157.86 -212.21 1084.68

47. (Source: Annual Report)
Inference:
The current liabilities of the company are decreasing and not showing the upward trend
which is good for a company.

48. CHAPTER 5
SUMMARY OF FINDINGS, SUGGESTIONS AND
CONCLUSION

49. 5.1 General findings

The Aditya Birla Group is expanding rapidly and ready to acquire its competitors.



It has recently acquired Kanoria Chemicals which was its biggest competitor in
eastern region.



The Aditya Birla Chemicals (India) Ltd is one of the first companies to use membrane
cell technology to promote green technology.



The company is well equipped with sophisticated technology to detect even a mild
leakage of chlorine as it is very dangerous to health.



The company provides education to its society and also it has a health centre for the
local people.



The Aditya Birla Group as well the Aditya Birla Chemicals (India) Ltd has won many
national as well international awards.


The major customers are the SAIL, NTPC, BALCO, IFFCO, IOC and many more.


5.2 Specific findings

The current ratio of the company is well enough to meet its requirement.



The quick ratio of the company is not good and so unable to meet any urgent
requirement.



The stock turnover ratio of the company indicates that the company is doing very well
in converting its finished goods to liquid position.


The debtor’s collection period of the company has been increasing continuously.



The creditor’s turnover period has been increasing continuously in the last years
which are not satisfactory.



The working capital ratios indicate that however they are less but they have shown an
increasing trend.


The trend for inventory is not satisfactory as shown in the graph.



The trend for cash and bank balance is rising and hence satisfactory.



The receivables are showing an upward trend for the last 5 years which is very
satisfactory for the health of the company.



The current liabilities of the company are decreasing and not showing the upward
trend which is good for a company.


50. 5.3 Suggestions

The company has not applied any rules for the default payment of bills. This is makes
the company take longer period to collect its fund. Hence, the company should have
some set of rules which deals with the default payment.


The company can go for other financial institutions for funding as the debtors
collection period is increasing continuously.


In case of any urgent requirement, the company is failing to meet its requirement for
the funds. It should make some arrangements so that no opportunities are missed.


5.4 Conclusion
Working capital management is one of the essential parts of the finance department without
which a company is not supposed to run for a single day.
In regard to Aditya Birla Chemicals India Ltd, the working capital management is almost up
to the mark and also the company is performing well with good profit. It can be said that the
working capital management of this company is overall satisfactory.

51. Bibliography
www.adityabirlachemicals.com
www.adityabirlachemicalsindia.com 
www.google.com 
www.wikipedia.org 
www.moneycontrol.com 
www.corpfilling.co.in 
Financial management by I.M. Pandey 