FFBL INTERNSHIP REPORT.docx

INTERNSHIP REPORT

On Fauji Fertilizers Bin Qasim Ltd

By

Jahanzeb Abbas

A report submitted to

Finance Division of Fauji Fertilizers Bin Qasim Ltd

July 2014

2FAUJI FERTILIZERS BIN QASIM LTD

PREFACE

This report is based on the training in Finance Division of FAUJI FERTILIZERS BIN

QASIM LTD providing basic knowledge for carrying out various operations in different sections

of Finance Division.

The aim to write this report is to share a meaningful material and concepts about the

working of Finance Division in FFBL.

I am thankful to my parents specially my late father, who helped me whenever I needed

him. I am also grateful to my department’s management, my supervisor Mr. Irfan and staff

members for deepful consideration towards me during my internship.

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Summary

I was given a chance to work with Finance Division of FAUJI FERTILIZERS BIN QASIM LTD

by the Department of Management Sciences of National University of Modern Languages. It is

compulsory to write a report about what have you learned in the organization. My internship remained

with the Finance Division of FAUJI FERTILIZERS BIN QASIM LTD. I joined FAUJI FERTILIZERS

BIN QASIM LTD on June 02, 2014. During my internship I worked in following sections of Finance

Division,

I worked in Payroll and Taxation section for 4 days, where I learned about monthly salary

disbursement, final settlement of account and various types of loans and advances that are available to

employees. I also studied various types of taxes that are charged by Government of Pakistan in the form

of corporate tax, sales tax, capital gain tax, custom duty, etc.

I also spend 4 days in Local Payment section, where I taught about the procedure of payment to

local vendors of FFBL, and re-imbursement of different bills to employees.

I also worked in the section of Financial Reporting and Employee Funds, which are responsible

for the preparation of Financial Statements and maintaining Provident and Gratuity Funds respectively. In

Financial Reporting section preparation of Financial Statements and their timely provision to concerned

parties, and coordination with the external auditor are the main operations. In Employees Fund,

maintenance of Provident and Gratuity Funds, their utilization, recognition and disbursement to

employees are the main responsibilities.

I spend 4 days in Planning & Budgeting section, where I had chance to analyze the procedure of

Budget preparation, Project Planning and Management Reporting. Planning & Budgeting section prepares

and monitors Budget of FFBL, it also analyzes and evaluate projects of FFBL and finally prepares

Management Reports for onward submission to General Manager Finance / Managing Director.

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Purpose and Scope of Internship

The purpose of internship is to develop skills through learning various aspects of organization. The study

enables to get command on bookish knowledge through practical approach and to understand the

difference in both approaches. This thing increases the knowledge and brings betterment in working.

Working in FFBL was unique experience, since I had exposure to study various rules and regulations

FFBL is bound to follow.

Difficulties and Limitations

The students have maximum time to do internship of 4 weeks which is very less to understand functions

of Finance Division thus the time was limited to understand all aspects but I have tried my best to learn

everything which I had exposure. Secondly company has confidential information which cannot be

exposed to internees that also hinders the learning process.

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1) INTRODUCTION

1.1) FAUJI FERTILIZERS BIN QASIM

The Company started out in 1993 as Fauji Jordan Fertilizer Company (FJFC), a joint venture of

Fauji Foundation, Fauji Fertilizer and Jordan Phosphate Mines Company (JPMC), with FFC

(30%), FF (10%) and JPMC (10%) of sponsorship. In 1996 it listed in stock exchange with

authorized and paid up capital of Rs. 11,000 million and Rs. 9,341 million, respectively. FFBL

started its production at commercial level from January 2000. In 2003, after JPMC sold its

shares, it was renamed as Fauji Fertilizer Bin Qasim Limited (FFBL). In 2005 FFBL made a

joint venture with “Office Cherifien Des Phosphates (OCP) Morocco” to incorporate “Pakistan

Maroc Phosphore S.A (PMP)” with equity participation of 25%.

FFBL plant site is a modern Granular Urea and Di-Ammonia Phosphate (DAP) fertilizer

manufacturing complex, built at a cost of US$ 468 million and located on 350 acres in the

Eastern Zone of Bin Qasim, Karachi. The Head office of FFBL is situated at 73 Harley Street

Rawalpindi.

The current share holding of the FFCL is about 50.88% where as the holding of Fauji Foundation

is just about 17.29% in FFBL.

The latest achievement of FFBL is incorporation of “Fauji Meat Limited” and “Fauji Foods

limited” in 2013. FFBL also holds investment in Askari Bank Limited and Fauji Cement

Company Limited.

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FFCL51%

FF17%

OTHERS32%

FFBL Share Holding Structure

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ASKARI BANK LTD

FAUJI CEMENT COMPANY LTD

FAUJI MEAT LTD

FAUJI FOODS LTD

SUBSIDIARIES & ASSOCIATE COMPANIES

OF FFBL


1.2) FFBL PRODUCT LINE

Being the sole producer of DAP and Granular Urea, it is making a significant contribution

towards agricultural growth in the country, by meeting around 45% of the demand of DAP and

about 13% of Urea in the domestic market.

SONA DAP

SONA UREA

1.2.1) SONA DAP

FFBL is the pioneer of premium quality DAP fertilizer manufacturing in Pakistan. FFBL DAP

plant is the only facility of its kind in the country.

1.2.2) SONA UREA

With its state of art fertilizer plant, FFBL is the only Granular Urea manufacturer in Pakistan.

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1.3) COMPETITIVE ADVANTAGE (DISTINCTION)

FFBL is the only fertilizer complex in Pakistan producing DAP fertilizer and Granular Urea thus

making significant contribution towards agricultural growth of the country by meeting 45% of

the demand of DAP and 13% of Urea in domestic market. The raw material for DAP production is

being imported from morocco to ensure that this supply of raw material is continues to be available for

plant which is located in Karachi.

2) COMPANY OVERVIEW

2.1) VISIONTo be a premier organization focused on quality and growth, leading to enhanced stakeholders

value.

2.2) MISSIONFFBL is committed to remain amongst the best companies by maintaining the spirit of excellence

through sustained growth rate in all activities, competitive price, quality fertilizer and providing

safe and conducive working environment for the employees.

2.3) CORE VALUES Professional Integrity

Winning Working Environment

Accountable for Actions

Innovation and Creativity

Corporate Social Responsibility

Focus on Results

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SWOT Analysis

STRENHTH

The only granular Urea plant in Pakistan

The only DAP manufacturer in Pakistan

Offshore joint venture to secure the supply of raw material

WEAKNESSES Dependency on single source of gas supply

Dependency on costly logistics in the absence of railway network

OPPORTUNITIES

Growing fertilizer demand in the country

Diversification of investment

Opportunity to export fertilizer

Brand goodwill

THREATS

Increasing trend of gas price and curtailment

Fluctuation in International prices of DAP and phosphoric acid

Law and order situation

General inflation and environmental threats (floods, earthquake,

drought etc)

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2.4) FFBL BOARD OF DIRECTORS

DESIGNATION NAME

CHAIRMAN Lt Gen Muhammad Mustafa Khan, HI(M), (Retired)

CE & MD Lt Gen Muhammad Haroon Aslam, HI(M), SBt, (Retired)

DIRECTOR Lt Gen Naeem Khalid Lodhi, HI(M), (Retired)

DIRECTOR Mr Qaiser Javed

DIRECTOR Dr Nadeem Inayat

DIRECTOR Maj Gen Ghulam Haider, HI(M), (Retired)

DIRECTOR Brig Parvez Sarwar Khan, SI(M), (Retired)

DIRECTOR Brig Dr Gulfam Alam, SI(M), (Retired)

DIRECTOR Brig Muhammad Saeed Khan, (Retired)

DIRECTOR Mr Naved A. Khan

DIRECTOR Mr Nasier A. Sheikh

DIRECTOR Dr Rashid Bajwa

2.5) FFBL SENIOR MANAGEMENT TEAM

DESIGNATION NAME

Chief Executive & Managing

Director

Lt Gen Muhammad Haroon Aslam, HI(M), S.Bt, (Retired)

Company Secretary Brig Shaukat Yaqub Malik SI (M), (Retd)

Chief Financial Officer Syed Aamir Ahsan

General Manager Plant Mr. Anwar Mehmood Shahid

General Manager Technology Mr. Iftikhar Ahmed

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General Manager Supply Chain

Management

Brig. Imtiaz Ahmed, SI (M), (Retd)

Head Project Brig Nasrullah Khan, SI(M), (Retd)

Head Business Excellence Brig Tasadduq Hussain Zahid, SI(M), (Retd)

Head Human Capital Management Brig Pervez Khalid, SI (M), (Retd)

Head Internal Audit Mr. Wasim Ejaz

2.6) COMPANY INFORMATION

2.6.1) FFBL HEAD OFFICEFauji fertilizer Bin Qasim Limited

Location: Head office Rawalpindi 73 Harley Street

Tel: 051-9272196-97

Fax: 051-9272198-99

Email:[email protected]

Website: hppt:/www.ffbl.com.pk

2.6.2) FFBL PLANT SITEFauji Fertilizer Bin Qasim Limited

Location: Plot No EZ/I/P-1 Edtern zone, port Qasim, Karachi 75020

Tel: 021-34724500-29, 34750706-10

Fax: 021-34750704, 34724530

Email:[email protected]

2.7) FFBL AUDITORKPMG Taseer Hadi & Co.

6th floor, state life building Jinnah avenue Islamabad

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3) FFBL DEPARTMENTS

Various Divisions at FFBL include Finance, Human Capital Management (HCM), Administration,

Business Excellence, Supply Chain Management (SCM) and Technology Department. Regardless of

these types, Finance Division is playing most crucial at FFBL. There are six sections working under

Finance Division.

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FINANCE DIVISION

PAYROLL & TAXATION

EMPLOYEES FUNDS

LOCAL PAYMENTS

FINANCIAL REPORTING

PLANNING & BUDGETING

TREASURY


4) SECTIONS OF FINANCE DIVISION

4.1) PAYROLL & TAXATION

4.1.1) PAYROLL

Payroll section performs three major functions which are;

Disbursement of monthly salary

Final settlement of Accounts

o Retired Employees

o Terminated Employees

o Resignation Cases

Employee loans

In FFBL employees are divided into certain categories, their salary, allowances and benefits vary

according to their category,

Management Employees

Non-management/ Staff Employees

Management Apprentice (Management Associates)

Non-management/ Staff Apprentice

Daily Wagers

Internees

SALARY

The break-up salary in FFBL is as follow,

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BASIC SALARY

(+) ALLOWANCES

House Rent Allowance Utility Allowance Location Allowance (only to plant workers) Cost of Living Allowance (only to management employees) Conveyance Allowance Shift Allowance Adhoc Allowance, etc

(+) BONUS (if given)

(-) DEDUCTIONS

Mess charges (if mess facility is availed) Transportation charges (if transport facility is availed) Income tax Loan installment (if loan is taken) EOBI Provident fund (10% of basic salary), etc

FINAL SETTLEMENT OF ACCOUNT

After the employee is retired or resigned or being terminated, his/ her final account is prepared by Human

Capital Management Division, it includes the lump sum amount which is payable by FFBL to the

employee. Finance Division reviews and makes arrangements for disbursement.

EMPLOYEE LOANS

FFBL provides following loan and advances facility to its employees,

Intrest Free Loan

House Rent Advance

Vehicle Loan

Advance Salary

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Intrest Free Loan

FFBL provides interest free loan to their regular employees whose designation is supervisor or above.

The employees have to repay this amount within 4 years. No interest is charged on these loans.

House Rent Advance

House Rent Advance facility is provided by FFBL to their employees so that they can meet their

accommodation needs. The time limit to repay such amount is 1 year.

Vehicle/ Car Loan

FFBL also provides the car loan facility to its regular employees who’s designation is supervisor or

above. The amount under this head is to be returned within 4 years by the employee.

Advance Salary

1 month advance salary can be taken by the employees in FFBL. This advance salary is then deducted

from next salary of that employee.

4.1.2) TAXATION

The Taxation section at FFBL is responsible to deal with different taxes. By the 15 th of each month the

section has to file the tax returns to Tax Authority and make refund claims if any.

Taxation section deals with the following taxes.

Sales tax

Employees tax

Custom duty

Capital Gain tax

Income tax

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Sale TaxStandard rate of sale tax is 17% (goods) and for services its rate is different in different provinces. All

Sales Tax registered payers are required to file the returns. To meet this requirement monthly Sales Tax is

submitted and payment is processed accordingly.

Input Tax: Input tax will be paid by FFBL for the purchases of goods or raw material etc. There are two

types of Input taxes i.e. admissible (operational) and inadmissible tax (non-operational).

Output Tax: Output tax is charged by the FFBL on behalf of Tax authority on their finished product and

need to be paid by 15th of next month.

Net Sales Tax liability= (Output Tax – Input Tax) + Withholding Tax

Employee TaxFBR also authorized FFBL to deduct the tax from the employee’s salary and supplier (vendors) according

to applicable tax rate in each month end and deposit in Government Treasury.

Custom dutyTax levied on imports and sometimes on exports by the Custom Authorities of a country to raise state

revenue, and/or to protect domestic industries from more efficient or predatory competitors from abroad.

Custom duty is mainly charged on the basis of the value of goods or upon the weight, dimensions, or

some other criteria of the particular items such as size of item etc. Every company should retain the

import documents as proof of payment of items subject to custom duty.

Capital Gain TaxAny gain arising on the disposal of capital assets or securities by FFBL in a tax year is chargeable to tax.

Capital gain tax on Immovable property

Where the holding period of immovable property is up to one year, 10% of the gain is chargeable

to tax.

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Where the holding period of immovable property in more than one year but not more than two

years, 5% of the gain is chargeable to tax.

Capital gain tax on disposal of securities

Where the holding period of securities is less than six months, 10% of the gain is chargeable to

tax.

Where the holding period of security is more than six months but less than twelve months, 8% of

the gain is chargeable to tax.

Income TaxIncome tax (corporate tax) is charged on the annual income of the FFBL, according to the income tax

rules. Current rate of corporate tax is 33% (budget 2014-15) that is charged on the annual income of the

FFBL. Monthly tax returns are filled with FBR.

4.2) EMPLOYEE FUNDS (Retirement Benefits)

FFBL gives following retirement benefits to their employees,

PROVIDENT FUND

GRATUITY FUND

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PROVIDENT FUND

FFBL maintained a Provident Fund for its permanent employees. The fund is regulated through Board of

Trustees (BOT). Monthly contributions are made to the fund both by the company and employees at the

rate of 10% of basic pay. The Company’s contribution is charged to income for the year. There are two

way contributions in Provident Fund i.e. Employee and Company. On behalf of employee FFBL deducts

some amount (@ rate of 10%) from their salary and FFBL also contributes the same amount into the

fund. The employee will be entitled to provident fund either he/she terminate the job during the service or

at the end of his/her service (retirement/ death).

Purpose

The purpose behind maintaining the Provident Fund is to give monetary security to employee for long

term and to retain the employee as well.

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Retirement Benefits

EMPLOYEE FUNDS

RETIREMENT FUNDS

GRATUITY PROVIDENT

PROFIT PARTICIPATION FUND

Profit earned by the comany must be

distributed to non-management

employees @5%


Utilization of Provident Fund

Provident Fund has a separate entity from FFBL. Provident Fund is maintained in a separate account apart

from FFBL. Separate audit is held for Provident Fund. Provident Funds are recognized from

“Commissioner Income tax” and are also exempt from tax.

Provident fund loans are returned in installments multiple of 12, i.e 12, 24, 36, 48 installments.

ROI on Provident Fund Investment

At the end of the year profit earned on Provident Fund investment is distributed among the employees

according to their contribution ratio.

After this, audit of Provident Fund is held by an external auditor. After audit Board of Trustees meeting is

held that approves the profit earned on Provident Fund investment, accounts and transaction of Provident

Fund. Finally Provident Fund statement is issued.

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Provident Fund

Invetment

50% held at Bank30% in Stock exchange20% in Mutual funds

50% held at Bank50% in Mutual funds

PF Loans

To employees @ 80% of their contribution


GRATUITY FUND

FFBL also maintains gratuity fund for its all regular employees. The fund is regulated by Board of

Trustees (BOT).

Contribution to Gratuity fund

There are two methods of contribution to gratuity fund.

Actuary valuation

Tax rule

Actuary Valuation

Contribution to the fund is made on the basis of actuarial valuation. Amount determined by the actuary as

charged for the year is included in profit and loss account for the year.

Tax Rule

A company can only contribute one month salary (maximum) to gratuity fund of its employees on annual

basis.

Employee salary*1/12= annual contribution to GF by company

Or

Employee salary*8.33% = annual contribution to GF by company

Utilization of Gratuity Fund

Alike provident fund, gratuity fund also has a separate entity from FFBL. Gratuity fund is maintained in a

separate account apart from FFBL. Separate audit is held for gratuity fund. Gratuity funds are recognized

from “Commissioner Income tax” and are also exempt from tax.

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Gratuity Payment

Gratuity fund is given at the end of the service to the employee through following formula,

Gratuity fund=Basic salary*number of served years.

4.3) LOCAL PAYMENTS

Local payment section makes payments to its local vendors. Local payment section involves three major

payment categories which are payments to local vendors (bags, liner and chemicals), payments to service

providers (direct invoices i.e telecommunication services, travelling services, utility bills, fuel charges

etc) and re-imbursements to FFBL employees.

Local payment operations

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GF Investemnt

50% held in Bank20% in Mutual funds

30% in Stock exchange100% held in Bank

50% held in Bank50% in Mutual funds

Parking Tax sheet & Certificates Posting Cheque

Issuance Payment Voucher Entering


Local Payment Terminologies (at FFBL)

MIGO

When the material ordered by FFBL is being “delivered and accepted” it is called as MIGO, at this stage

a general entry is being passed in the FFBL database system.

MIRO

When the general liability is booked against the specific liability in the database it is called as MIRO.

Invoice booking also takes place at this stage.

Payment Process

The major function of Local Payment section is to make payments to the vendors. In Local Payment

section, I learned about how payments were made against the invoices, cheques are prepared and journal

voucher are finalized with copies of purchase requisition, purchase order, invoice and payee’s cheque

attached to it.

For Goods

When material amount is more than Rs. 10,000 payments will be made through Purchase Order

When material amount is less than Rs. 10,000 payments will be made through Payment Order.

For Services

If the amount of services rendered is more than Rs. 20,000 payments will be made through

Purchase Order.

If the amount of services rendered is less than Rs. 20,000 payments will be made through

Payment Order.

There are two categories in Local Payment section, these are

Payments to Direct Invoices ( Petrol bills, Medical bills, Travelling charges, Telephone bills, etc)

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Payments to the vendors of Bags, Chemicals and Liner

Payment to Direct Invoices

Local payment section receives verified bills of expenses from different departments in the company or

outside the company such as hotel bills, travel agencies, medical store along with approved PO from

authorized personals.

Direct Invoices such as utility bills, Stationary Medicine, TCS charges and employees reimbursement etc

will be always paid through payment order.

In the case of re-imbursement to employees, if the amount is less than Rs.10, 000 then payment is made

through Petty Cash. There is no tax deduction in the case of re-imbursement as the tax has already been

deducted.

Withholding TaxGovernment has given authority to Large Tax Payer Units (LTU) to withhold or deduct the tax from the

payments to its vendors on behalf of FBR and pay the tax to Government. But a Large Tax Payer Unit

(LTU) cannot withhold or deduct the tax of another LTU.

The withholding tax rates are as below,

Withholding tax Income tax Sales taxGoods In the case of company,

Withhold 3.5%

In the case of individual or AOP, withhold 4%

In the case of Whole seller, Withhold 10% of GST

Other than Whole seller, withhold 20% of GST

Services In case of company, Withhold 6%

In case of Individual or AOP, withhold 7%

In Punjab, Withhold 100% of GST

In Sindh, Withhold 1% of GST

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Withholding Tax Certificates

FFBL issues a certificate to its vendors mentioning “Computerized Payment Receipt (CPR #)” and

amount withheld by FFBL on the behalf of FBR, only those vendors are exempt from this deduction who

possess an exemption certificate.

4.4) FINANCIAL REPORTING

Financial reporting section is mainly concerned with the preparation of financial statement and distributes

the presented information to the end user such as, FFBL management, planning and budgeting section,

share holders and other stake holders. The financial statements include,

Balance sheet

Income statement

Statement of comprehensive income

Cash flow statement

Statement of change in equity

Notes to the accounts

Reporting Hierarchy

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General Manager Finance

Finance Manager

Deputy Manager

SUPERVISOR


Major Responsibilities

Preparation of Financial statements

Coordination with external auditor

o Annual audit

o Half yearly review

Timely provision of financial reports to the concerning parties

Accounting Cycle

Charts of AccountThe chart of accounts defines the cost centre & General ledger Codes such as Finance department

(3401010) and Admin (320100) etc. Cost centre is allocated on the basis of departments which are

denoted by their cost centre codes. These codes represent a particular G/L account and Items such as

furniture, asset or Expenses a/c etc.

Asset are represented by 1000000

Capital & equity 2000000

Liabilities 3000000

Revenues 4000000

Expenses 5000000

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Entries through invoices "GL"

Extraction of Trail balance

Financial statement

preparetion


Financial statements & Items

Balance Sheetas at December 31,2013 (Rupees, 000)

SHARE CAPITAL & RESERVES

Share capital Capital reserve

NON CURRENT LIABILITIES

Long term loans Deferred liabilities

CURRENT LIABILTIES

Trade & other Payables Loans Provision for income tax

TOTAL LIABILITIES

NON CURRENT ASSETS

Property, plant & equipments Intangible asset

CURRENT ASSETS

Stock Cash & bank balances Advances

TOTAL ASSETS

Profit & Loss Accountfor the year ended December 31, 2013

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(Rupees, 000)Sales-net

Cost of sales

Gross Profit

Selling & distribution cost

Administrative expenses

Operating expense

Finance cost

Other expenses

Profit before tax

Taxation

Profit after tax

Statement of Comprehensive Incomefor the year ended December 31,2013

(Rupees‘000)Profit after tax

Other comprehensive Incomes

Total comprehensive income

Cash Flow Statementfor the year ended December 31, 2013

CASH FLOWS FROM OPERATING ACTIVITIES

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Cash generated from operations

Finance cost paid

Taxes paid

Payment to Gratuity Fund

Compensated absences paid

Payment to Workers’ (Profit) Participation Fund

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Fixed capital expenditure

Long term investments

Proceeds from sale of property, plant and equipment

Long term deposits

Short term investments

Profit received on bank balances and term deposits

Net cash (used in) / generated from investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Long term loan - repayments

Short term borrowings - net

Dividend paid

Net cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the cash flow statement comprise the following balance sheet amounts:

- Cash and bank balances

- Short term highly liquid investments

- Short term running finance

Total

Statement of Changes in Equityfor the year ended December 31, 2013

Balance as at January 01, 2013 - as previously reported

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Changes in accounting policy for recognition of actuarial gains and losses

Balance as at January 01, 2013 – restated


Profit for the year after taxation


Other comprehensive income for the year

Total comprehensive income for the year

Transactions with owners, recorded directly in equity distributions to owners

Final dividend (previous year)

Interim dividend (current year)

Total transactions with owners

Balance as at December 31, 2012 – restated

Balance as at January 01, 2013 – restated


Profit for the year after taxation


Other comprehensive income for the year

Total comprehensive income for the year

Transactions with owners, recorded directly in equity distributions to owners

Final dividend (previous year)

1st interim dividend (current year)

2nd interim dividend (current year)

Total transactions with owners

Balance as at December 31, 2013

Audit of Financial Statements

KPMG (Taseer Hadi) is currently engaged with FFBL to verify the financial statements. The FFBL

financial statements are disclosed to share holders and public after the completion of annual audit. It is

also the responsibility of reporting section to deal with external auditor. During the annual audit or half

yearly review of financial statements & notes to accounts, the external auditor may need some

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information through which they can verify the desired items. The main audit procedures they carrying out

are as follows,

Inspection items, enquiries, third party conformation, observations etc. The external auditors review the

financial statement and pass their opinion whether the presented information is free from material

misstatement.

After the completion of final audit, FFBL does disclose the audited financial statements to share holders

and other stake holders.

4.5) PLANNING & BUDGETING

In Planning and Budgeting section, I was entertained by Mr. Wali Muhammad, Mr. Azmat and Mr. Shaik.

Planning and Budgeting is the most important part as it provides you the estimated future expenses or

costs of the company. It reviews and analyzes Operational Expenditures (OPEX) and Capital

Expenditures (CAPEX) and constantly monitors it.

In Planning and Budgeting section, I was told about its functions and significance. The major functions of

Planning and Budgeting section are given below,

Budget

Project Planning

Management Reporting

4.5.1) Budget

In FFBL, financial year is from January 1st to December 31st. Budget section starts its activities from July

to develop the budget and finalizes it by the end of October.

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Budget CompositionBudget comprises of two categories “Operational Expenditure (OPEX)” and “Capital Expenditure

(CAPEX)”.

Operational Expenditure (OPEX)

Expenditures required for the day-to-day functioning of the business are called as Operational

Expenditures (OPEX).

Operation Expenditure includes,

Sales Plan

Production Plan

Dispatch Plan

Raw Material Budget

Main Power Budget

Overhead Budget

Selling & Distribution Budget

Finance Cost

Capital Expenditure (CAPEX)CAPEX (Capital Expenditure) are business expenses incurred to create future benefits i.e. acquisition of

assets that will have a useful life beyond the tax year. Capital expenditure includes those items which

have more than one year life.

Computer

Vehicles

Equipments

Plant & Machinery, etc

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Budget preparation

Following steps are taken by the Budget section for preparation,

Budget is made on annual basis by Planning and Budgeting section in such a way that every Department

sends its Budget Inputs for the next financial year with comprehensive description. These Budget Inputs

are then reviewed on various levels from Section Head to Department Manager then to General Manager

Plant and to General Manager Finance and Managing Director with meetings on each level. Then the

Budget is further sent to the Board of Directors for final approval.

Budget Monitoring

Budget section continuously monitors the budget on daily and monthly basis. Budget section compares

the Actual Expenses with Business Plan and requires the justification, if the actual expenses overrun the

Business Plan.

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Budget Inputs

General Manager Plant/ General Manager Finance

Managing Director

Board of Directors


4.5.2) PROJECT PLANNING

Project planning deals with new and existing projects at FFBL. Project planning includes following steps

in project evaluation and its commencement.

Financial Analysis

Financial analysis is done under the supervision of finance department (Project Planning section). Finance

department can do in-house study or outsource the consultant for financial analysis. In this analysis

“Financial Feasibility/Model” is developed by the consultants and then reviewed by Planning &

Budgeting Section.

Financial Model

Financial model represents the real world financial situation. It is the mathematical model designed to

represent the performance of the project.

Project Evaluation Techniques

After the analysis the project is evaluated, through various evaluation techniques to confirm the worth of

the project. These techniques includes,

New projects Existing Projects

NPV Relevant Cost method

IRR

Pay Back Period method

New Projects Evaluation Techniques

Net Present Value (NPV)

The difference between the present value of cash inflows and the present value of cash outflows. NPV is

used in capital budgeting to analyze the profitability of an investment or project.

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Internal Rate of Return (IRR)

The discount rate that makes the net present value of all cash flows from a particular project equal to zero

is called as Internal Rate of Return (IRR). Generally, the higher a project's Internal Rate of Return, the

more desirable it is to undertake the project. As such, IRR can be used to rank several prospective

projects a firm is considering. Assuming all other factors are equal among the various projects, the project

with the highest IRR would probably be considered the best and undertaken first.

Pay Back Period Method

The length of time required to recover the cost of an investment. The payback period of a given

investment or project is an important determinant of whether to undertake the position or project, as

longer payback periods are typically not desirable for investment positions.

Payback Period = Cost of Project / Annual Cash Inflows

Existing Projects Evaluation Techniques

Relevant Cost MethodIn this project evaluation technique, cost and benefits are analyzed i.e before project what benefits are

being obtained and after project what benefits can be attained.

After evaluation of projects, they are presented to the Board of Directors. “Sensitivity analysis” is run to

foresee the various outcomes of the project in different situations (ranging from best condition to the

worst). Finally the project is approved or rejected by the Board of Directors.

4.5.3) Management Reporting

Monthly management reports are prepared for onward submission to GMF/ MD. These reports comprise

the following major details.

Quantitative Analysis

Variance Calculations

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Reasons for Variance

Variance Calculation

Variance Calculation is done on monthly, quarterly and annual basis. Variances are calculated on the

basis of “Actual versus Business Plan” and “Current year actual versus Last year actual”.

Industrial Comparison

Industrial comparison is done half and annual basis. In these comparison financial statements of FFBL is

compared with the leading fertilizer firms to check their performance in the prevailing market situation.

Cost Audit

Cost statements (product wise) as per cost audit guide lines are prepared. Cost audit of cost statements is

held on monthly basis. After audit cost statements are approved.

Actualization Process/ Outlook

Actualization process is done on monthly basis to outlook the future profit. In actualization process actual

profit of previous months are analyzed to foresee the future profits.

4.6) TREASURYThe goal of Treasury section is to optimize their company’s liquidity and make sound financial

investments for the future or enter into hedges against its financial risks.

Treasury Section also ensures that the placement of the funds is safe with a minimum risk. Whenever the

company needs funds, the section has responsibility to arrange funds from best possible source. The main

source of cash inflow is selling the DAP and Urea and the outflow of cash is Payments to raw material,

salary and loan etc.

Main Function

Investment

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Reconciliation

Investment

Treasury Section invests the surplus funds in either Banks or in Mutual Funds.

Bank Deposits

Treasury section can Deposit the funds into bank either in PLS account or in Term Deposit Receipt

(TDR). Both of these accounts have different advantages and drawbacks. The section need to ensure that

which account is more beneficial for the FFBL.

P/L Account

The treasury section has an option to draw the amount at any time they need the cash. There is no

restriction but the interest rate will be low as compare to TDR.

Term Deposit Receipt (TDR)

The company will be bound and cannot draw the amount until the fixed time period has been elapsed but

the return on the amount will be higher than the P/L investment.

Mutual Funds

Mutual fund is professionally managed by experts. They attract different investors to make investment

into mutual funds in return for some management fee. The mutual funds can be Open end & close end.

Open end Funds

Mutual fund that does not have restrictions on the amount of shares the fund will issue. If demand is high

enough, the fund will continue to issue shares no matter how many investors there are. Open-end funds

also buy back shares when investors wish to sell.

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Close end Funds

A closed-end fund functions much more like an exchange traded fund than a mutual fund. They are

launched through an IPO in order to raise money and then trade in the open market just like a stock.

Activities

Daily Basis Activities includes

Funds transfer, fund status monitoring & exchange rates update

Monthly Basis Activities Includes

Bank Reconciliation, recording of Income & Expenses.

Funds Transfer

Treasury section has also the responsibility to deposit the funds in the most appropriate way. The funds

can be transferred through the fallowing ways e.g. Through a Cheque, Letter or Real Time Gross

Settlement (RTGS).

Funds Status Monitoring

Treasury section continuously monitors the Funds status and update the Funds on a regular basis/routinely

e.g. draw the Funds from a particular bank to another bank that offered and/or committed to pay more

competitive interest and have minimum risk.

Bank Reconciliation

At the end of each month the Treasury Section receives the Bank statement from the all banks and

reconciles the bank balance with the GL accounts which are maintained by the Section through SAP.

CONCLUSION This internship was very enlightening experience for me. With the exposure in the field I

learnt many new things. At FFBL, the environment is professional; all employees can be seen

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working in much trained way. Internees have suitable environment of learning, employees are

keen to train Internees.

All departments are working in the most professional way in their work field. The internship

was also inspiring experiences that attract me to consider this as my future field for my career.

I observed FFBL a financially sound company. Its profits are increasing year by year. Its staff

is very good and sincere with the company. FFBL views specialization and product excellence

as the corner stone of its strategy. The people at FFBL realize that innovation; creativity,

reliability are the key ingredients for their future growth.

After analyzing I observed that FFBL is in better position in all respects. Despite hard

competition within the Fertilizer Industry in Pakistan, FFBL has made tremendous and

remarkable progress practically in every sphere of its activities. FFBL is maintaining its position

as one of the leading fertilizer company in the country both in terms of capital base and good

governance. FFBL has been able to continue its overall progress. This success has been made

possible due to dynamic leadership of its management as well as devotion and sincerity of all

categories of staff and executives.

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Documents

FFBL INTERNSHIP REPORT.docx