arpan project report on working capital management

Project Report

WORKING CAPITAL MANAGEMENT

ORISSA POWER TRANSMISSION CORPORATION LIMITED

INTERNAL GUIDE EXTERNAL GUIDE

Mr. Dipti Ranjan Sadhangi Mr. Bibhuti Bhusana Nayak

(Prof. of AMITY) A.G.M. (corporate finance), OPTCL

SUBMITTED BY

Arpan Ghosh

PGPM+MBA

BATCH (2011-2013)

(3rd semester)

Roll no.-A30401911004

AMITY GLOBAL BUSINESS SCHOOL

ACKNOWLEDGEMENT

This project report bears the imprint of many people on it.

I am very much thankful to of Amity Global Business School, BBSR for the successful

completion of my SIP report

I would like to thank my project supervisor and guide Mr Dipti Ranjan Sadhangi, the

Faculty Member, AMITY Global Business School, Bhubaneswar, for his invaluable

guidance and assistance in preparing the project report and also contributing a lot for

accomplishment of this project.

I am highly indebted to Mr. Bibhuti Bhusana Nayak, A.G.M. (corporate Finance),

OPTCL, Bhubaneswar, my corporate guide, who guided me during the internship

period and suggested many issues which has been taken care in my project work.

I am also expressing my indebtedness to my parents and my friends who gave their full-

fledged co-operation for the successful completion of project.

Arpan Ghosh

MBA 2nd year

AMITY BUSINESS SCHOOL

DECLARATION

I am Arpan Ghosh, a bonafide student of AMITY Business School, BBSR, pursuing

Master of Business Administration, do hereby declare that the study entitled “A study

on working capital management in OPTCL”, is my authentic work, I have completed

my study under the guidance of Mr Dipti Ranjan Sadhangi, the Faculty Member,

Amity Global Business school, Bhubaneswar and my company guide Mr. Bibhuti

Bhusan Nayak, A.G.M. (corporate Finance), OPTCL, BBSR. All the data furnished

in this project report are authentic and genuine and this report neither full nor in part has

ever been submitted for award of any other degree to either this university or any other

university.

Arpan Ghosh

MBA 2nd year

AMITY BUSINESS SCHOOL

CHAPTERS CONTENTS PAGE NO.

CHAPTER-1 INTRODUCTION BACKGROUND OF THE STUDY 1RELEVANCE OF THE STUDY 2PROBLEM STATEMENT 2HYPOTHESIS OF THE STUDY 3OBJECTIVES OF THE STUDY 3LIMITATIONS OF THE STUDY 4CHAPTERISATION 4

CHAPTER-2 COMPANY PROFILE 5

CHAPTER-3 REVIEW OF LITERATURE 11

CHAPTER-4 RESEARCH METHODOLOGYSELECTION OF TOPIC 18RESEARCH DESIGN 18SOURCES OF DATA COLLECTION 19FORMULAS OF RATIO ANALYSIS & DEFINITION

STATISTICAL AND ANALYTICAL TOOLS USED FOR DATA ANALYSIS

CHAPTER-5 RESULTS & FINDINGS 23-54

CHAPER-6 CONCLUSIONS & RECOMMENDATION 55-56

CHAPTER-7 IMPLICATION FOR FUTURE RESEARCH

DISCLAIMERBIBLIOGRAPHYANNEXURE

ABSTRACT

This project report entitled with “a study on working capital management in

OPTCL” is overall on working capital management of ORISSA POWER

TRANSMISSION CORPORATION LIMITED. The project on Working Capital

Management has been a very good experience. Every company faces the problem of

Working Capital Management in their day to day processes. An organization’s cost can

be reduced and the profit can be increased only if it is able to manage its Working

Capital efficiently. At the same time the company can provide customer satisfaction and

hence can improve their overall productivity and profitability. Working capital is the

fund invested by a firm in current assets. Now in a cut throat competitive era where

each firm competes with each other to increase their production and sales, holding of

sufficient current assets have become mandatory as current assets include inventories

and raw materials which are required for smooth production runs. Holding of sufficient

current assets will ensure smooth and uninterrupted production but at the same time, it

will consume a lot of working capital. Here creeps the importance and need of efficient

working capital management. This project is a sincere effort to study and analyze the

Working Capital Management of OPTCL. The project was focused on making a

financial overview of the company by conducting a Working Capital analysis of

OPTCL, the years 2007 to 2010 and Ratios & various components of working capital &

for the year 2007 to 2010. The project was of 45days duration. During the project data

are collected from company records & annual reports. The data collected were then

compiled, tabulated and analyzed. Investments in current assets represent a substantial

portion of total investment. Investment in current assets & the level of current liabilities

have to be geared quickly to change sales. By studying about the company s different

areas it to know certain things like Acid test ratio is less than one. Standard current ratio

is 2:1 and for OPTCL it is ratios not satisfactory. Debtors of the company were high;

they were increasing year by year, so more funds were blocked in debtors. Quick ratio

is satisfactory for the company. Debtor’s turnover ratio improved from 2007 to 2009 so

number of collection period decreases. But in 2010 debtor’s turnover ratio decreases

and collection period increases. The study will give immense understanding about the

components of working capital, liquidity trend, working capital trend, utilisation of

current asset and short-comings if any and to measure the effective of working capital.

CHAPTER-1

INTRODUCTION

BACKGROUND OF STUDY:

Whatever may be the organization, working capital plays an important role, as the

company needs capital for its day to day expenditure. Thousands of companies fail each

year due to poor working capital management practices. Entrepreneurs often don't

account for short term disruptions to cash flow and are forced to close their operations.

In simple term, working capital is an excess of current assets over the current liabilities.

Good working capital management reveals higher returns of current assets than the

current liabilities to maintain a steady liquidity position of a company. Otherwise,

working capital is a requirement of funds to meet the day to day working expenses. So a

proper way of management of working capital is highly essential to ensure a dynamic

stability of the financial position of an organization.

OPTCL is one of the largest power transmission organizations in the country, which

plays the role of transmission of electricity in the entire state of Orissa. Seeing the good

opportunity to study financial systems and practices of OPTCL, it is relatively important

take up internship assignment on ‘WORKING CAPITAL MANAGEMENT IN

OPTCL’. During the project work, it is being analyzed the working capital position of

this organization. Decisions relating to working capital and short term financing are

referred to as working capital management. These involve managing the relationship

between a firm's short-term assets and its short-term liabilities. The goal of Working

capital management is to ensure that the firm is able to continue its operations and that it

has sufficient money flow to satisfy both maturing short-term debt and upcoming

operational expenses.

Working capital management deals with maintaining the levels of working capital to

optimum, because if a concern has inadequate opportunities and if the working capital is

more than required then the concern will lose money in the form of interest on the

blocked funds. Therefore working capital management plays a very important role in

the profitability of a company. And also due to heavy competitions among different

organization’s it is now compulsory to look after working capital

RELEVANCE OF STUDY

At OPTCL a substantial part of the total assets are covered by current assets. Current

assets form around 30%- 40% of the total assets. However this could be less profitable

on the assumption that current assets generate lesser returns as compared to fixed assets.

But in today’s competition it becomes mandatory to keep large current assets in form of

inventories so as to ensure smooth production an excellent management of these

inventories has to be maintained to strike a balance between all the inventories required

for the production.

So, in order to manage all these inventories and determine the investments in each

inventories, the system call for an excellent management of current assets which is

really a tough job as the amount of inventories required are large in number.

Here comes the need of working capital management or managing the investments in

current assets. Thus in big companies like OPTCL it is not easy at all to implement a

good working capital management as it demands individual attention on its different

components.

The study of working capital management is very helpful for the organisation to know

its liquidity position. The study is relevant to the organization to know the day to day

expenditure. This study is relevant to give an idea to utilise the current assets.

This study is also relevant to the student as they can use it as a reference. This report

will help in conducting further research. Other researcher can use this project as

secondary data

PROBLEM STATEMENT:

Working capital management or simply the management of capital invested in current

assets is the focus of study. So topic is to study working capital management of OPTCL.

Working capital is the fund invested by a firm in current assets. Now in a cut throat

competitive era where each firm competes with each other to increase their production

and sales, holding of sufficient current assets have become mandatory as current assets

include inventories and raw materials which are required for smooth production runs.

Holding of sufficient current assets will ensure smooth and un interrupted production

but at the same time, it will consume a lot of working capital. Here creeps the

importance and need of efficient working capital management. Working capital

management aims at managing capital assets at optimum level, the level at which it will

aid smooth running of production and also it will involve investment of nominal

working capital in capital assets.

“The problem generally explains that, less attention has been paid to the area of short-

term finance, in particular that of working capital management. Such neglect might be

acceptable were working capital considerations of relatively little importance to the

firm, but effective working capital management has a crucial role to play in enhancing

the profitability and growth of the firm. Indeed, experience shows that inadequate

planning and control of working capital is one of the more common causes of business

failure.”

HYPOTHESIS OF THE STUDY:

The following are the hypothesis of the study

1) The firm is facing difficulty in paying short-term debt.

2) The firm is not properly managing the sundry debtor.

3) The current liabilities are increasing than current assets year by year.

OBJECTIVE OF THE STUDY: Everything in life holds some kinds of objectives to

be fulfilled. This study is not an exception to it. The following are a few straight

forward goals which i have tried to fulfil in my project:

1) To study the various components of working capital.

2) To analyze the liquidity trend.

3) To analyze the working capital trend.

4) To appraise the utilization of current asset and current liabilities and find out short-

comings if any.

5) To suggest measure for effective management of working capital.

LIMITATIONS OF THE STUDY:-

Following are the limitations of the study:

1) The topic working capital management is itself a very vast topic yet very important

also. Due to time restraints it was not possible to study in depth in get knowledge what

practices are followed at OPTCL.

2) Many facts and data are such that they are not to be disclosed because of the

confidential nature of the same.

3) Since the financial matters are sensitive in nature the same could not acquired easily.

4) The study is restricted to only the Four Year data of OPTCL.

CHAPTERISATION:

Following are the chapterisation of the study:

Chapter-1 Represents the background of the study, relevance of the study, problem

statements, hypothesis, objectives as well as limitations of the study.

Chapter-2 Represents company profile of OPTCL.

Chapter-3 Represents review of literature.

Chapter-4 Represents research methodology of the study including sources of data

collection, formulas and statistical tools used for data analysis.

Chapter -5 Represents results and findings.

Chapter -6 Represents conclusion and suggestion.

Chapter -7 Represents implication for future research.

CHAPTER-2

COMPANY PROFILE

ORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)

Registered Office: Janpath, Bhubaneswar - 751022 Phone : (0674)- 2541320 /

2542320

ORISSA POWER TRANSMISSION CORPORATION LIMITED (OPTCL), one of the

largest Transmission Utility in the country was incorporated in March 2004 under the

Companies Act, 1956 as a company wholly owned by the Government of Orissa to

undertake the business of transmission and wheeling of electricity in the State.

Started commercial operation from 01.04.2005 only as a Transmission Licensee. (a

deemed Transmission Licensee under Section 14 of Electricity Act, 2003)

Notified as the State Transmission Utility (STU) by the State Govt. and discharges the State Load Dispatch functions.

Number of employees as on (01.10.2008): 3799Executives-722, Non-Executives - 3077

Number of posts vacant as on 1/2007 – 1186Executives-744, Non-Executives- 442

Number of pensioners as on 31.01.2007 – 6200 Number of Grid S/S including switching stations – 81 Length of EHT lines – 9550 Ckt-Kms. Number of Bays – 1506

The registered office of the Company is situated at Bhubaneswar, the capital of the State

of Orissa. Its projects and field units are spread all over the State. OPTCL became fully

operational with effect from 9th June 2005 consequent upon issue of Orissa Electricity

Reform (Transfer of Transmission and Related Activities) Scheme, 2005 under the

provisions of Electricity Act, 2003 and the Orissa Reforms Act, 1995 by the State

Government for transfer and vesting of transmission related activities of GRIDCO with

OPTCL. The Company has been designated as the State Transmission Utility in terms

of Section 39 of the Electricity Act, 2003. Presently the Company is carrying on intra

state transmission and wheeling of electricity under a license issued by the Orissa

Electricity Regulatory Commission. The Company is also discharging the functions of

State Load Despatch Centre. The Company owns Extra High Voltage Transmission

system and operates about 9550.93 ckt kms of transmission lines at 400 kV, 220 kV,

132 kV levels and 81 nos. of substations with transformation capacity of MVA. The

day-to-day affairs of the Company are managed by the Managing Director assisted by

whole-time Functional Directors as per the advice of the Board of Directors constituted.

They are in turn assisted by a team of dedicated and experienced professionals in the

various fields.

VISION AND MISSION OF OPTCL:

VISION:

1)To build up OPTCL as one of the best transmission utility in the country in terms of

uninterrupted power supply, minimizing the loss, contributing states’ industrial growth.

2)Development of a well coordinated transmission system in the backdrop of formation

of strong National Power Grid as a flagship, endeavour to steer the development of

Power System on Planned path leading to cost effective fulfilment of the objective of

'Electricity to All’ at affordable price.

MISSION:

Plan & operate the Transmission system so as to ensure that transmission system built,

operated and maintained to provide efficient, economical and coordinated system of

Transmission and meet the overall performance Standards.

(i) To upgrade the transmission system network so as to handle power to the tune of

3000 MW for 100% availability of power to each family.

(ii) To impart advanced techno managerial training to the practicing engineers and work

force so as to professionalism them with progressive technology and capable

commercial organization of the country so as to build up the most techno-commercially

viable model of the country

OBJECTIVES OF OPTCL:

To effectively operate Transmission lines and Sub-Stations in the State for evacuation

of power from the state generating stations feed power to state distribution companies,

wheeling of Power to other states, maintenance of the existing lines and sub-stations for

power transmission and to undertake power system improvement by renovation, up-

gradation and modernization of the transmission network.

OPTCL being a State Transmission Utility Public Authority has set the following

objectives.

Undertake transmission and wheeling of electricity through intra- State Transmission

system

1) Discharge all functions of planning and coordination relating to Intra State, inter

State transmission system with Central Transmission Utility, State Govt. Generating

Companies, Regional Power Board, Authority, Licensees or other person notified by

State Govt. in this behalf.

2) Ensure development of an efficient and economical system of intra state and inter

State transmission lines for smooth flow of electricity from generating station s to the

load centres.

3) Provide non-discriminatory open access to its transmission system for use by any

licensee or generating company or any consumer as and when such open access is

provided by the State Commission on payment of transmission charges/surcharge as

may be specified by the State Commission.

4) Exercise supervision and control over the intra-state transmission system, efficient

operation and maintenance of transmission lines and substations and operate State Load

Despatch Centres to ensure optimum scheduling and despatch of electricity and to

ensure integrated operation of power systems in the State.

5)Restore power at the earliest possible time through deployment of emergency

Restoration system in the event of any Natural Disasters like super cyclone, flood etc.

POWER SECTOR REFORM IN THE STATE:

The Power Sector Reforms in the State of Orissa was started during November 1993 in

an organized manner. The main objective of the reform was to unbundle generation,

transmission and distribution and to establish an independent and transparent

Regulatory Commission in order to promote efficient and accountability in the Power

Sector.

In order to implement the reform, in the first phase, two corporate entities namely Grid

Corporation of Orissa Limited (GRIDCO) and Orissa Hydro Power Corporation

Limited (OHPC) were established in April 1995. GRIDCO was incorporated under the

Companies Act, 1956 in April 1995 to own and operate the transmission and

distribution systems in the State. Similarly OHPC was incorporated to own and operate

all the hydro generating stations in the State.

The State Government enacted the Orissa Electricity Reform Act, 1995 which came

into force with effect from 1.4.1996. In exercise of power under Section 23 and 24 of

the Orissa Electricity Reform Act, 1995,the State Govt. notified the Orissa Electricity

Reform (Transfer of Undertakings, Assets, Liabilities, proceedings and Personnel )

Scheme Rules 1996. As per the scheme, the transmission ,distribution activities of the

erstwhile OSEB along with the related assets, liabilities, personnel and proceedings

were vested on GRIDCO . Simultaneously the hydro generation activities of OSEB

along with related assets, liabilities, personnel and proceedings were vested on OHPC.

In order to privatize the distribution functions of electricity in the State, four

Distribution Companies namely Central Electricity Supply Company of Orissa Limited

(CESCO), North Eastern Electricity Supply Company of Orissa Limited (NESCO),

southern Electricity Supply Company of Orissa limited (SOUTHCO) & Western

Electricity Supply Company Orissa Limited (WESCO) were incorporated under the

Companies Act, 1956 as separate corporate entities. During November 1998 the State

Govt. issued the “Orissa Electricity Reform (Transfer of Assets, Liabilities, Proceedings

and Personnel of GRIDCO to distribution Companies) Rules 1998” wherein the

electricity distribution and retail supply activities along with the related assets,

liabilities, personnel and proceedings were transferred from GRIDCO to the four

Distribution Companies. Through a process of international Competitive Bidding (ICB),

the four Distribution Companies were privatized during 1999.

After separation of Distribution business, GRIDCO left with electricity Transmission

and Bulk Supply/Trading activities. GRIDCO was also declared as the State

Transmission Utility and was discharging the functions of State Load Despatch Centre

(SLDC).

The Government of India enacted the Electricity Act, 2003 which came into effect from

10th June 2003. Under the provisions of the said Act, trading in electricity has been

recognised as a distinct licensed activity, which can only be undertaken by a licensee to

be granted by the appropriate commission. The Act specifically prohibits the STU and

Transmission Company in the State from engaging in the business of trading. GRIDCO

being a State Transmission Utility was not permitted to engage itself in the trading in

electricity and was required to segregate its activities in a manner within the transional

period allowed under the Act that, the entity which will undertake transmission STU

and SLDC function will not undertake the activities of Trading and Bulk Supply of

Electricity.

Keeping in view the statutory requirement of the Electricity Act for separation of

trading and transmission functions into two separate entities, the State Govt

incorporated Orissa Power Transmission Corporation Limited (OPTCL) to take over the

transmission, STU/SLDC functions of GRIDCO.

In exercise of the power conferred under Section 39,131, 133 & 134 of the Electricity

Act, 2003, read with Section 23 & 24 of the Orissa Electricity Reform Act , 1995, the

State Govt. issued the notification “Orissa Electricity Reform (Transfer of Transmission

and Related Activities) Scheme 2005” on 9.6.2005. The Scheme was made effective

from 1.4.2005.

By virtue of the Transfer Scheme, 2005, OPTCL now undertaking the functions of

transmission of electricity in the State of Orissa and has been declared as the State

Transmission Utility. GRIDCO is also discharging the functions of SLDC.

REFORM ACHIEVEMENT:

Milestones of Orissa Power Sector Reform

1) First Transfer between OHPC and GRIDCO effected on 1st April, 1996

2)OER Act, 1995 created Orissa Electricity Regulatory Commission,

a Regulatory Body which became functional on 1.8.1996

3) Unbundling of Transmission and Distribution via Second Transfer Scheme

effective from November 26, 1998

4)9 Tariff Orders after public hearing have been passed by OERC

(FY98, FY99, FY00, FY01, FY02, FY03, FY04, FY05, FY06)

5) BSES took over management and operational control of 3 Distribution Companies

(WESCO, SOUTHCO and NESCO) from April 1, 1999

6) Privatization of Distribution completed with AES taking over thefourth distribution company, CESCO from September 1, 1999

7) CESCO remained under the management of an Administrator (CEO)appointed by OERC with effect from 27.8.2001

8)A new public limited company under the name “ Orissa Power TransmissionCorporation Limited “ was incorporated on 29.03.2004 to carry on thebusiness of Transmission, STU, and SLDC functions of GRIDCO

9) OPTCL became functional on 1.4.2005. GRIDCO continue to carry onits Bulk Supply and Trading functions

CHAPTER-3: REVIEW OF LITERATURE

The purpose of this chapter is to present a review of literature relating to the working

capital management. The following are the literature review by different authors and

different research scholars.

Pass C.L., Pike R.H1 (1984), studied that over the past 40 years major theoretical

developments have occurred in the areas of longer-term investment and financial

decision making. Many of these new concepts and the related techniques are now being

employed successfully in industrial practice. By contrast, far less attention has been paid

to the area of short-term finance, in particular that of working capital management. Such

neglect might be acceptable were working capital considerations of relatively little

importance to the firm, but effective working capital management has a crucial role to

play in enhancing the profitability and growth of the firm. Indeed, experience shows

that inadequate planning and control of working capital is one of the more common

causes of business failure.

Herzfeld B2 (1990), studied that “Cash is king”--so say the money managers who share

the responsibility of running this country's businesses. And with banks demanding more

from their prospective borrowers, greater emphasis has been placed on those

accountable for so-called working capital management. Working capital management

refers to the management of current or short-term assets and short-term liabilities. In

essence, the purpose of that function is to make certain that the company has enough

assets to operate its business. Here are things you should know about working capital

management.

Samiloglu F.and Demirgunes K3 (2008), studied that the effect of working capital

management on firm profitability. In accordance with this aim, to consider statistically

significant relationships between firm profitability and the components of cash

conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed

Appuhami, Ranjith B4 (2008), studied impact of firms' capital expenditure on their

working capital management. The author used the data collected from listed companies

in the Thailand Stock Exchange. The study used Schulman and Cox's (1985) Net

Liquidity Balance and Working Capital Requirement as a proxy for working capital

measurement and developed multiple regression models. The empirical research found

that firms' capital expenditure has a significant impact on working capital management.

The study also found that the firms' operating cash flow, which was recognized as a

control variable, has a significant relationship with working capital management.

Hardcastle J5 (2009)., studied that Working capital, sometimes called gross working

capital, simply refers to the firm's total current assets (the short-term ones), cash,

marketable securities, accounts receivable, and inventory. While long-term financial

analysis primarily concerns strategic planning, working capital management deals with

day-to-day operations. By making sure that production lines do not stop due to lack of

raw materials, that inventories do not build up because production continues unchanged

when sales dip, that customers pay on time and that enough cash is on hand to make

payments when they are due. Obviously without good working capital management, no

firm can be efficient and profitable.

Thachappilly G6 (2009)., “Working Capital Management Manages Flow of Funds”,

(2009) describes that Working capital is the cash needed to carry on operations during

the cash conversion cycle, i.e. the days from paying for raw materials to collecting cash

from customers. Raw materials and operating supplies must be bought and stored to

ensure uninterrupted production. Wages, salaries, utility charges and other incidentals

must be paid for converting the materials into finished products. Customers must be

allowed a credit period that is standard in the business. Only at the end of this cycle

does cash flow in again

Beneda, Nancy; Zhang, Yilei7 (2008), studied impact of working capital management

on the operating performance and growth of new public companies. The study also

sheds light on the relationship of working capital with debt level, firm risk, and

industry. Using a sample of initial public offerings (IPO's), the study finds a significant

positive association between higher levels of accounts receivable and operating

performance. The study further finds that maintaining control (i.e. lower amounts) over

levels of cash and securities, inventory, fixed assets, and accounts.

Dubey R8 (2008)., studied The working capital in a firm generally arises out of four

basic factors like sales volume, technological changes, seasonal , cyclical changes and

policies of the firm. The strength of the firm is dependent on the working capital as

discussed earlier but this working capital is itself dependent on the level of sales volume

of the firm. The firm requires current assets to support and maintain operational or

functional activities. By current assets we mean the assets which can be converted

readily into cash say within a year such as receivables, inventories and liquid cash. If

the level of sales is stable and towards growth the level of cash, receivables and stock

will also be on the high.

McClure B9 (2007)., “Working Capital Works” describes that 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).

Cash is king, especially at a time when fund raising is harder than ever. Letting it slip

away is an oversight that investors should not forgive. Analyzing a company's working

capital can provide excellent insight into how well a company handles its cash, and

whether it is likely to have any on hand to fund growth and contribute to shareholder

value.

Gass D10 (2006)., studied "Cash is the lifeblood of business" is an often repeated maxim

amongst financial managers. Working capital management refers to the management of

current or short-term assets and short-term liabilities. Components of short-term assets

include inventories, loans and advances, debtors, investments and cash and bank

balances. Short-term liabilities include creditors, trade advances, borrowings and

provisions. The major emphasis is, however, on short-term assets, since short-term

liabilities arise in the context of short-term assets. It is important that companies

minimize risk by prudent working capital management.

Maynard E. Refuse11 (1996), Argued that attempts to improve working capital by

delaying payment to creditors is counter-productive to individuals and to the economy

as a whole. Claims that altering debtor and creditor levels for individual tiers within a

value system will rarely produce any net benefit. Proposes that stock reduction

generates system-wide financial improvements and other important benefits. Urges

those organizations seeking concentrated working capital reduction strategies to focus

on stock management strategies based on “lean supply-chain” techniques.

Thomas M. Krueger12 (2005), studied distinct levels of WCM measures for different

industries, which tend to be stable over time. Many factors help to explain this

discovery. The improving economy during the period of the study may have resulted in

improved turnover in some industries, while slowing turnover may have been a signal of

troubles ahead. Our results should be interpreted cautiously. Our study takes places over

a short time frame during a generally improving market. In addition, the survey suffers

from survivorship bias – only the top firms within each industry are ranked each year

and the composition of those firms within the industry can change annually.

Eljelly13 (2002) empirically examined the relationship between profitability and

liquidity, as measured by current ratio and cash gap (cash conversion cycle) on a sample

of 929 joint stock companies in Saudi Arabia. Using correlation and regression analysis,

Eljelly [9]found significant negative relationship between the firm's profitability and its

liquidity level, as measured by current ratio. This relationship is more pronounced for

firms with high current ratios and long cash conversion cycles. At the industry level,

however,he found that the cash conversion cycle or the cash gap is of more importance

as a measure of liquidity than current ratio thataffects profitability. The firm size

variable was also found to have significant effect on profitability at the industry level.

Lazaridis and Tryfonidis 14(2004), conducted a cross sectional study by using a sample

of 131 firms listed on the Athens Stock Exchange for the period of 2001 - 2004 and

found statistically significant relationship between profitability, measured through gross

operating profit, and the cash conversion cycle and its components (accounts

receivables, accounts payables, and inventory). Based on the results analysis of annual

data by using correlation and regression tests, they suggest that managers can create

profits for their companies by correctly handling the cash conversion cycle and by

keeping each component of the conversion cycle (accounts receivables, accounts

payables, and inventory) at an optimal level.

Raheman and Nasr15 (2004), studied the effect of different variables of working capital

management including average collection period, inventory turnover in days, average

payment period, cash conversion cycle, and current ratio on the net operating

profitability of Pakistani firms. They selected a sample of 94 Pakistani firms listed on

Karachi Stock Exchange for a period of six years from 1999 - 2004 and found a strong

negative relationship between variables of working capital management and

profitability of the firm. They found that as the cash conversion cycle increases, it leads

to decreasing profitability of the firm and managers can create positive value for the

shareholders by reducing the cash conversion cycle to a possible minimum level.

Garcia-Teruel and Martinez-Solano16(1996) collected a panel of 8,872 small to

medium-sized enterprises (SMEs) from Spain covering the period 1996 - 2002. They

tested the effects of working capital management on SME profitability using the panel

data methodology. The results, which are robust to the presence of endogeneity,

demonstrated that managers could create value by reducing their inventories and the

number of days for which their accounts are outstanding. Moreover, shortening the cash

conversion cycle also improves the firm's profitability.

Falope and Ajilore17 (2003), used a sample of 50 Nigerian quoted non-financial firms

for the period 1996 -2005. Their study utilized panel data econometrics in a pooled

regression, where time-series and cross-sectional observations were combined and

estimated. They found a significant negative relationship between net operating

profitability and the average collection period, inventory turnover in days, average

payment period and cash conversion cycle for a sample of fifty Nigerian firms listed on

the Nigerian Stock Exchange. Furthermore, they found no significant variations in the

effects of working capital management between large and small firms.

Kouma Guy18, (2001) in a study on, “Working capital management in healthcare”,

Working capital is the required to finance the day to day operations of an organization.

Working capital may be require to bridge the gap between buying of stocked items to

eventual payment for goods sold on account. Working capital also has to fund the gap

when products are on hand but being held in stock. Products in stock are at full cost,

effectively they are company cash resources which are out of circulation therefore

additional working capital is required to meet this gap which can only be reclaimed

when the stocks are sold (and only if these stocks are not replaced) and payment for

them is received. Working capital requirements have to do with profitability and much

more to do with cash flow.

Mehmet SEN, Eda ORUC (2005)19 in the study “Relationship between the efficiency

of working capital management and company size”, As it is known, one of the

reasons which cause change in working capital from one period to another is the change

in management efficiency. The change in management efficiency will affect the change

in working capital in a way as increaser or reducer from on period to another. In this

study, the effect of change in management efficiency in working capital management in

to the change in working capital is compared by company size and sectors. The data of

this study covers sixty periods as the total of quarterly financial statement of 55

manufacturing companies which were in operation in Istanbul Stock exchange (ISE)

between the years 1993 and 2007. In every period we studied, for inventories short term

commercial receivables and short term commercial liabilities, and calculated the effect

of change in management efficiency on to the effect of working capital change. In all

sectors considered, in the change in working capital, and observed the effect of reducing

of efficiency in inventory management. It is also observed that efficiency change in the

management of the short term commercial receivables and the short term commercial

liabilities by the company sizes and sectors make a positive effect in to the change in

working capital

Brealey, R., (1997)20 in a study on, “Working Capital management concepts work

sheet university of phoenix”. Concept application of concept in the Simulation

reference to concept in reading cash conversion cycle cash conversions is the process of

managing a company’s cash inflows and outflows. In the simulation, the finance

manager was responsible for balancing sales with collections or accounts receivables

(cash inflows) and purchases with payments or accounts payables (cash outflows). This

delicate balance maintains the company’s balance sheet keeping the cash and loans in a

situation of financial stability and keeping the money from being tied up. Principles of

corporate finance. Working capital management. New York: McGraw-Hill.

CHAPTER-4

RESEARCH METHODOLOGY

Research methodology is a systematic approach in management research to achieve

pre-defined objectives. It helps a researcher to guide during the course of research work.

Rules and techniques stated in research methodology save time and labour of the

researcher as researcher know how to proceed to conduct the study as per the objective.

SELECTION OF TOPIC: The selection of topic is a crucial factor in any research

study. There should be newness and it should give maximum scope to explore the ideas

from different angles.

In present day due to increase in competition, working capital is becoming necessary for

the organisation. It is that part of capital which is necessary to undertake day to day

expenditure of the business organization. Whatever may be the organization, working

capital plays an important role, as the company needs capital for its day to day

expenditure. Thousands of companies fail each year due to poor working capital

management practices. Entrepreneurs often don't account for short term disruptions to

cash flow and are forced to close their operations. Working capital is the fund invested

by a firm in current assets. Now in a cut throat competitive era where each firm

competes with each other to increase their production and sales, holding of sufficient

current assets have become mandatory as current assets include inventories and raw

materials which are required for smooth production runs. Holding of sufficient current

assets will ensure smooth and un interrupted production but at the same time, it will

consume a lot of working capital. Here creeps the importance and need of efficient

working capital management. After due to consultation with the external guide /internal

guide, the topic was finalized and titled as-“A STUDY ON WORKING CAPITAL

MANAGEMENT IN OPTCL, BBSR”

SELECTION OF LOCATION FOR THE STUDY: The location for study was

selected as the corporate office of OPTCL, Bhubaneswar.

RESEARCH DESIGN: “A Research design is the arrangement of conditions for

collection and analysis of data in a manner that aims to combine relevance to the

research purpose with economy in procedure” The research design followed to study the

working capital management in ORISSA POWER TRANSMISSION CORPORATION

LIMITED (OPTCL) is Descriptive and Analytical Research Design.

SOURCES OF DATA COLLECTION:

1. Secondary data collection

Secondary data collection:

The secondary data are those which have already collected and stored. Secondary data

easily get those secondary data from records, journals, annual reports of the company

etc. It will save the time, money and efforts to collect the data. Secondary data also

made available through trade magazines, annual reports, books etc.

This project is based secondary data collected through annual reports of the

organization. The data collection was aimed at study of working capital management of

the company.

Project is based on

1. Annual report of OPTCL. 2008-2009

FORMULAS OF RATIO ANALYSIS & DEFINITION

RATIO:

Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as

“the indicated quotient of two mathematical expressions” and as “the relationship

between two or more things”. The absolute figures reported in the financial statement do

not provide meaningful understanding of the performance and financial position of the

firm. Ratio helps to summaries large quantities of financial data and to make qualitative

judgment of the firm’s financial performance.

ROLE OF RATIO ANALYSIS

Ratio analysis helps to appraise the firms in the term of there profitability and efficiency

of performance, either individually or in relation to other firms in same industry. Ratio

analysis is one of the best possible techniques available to management to impart the

basic functions like planning and control. As future is closely related to the immediately

past, ratio calculated on the basis historical financial data may be of good assistance to

predict the future. E.g. On the basis of inventory turnover ratio or debtor’s turnover ratio

in the past, the level of inventory and debtors can be easily ascertained for any given

amount of sales. Similarly, the ratio analysis may be able to locate the point out the

various arias which need the management attention in order to improve the situation.

E.g. Current ratio which shows a constant decline trend may be indicate the need for

further introduction of long term finance in order to increase the liquidity position. As

the ratio analysis is concerned with all the aspect of the firm’s financial analysis

liquidity, solvency, activity, profitability and overall performance, it enables the

interested persons to know the financial and operational characteristics of an

organization and take suitable decisions.

LIQUDITY RATIO:

Liquidity refers to ability of a concern to meet its current obligations as and when these

become due. The short-term obligations are met by realising amounts from current,

floating or circulating asset. The current asset either be liquid or near liquidity. These

should be convertible into cash for paying obligation of short-term nature. To measure

the liquidity of a firm, following ratios can be calculated:

A) CURRENT RATIO: Current assets include cash and those assets which can be

converted in to cash within a year, such marketable securities, debtors and inventories.

All obligations within a year are include in current liabilities. Current liabilities include

creditors, bills payable accrued expenses, short term bank loan income tax liabilities and

long term debt maturing in the current year. Current ratio indicates the availability of

current assets in rupees for every rupee of current liability.

CURRENT RATIO = CURRENT ASSET/ CURRENT

LIABILITIES

B) QUICK RATIO OR ACID TEST: Quick ratios establish the relationship between

quick or liquid assets and liabilities. An asset is liquid if it can be converting in to cash

immediately or reasonably soon without a loss of value. Cash is the most liquid

asset .other assets which are consider to be relatively liquid and include in quick assets

are debtors and bills receivable and marketable securities. Inventories are considered as

less liquid. Inventory normally required some time for realizing into cash. Their value

also be tendency to fluctuate. The quick ratio is found out by dividing quick assets by

current liabilities.

QUICK RATIO = Total liquid asset/Total current liabilities

C) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables are

considered as more liquid then inventories, it cannot be converted in to cash

immediately or in time. Therefore while calculation of absolute liquid ratio only the

absolute liquid assets as like cash in hand cash at bank, short term marketable securities

are taken in to consideration to measure the ability of the company in meeting short

term financial obligation. It calculates by absolute assets dividing by current liabilities.

ABSOLUTE LIQUID RATIO=absolute liquid asset/total current liabilities

EFFICIENCY RATIO: Funds are invested in various assets in business to make sales

and earn profits. The efficiency with which assets are managed directly affects the

volume of sale. Activity ratios measure the efficiency and effectiveness with which a

firm manages its resources or assets. These ratios are also called turnover ratios.

A) DEBTORS TURNOVER RATIO: Receivable turnover ratio provides relationship

between credit sales and receivables of a firm. It indicates how quickly receivables are

converted into sales.

DEBTORS TURNOVER RATIO= SALES/AVERAGE ACCOUNT RECEIVABLES.

AVERAGE A/C RECEIVABLES= Opening Trade Debtor + Closing Trade Debtor/2

AVERAGE COLLECTION PERIOD= (365/DTR) days

Or RECEIVABLES * 365/ Sale

B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount of

sales, a relative amount of working capital is needed. If any increase in sales

contemplated working capital should be adequate and thus this ratio helps management

to maintain the adequate level of working capital. The ratio measures the efficiency with

which the working capital is being used by a firm. It may thus compute net working

capital turnover by dividing sales by net working capital.

WORKING CAPITALTURNOVER RATIO= Cost Of Sales/ Net Working Capital

CURRENT ASSET TURNOVER RATIO:

CURRENT ASSET TURNOVER RATIO= Sales / Current Asset

STATISTICAL TOOLS USED FOR DATA ANAYLSIS:

The various statistical tools used for data analysis is as follows:

a) Tables:

b) Bar-chart

c) Graphs

d) Correlation

ANALYTICAL TOOLS USED:

The analytical tools used for data analysis is as follows:

a) Ratio analysis

b) Schedule of change in working capital

c) Cash flow statements

CHAPTER-5

RESULTS AND FINDINGS

The result and discussion of the study is presented in five different sections. The first

sections explain about the various components of working capital, variable of working

capital. The second section explains about the liquidity trend of the organization. The

third section explains about the working capital trend .The fourth section explains the

utilization of current assets and current liabilities. The fifth section explains the measure

to effective management of working capital.

The first section explains about the various components of working capital and variables

of working capital. The components of working capital are presented in Table 5.1.

(TABLE 5.1: COMPONENTS OF WORKING CAPITAL)

Table 1.1 2008-2009(Rs) 2009-2010(Rs) 2010-2011(Rs)

Cash 907,019,750 727,106,129 579,433,119

Debtors 1,055,097,473 1,055,631,698 1,558,735,700

Inventories 808,519,278 969,056,460 1,144,269,951

Sundry Creditors 689,526,597 724,051,456 855,552,857

Provisions 4,817,002,603 5,695,667,475 5,629,960,268

An insight into the table reveals that:

a) Cash and bank balances in 2008-2009 were Rs 907019750. It is decreased to Rs

727106129 in 2009-2010, with a -19.23% growth. In 2010-2011 it suddenly again

decreased to Rs 579433119.

b) Debtors increases which was not a good sign. In 2008-2009 debtors were Rs

1,055,097,473 and it increased Rs 1,055,631,698 in 2009-2010. In 2010-2011 it was

again increased to Rs 1,558,735,700. Total increase in Debtors is Rs 503,638,227.

c) Inventories were increased at a good speed. The inventories were Rs 808519278 in 2008-2009. In 2009-2010 it increased to Rs 969056460, ultimately increase in Rs 160537182, with the percentage growth 19.85%. In 2010-2011 it again increased to Rs 175213491 with the increase in 18.08%.

d) Sundry creditors also increased a lot. In 2008-2009 it was Rs 689526597. Then it

increased by Rs 34524859 which ultimately amounted to Rs 724051456 with a increase

of 5.00% in the year 2009-2010. In 2010-2011 it increased to Rs 131501401 with a

percentage increase of 18.16%.

e) Provisions also increased throughout this 3years. In 2008-2009 it was Rs

4817002603. Then it increased to Rs 5695667475 with a percentage increase of

18.24%. In 2010-2011 it again increased to Rs 5629960268 with a percentage increase

in 1.15%.

(Table 5.2: Variables of Working Capital Management)

VARIABLESYEARS

2008-2009 2009-2010 2010-2011

ROTA (Return on Total Assets)

0.22 0.10 0.18

OPM (operating profit margin)

27.78% 34.65% 38.58%

GEAR (Gearing Ratio i.e. financial debt / total assets)

0.43:1 0.33:1 0.38:1

CR (Current Ratio) 0.86:1 0.62:1 0.89:1

QAR (Quick Assets Ratio) 0.27:1 0.22:1 0.25:1

CA/TA (Current Assets to Total Assets)

0.21 0.16 0.18

CL/TA (Current Liabilities to Total Assets)

0.24 0.26 0.32

SK/CA (Stocks to Current Assets)

0.13 0.19 0.26

TD/CA (Trade Debtors to 0.17 0.21 0.35

Current Assets)

CA_TURN (Current Assets Turnover is Sales/Current Assets)

1.08 0.60 0.91

The various variables of working capital is presented in table 5.2. An analysis of data

presented in the table reveals the following findings;

A) Return on total asset came 0.22 in 2008-2009, 0.10 in 2009-2010 and 0.18 2010-

B) Operating profit margin was 27.78% in 2008-2009 then it increased to, 34.65%, and

38.58% in 2009-2010, and 2010-2011 respectively. Anything between 65% - 85% is

known as a good operating margin. And for OPTCL is a sign of alarm.

C) Gearing ratio was 0.43:1 in 2008-2009, in 2009-2010 it is 0.33:1 and in 2010-2011

0.38:1

D) Current ratio generally reduced for the organisation, in 2008-2009 it was 0.86:1 and

it reduced to 0.62:1 in 2009-2010 and then it again reduced to 0.89:1 in 2010-2011.

E) Quick asset ratio in 2008-2009 as it was 0.27:1, in 2009-2010 it became 0.22:1 and

in 2010-2011 it became 0.89:1.

F) Current asset to total asset ratio came 0.21, 0.16 and 0.18 in the year 2008-2009,

2009-2010 and 2010-2011.

G) Current liability to total asset ratio came 0.24 in 2008-2009, in 2009-2010 it came

0.26, and in 2010-2011 it came to 0.32:1.

H) Stock to current asset is 0.13, 0.19 and 0.26 in 2008-2009, 2009-2010 and 2010-

2011 respective years.

I) Trade debtors in 2008-2009 is 0.17, in 2009-2010 is 0.21 and in 2010-2011 is 0.35.

J) Current asset turnover is 1.08 in 2008-2009, 0.60 in 2009-2010 and it become 0.91 in

2010-2011.

Table 5.3: Components of Current ratio, Quick ratio and Absolute Liquid Ratios

2008-2009 2009-2010 2010-2011

Current ratio0.86:1 0.62:1

0.89:1

Quick ratio 0.27:1 0.22 0.25:1

Absolute Liquid Ratio 0.12:1 0.08:1 0.07:1

SK/CA 0.13 0.19 0.26

TD/CA 0.17 0.21 0.35

CA/TA 0.21 0.16 0.18

CL/TA 0.24 0.26 0.32

Inventory Days 43 days 115days 122days

Debtor Turnover Days

57days 126days 119days

Creditors turnover days

37 days 86days 98days

Table-5.3 revels the components of current ratio, quick ratio and absolute quick ratio. From the table following things can be derived:

a) In 2008-2009, it is found that the current ratio of OPTCL is 0.86:1. . It is below the

standard of 2:1 and it is due to a decrease in total current assets from previous year and

an increase in current liability this year. It is a not good indication according to the rule

of thumb. Because the firm has more current liabilities than current assets. The firm

may not be able to meet its short term obligations in time. In 2009-2010, it is found that

the current ratio of OPTCL was 0.62:1 it was not a good indication according to rule of

thumb. In 2010-2011, it is found that the current ratio of OPTCL was 0.89:1 it was not a

good indication according to rule of thumb.

b) Quick ratio in 2008-2009 it was 0.27:1 in 2009-2010 it was 0.22:1 and in 2010-2011 it was

0.25:1.

c) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to be

0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cash and

bank balances of the organization in comparison to the Current Liabilities. In the year

2009-2010, the absolute liquid ratio found to be 0.08:1. In the year 2010-2011, the

absolute liquid ratio found to be 0.07:1.

d) Stock to current asset is 0.13, 0.19 and 0.26 in 2008-2009, 2009-2010 and 2010-2011

respective years.

e) Trade debtors in 2008-2009 is 0.17, in 2009-2010 is 0.21 and in 2010-2011 is 0.35.

f) Current asset to total asset ratio came 0.21, 0.16 and 0.18 in the year 2008-2009,

2009-2010 and 2010-2011.

g) Current liability to total asset ratio came 0.24 in 2008-2009, in 2009-2010 it came

0.26, and in 2010-2011 it came to 0.32:1.

h) Cash conversion ratio for inventory came 43 days, 115 days and 122 days. Cash

conversion for debtor comes 57 days in 2008-2009, and it increased to 126 days in

2009-2010. But in 2010-2012 it decreased to 119 days. Cash conversion ratio came to

37days, 86days and 98days respectively.

THE SECOND SECTION EXPLAINS ABOUT THE LIQUIDITY TREND OF THE ORGANIZATION.

LIQUIDITY RATIO

CURRENT RATIO

Table5.4CURRENT RATIO- (CURRENT ASSETS/CURRENT LIABILITY)

YEAR CURRENT ASSET(IN RUPEES)

CURRENT LIABILITY(IN RUPEES)

2008-2009 6,30,63,13,319 7,29,34,88,649 0.86:1

2009-2010 5,07,93,75,378 8,21,36,64,274 0.62:1

2010-2011 4,43,85,38,139 8,42,34,81,867 0.89:1

2008-2009 2009-2010 2010-2011

current ra-tio

0.860000000000001 0.620000000000002 0.890000000000001

0.950.86000000000000

0.620000000000002

0.890000000000001

CURRENT RATIO

From the table 5.4 and diagram of Current Ratios of different financial years of OPTCL,

various results can be made.

A) In 2008-2009, it was found that the current ratio of OPTCL was 0.86:1. . It is a not

good indication according to the rule of thumb. Because the firm has more current

assets than current liabilities. The firm may be able to meet its short term obligations in

B) In 2009-2010, it was found that the current ratio of OPTCL was 0.62:1. It was not a

good indication according to rule of thumb. Because the firm has more current assets

than current liabilities. The firm was not able to meet its short term obligation in time.

C) In 20010-2011, it was found that the current ratio of OPTCL was 0.89:1. It was not a

good indication according to rule of thumb. Because the firm has more current assets

than current liabilities. The firm was not able to meet its short term obligation in time.

D) Because of increase in administrative overhead expenses, super annuity benefits and

payment of past loan etc. are the major factor for increasing of current liabilities.

E) Situation can be controlled. So more emphasis can be given on these areas to reduce

current liabilities and to increase current assets so that the actual standard of 2:1 can be

achieved.

In addition to, company should make clear cut strategic planning to sell electricity to

major industries at industrial rate to achieve higher revenue

TABLE5.5 Quick Ratio - (Liquid Asset/ Current Liability)

YEAR LIQUID ASSET CURRENT LIABILITY RATIO

2008-2009 1,96,21,17,223 7,29,34,88,649 0.27:1

2009-2010 1,78,27,37,827 8,21,36,64,274 0.22:1

2010-2011 2,13,81,68,819 8,42,34,81,867 0.25:1

2008-2009 2009-2010 2010-20110

QUICK RATIO

FROM THE TABLE 2.2 FOLLOWING THINGS ARE DERIVED:

A) The Quick Ratio or the Acid Test Ratio of OPTCL for the financial year 2008-2009

Is found that the QUICK ratio of OPTCL IS 0.27:1, which is just normal standard. It is

due to a little bit increase in current liabilities.

B) In the year 2009-2010 it is found that the Quick ratio was 0.22:1.Which is below

standard of 1:1? Management should have an eye on to that.

C) In the year 2009-2010 it is found that the Quick ratio was 0.25:1.Which is below

standard of 1:1.

TABLE 5.6

ABSOLUTE LIQUID RATIO- (ABSOLUTE LIQUID ASSET/CURRENT LIABILITY):

YEAR Absolute Liquid Asset Current Liability Ratio

2008-2009 90,70,19,750 7,29,34,88,649 0.12:1

2009-2010 72,71,06,129 8,21,36,64,274 0.08:1

2010-2011 57,94,33,119 8,42,34,81,867 0.07:1

2008-20092009-2010

2010-2011

0.080.07

ABSOLUTE LIQUID RATIO

By going through the table 5.6 & diagram of Absolute Liquid Ratio, balance sheet of

OPTCL the following results can be drawn.

A) The Absolute Liquid Ratio of the firm for the financial year 2008-2009 is found to

be 0.12:1 which is below the normal standard of 1:2 or 0.5:1. This is due to less cash

and bank balances of the organization in comparison to the Current Liabilities.

B) In the year 2009-2010, the absolute liquid ratio found to be 0.08:1. This is due to less

cash and bank balances of the organization in comparison to the Current liabilities.

C) The Absolute Liquid Ratio of the firm for the financial year 2010-2011 is found to be

0.07:1 which is below from the previous year of the normal standard of 1:2. This is due

to less cash and bank balances of the organization in comparison to the Current

Liabilities.

(Table 5.7)

CASH FLOW STATEMENTS

(2011-2010) (2009-2010) (2008-2009)amount in (Rs) amount in (Rs) amount in (Rs)

profit/loss before tax & extraordinary items

12,73,12,985 -71,37,17,644 -18,30,29,883

adjustment for:appropriation to reserves and surpluses 13,09,96,775 1,18,36,39,044 6,33,87,383

interest and finance charges 42,43,77,484 54,16,01,198 97,24,54,617

Depreciation 1,23,90,63,901 1,08,22,03,592 1,09,74,37,879

preliminary expenses W/O -------------- 30,26,423 30,26,423

excess provision written back -------------- -1,04,00,87,510 -47,574

interest income -4,28,44,898 -4,55,13,310 -6,90,09,008

provisions for wealth tax 47,481 27,846 46,318

provision/write off against theft materials 11,59,214 15,22,603 29,50,312

provisions for obsolete stock-store etc --------------- -------------- -------------

bad and doubtful debt 8,12,05,348 4,47,68,652 11,63,525

provisions for fringe benefit tax -------------- -------------------- -23,96,915

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGE (A) 17,06,692,319 1,05,74,70,893 1,88,59,83,078

WORKING CAPITAL CHANGEstores and spares -17,63,72,705 -16,20,59,785 -4,46,04,328

sundry debtors -50,31,04,002 -4,53,02,877 -37,81,016

other current assets -64,38,311 -59,43,581 -1,43,98,325

loan and advances 1,17,79,20,033 1,20,34,71,087 -2,72,53,85,618

current liabilities 27,27,22,589 4,93,59,037 42,88,03,928

Provisions -6,57,07,207 1,91,87,52,382 3,52,31,00,656

NET WORKING CAPITAL CHANGES (B)

69,90,20,397 2,95,82,76,263 1,16,37,35,296

CASH GENERATED FROM THE OPERATION (A)+(B)

2,40,57,12,716 4,01,57,47,156 3,04,97,18,374

CASH FLOW FROM INVESTING ACTIVITIES:

capital expenditure (CAPEX) -1,77,35,72,529 -93,41,57,641 -91,68,37,432

Interest received revenue 4,28,44,898 4,55,13,310 6,90,09,008

CASH GENERATED FROM INVESTING ACTIVITIES ( C )

-1,73,07,27,631 -88,86,44,331 -84,78,28,424

CASH FLOW FROM FINANCING ACTIVITIES:

proceeds from secured loan -1,08,80,34,380 -1,06,41,24,474 -1,05,96,33,683

proceeds from unsecured loan 2,03,48,78,848 32,39,10,165 -6,95,82,948

interest paid -2,48,89,47,563 -2,61,68,02,137 -88,70,89,752

proceed from share capital 71,94,45,000 5,00,00,000 23,05,55,000

CASH FLOW FROM FINANCING ACTIVITIES (D)

-82,26,58,095 -3,30,70,16,446 -1,78,57,51,383

NET CASH GENERATED FROM ALL ACIVITIES (A+B+C+D)

-14,76,73,010 -17,99,13,621 41,61,38,567

Cash and cash equivalent at the beginning of the year

72,71,06,129 90,70,19,750 49,08,81,183

cash equivalent at the end of the period 57,94,33,119 72,71,06,129 90,70,19,750

Table 5.7 defines the following:

a) Cash generated from investing activities, Rs-1,730,727,631 , Rs-88,86,44,331 and

Rs-84,78,28,424 in the year 2010-2011, 2009-2010 and 2008-2009 respectively.

b)Hence, there is a generation of Rs1,730,727,631 cash flow from its operating

activities for the year 2011-2010, where as in 2009-2010, it was Rs.4,01,57,47,156 and

where as in 2008-2009, it was Rs.3,04,97,18,374.

c) The net cash flow of Rs-82,26,58,095 from financing activities in 2011-2010.

Whereas it was Rs-3,307,016,446 and Rs-1,785,751,383 in year 2010-2009 and 2009-

2008 respectively.

d)That, the net cash flow from its operating, investing and financing activities for the

year 2010-2011 and 2009-2010 is in negative figure of Rs-147,673,010 and Rs.-

17,99,13,621 respectively. And it became positive in the year 2008-2009, which was Rs

41, 61, 38,567.

The Third Section Explains About The Working Capital Trend

Table-5.8

Size of Working Capital:

CURRENT ASSETS(CA) 2009(rupees) 2010(rupees) 2011(rupees)Stores and spares 80,85,19,278 96,90,56,460 1,14,42,69,951Sundry debtors 1,05,50,97,473 1,05,56,31,698 1,55,87,35,700

Cash and bank balances 90,70,19,750 72,71,06,129 57,94,33,119Other current assets 66,69,51,629 74,48,94,758 75,13,33,069Loan and advances 2,86,87,25,189 1,58,26,86,333 40,47,66,300

Total 6,30,63,13,319 5,07,93,75,378 4,43,85,38,139Less: CURRENT

LIABILITIES(CL)2009(rupees) 2010(rupees) 2011(rupees)

Sundry creditors 68,95,26,597 72,40,51,456 85,55,52,857Deposits and retention from

suppliers/contractors14,91,29,269 12,89,91,075 15,76,14,454

Interest accrued but not due on loans

1,30,49,185 51,73,055 79,27,784

Liabilities for wealth tax 47,253 28,781 48,416Electricity duty payable 1,82,269 1,56,113 1,63,387

Liabilities for fringe benefit tax

68,51,705 68,51,705 68,51,705

Other liabilities 1,61,76,99,768 1,65,27,44,614 1,76,53,62,996Total 2,47,64,86,046 2,51,79,96,799 2,79,35,21,599

Provisions 4,81,70,02,603 5,69,56,67,475 5,62,99,60,268Total 7,29,34,88,649 8,21,36,64,274 8,42,34,81,867

working capital( CA-CL) -98,71,75,330 -3,13,42,88,896 -3,98,49,43,728

From the table -5.8 following things are derived:

(Amount. In Rs.)

In 2008-2009 working capital is Rs -987175330 due to excessive of provisions. In

2009-2010 working capital is Rs -3134288896 and in 2010-2011 working capital

became Rs – 3984943728. It became negative because current liabilities exceed current

assets in these years.

WORKING CAPITAL TREND ANALYSIS: In working capital analysis the

direction at changes over a period of time is of crucial importance. Working capital is

one of the important fields of management. It is therefore very essential for an analyst to

make a study about the trend and direction of working capital over a period of time.

Such analysis enables as to study the upward and downward trend in current assets and

current liabilities and its effect on the working capital position. “The term trend is very

commonly used in day-today conversion trend, also called secular or long term need is

the basic tendency of population, sales, income, current assets, and current liabilities to

grow or decline over a period of time” “The trend is defined as smooth irreversible

movement in the series. It can be increasing or decreasing.” Emphasizing the

importance of working capital trends, “analysis of working capital trends provide as

base to judge whether the practice and privilege policy of the management with regard

to working capital is good enough or an important is to be made in managing the

working capital funds.

TABLE-5.9

Working Capital Size trend

Years 2008-2009 2009-2010 2010-2011

Net W.C (A-B) -98,71,75,330 -3,13,42,88,896 -3,98,49,43,728

W.C. Indices -100 -317.50 -403.67

(Amount. In Rs.)

2008-2009 2009-2010 2010-2011

W.C trend -100 -317.5 -403.67

WORKING CAPITAL TREND

Axis Title

From the table 5.9 followings things are derived: It is observed that working capital index in 2008-2009, 2009-2010 and 2010-2011 it became negative. Here in the year 2008-2009 and 2009-2010 current liabilities exceeded current assets. The company was unable to manage their working capital efficiently.

TABLE-5.10

WORKING CAPITAL TURN OVER RATIO- (SALES/NET WORKING CAPITAL)

Working capital turnover ratio

YEAR Cost of Sales Net working capital Ratio

2009 6789295427 -98,71,75,330 -6.88 times

2010 3051627568 -3,13,42,88,896 -0.97 times

2011 4051914743 -3,98,49,43,728 -1.02 times

2008-2009 2009-2010 2010-2011

W.C trend -6.88 -0.970000000000001 -1.02

WORKING CAPITAL TURNOVER RATIO

From the table 5.10 following things derived:

A) In the year 2008-2009, it was -6.88, there was decrease in net current assets due to

increase in current liabilities.

B) But in 2009-2010, working capital turnover was -0.97, which indicates there was

decrease in net current assets due to increase in current liabilities, which is better than

the previous year.

C) But in 2010-2011, working capital turnover was -0.97

TABLE 5.11

STATEMENT SHOWING CHANGES IN WORKING CAPITAL(2010 and 2011)

(2009-2010)(Rs)

(2010-2011)(Rs)

Increase in working capital

Decrease in working capital

Current Assets:

Stores and spares 96,90,56,460 1,14,42,69,951 17,52,13,491 -

Sundry debtors 1,05,56,31,698 1,55,87,35,700 50,31,04,002 -

Cash & bank balances

72,71,06,129 57,94,33,119 - 14,76,73,010

Other current assets

74,48,94,758 75,13,33,069 64,38,311 -

Loans & advances 1,58,26,86,333 40,47,66,300 - 1,17,79,20,033

Total 5,07,93,75,378 4,43,85,38,139

Current Liabilities

Current liabilities 2,51,79,96,799 2,79,35,21,599 - 27,55,24,800

Provisions 5,69,56,67,475 5,62,99,60,268 6,57,07,207 -

Total 8,21,36,64,274 8423481867

-85,06,54,832 -

Working capital(current assets-

current liabilities)-3,13,42,88,896 -3,98,49,43,728

Net decrease in working capital -85,06,54,832

-3,13,42,88,896 -3,98,49,43,728 1,60,11,17,843 1,60,11,17,843

From the table 5.11 following things are derived:

By going through the statement showing changes in working capital the following

results can be made.

A) That the total current asset of the year 20010-2011 is decreased to Rs. 438538139

from a previous year’s figure of Rs. 5079375378.

B) The total value of stores and spare is increased from the previous year’s figure and

the value of sundry debtors is also increased from the previous year’s figure.

C) The cash and bank balances of the organization have a decrease of Rs. 147673010

from the previous year’s figure. Similarly the figure for loans and advances is also

decreased to Rs. 404766300 from the previous year’s figure of Rs.1582686333.

D) The other current assets like prepaid expenses and sundry receivables have also

increased from the previous year’s figure.

E) The total current liabilities of the year 2007-2008 are increased to Rs. 8423481867

from a previous year’s figure of Rs. 8,21,36,64,274.

F)That, the increase for current liabilities is due to increase in the figure of sundry

creditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,

liabilities for fringe benefit tax and other liabilities from the previous year’s figure.

G) Due to increase in the value of stores and spares, sundry debtors, and other current

assets, there is a sign of increase in working capital. However, due to a decrease in the

figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in

the working capital.

H) Due to increase in current liabilities and provisions for pension and gratuity and

retrospective revision of pay, there is a sign of decrease in working capital.

I)As per the analysis, it is observed that, the ratio of increase of working capital is

drastically reduced than the previous year’s and the decrease sign of working capital is

Rs. -85,06,54,832 (2010-2011), which has impacted the steady increase of current

working capital & negatively affected the profitability of the organization.

J) It is found that the current asset’s figure is decreased from the previous year’s figure

& the current liabilities figure is increased from the previous year. As a result of which,

there is a net decrease (negative figure) in working capital this financial year (2010-

2011).

K) That, some more emphasis can be given on current assets to increase its figure and to

decrease current liabilities’ figure as a result of which the figure for working capital can

be increased.

TABLE-5.12

STATEMENT SHOWING CHANGES IN WORKING CAPITAL

( 2009 TO 2010)

(2008-2009)(Rs)

(2009-2010)(Rs)

Increase in working capital

Decrease in working capital

Current assets

Stores and spares 808,519,278 96,90,56,460 160537182 -

Sundry debtors 1,055,097,473 1,05,56,31,698 534225 -

Cash & bank balances

907,019,750 72,71,06,129 179913621

Other current assets

66,69,51,629 74,48,94,758 77943129 -

Loans & advances 2,86,87,25,189 1,58,26,86,333 - 1,28,60,38,856

Total 6,30,63,13,319 5,07,93,75,378

Current liabilities

Current liabilities 2,47,64,86,046 2,51,79,96,799 - 4,15,10,753

Provisions 4,81,70,02,603 5,69,56,67,475 - 87,86,64,872

Total 7,29,34,88,649 8,21,36,64,274

2147113566

Working capital(current assets-

current liabilities)-98,71,75,330 -3,13,42,88,896

Net decrease in working capital -2147113566

-3,13,42,88,896 -3,13,42,88,896 2386128102 2386128102

By going through the table5.12 showing changes in working capital the following

results can be made:

a) That, the total current asset of the year 2009-2010 is decreased to Rs. 5,07,93,75,378

From a previous year’s figure of Rs. 6,30,63,13,319 .

b) The total value of stores and spare is increased from the previous year’s figure and

the value of sundry debtors is also increased from the previous year’s figure.

c) The cash and bank balances of the organization have a decrease of

Rs.17,99,13,621from the previous year’s figure. Similarly the figure for loans and

advances is also decreased to Rs.1,58,26,86,333 from the previous year’s figure of Rs.

2,86,87,25,189.

d) The other current assets like prepaid expenses and sundry receivables have also

increased from the previous year’s figure.

e) The total current liabilities of the year 2009-2010 are increased to Rs8, 21,36,64,274

From a previous year’s figure of Rs. 7,29,34,88,649.

f)That, the increase for current liabilities is due to increase in the figure of sundry

creditors, deposits and retention from suppliers/contractors, liabilities for wealth tax,

liabilities for fringe benefit tax and other liabilities from the previous year’s figure.

g)Due to increase in the value of stores and spares, sundry debtors, and other current

assets, there is a sign of increase in working capital. However, due to a decrease in the

figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in

the working capital.

h)Due to increase in current liabilities and provisions for pension and gratuity of pay,

there is a sign of decrease in working capital.

i)As per the analysis, it is observed that, the ratio of increase of working capital is

drastically reduced than the previous year’s and the decrease sign of working capital is

Rs. -2147113566 (2009-2010), which has impacted the steady increase of current

working capital & negatively affected the profitability of the organization.

j) It is found that the current asset’s figure is decreased from the previous year’s figure

& the current liabilities figure is increased from the previous year. As a result of which,

there is a net decrease (negative figure) in working capital this financial year (2009-

2010).

k) That, some more emphasis can be given on current assets to increase its figure and to

decrease current liabilities’ figure as a result of which the figure for working capital can

be increased.

FORTH SECTION EXPLAINS ABOUT CURRENT ASSETS AND CURRENT LIABILITIES

CURRENT ASSETS

Total assets are basically classified in two parts as fixed assets and current assets. Fixed

assets are in the nature of long term or life time for the organization. Current assets

convert in the cash in the period of one year. It means that current assets are liquid

assets or assets which can convert in to cash within a year.

TABLE 5.13

(Amnt. In Rs.)

CURRENT ASSETS SIZE

Current assets(CA) 2009(rupees) 2010(rupees) 2011(rupees)

Stores and spares 80,85,19,278 96,90,56,460 1,14,42,69,951

Sundry debtors 1,05,50,97,473 1,05,56,31,698 1,55,87,35,700

Cash and bank balances

90,70,19,750 72,71,06,12957,94,33,119

Other current assets 66,69,51,629 74,48,94,758 75,13,33,069

Loan and advances 2,86,87,25,189 1,58,26,86,333 40,47,66,300

Total of CA 6,30,63,13,319 5,07,93,75,378 4,43,85,38,139

CA indices 100 80.54 129.62

2008-2009 2009-2010 2010-2011

current asset 100 80.54 129.62

129.62

CURRENT ASSET INDICES

indices

From the table-5.13 followings things are derived: The current asset indices show

growth in the year 2008-2009. In 2009-2010 it declines marginally and in 2010-2011 it

again increase.

TABLE-5.14

CURRENT ASSET TURNOVER RATIO - (sales/current Assets)

YEAR SALES CURRENT ASSETS RATIO

2009 6,78,92,95,427 6,30,63,13,319 1.08

2010 3,05,16,27,568 5,07,93,75,378 0.60

2011 4,05,19,14,743 4,43,85,38,139 0.91

2008-2009 2009-2010 2010-20110

0.600000000000001

CURRENT ASSET TURNOVER RATIO

From the table 5.14 following things are derived: In the year 2008-2009, the current

asset turnover was 1.08 which became 0.60 and 0.91 in the year 2009-2010, 2010-2011

respectively. But in the year 2009-2010, the current asset turnover was 0.60 due to sale

was less than the current assets.

COMPONENTS OF CURRENT ASSETS

Analysis of current assets components enable one to examine in which components the

working capital fund has locked. A large tie up of funds in inventories affects the

profitability of the business or the major portion of current assets is made up cash alone,

the profitability will be decreased because cash is non earning assets.

TABLE 5.15

(No. in %)

Current assets(CA) 2009 2010 2011

Stores and spares 12.82 19.08 24.69

Sundry debtors 16.73 20.78 33.89

Cash and bank balances 14.38 14.31 15.80

Other current assets 10.58 14.67 21.01

Loan and advances 45.49 31.16 4.61

Total of CA 100 100 100

2008-2009 2009-2010 2010-20110

stores and spares

sundry debtors

cash and bank

other current assets

loans and advances

percentage

CURRENT LIABILITIES:-

TABLE 5.16

2009(rupees) 2010(rupees) 2011(rupees)

Sundry creditors 68,95,26,597 72,40,51,456 85,55,52,857Deposits and retention from suppliers/contractors

14,91,29,269 12,89,91,075 15,76,14,454

Interest accrued but not due on loans

1,30,49,185 51,73,055 79,27,784

Liabilities for wealth tax 47,253 28,781 48,416Electricity duty payable 1,82,269 1,56,113 1,63,387Liabilities for fringe benefit tax 68,51,705 68,51,705 68,51,705Other liabilities 1,61,76,99,768 1,65,27,44,614 1,76,53,62,996Total 2,47,64,86,046 2,51,79,96,799 2,79,35,21,599Provisions 4,81,70,02,603 5,69,56,67,475 5,62,99,60,268Total 7,29,34,88,649 8,21,36,64,274 8,42,34,81,867Current liabilities indices 100 112.62 115.49

TABLE 5.17

CURRENT LIABILITIES SIZE

2008-2009 2009-2010 2010-201190

112.62115.49

CURRENT LIABILITIES

current liabilities

From the table 5.17 following things are derived: The current liabilities graph shows

a rapid growth. In 2008-2009, the current asset indices is 100 and thereafter it increases

to 112.62, 115.49 in 2009-2010, 2010-2011 respectively. The current liabilities

increased at a speed.

(TABLE 5.18)

DEBTOR TURN OVER RATIO- (NET SALES/AVERAGE DEBTORS)

YEAR Net Sales Average Debtors Ratio

Average Collection

Period

(365/DTR)days

2009 6,78,92,95,427 1,05,37,88,728 6.44 57

2010 3,05,16,27,568 1,05,53,64,586 2.89 126

2011 4,05,19,14,743 1,30,71,83,699 3.09 119

2008-2009 2009-2010 2010-20110

2.89 3.09

DEBTOR TURN OVER RATIO

2008-2009 2009-2010 2010-20110

126 119

AVERAGE COLLECTION PERIOD

Debtor Turn Over Ratio- By going through our calculation table and diagrams of

Debtor Turnover Ratio, profit and loss accounts and balance sheets of OPTCL the

following results can be drawn.

A) In the year 2008-2009 the debtor turnover ratio is 6.44 times and the average

collection period is 57 days. This year, the value of debtor turnover is higher than the

previous year due to decrease in average debtor.

B) In the year 2009-2010 the debtor turnover is 2.89 times and the average collection

period is found to be 126 days. This year, there is higher value of debtor turn over.

C) In the year 2010-2011 the debtor turnover is 3.09 times and the average collection

period is found to be 119 days. This year, the value of debtor turnover is higher than the

previous year due to increase in average debtor.

D) OPTCL used to collect pending dues directly from consumers for which, substantial

delay in getting payment was . However, the present average period of collection is

decreased due to involvement of NESCO, SOUTHCO, CESCO, WESCO etc. for

collection of revenue on behalf of OPTCL and the same has been made through banks.

The shorter the average collection period, the better the quality of debtors, since a short

collection period implies the prompt payments by debtors. So this is a good indication

for the organization.

SECTION FIVE Generally Defines Measures To Improve Working Capital

Management at OPTCL

The essence of effective working capital management is proper cash flow forecasting.

This should take into account the impact of unforeseen events, market cycles, loss of a

prime customer and actions by competitors. So the effect of unforeseen demands of

working capital should be factored by company. This was one of its reasons for the

variation of its revised working capital projection from the earlier projection.

a) Addressing the issue of working capital on a corporate-wide basis has certain

advantages. Cash generated at one location can well be utilized at another.

b) An innovative approach, combining operational and financial skills and an all-

encompassing view of the company’s operations will help in identifying and

implementing strategies that generate short-term cash. This can be achieved by having

the right set of executives who are responsible for setting targets and performance

levels. They could be then held accountable for delivering, encouraged to be

enterprising and to act as change agents.

c) It pays to have contingency plans to tide over unexpected events. While market-

leaders can manage uncertainty better, even other companies must have risk-

management procedures. These must be based on objective and realistic view of the role

of working capital.

d) Working capital management is an important yardstick to measure a company

operational and financial efficiency. This aspect must form part of the strategic and

operational thinking. Efforts should constantly be made to improve the working capital

position. This will yield greater efficiencies and improve customer satisfaction.

e) Placing the responsibility for collecting the debt upon the centre that made the sale.

f) Cash should be managed properly.

g) Effort should be made to reduce the current liabilities and to increase the current

asset.

HYPOTHESIS TESTING:

Generally hypothesis means a mere assumption or some supposition to be proved or

disproved. Hypothesis is usually considered as the principle instrument in research. Its

main function is to suggest new experiments and observations.

Hypothesis: 1- The firm is facing difficulty in paying short-term debt.

The following table contains the details about the average collection period from

debtors and average payment period to creditors from the period 2008-2009 to 2010-

Years Average collection period (x)

Average payment period(y)

XY X2 y2

2008-2009 57 37 2109 3249 1369

2009-2010 126 86 10836 15876 7396

2010-2011 119 98 11662 14161 9604

∑x= 302 ∑ Y=221 XY=24607∑ x2 =

33286∑ y2 =18369

KARL PEARSONS’S COFFICIENT OF CORRELETION:

By putting the values in the formula the “r” came = 0.96

From the calculation value of “r” come = 0.96 which is a positive one. As the

correlation came a positive one which ensures that the firm is facing difficulty in paying

short-term debt. It is the case where current liabilities are increased throughout the

financial years from, 2008-2009, 2009-2010 and 2010-2011.

HYPOTHESIS:2 THE FIRM IS NOT PROPERLY MANAGING THE SUNDRY

DEBTOR.

The following table contains average collection period from debtors and sundry debtors

(in crore) from the period 2008-2009 to 2010-2011.

years Average collection period (x)

sundry debtors(in crore)

(y) XY X2 y2

2008-2009 57 106 6042 3249 11236

2009-2010 126 106 13356 15876 11236

2010-2011 119 156 18564 14161 24336

∑x= 302 ∑Y=368 XY=37962∑ x2 =33286

∑ y2 =46808

KARL PERSON’S COFFICIENT OF CORRELETION:

By putting the values in the formula the “r” came = 0.4

The correlation came negative to the second hypothesis.

After putting the data “r” is found = 0.4 which is a positive one. So the hypothesis is

accepted. As the firm is able to manage the sundry debtor.

HYPOTHESIS: 3- THE CURRENT LIABILITIES ARE INCREASING THAN

CURRENT ASSETS YEAR BY YEAR.

The following table contains the amount of current liabilities(in crore) and current assets

(in crore) from the period 2006-2007 to 2009-2010.

years CURRENT LIABILITIES(in crore)

CURRENT ASSETS(in crore)

(y)XY X2 y2

2008-2009 729 631 459999 531441 398161

2009-2010 821 508 417068 674041 258064

2010-2011 842 444 373848 70894 197136

∑x=2392 ∑Y=1583 XY=1250915 ∑ x2 = 1276376 ∑ y2 = 853361

KARL PERSON’S COFFICIENT OF CORRELETION:

By putting the values in the formula the “r” came = -0.11

As the hypothesis is negative which ensures that the current liabilities of firm is

increased at a speed than current assets. So the firm should have an eye to this one.

FINDINGS OF THE STUDY

Following are the findings of the study:

A) Working capital of three years i.e., (2008-2009, 2009-2010and 2010-2011) is in

negative figure. The reason is that the company’s current liabilities exceeds current

assets from 2008-2009 to 2010-2011. The company created more provisions throughout

these 3 years. Sundry creditors increased at a speed in these 3 years. It is an alarm sign

for the company. Besides these sundry creditors, other current liabilities also increased

like deposits and retention from supplies, liability for wealth tax, electricity duty

payable.

B) The standard current ratio is 2:1. And for OPTCL it is not satisfactory. The reason

behind such result is that the current liabilities exceed current assets. The standard

current ratio in the year 2008-2009, 2009-2010 and 2010-2011 situations is worst. The

reason behind is the increase in current liabilities and provisions. It is not a good sign

for the company.

C) The standard quick ratio is 1:1. And for OPTCL it is not satisfactory. The reason

behind OPTCL did not achieve the rule of thumb. The current liabilities exceed the

liquid assets. There is an increase in current liabilities like sundry creditor, interest

accrued but not due on loans, liability for wealth tax and liabilities for fringe benefit tax

than of liquid assets.

D) Absolute liquid test ratio is below 1:2, which are worries for OPTCL. The reason is

that liquid assets fall very short than current liabilities. The current liabilities again

exceed the absolute liquid assets. There is not significant increase in absolute current

assets like cash and bank balances from 2008-2009 to 2010-2011. But there is a rapid

increase in current liabilities like sundry creditors, deposits and retention from suppliers,

liabilities for fringe benefit tax and provisions.

E) Debtors of the company were high; they were increasing year by year, so more funds

were blocked in debtor. As the company is selling electricity to the sundry debtors and

the cash is not immediately received so some amount of cash is blocked in that matter.

F) The current asset trend increased in 2009, but in 2010 it declines and 2011 it again

increases. The current assets like stores and spare declined in 2008-2009 it and then it is

increased in 2009-2010 and again declined in 2010-2011. Sundry debtors declined in

2008-2009 but again it is increased in 2009-2010 and in 2010-2011 it again declined.

G) The current liabilities trend increasing at a speed which is worried thing for

company. Current liabilities like sundry creditors, deposits and retention from suppliers,

interest accrued but not due on loans, liabilities for wealth tax, electricity duty payable,

liabilities for fringe benefit tax increased from 2008-2009 to 2010-2011.

H) Debtor’s turnover ratio improved in 2009 and so number of collection period

decreases. But in 2010 debtor’s turnover ratio was decreases and collection period

increases. In 2008-2009 it was 57 days. Then it is increased to 126 days in 2009-2010.

But in 2010-2011 it again decreased to 119 days.

J) Current asset ratio decrease throughout the year. It was 1.08 in 2008-2009, 0.60 in

2009-2010 and 0.91 in 2010-2011.

K) Working capital turnover ratio was negative in 2008-2009, 2009-2010 and 2010-

2011. It slope downward and it was -6.88, -0.97 and -1.02 in 2008-2009, 2009-2010 and

2010-2011 respectively.

CHAPTER -6

CONCLUSION AND RECOMMENDATION

:CONCLUSION:

On the basis of data analysis on working capital management in OPTCL, the following

conclusions arrived.

A) The company has gross profit for the past four years (2008-2009, 2009-2010 and

2010-2011) in negatives and the current liabilities are increasing, in comparison to

current assets position. Hence, it is an alarming sign for the smooth working capital

management.

B) The OPTCL didn’t manage the liquidity position of the company. But, in the year

2007-08, 2008-2009, 2009-2010 and 2010-2011 the situation of liquidity position was

alarming due to increase in total current liabilities and decrease in total current assets

which led to the decrease in the net working capital of the company.

C) During the year 2008-2009, 2009-2010 and 2010-2011 the company’s liquid assets

were not satisfactory.

D) The average collection period of the company during the year 2008-2009 is 57 days,

it is increased to 126 days in 2009-2010 but the average collection period again

increases to 119 days in 2010-2011.

E) There is also satisfactory net cash flow from the operating, investing and financing

activities of the organization.

F)Though the net working capital of the company is decreased, still the company is in a

better manageable position and the company’s present status of maintaining current

assets and current liabilities are satisfactory.

G) They are unable to manage their cash, funds and debts.

By adapting better management practices, the company may attain a sound financial

position in future and able to manage its working capital efficiently

RECOMMENDATION

OPTCL is the soul of Orissa’s power transmission and is playing a pivotal role in

making surplus power consumption state through efficiently administering the system of

transmission. For improvement of organization’s profitability, much emphasis is needed

to improve the better working capital management by decreasing the current liabilities

through reducing of unplanned over head expenses. In such process, current assets

position will be improved through collection of revenue from power transmission as

well as recovery of past dues from consumers, Govt. and other agencies etc. The

company should give more attention on increasing its collection of revenue from

wheeling of power and should give more emphasis to curtail unplanned expenses to

decreases the loss. Further, the management should focus on shortening its average

collection period by changing its credit terms and conditions.

By taking the above remedial measures, the organization can be an EVA+ company

with due emphasis on proper way of managing the working capital.

CHAPTER -7

IMPLICATION FOR FUTURE RESEARCH:

This study is the foundation stone for carrying out further research in the field of

working capital management. Further research can be also be carried out the study of

working capital management. This one of such preliminary research work and further

review of this research work can open up many dimensions for researchers. Although

the objective taken in research study is diverse, yet a trend can be observed from the

findings for future research work.

One of the major drawbacks of the study is the lack of time. Working capital

management is a very vast topic and hence in a limited time it is impossible to know

every aspects of working capital management. And also it was study that depended on

3years of data. There is future scope for studying these things.

DISCLAIMER

The present study of working capital management in OPTCL is purely academic in

nature. The analysis of the data and interpretation of the matters in the project report are

purely academic purpose and nobody should take it as a fact finding conclusion for

lodging any claim or submission of above facts for their personal benefits for which the

undersigned will not be held responsible. The views suggestions, conclusions etc. are

the bonfied work of mine and nobody should claim or copy it for their benefit without

permission.

*******************

BIBLIOGRAPHY

TEXT BOOKS:

1. Maheswari Dr S.n “Financial management”, Ninth edition, 2006 sultan chand & sons,

New Delhi

2. Pandey I.M., “Financial Management”, Vikas Publishing House Pvt.Ltd. 8 th Edition

3. Prasanna Chandra, “Financial management”, Fourth edition 1999, Tata Mc.graw hill

publishing company ltd, New Delhi.

4. Gupta, sashi., “financial management”, 4th edition,2007, kalyani publisher, new delhi

5. Kothari C.R. “Research Methodology”, Wishva prakashan, New Delhi, 2001.

ARTICLES:

An overview of working capital management and corporate financing.

Working capital management.

Working Capital Management Manages Flow of Funds” (Year 2009)

“Working Capital Management-an Effective Tool for Organisational Success” Year

(2008)

Website:

www. Optcl.co.in

www. Google.com

www. Investopedia.com

www.moneycontrol.com

www.wikipedia.com

: ANNEXTURE:

BALANCE SHEETS OF OPTCL

PROFIT & LOSS ACCOUNTS OF OPTCL

PROFIT AND LOSS

ACCOUNTS

FOR THE YEAR ENDED

31.03.2011 31.03.2010 31.03.2009

INCOME

Revenue from wheeling of Power 4,051,914,743 3,05,16,27,568 6,78,92,95,427

Other Income 255,068,122 1,36,62,18,959 36,84,47,083

Total 4,306,982,865 4,41,78,46,527 7,15,77,42,510

EXPENDITURE

Administrative, General & Other

Expenses

2,721,385,964 3,49,84,56,298 5,27,76,66,633

Depreciation 1,223,379,955 1,08,03,34,520

1,09,82,41,

Total 3,944,765,919 4,57,87,90,818 6,35,79,07,985

Profit/ (Loss) before interest & finance

charges

362,216,946 -16,09,44,291 78,18,34,525

Interest & Finance Charges -424,377,484 -54,16,01,198 -97,24,54,617

Net prior period income/(expenditure) -65,152,447 -1,11,72,155 75,90,209

Profit/(Loss) before Taxation &

Contingency

-127,312,985 -71,37,17,644 -18,30,29,884

Provision for taxation:-

Current year 0 0 0

Fringe Benefit Tax 0 0 0

Profit After Tax -127,312,985 -71,37,17,644 -23,96,915

Reserve Appropriation ------------- ------------ -18,54,26,799

Appropriation to Contingencies Reserve -118,840,923 -10,93,51,080 -9,99,26,786

Profit/(Loss) After Taxation &

Contingency Reserve

-246,153,908 -82,30,68,724 -28,53,53,585

Balance of P&L Account Brought

Forward from Last Year

-1,600,747,175 -77,76,78,451 -49,23,24,866

Balance Carried over to Balance Sheet -1,846,901,083 -1,60,07,47,175 -77,76,78,451

BALANCE SHEETS OF OPTCL

(IN RUPEES)

as on 31.03.2011

as on31.03. 2010

as on 31.03. 2009

i)sources of funds

1.shareholder’s funds:

Share capital 1,600,700,000 881,255,000 831,255,000

share reserves and surplus 7,074,504,648 6,824,666,950 5,531,676,826

8,675,204,648 7,705,921,950 6,362,931,826

2.loans funds:

Secured loans 1,882,808,719 2,970,843,099 4,034,967,573

Unsecured loans 7,305,769,031 7,338,214,991 9,081,629,634

3. others funds

Consumer security deposit 7,868756 455,334 83,334

ii)application of funds:

1. fixed assets 27,935,440,372 26,037,473,415 24,152,614,571

Gross block

Less: accumulated depreciation 13,758,811,668 12,519,750,138 11,437,546,544

Net block 14,176,628,704 13,517,723,277 12,715,068,027

Capital work-in-progress 5,562,515,095 5,760,703,817 6,711,033,019

2. Investments 207,550,000 270,550,000 270,550,000

3. current assets, loans and advances:

Stores and spaces 1,144,269,951 969,056,460 808,519,278

Sundry debtors 1,558,735,700 1,055,631,698 1,055,097,473

Cash and bank balance 579,433,119 727,106,129 907,019,750

Other current assets 751,333,069 744,894,758 738,951,177

Loans and advances 404,766,300 1,582,686,333 2,786,157,419

Less:-

Current liabilities and provisions

Current liabilities 2,793,,521,599 2,517,996,799 2,476,486,046

Provisions 5,629,960,268 5,695,667,475 4,817,002,603

Net current assets -3,984,943,728 -3,134,288,896 -997,743,553

4(a) miscellaneous expenditure to the extent not written off or adjusted

are not written off or adjusted

- - 3,026,423

(b)profit and loss account (1,846,901,083) (1,600,747,175) (777,678,451)

Total 17,871,651,154 18,015,435,374 19,479,612,367

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