21288562 Report on Working Capital (1)

7/31/2019 21288562 Report on Working Capital (1)

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1

A REPORT

ON

WORKINGCAPITAL

MANAG

EMEN

T

AT

NALCO

A report submittedinpartialfulfillmentof the

requi reme nt ofPGDM

ProgrammeofIIMT COLLEGEOF

MANAGEMENT

GREATERNOIDA, UP.


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N A LC O ( A N A VA R A TN A C O MPA NY )

(A NavaratnaCompany)

Submitted to: Submitted by:

Prof. GIRISH KHATURIA TARENI PRASAD DHAL

Faculty guide, PGDM-(2008-2010)IIMT COLLEGE OF MANAGEMENT ROLL-pgdm/08/113

TABLE OF CONTENT

CERTIFICATE................................................ 04

ACKNOLEDGEMENT.

05

DECLARATION... 06

EXECUTIVE SUMMERY...

1. INTRODUCTION-:

08

1. a) objective of study.. 11

1.b)research methodology. ... 11

1.c)scope of study.. ........... 12

1.d)limitation of study..... 12

WO R K I N G C A PI TA L MA NA G EMEN T


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4.f)source of working capital ... 41

4.g)management of inventory 42

4.h)management of cash 45

4.i) management of receivables 46

5) Operating cycle. .. 48

6) Working capital management at NALCO.. 50

7) Data processing and analysis 58

8) Conclusion . 70

9) Recommendation and suggestion. 71

10) Bibliography 73


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N A LC O ( A N A VA R A TN A C O

MPA NY )

ACKNOWLEDGEMENT

I wish to express my deep felt to Mr.M.R RATHA (Finance) of

NALCO for having extended their valuable time in helping, guiding

,supervising and supporting my work during the entire project without

which this project could not have been successfully completed.

I also take this opportunity to express my gratitude to prof.BISWAJITROUT my faculty guide for his, help guidance and support during the

entire course of my project work.

PRACHI PARIJA

WO R K I N G C A PI TA L MA NA G

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DECLARATION

I hereby declare that the project report entitled WORKINGCAPITAL MANAGEMENT in NALCO is submitted in partial

fulfillment of degree of PGDM under REGIONAL COLLEGEOF MANAGEMENT AUTONOMOUS under the guidance of

Mr.M.R RATHA (

FINANCE), and Prof. BISWAJIT ROUT,REGIONALCOLLEGE OF MANAGEMENT AUTONOMOUS.

I am very much thankful to all concerned people of the organization and

the faculties of our institution for their timely cooperation and help.

PRACHI PARIJA

Roll-PGDM-1101247087



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N A LC O ( A N A VA R A TN A C O MPA NY

INTRODUCTION


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EXECUTIVE SUMMARY:

The major objective of the study is to proper understanding the working

capital of NALCO & to suggest measures to overcome the shortfalls if

any.

Funds needed for short term needs for the purpose like raw materials,

payment of wages and other day to day expenses are known as working

capital. Decisions relating to working capital (Current assets-Current

liabilities) and short term financing are known as working capital

management. It involves the relationship between a firms short-term

assets and its short term liabilities. By definition, working capital

management entails short-term definitions, generally relating to the next

one year period.

The goal of working capital management is to ensure that the firm is

able to continue its operation and that it has sufficient cash flow to

satisfy both maturing short term debt and upcoming operational

expenses.

Working capital is primarily concerned with inventories management,

Receivable management, cash management & Payable management.


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NALCO is a large scale manufacturing company involved in mining of Bauxite

and production of Aluminum. Therefore, it has to maintain large quantity of

inventories at production units for its smooth running and functioning.

Major inventories of Nalco are

R aw mate r ial The raw material that consist of CP coke, CT pitch, Aluminum

fluoride, Pig iron, HFO Alumina and anodes for SMELTER & COAL, HFO, LDO

for CPP & Caustic Soda, Alum, Lime, CGM

Sto r es and Spa r esAt the time of Procurement of the machinery, generally some

spares procured for immediate maintenance that directly linked with different

equipments. These spares are known as instance spares and most of these items of

High Value.

I nte r media ry Good s- Which consist of Green Anodes, Baked Anodes, Rodded

Anode, and Anode stem, etc. for which NALCO has installed its own plant for

producing the Green & Baked Anodes and imports them only when there is a

shortage

F ini s hed Good s - That consists of Bauxite, Aluminum Hydrate, Alumina,

Aluminum Ingots, Sow Ingots, Billets, Wire rod Sheets etc. The finished Products

of NALCO move fast and hence the stock of Finished Goods is very less in

company

CASH MANAGEMENT AT NALCO:

NALCO has been accumulating huge cash surpluses over last several years, which

enables the organization to maintain adequate cash reserves and to generatereqThekey areas ofeffectivecash manage ment in NALCO are:

Identifying the requirements of funds at various units


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Investment of surplus funds productively, Repayment of loans, Proper capital

expenditure. Standardized reporting systemized funds from within the organizationi.e. from internal sources.

CentralizedCash Managementsystem:

For centralized cash management system, NALCO has chosen State Bank of India

(S.B.I) as its sole banker and the control cash account of the company is maintained

at the S.B.I. main branch, Bhubaneswar under direct control of NALCOs

Corporate Office.

RECEAVABLE MANAGEMENT AT NALCO: NALCO has set up its marketingoffice at all metro cities in India i.e. Mumbai, Kolkata, New Delhi, Chennai,

Bangalore, and Pondicherry. This marketing office obtains sales order from

Aluminum users in India as well as globally. On the basis of order

received for different products it marks production planning of different

i.e. Ingot sow ingot, Billets, Wire etc.

DATA PROCESSING AND ANALYSIS:

1.) Working capital of previous 4 years.

2.) Use of Carl Pearsons core ration to know the relation between

a) Correlation between total current Assets and Total Current Liabilities.

b) Correlation between total current Assets and Working capital.

c) Correlation between total current Liabilities and Working capital.

RECOMMENDATION & SUGGESTION:


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For inventory, in order to improve the position, NALCO can

reduce the level of stocks by resorting to phased production i.e.producing according to requirement and disposing off or recycling theunserviceable inventories.

NALCO can also consider negotiating its creditors for relaxingthe debt repayment period and repaying only on or just before the expireof the credit period.

The plant must take certain steps to decrease the working capital

cycle. One way can be better management of inventories Proper planning of production should be maintained andcommunicated to all concerned departments so as to determine theexactneed of materials and prevent unnecessary blockage of unlessmaterials.Plant should given freedom in deciding the credit policies, cash discountor credit ratings.

1. A) Objective of study:

To analyze the efficiency of working capital management of Nalco by

studying different element of working capital, trend of various

parameters across different years of comparison.

To suggest measures for improvement in the management of workingcapital of Nalco.


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1.b)Research methodology:

Data base: The study mostly confined to secondary data which collated

from the annual reports published by Nalco. Additional informations

has also been collected from concerned officials from Nalco.

Techniques and tools used:

The analysis has been based on simple tools like ratios and percentages.

Microsoft excel and spss package has been used for various calculations

purposes.

1. c) Scope of study: The study has been conducted from information over a period of 10 years from financial year 2001 TO 2011.

1.d)Limitations of study:



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During the course of study of summer training project entitled working

capital management of Nalco the report has been prepared subject tothe following limitations.

The study is limited to four financial years from 2001 TO

2011 performance

The data used in the study have been taken from balance sheet and

their related schedule of Nalco

The study has been conducted during the boundaries of Nalco

The analysis ignores the time value of money

1. e)Period of study:

Period of study during 15th may to 30thjune 2011.


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2.INDUSTRY PROFILE

2.1) Introduction to aluminum: Aluminum is a silverywhite and ductile member of theboron group of chemicalelements. It has the symbol Al; itsatomic numberis 13. Itis not soluble in water under normal circumstances.Aluminum is the most abundant metal inthe Earth's crust, and the third mo st abundant elementtherein, after oxygen and sili con. It makes up about 8%

by weight of the Earths solid surface. Aluminum is tooreactive chemically to occur in nature as a free metal.Instead, it is found combined in over 270differentminerals. The chief source of aluminumisbauxiteore.

Aluminum is remarkable for its ability toresist corrosion (due to the phenomenon ofpass ivation)and its low density. Structural components made fromaluminum and itsalloys are vital tothe aerospace industry and very important in other areasof transportationand building. Its reactive nature makes ituseful as a catalyst or additive in chemical mixtures,including being used in amm onium nitrate explosives toenhanceblastpower.

GENERAL USE

Apiece ofaluminum metal.


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Aluminum is the most widely used non-ferrousmetal. Global production of aluminum in 2005 was 31.9

million tones. It exceeded that of any other metal except iron (837 .5 million tons) . Relatively

pure a luminum is encountered only when corrosionresistance a nd/orworkability is more important

thanstrength orhardness. A thin layerof aluminum canbe depositedonto a flat surface by physical vapor

deposition or (very infrequently) chemical vapordepositionorotherchemical means to form optical

coatingsand mirrors. When so deposited, a fresh ,pure aluminum film serves as a good reflector

(approximately 92%) ofvisible light and anexcellent reflector (as much as 98%) of medium and farinfrared.

Pure aluminum has a low tensile strength, but when

combined with thermo-mechanical process ing,aluminum alloys display a ma rked

improvement in mechanical properties, especially when tempered. Aluminum alloys

form vital componen ts ofaircraftand rockets as a result of their high strength- to-weightratio. Aluminum readily forms alloy with many elements

such as copper,

zinc, magnesium,manganeseand sili con (e.g., d uralumin).

Today, almostallbulkmetal materialsthat are referredtolooselyas "aluminum," are actuallyalloys. Forexample,the common aluminum foils are alloys of 92% to 99%aluminum.

Some of the ma ny use s for aluminum metal are in:



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Householdaluminumfoil

Transportation (automobiles, aircraft, trucks, railwaycars, marine vessels,bicyclesetc.) as shee t, tube,castingsetc

Packaging (cans, foil, etc.)

Construction (windows, doors, siding, building wire,

etc.)Cooking utensils

Stree t lighting poles, sailing ship ma sts, Walkingpoles etc

Outer shells of consu mer electronics, also cases forequipmenteg photographic equipment.

Electrical transmission lines forpowerdistribution

MKM stee l and Alnico magnets Super purity aluminum (SPA, 99.980% to 99.999% Al), used

in electronicsand CDs.

Heat sinks for electronic appliances suchastransistorsand CPUs.

Substrate material ofmetal-core copper cladlaminatesused in highbrightness LED lighting.

Powdered aluminum is used inpaint, andinpyrotechn icssuch as solid rocket fuelsand termite.



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2.2) Growth of aluminum industry:

In the late-1990s, India had total aluminum smelting capacity of 7.15

lakh tpa, out of which 6.28 lakh tpa was functional. (Capacity worth

0.87 lakh tpa belonging to Indian Aluminium Co. was redundant.) The

early years of this decade witnessed a phase of consolidation,

privatization and expansion, resulting in the total capacity reaching 8.24

lakh tpa. The expansion drive is far from over. By 2010, India's

aluminum capacity is slated to cross 12.5 lakh tpa, the increase incapacity being entirely from Brownfield expansions.

It is encouraging to note that Greenfield ventures in the aluminum

industry are shaping up after over 15 years of quietus. The aluminium

industry did not witness a single Greenfield project between 1987, when

public sector National Aluminium Co. went on stream, and 2003 when

the Sterile group began work on its 1.4 million tpa alumina refinery at

Lanjigarh in Orissa. The AV Birla group, very recently, commencedwork on its 3 million tpa aluminium smelter project, also in Orissa.

By 2020, India would have an aluminium capacity of 17-20 lakh tpa. For

a country endowed with nearly 10 per cent (2,525 million tons) of the

world's bauxite reserves and having the lowest cost of production, this

capacity would be technically justified. However, with India's per capita

aluminium consumption of a meager 0.6 kg, compared with the global

metric of around 20 kg, absorption of this colossal capacity would

be an intimidating challenge.Thus, India's vision for 2020, besides being a global player in terms of

size, should also include achieving international standards in terms of

consumption. Today, 35 per cent of Indian aluminium is consumed by


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the power industry, compared with less than 10 per cent in USA and

Japan. Areas like construction and packaging where global aluminiumconsumption thrives, has low relevance to India. Barely 6 per cent of the

Aluminium finds its way in the construction industry compared with 17

per cent in USA and 25 per cent in Japan. The Indian construction

industry, which is headed for promising growth, can, therefore, be a

major demand driver.

Exports would, of course, be a major demand source. Even here, the

industry needs to focus on value-added products instead of the

conventional ingot exports. International developments surroundingChina can influence India's aluminium industry in the medium term,

2005 onwards.

The aluminium industry has been identified as a priority area in China,

traditionally a low aluminium consumer. Chinese smelting capacity hasnearly doubled from 2.8 million tpa in 2002 to 5.2 million tpa in 2003.

By 2005, capacity is likely to reach 7.5 million TPA. China is expected

to have an exportable surplus of 2 million tons per year, beginning 2005.

This would cause intense competition. China, however, would need to

source more than half of its alumina (raw material for aluminium)

requirements through imports. The country is expected to import over

12 million tons of alumina annually. This would provide a good export

opportunity to India, which might lead to projects investment in the

alumina industry. Global Aluminium production has grown at 7%: Per capitaconsumption of aluminum is closely related to Gross Domestic Product (GDP) of a

country. The consumption of aluminum in developed countries with high GDP


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values is quite high compared to the consumption in developing countries. The

global aluminum production grew at a CAGR of 7.7 per cent, while theconsumption increased at a CAGR of 5.89 per cent during 2003-06. The market

size for aluminum globally is US$ 96.56 billion. Europe and North America are

the biggest players in the aluminum segment, with 35 per cent and 22 per cent of

global market share respectively. Aluminum consumption is 30 kgs in the US and

Europe, 15 kgs in Japan, 10 kgs in Taiwan and 3 kgs in China

2.3) The Aluminum industry in India:

Aluminium Industries in India is one of the leading industries in the

Indian economy. The growth

Of the aluminum, Metal industry in India would be sustained by thediversification and exploration of new horizons for the industry. Indiahas huge deposits of natural resources in form of minerals like copper,

chromate, iron ore, manganese, bauxite, gold, etc. The India aluminumindustry falls under the category of non-iron based which include theproduction of copper, tin, brass, lead, zinc, aluminum, and manganese.

The main operations of the of the India aluminum industry is mining ofores, refining of the ore, casting, alloying, sheet, and rolling into foils.At present, Hindalco and Nalco are one of the most economical in the

production of aluminum in the world. For the sustenance of the growth,the aluminum industry in India has to develop research and development

units to assist the production and improve on the quality measures tokeep a stringent quality control.

The India aluminum Metal Industries sector in the previous decadeexperienced substantial success among the other industries. The India


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aluminum industry is developing fast and the advancement in itstechnologies is boosting the growth even faster. The utilization of bothinternational and domestic resources was significant in the rapiddevelopment of the India aluminum industry. This rapid developmenthas made the India aluminum industry prominent among the investors.The India aluminum industry has a bright future as it can become one ofthe largest players in the global aluminum market as in India theconsumption is fairly low, the industry may use the surplus productionto cater the international need for aluminum which is used all over theworld for several applications suchas aircraft manufacturing,automobile manufacturing, utensils, etc.

The companies under the India aluminum industry:

Hindalco (Hindalco Industries Ltd)

Indal (Indian Aluminum Co Ltd)

Nalco (National Aluminum Co Ltd)

Balco (Bharat Aluminum Co Ltd)

Malco (Madras Aluminum Co Ltd)

The yearly pattern of production of the companies in India AluminumIndustry:

Hindalco produced in 150,000 metric tons in 1990-1991 and242,000 metric tons in 2000-2001

Nalco produced in 218,000 metric tons in 1990-1991 and 230,000metric tons in 2000-2001

Indal produced in 117,000 metric tons in 1990-1991 and 110,000metric tons in 2000-2001


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Balco produced in 100,000 metric tons in 1990-1991 and 100,000metric tons in 2000-2001

Malco produced in 25,000 metric tons in 1990-1991 and 25,000metric tons in 2000-2001

The total production was 610,000 metric tons in 1990-1991 and707,000 metric tons in 2000-2001

The yearly production of rolled products by the companies in IndiaAluminum Industry:

Hindalco produced 22,500 meters of rolled products in 1990-1991and 80,000 meters of rolled products in 2000-2001 Nalco

produced 13,500 meters of rolled products in 1990-1991 and36,500 meters of rolled products in 2000-2001

Indal produced 24,825 meters of rolled products in 1990-1991 and90,000 meters of rolled products in 2000-2001

Balco produced 44,900 meters of rolled products in 1990-1991 and43,600 meters of rolled products in 2000-2001

The total amount of production was 102,225 meters of rolledproducts in 1990-1991 and 227,100 meters of rolled products in2000-2001

2.4) Consumption of Aluminium in India:

The consumption of aluminium in India of 0.7 kg per person in 2005 is

very low in keeping with the countries low GDP. However, the low percapita consumption of aluminum in India is in fact an opportunity forgrowth in aluminium consumption against the back drop of fast growingeconomic conditions in India.


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However, aluminum consumption has increased 12.6% in 2006 toaround 1.08mt. Consumption is estimated to have increased to a 5 yearCAGR of 12.9%. Secondary aluminium demand also shot up to 0.6 MTlast year.

Sector-wise aluminum consumption: Aluminium is used in varioussectors, such as, transportation, packaging, building / construction andelectricity. However, the usage pattern differs significantly for Indian

and rest of the world. Globally, the automotive, packaging and theconstruction sectors are the major end users of aluminium, while inIndia the power sector consumes most followed by automotive andhousing sectors.

Sector-wise consumption break-up

Electrical 65%Transport-21%

Construction -8%

Packaging 5%

Industrial machinery 4%

Consumer durables 4%

Steel sweetening, powers & chemicals 13%

The Transportation sector is a major driver of aluminum consumption inthe future wherethe onus of growing consumption lies with theindustry. The automobile segment has attracted major global producersto set up their manufacturing facilities in the country. All thesemanufacturers are now engaged in bringing out high quality fuel-


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efficient cars in the market for India as well as global markets. Besides

cars, there are commercial vehicles which have also witnessed quantumgrowth over the years.

Use of Aluminum as an alternative to steel has huge potential in therailways. The government has taken note of this and has started workingon that. Aluminum castings are primarily used in transport andautomobile sectors.

The global casting is currently estimated at around 7.4 million tons,against that consumption in India as only around 110,000 tons. Thecountrys share in the global downstream sector is low as compared toother developed countries.

Casting of aluminum alloys is a particularly versatile process and offersgreater degree of flexibility than other methods of manufacture, and can

be done by various methods like in sand, in metallic dies, under gravityor pressure, and cast by modern methods like low-pressure die- casting(LPDC), investment casting, and squeeze casting. No other metal can becast under such a wide range of processes and sizes varying from a fewgrams to 100 kg.

Although, domestic aluminum production exceeds the domesticdemand, India imports on an average 15-20 per cent of the total supplyof aluminum. Imports are necessary, due to the shortage of domestically

produced ingots. Indias imports of aluminum and products primarily


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comprise of unwrought items like ingots, billets, scrap, bars and rods.

Imports of primary aluminum products account for less than 10 per centof domestic consumption. India also exports aluminum products such as,scrap, powder and flakes, bar rods, foil, pellets, sheets, tubes and pipes.Exports figures hovers around 82000 tons annually and the majorimporter countries of Indian aluminium are Bangladesh, Sri Lanka,Egypt and Iraq.


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Company profile

Vision:

(Ordinary people with extraordinary attitude)

To be a reputed global company in the metal and energy sector.

Mission:

To achieve growth in business with global competitive edge providing

satisfaction to the customers, employees, share holders and

community at a large.

3.1)National Aluminum Company Ltd. (Nalco) is considered to be a

turning point in the history of Indian Aluminium Industry. In a major

leap forward, Nalco has not only addressed the need for self-sufficiencyin aluminium, but also given the country a technological edge in

producing this strategic metal to the best of world standards. Nalco was

incorporated in 1981 in the Public Sector, to exploit a part of the large

deposits of bauxite discovered in the East Coast.


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Nalco is one of the biggest and Asias largest integrated complex,

encompassing Bauxite mining, Alumina refineing,Aluminium smeltingand casting power fgeneration,rail and port operations.NALCOwas

established in 1981 as a public sector enter enterprise of the Govt.of

india.

It is considered a truing point in the 50-year-old history of the Indian

aluminum industry.

3.2)BriefHistory:

After the discovery of 1000 million tons of Bauxite reserves in the

Eastern Ghats, the govt. of India on the 28th March, 1978, authorized

Aluminum Pechiney of France to prepare a feasibility report on the

industrial exploration of bauxite for the establishment of an integrated

Aluminum complex. The result of this study led to sifting of focus of

attention to Panchpattermali, 30km.East of Koraput District of Orissa.

Nalco was incorporated in 1981as a public sector Unit. The newly

founded NALCO signed an agreement of collaboration with aluminum

Pechiney, the world leader in this field for incorporation of technical

know-how to set up Asias largest integrated aluminium complex.

3.3)LOCATION:

Registered office:.Bhubaneswar


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Bauxite mine..Panchpatmali

Aluminium refinery..............................Damonjodi

Captive power power plant...Angul

Aluminium smelter...Angul

Port facilities..Visakhapatnam

Rolled product unit.Angul



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3.4)Product and Specification:

1. Claimed Alumina

2. Alumina hydrate

a)Specialty Hydrates

b) Specialty Alumina

3. Zeolite

4. Aluminium

a)Ingots

b)Wire rods

c)Alloy ingots

d) Alloy wire rods.

e)Billets

f) Cast strip



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3.5)Achievements of Nalco:

1980:

A Memorandum of Understanding was signed in January, by theGovernment of India for technical collaboration and financing of anintegrated alumina-aluminium complex with Aluminium Pechiney ofFrance.

1981:The Company was Incorporated on 7th January, as a wholly ownedenterprise of Government of India. The Company Manufacturealuminium hydrate, claimed alumina, aluminium ingots and aluminiumwire rods.

1993:NALCO signed a project co-operation agreement with HydroAluminiumAG, Norway to carry out a joint study for feasibility ofsetting up a100% export oriented aluminium plant of 0.9milliotonnesper annumcapacity.1,28,86,19,200 No. of shares allotted

1994:The Company proposed to undertake expansion of bauxite mine

from2.4million t.p.a. to 4.8 million t.p.a. and alumina refineryfrom8,00,000 t.p.a. to 13,50,000 t.p.a. This was subject to necessaryclearances.1995:



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A Smelter plant at Angul was undertaken with a capacity of 26000TPYof strip casting facility.

A special Alumina plant at Damanjodi was undertaken with acapacityof 20,000 TPY.A 10,000 TPY detergent grade Zeolite (Zeolite-A) plant at

Damanjodi, was undertaken.

1996:The proposal to expand the capacities of bauxite mine at Panchpatmalifrom 24 lakh tonnes to 48 lakh tonnes and alumina refinery at Damanjodi

from 8 lakh tonnes to 15.75 lakh tonnes was approved bythe Government on 18.12.1996.

1997:Subject to necessary approvals being obtained the company proposedto convert 50% of its existing equity capital into debt.The public sector aluminium giant, National Aluminium Company

(NALCO)set up in technical collaboration with Pechiney, France is thelargest integrated aluminium company in Asia.

National Aluminium Company Ltd (Nalco), country's largestAluminium company, has opened a stockyard at Bhiwandi in Thane

district.National Aluminium Company (Nalco), India's largest producer andexporter, got the ISO 14001 certification for environmentalexcellence.

The National Aluminium Company, Bhubaneswar, signed anagreementof national importance with the NRDC for licensing from the NRDC

the knowhow to manufacture gallium from the sodium alumina plant.

1998:The company has been forced to curtail its power generation



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capacitydue to a drastic reduction in intake by Gridco - the nodal power

transmission and distribution agency in Orissa.

1999:The National Aluminium Company Ltd (NALCO) a Government ofIndia undertaking is setting up a plant for extraction of gallium at itsaluminium refinery complex at Damanjodi.The National Aluminium Company (Nalco) will take overInternational

2000:

Icra has retained the Laaa rating for the Rs 642.58-croreNon-convertible debenture issue of the company, while it hasassigned an A1 rating to the Rs 5-crore CP issue of Narmada Chematur

Petrochemicals.

2001:

A public sector Aluminium Company making a foray into detergentbusiness sounds out of place. But if senior officials of NationalAluminium Company (Nalco) are to be believed, the countrys secondlargest aluminium company will be doing that at its zeolite plantscheduled to start operations in July end.

2002:S Behuria appointed as part time official Director of Nalco.

Nalco's alumina refinery capacity increased to 15.75 lakh tone

2003:Commissions one unit of Captive Power Plant with a capacity of 120



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MW and 120 pots of Smelter with a capacity to produce 57,500 MT ofAluminium per year

Nalco members okay delisting of securities from stock exchanges ofBhubaneshwar,Delhi, Calcutta & Madras

2004:National Aluminium Company Limited (NALCO) has informed thatMadras Stock Exchange Limited vide its letter dated December 22, 2003have withdrawn the admission granted to dealings on their exchange forthe securities of NALCO. Nalco open offer to acquire 20% stake forOndeo Nalco India

2005:

Nalco inks agreement with NMDC.

PERFERMANCE AT A GLANCE( PHYSICAL):

particulars units 2007/08 2006/07 2005/06 2004/05 2003/04

1.production

Bauxite MT 46,84,684

46,23278 4854253 4851721 48,16,76

2

Alumina

Hydride

MT 1575500 1475200 15,90,000

1575500 1556100

Alumina for

In

MT 3,60,45

7

3,58,73

4

3,58,95

4

3,38,48

3

2,98,20

7



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consumption

Rolledproducts MT 10,004 2,587 5,040 858 2,660

Power(net) MU 5,609 5,968 5,679 5,613 5,122

2.Export sales

Alumina MT 8,59,94

3

7,73,57

3

8,62,61

6

9,09,08

1

9,34,87

4

Aluminum MT 1,00,84

7

92,678 95,747 1,32,73

0

1,29,71

8

3.Domestic

sales

Alumina

/hydride

MT 11,307 10,920 12,994 21,177 17,784

Aluminum MT 2,43,064 2,61,636 2,58,094 2,05,794 1,66,650

power MU 129 421 322 406 498



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4. INTRODUCTION TO WORKING CAPITAL

*WORKINGCAPITAL

*WORKINGCAPITAL MANAGEMENT

*TYPESOFWORKINGCAPITAL

*FACTORS DETERMININGWORKINGCAPITAL

*ESTIMATE OF WORKINGCAPITAL REQUIREMENTS

*FINANCINGOFWORKINGCAPITAL

What is WORKING CAPITAL?

Fixed Capital is that part of which is required for the purchase of

fixed assets like Land and Building , Plant and machinery etc. The

fixed capital provides the basic means for the business to earn its

return... But by themselves, these fixed assets would not produce

anything. For instance, to operate the machines, we require men,

materials, power, tools, accessories etc. These factors involve expenses.

In addition, we have to maintain certain current assets like stocks,stores, equipments, etc. All these require enough resources to keep the

wheels of the business in motion. Therefore, in addition to the amount



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of fixed capital every business whether new or growing requires

Working Capital. Working Capital is that portion of a businessconcerns total capital, which is employed in term of operations.Without working capital, fixed capital would be idle and ineffectual.

A number of definitions have been formulated: perhaps the most widely

acceptable would be;

WORKING CAPITAL represents the excess of

CURRENT ASSETS over CURRENT LIABILITIES

The same may be designated in the following equation:

WORKING CAPITAL= CURRENT ASSETS CURRENT

LIABILITIES:

Funds thus invested in current assets keep revolving fast and are being

constantly converted in to cash and this cash flows out again in

exchange for other current assets. Thus it is known as revolving or

circulating capital or short term capital.

These are two concepts of working capital:-

a. Gross Working Capital.b. Net Working Capital.



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Gross working capital is the total of all current assets. Net working

capital is the difference between current assets and current liabilities.Though the later concept of working capital is commonly used it is an

accounting concept with little sense to say that a firm manages its net

working capital. What a firm really does is to take decisions with respect

to various current assets and current liabilities. The constituents of

current assets and current liabilities are shown in table A.

TABLE A:

C onstituent s of C urrent A ssets and C urrent L iabilitie s

P AR T A : C U RRE NT A SS E T S

Inventories Raw materials and components, Work in progress,Finished goods, other.

Trade Debtors. Loans and Advances. Investments. Cash and Bank balance.

P AR T B : C U RRE NT L IABI L I TI E S

Sundry Creditors. Trade Advances. Borrowings.



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Provisions.

4.a). WORKING CAPITAL MANAGEMENT:-

Working Capital Management refers to management of current assets and current

liabilities. The major thrust of course is on the management of current assets This is

understandable because current liabilities arise in the context of current assets.

Working Capital Management is a significant fact of financial management. Its

importance stems from two reasons:-

Investment in current assets represents a substantial portion of totalinvestment. Investment in current assets and the level of current liabilities have to be

geared quickly to change in sales. To be sure, fixed asset investment and long termfinancing are responsive to variation in sales. However, this relationship is not asclose and direct as it is in the case of working capital components. The importance

of working capital management is effected in the fact that financial manages

spend a great deal of time in managing current assets and currentliabilities. Arranging short term financing, negotiating favorable credit

terms, controlling the movement of cash, administering the accountsreceivable, and monitoring the inventories consume a great deal of timeof financial managers.The problem of working capital management is one of the best

utilization of a scarce resource.

Thus the job of efficient working capital management is a formidable

one, since it depends upon several variables such as character of the

business, the lengths of the merchandising cycle, rapidity of turnover,scale of operations, volume and terms of purchase & sales and seasonal

and other variations.



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4. b) TYPES OF WORKING CAPITAL:-

Working Capital may be classified in to two ways:-

a) On the basis of concept.b) On the basis of time.c)

TY P E S O F W ORK I N G CAP I T A L

P er m anent or F ixed Work ing C ap it a l: -

Permanent or Fixed Working capital is the minimum amount which is

required to ensure effective utilization of fixed facilities and for

maintaining the circulation of current assets. There is always a minimum

level of current assets that is continuously required by the enterprise to

carry out its normal business operation. For example every firm has to

maintain minimum level of raw materials, work in process, furnished

goods and cash balance. The minimum level of current assets is called

permanent or fixed working capital as their part of working capital ispermanently blocked in current assets. With the growth of business there

is an increase in current assets.

1) T e mporary or V ar iab le Work ing C ap it a l: -Temporary or Variable Working Capital is the amount of working capital

that is required to meet the seasonal demands and some special

exigencies. Variable working capital can be further classified as:-

a) Seasonal Working Capital.

b) Special Working Capital.



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Most of the enterprises have to provide additional working capital to

meet the special and seasonal needs. The capital required to meet theseasonal needs of enterprise is called Seasonal working capital. Special

working capital is the part of working capital which is required to meet

the special exigencies such as part of working capital which is required

to meet special exigencies such as launching of extensive marketing

campaigns for conducting research etc. is called Special working

capital.

4.c) FACTORS DETERMINING WORKING CAPITAL

REQUIREMENTS:-

With the type of business and the ambition of proprietors the amount is

bound to vary. For instance, a small business would need lesser amount

of working capital than a larger business engaged in the same line. As

the business expands the amount needed would grow. Similarly,

business with seasonal demand would require larger amount of working

capital. Therefore, an estimate of requirements of working capital will

differ from concern and from industry to industry. Further, cyclical

changes, periods of prosperity and depression cause wide variations in

the demand for working capital. Other unexpected happenings are likely

to create unusual demands for working capital.



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There is no concrete formula to decide the amount of workings capital

required by a business. There are also business in which fixed is smallion relation to working capital.

The Major determinants of the proportion of fixed to working capital are

as follows:-

1.N a ture of B us ines s :-Business units selling service (like public utilities) instead of a

commodity, have little need for working capital, as they have little

demand for large inventories. Generally they operate in cash and prepay

basis. But trading concerns (merchandising companies) make a greater

use of working capital, since inventory represents a major item of

investment. A relatively small proportion will consist of working capital

in case of manufacturing concerns. Larger working capital will require in

labor intensive industries than in highly mechanized industries. In

chemical or engineering industries, working capital would be relatively

larger.

1) S ize of B us iness :The working capital requirements of a concern are directly influenced by

the size of the business which may be measured in terms of scale of

operations. Greater the size of a business unit generally larger will be the

requirement of working capital. However, in some cases even a smaller

concern may need more working capital due to high overhead charges

Insufficient use of available resources and other economic disadvantages

of small size.


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P roduc ti on P o li cy : -

In certain industries the demand is subject to wide fluctuation due to

seasonal variation. The requirement of working capital, in such cases

depends upon the production policy. The production could be kept either

steady by accumulating inventories during slack period with a view to

meet high demand during the peak season or the production could be

curtailed during the slack season and increased during peak season. If the

policy is to keep production steady by accumulation inventories it will

require higher working capital. A company should have some productionpolicy i.e. to maintain the production is a considerable range in order to

meet the changing demand. A company like NALCO whose productive

capacities can be utilized for manufacturing varied products can have the

advantages of diversified activities and solve their working capital

problem.

2) Manuf ac tur ing P rocess/ L eng th of theproduc ti on cyc le : -

In manufacturing business, the requirements of working capital increasein direct proportion to length of manufacturing process, longer the

process period of manufacture, longer is the amount of working capital

required. The longer the manufacturing time, the raw materials and other

supplies have to be carried for a longer period in the process with

progressive increment of labor and service costs before the finished

product is finally obtained. Therefore, if there is alternative process of

production, the process with the shortest production period should be

chosen.


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3) Work ing C ap it al Cyc le : -In manufacturing concern, working capital cycle starts with the purchase

of raw materials and ends with realization of cash from the sale of

finished goods. The cycle involves the purchase of raw materials and

ends with the realization of cash from the sale of finished products. The

cycle involves purchase of raw materials and stores, its conversion in to

stock of finished goods through work in progress with progressive

increment of labor and service cost, conversion of finished stick in tosales and receivables and ultimately realization of cash and this cycle

continuous again from cash to purchase of raw materials and so on.

4) Market C ond iti on : -The degree of competition prevailing in the market places has an

important bearing on working capital needs. When competition keen, a

larger inventory of finished goods is required to promptly serve customer

who may not be inclined to wait because other manufacturers are readyto meet their needs, further, generous credit terms may have to be offered

to attract customers in a highly competitive market. Thus, working

capital needs tends to be high because of greater investment in finished

goods inventory and accounts receivable.

If the market is strong and completion weeks a firm can manage with a

smaller inventory of finished goods because customers can be served

with some delay. Further in such situation the firm can insist on cashpayment and avoid lock up of funds in accounts receivable, it can even

ask for advance payment, partial or total.


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5) C red it P o li cy : -The credit policy is concerned in its dealings with debtors and creditors

influence considerably the requirements of the working capital. Aconcern that purchasesits requirementson credit and sells its

products/services on cash requires lesser amount of working capital. On

the other hand a concern buying its requirements for cash and allowing

credit to its customers, shall need larger amount of funds are bound to be

tied up in debtors or bills receivables.

6) B us iness Cyc le : -Business Cycle refers to alternate expansion and contraction in general

business activities. In a period of born i.e. when the business is

prosperous there is a need for larger amount of working capital due to

increase in sales, rise in prices, optimistic expansion of business etc. On

the country at he time of depression i.e. when there is a down swing of

the cycle, business contracts, sales decline, difficulties are faced in

collections from debtors and firms may have a large amount of working

capital lying ideal

7) R a te of G r o w th Of bus iness : -The working capital requirements of a concern increase with the growth

and expansion of its business activities. Although it is difficult to


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determine the relation between growth in the volume of the business and

in the growth of the working capital of the business, yet it may beconcluded that for normal rate of expansion in the volume of the

business, we may have retained profits to provide for more working

capital but in the first growing concerns, we shall require larger amount

of capital.

8) E arn ing C apac ity A nd D iv idendpo li cy : -

Some firms have more earning capacity than others due to

the quality of their products, monopoly conditions etc. Such firms with

high earning capacity may generate cash profits from operations and

contribute to their capital. The dividend policy of a concern also

influences the requirements of the working capital. A firm that

maintains steady high rate of cash dividend irrespective of its generation

of profits needs more capital than the firm retains larger part of its

profits and does not pay high rate of cash dividend.

9) P r ice L evel C hanges : -Changes in the prices level also effects the working capital requirements.

Generally the rising prices will require the firm to maintain larger amount

of working capital as more funds will require maintaining the same

current assets. The effect of rising prices may be different for differentfirms. Some firms may be affected much while some other may not be

affected at all by the rise in prices.

10) O ther F ac tors : -


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3) The length of sales cycle during which finished goods are keptwaiting for sales.

4) The average period of credit allowed to customers.

5) The amount of cash required to pay day-to-day expenses of thebusiness.

6) The average amount of cash required to make advance payment.

7) The average period expected to be allowed by suppliers.

8) Time lag in the payment of wages and other expenses.

4.e) FINANCING OF WORKING CAPITAL:-

The working capital requirements of a business concern can be classified

as:-

a) Permanent or Fixed working capital requirements.



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b) Temporary or Variable capital requirements.

In concern, a part of working capital investments are as permanentinvestment in fixed assets. This is so because there always a minimum

level of current assets which are continuously required by the enterprise

to carry out its day-to-day business operations and this minimum cannot

be expected to reduce at any time. This minimum level of current assets

gives rise to permanent or fixed working capital as this part of working

capital is permanently blocked in current assets. Similarly some amount

of working capital may be required to meet the seasonal demands and

some special exigencies such as rise in prices, strikes etc. this proportion

of working capital gives rise to temporary or variable working capital

which cannot be permanently employed gainfully in business.

The fixed proportion of working capital should be generally financed

from the fixed capital sources while the temporary or variable working

capital requirements of a concern may be met from the short term

sources of capital. The various sources for the financing of working

capital are:-

PER M A N E N T O R F I XE D S OU R CE S O F W ORK I N G C A P I TAL : -

1) Shares2) Debentures



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3) Public Deposits4) Ploughing back of profits

5) Loans from financial institutions

TE M P ORA R Y O R V AR I A B L E S OUR S E S O F W O RK I N G

CAP I T AL : -

1) Commercial banks2) Indigenous bankers3) Trade creditors

4) Installment credit5) Advances6) Accounts receivable- credit/factoring7) Accrued expenses8) Commercial paper

Commercial banks are the most important sources of short term capital.

The major portions of working capital loans are provided by commercial

banks. They provide of wide variety of loans tailored to meet the specific

requirements of a concern. The different forms in which the banks

normally provide loans and advances are as follows:-

A) Loansb) Cash creditsc) Overdrafts



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D) Purchasing and discounting of bills

In addition to the above mentioned forms of direct finance, commercial

banks help their customers in obtaining credit form their suppliers

through the letter of credit arrangements.

It is always a test to the prudence of a financial manager to obtain the

correct amount of working capital at the right time, at a reasonable cost

and at the most favorable terms.

MANAGEMENT OF INVENTORYMANAGEMENT OF CASHMANAGEMENT OF RECEIVABLES

4.f) MANAGEMENT OF INVENTORY:-

Inventories constitute the most significant part of current assets of alarge majority of companies in India. On an average, inventories are

approximately 60 % of current assets in public limited companies in

India.

Because of the large size of inventories maintained by firms maintained

by firms, a considerable amount of funds is required to be committed to

them. It is, therefore very necessary to manage inventories efficiently

and effectively in order to avoid unnecessary investments. A firm


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neglecting a firm the management of inventories will be jeopardizing its

long run profitability and may fail ultimately. The purpose of inventory

management is to ensure availability of materials in sufficient quantityas and when required and also to minimize investment in inventories at

considerable degrees, without any adverse effect on production and

sales, by using simple inventory planning and control techniques.

1.1 Need to Hold Inventories:-

There are three general motives for holding inventories:-

1) Transaction motive emphasizes the need to maintain inventories tofacilitate smooth production and sales operation.

2) Precautionary motive necessities holding of inventories to guardagainst the risk of unpredictable changes in demand and supply forcesand other factors.

3) Speculative motive influences the decision to increases or reduceinventory levels to take advantage of price fluctuations and also for

saving in re-ordering costs and quantity discounts etc.

2.2. Objective of Inventory Management:-

The main objectives of inventory management are operational and

financial. The operational mean that means that the materials and spares



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Should be available in sufficient quantity so that work is not disrupted

for want of inventory. The financial objective means that investments in

inventories should not remain ideal and minimum working capital

Should be locked in it. The following are the objectives of inventory

management:-

1) To ensure continuous supply of materials, spares and finished

goods.

2) To avoid both over-stocking of inventory.

3) To maintain investments in inventories at the optimum level as

required by the operational and sale activities.

4) To keep material cost under control so that they contribute in

reducing cost of production and overall purchases.

5) To eliminate duplication in ordering or replenishing stocks. This is

possible with the help of centralizing purchases.



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1) To minimize losses through deterioration, pilferage, wastages anddamages.

2) To design proper organization for inventory control so that management. Clear cut account ability should be fixed at various levelsof the organization.

3) To ensure perpetual inventory control so that materials shown instock ledgers should be actually lying in the stores.

4) To ensure right quality of goods at reasonable prices.

5) To facilitate furnishing of data for short-term and long termplanning and control of inventory

4.g) MANAGEMENT OF CASH:-

Cash is the important current asset for the operation of the business.

Cash is the basic input needed to keep the business running in the

continuous basis, it is also the ultimate output expected to be realized by

selling or product manufactured by the firm.

The firm should keep sufficient cash neither more nor less. Cash

shortage will disrupt the firms manufacturing operations while

excessive cash will simply remain ideal without contributing anything



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towards the firms profitability. Thus a major function of the financial

manager is to maintain a sound cash position.

Cash is the money, which a firm can disburse immediately without any

restriction. The term cash includes coins, currency and cheques held by

the firm and balances in its bank account. Sometimes near cash items

such as marketing securities or bank term deposits are also included in

cash. Generally when a firm has excess cash, it invests it is marketable

securities. This kind of investment contributes some profit to the firm.

NEEDTO HOLD CASH:

The firms need to hold cash may be attributed to the following three

motives:-

The Transaction Motive: The transaction motive requires a firm to hold

cash to conduct its business in the ordinary course. The firm needs cashprimarily to make payments for purchases, wages and salaries, otheroperating expenses, taxes, dividends, etc.The Precautionary Motive: A firm is required to keep cash for meetingvarious contingencies. Though cash inflows and outflows are anticipated

but there may be variations in these estimates. For example a debtor whopays after 7 days may inform of his inability to pay, on the other hand asupplier who used to give credit for 15 days may not have the stock to

supply or he may not be in opposition to give credit at present.SpeculativeMotive: - The speculative motive relates to the holding of cash forinvesting in profit making opportunities as and when they arise.



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The opportunities to make profit changes. The firm will hold cash, whenit is expected that interest rates will rise and security price will fall.

4.h) MANAGEMENT OF RECEIVABLE:-

A sound managerial control requires proper management of liquid

assets and inventory. These assets are a part of working capital of the

business. An efficient use of financial resources is necessary to avoid

financial distress. Receivables result from credit sales. A concern is

required to allow credit sales in order to expand its sales volume. It isnot always possible to sell goods on cash basis only. Sometimes other

concern in that line might have established a practice of selling goods on

credit basis. Under these circumstances, it is not possible to avoid credit

sales without adversely affecting sales. The increase in sales is also

essential to increases profitability. After a certain level of sales the

increase in sales will not proportionately increase production costs. The

increase in sales will bring in more profits. Thus, receivables constitute a

significant portion of current assets of a firm. But for investment in

receivables, a firm has to insure certain costs. Further, there is a risk of

bad debts also. It is therefore, very necessary to have a proper control

and management of receivables.

3.1. NEEDS TO HOLD CASH:

Receivables management is the process of making decisions relating

to investment in trade debtors. Certain investments in receivables are



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necessary to increase the sales and the profits of a firm. But at the same

time investment in this asset involves cost consideration also. Further,

there is always a risk of bad debts too. Thus, the objective of receivablemanagement is to take a sound decision as regards investments in

debtors. In the words of Bolton, S.E., the need of receivables

management is to promote sales and profits until that point is reached

where the return of investment in further funding of receivables is less

than the cost of funds raised to finance that additional credit.



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5.) Operating cycle:

Operating cycle refers to the time duration required to convert sales

,after the conversion of recourses into inventories, into cash .the

operating cycle of a manufacturing company like NALCO includes:

1.)Accusation of resources such as raw materials, labor, power and fueletc.

2.)Manufacture of the product which includes conversion of materials

into work-in-progress into finished goods.

3.)Sale of the product either for cash or on credit. Credit sales create

account receivables for collection.

OPERATING CYCLE:

COMPONENTS OF WORKING CAPITAL ARE CALCULATED AS

FOLLOWS:

1) Raw Materials Storage Period=Avarage stock of raw materials/Avarage

cost of raw material consumption per day.



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2.) W-I-P Holding period=Average w-i-p in inventory/Average cost of

production per day.

3.) Stores and spares conversion period= Average stock of Stores and

spares/Avarage consumption per day.

4.) Finished goods conversion period= Average stock of finished

goods/Avarage cost of of goods sold per day.

5.) Debtors collection period=Avarage book debts/Avarage credit sales

per day.

6.) Credit period availed=Avarage trade creditors/Average credit

purchase per day..



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WORKING CAPITAL MANAGEMENTAT

NALCO

A) Inventory Management in NALCO:-

NALCO is a large scale manufacturing company involved in mining

of Bauxite and production of Aluminum. Therefore, it has to maintain

large quantity of inventories at production units for its smooth running

and functioning.

During the year 2010 2011, the company bettered its own records of

previous years in many a key field and has exceeded the target set of the

year. In the mine sector, annual Bauxite transportation and excavation of

46,84684 MT have been the highest since inception exceeding the

previous best of 46,23,278 MT during the year 2009 2010.Allumina

production is 9,34,874MTare highest ever since inception exceeding the

previous best of MT achieved during 2008-2009.However the power

generation for the year is little reduced because of the Ash Pond debacle

during the year 2007 December. The major inventory items in NALCOare composed of:-


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1) R a w m a ter ia l The raw material that consist of CP coke, CT pitch,Aluminum fluoride, Pig iron, HFO Alumina and anodes for SMELTER

& COAL, HFO, LDO for CPP & Caustic Soda, Alum, Lime, CGM etc.for Alumina Plant & it has not faced the situation like out of stock ofraw materials during the recent part.

2) S tores and Spares At the time of Procurement of the machinery,

generally some spares procured for immediate maintenance that directlylinked with different equipments. These spares are known as instancespares and most of these items of High Value.Besides for day-to-day maintenance some spares, tools, Consumable e tc

are procured from the near by available market. This also requires

involvement of High Value and these items are consumed on regular

basis for observation and maintenance.

Some items required on regular basis are also procured as AP items i.e.Automatic Procurement basis, once this stock is reduced below

minimum level. Attempt is made to deproparietise and gets the same

from indigenous sources for some reputed spares.

3) In ter m ed iary G ood s- Which consist of Green Anodes, BakedAnodes, Rodded Anode, and Anode stem, etc. for which NALCO hasinstalled its own plant for producing the Green & Baked Anodes andimports them only when there is a shortage.

4)F in ished G oods- That consists of Bauxite, Aluminum Hydrate,Alumina, Aluminum Ingots, Sow Ingots, Billets, Wire rod Sheets etc.The finished Products of NALCO move fast and hence the stock ofFinished Goods is very less in company.


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The company also effectively reduces the rejected inventory. The

rejected inventory in NALCO comprises of anode butts and rejectedfinished products. Anode rejects are recycled and reused in the process

while finished stocks rejects are either recycled or sold at a lower price.

The company is exercising goods control of minimize the rejects.

(A) INVENTORY NORMS:

Insurance Items:Broadly the insurance items are those items which are installed with

equipments on the critical path of the production chain, which do not

normally wear out, which are not easily available, have long lead time

and failure or damage or break down of the items will lead to stoppage of

the unit and production loss.

NORM- 1.26% of the cost of plant & machinery. The value limited to

be adjusted at the end of financial year applying RBI index for plant &

machinery.

Raw Materials:Caustic Soda- 3 months Consumption (1 month at Damanjodi and 2months at Vizag)C.T. Pitch - 2 months consumption. Other 1 month consumption


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Stores & Spares:

Imported and Proprietary items 17 months consumption. Othersspares- 14 months consumption. Consumables Stores 6 months

consumption.

B) CASH MANAGEMENT OF NALCO.

NALCO has been accumulating huge cash surpluses over last several

years, which enables the organization to maintain adequate cash reserves

and to generate required funds from within the organization i.e. from

internal sources.

The key areas of effective cash management in NALCO are:

1. Identifying the requirements of funds at various units2. Investment of surplus funds productively.3. Repayment of loans.4. Proper capital expenditure.5. Standardized reporting system

Control on cash flows:

NALCO, a multi-core Organization, exercises food control over its cash

flows by adopting centralized cash management system and strict

reporting system.

Centralized Cash Management system:



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For centralized cash management system, NALCO has chosen State

Bank of India (S.B.I) as its sole banker and the control cash account of

the company is maintained at the S.B.I. main branch, Bhubaneswarunder direct control of NALCOs Corporate Office. About ten branches

of the company, including manufacturing units, spread across the

country, are converted under the centralized cash management system.

No cash is maintained at the branches and the TM branches have been

authorized to honor the cheque presented by the company without any

upper limit TM the transactions are transmitted to the central cash account

at Corporate Office on a day to day basis. Similar account is alsomaintained by NALCOs corporate office for proper reconciliation. The

information regarding daily cash flows different branches is monitored

simultaneously by the S.B.I. as well as by NALCOs corporate office.

Besides, NALCO also has cash collection center at different branches

and realization of sale are credited and transferred to the central cash

account daily. The encores time and quick realization of cash.Moreover, optimum level of funds is readily available with thecompany, by not maintaining any balances at different branches of

S.B.I.

Similarly, NALCO is exercising strict control over the payments made

by its various branches. Through the manufacturing units are authorized

to issue cheques, they are required to obtain clearance from thecorporate office for all payments exceeding a prescribed limit, before the

actual realization of such cheques. Further, the units are required to



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make forecast of cash flow on a routine basis and intimate the same to

the corporate office to ensure prompt availability of funds. The cashflow projections submitted by different branches at the corporate office

are consolidated. Accordingly, the corporate office chalks out effective

cash flow strategy to ensure minimum holding of cash as well as

avoiding deficit at the same time.

NALCO being cash rich company by nature, the extent of success lies in

how quick the company has identified its surplus funds and invested the

same in short term investment for optimization of wealth.

The Reporting system in NALCO:

Proper reporting or management information system is one or the key

factors for the success of an organization. NALCO has introduced a strict

management information system to ensure proper functioning of control

mechanism of fulfillment of objectives.

The reporting system in NALCO mainly includes:-

1) Forecasting of monthly cash flow/Operating performance.

2) Reporting of actual vis--vis forecasted cash flow on weekly basis

3) Reporting of receipts and payment at different units of daily basis.

The monthly forecasts of cash flows are flexible in nature. While

reporting the weekly cash flows; the units have a scope to revise the

forecasted and submitting them to the corporate office before the


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beginning of every month. Based on these, the corporate office prepares a

consolidated cash flow statement. This consolidated cash flow statementfrom the main basis to plan the funds flow for the coming month, and this

is a continuous process. On the other hand the daily report enables the

company to know the latest surplus cash balance available and thus

helps the company in taking various investment decisions. In case of any

crises, special reports are made to identify the resources where the funds

are to be realized. NALCO even has a cash credit arrangement with State

Bank of India (S B I), though there has never been any excess withdrawal

during the last five years. This clearly indicates the effective and efficient

management of cash in NALCO.

MAINTAINANCE BILL PAYMENTS SECTION:

For awarding work order on contractual basis to a local party three rates

are taken into consideration. These are:-

Zero Base Budgets

Last Year Rate + Some percentage (%) due to inflation

Delhi Subsidiary Rate

C) RECEIVABLE MANAGEMENT IN NALCO:



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NALCO has set up its marketing office at all metro cities in India i.e.Mumbai, Kolkata, New Delhi, Chennai, Bangalore, and Pondicherry.

This marketing office obtains sales order from Aluminum users in India

as well as globally. On the basis of order received for different products

it marks production planning of different i.e. Ingot sow ingot, Billets,

Wire etc. and accordingly advices product ion planning at Production

Units Marketing office also sends dispatch instruction to dispatch

section, which indicates various commercial terms i.e. product

requirement, mode of dispatch, payment terms etc.

The function of Dispatch department is to receive finished product

from production department and segregateitonthe basis of itslaboratory analysis and grade. It keeps account of the various grade of

finished product received by them. As per the sale order/dispatch

instruction received from marketing office for export /domestic sale thedispatch departments segregates and prepares the materials fordispatching the same by Rails/Roads/Trucks. The materials are handed

over to the transporter. On completion of dispatch of the consignment as

per dispatch advice, the dispatch department sends all the dispatch

documents which delivery invoice and a copy of L.R tofinancedepartment .on the basis of this the finance department makes acommercial invoice in which takes care of Taxes and other duties over

and above the cost of product and sends it to the Marketing office may



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be in the form of Banker cheque ,bank draft or in the from of letter of

the credit opened by the buyer .The buyer opens a letter of credit with its

banker. On completion of dispatch, on the basis of commercial invoiceand proof of dispatch the money is realized by the Nalcos banker from

the buyers bank.



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DATA ANALYSIS AND INTERPRETATION:

(Rs in cores)

2004/05 2005/6 2006/7 2007/8

A: CURRENT ASSETS:

Inventories: 529.06 591.58 634.96

686.65

Sundry debtors: 92.81 29.42 34.13

60.65

Cash and bank balance: 755.21 2193.71 3686.53

3516.46

Other current assets: 82.01 118.62 212.4 236.46

Loans and advances: 351.95 364.95 406.42541.10

TOTAL: 1811.04 3257.88 5041.33 4974.08

B: current liability:

Sundry creditors:

a) on capital a/c: 64.72 44.39 102.09 272.78

b) on others: 169.38 222.95 260.74324.94



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Other liabilities: 326.92 284.96 424.64 557.94

Security deposit: 55.92 55.10 74.66 162.69

Book over draft .. 9.98 ..

Provisions: 190.14 332.82 346.49 222.57

TOTAL: 806.39 940.15 1218.61 1540.40

WORKING CAPITAL (A-B): 1004.65 2317.73 3822.72 3433.68

ITEMS OF WORKING CAPITAL AS % OF WORKING CAPITAL

2007/8

2004/05 2005/6 2006/7

A: CURRENT ASSETS:

Inventories: 52.66 22.50 16.61

19.99

Sundry debtors: 9.23 1.26 0.89 1.76

Cash and bank balance: 75.17 94.64 96.43

102.41

Other current assets: 8.16 5.11 5.55 6.88

Loans and advances: 35.03 15.74 10.63 15.75



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TOTAL: 180.26 140.56 131.87 144.86

B: current liability:

Sundry creditors:

a) On capital a/c: 6.24 1.91 2.67 7.94

b) On others: 16.85 9.61 6.82 9.46

Other liabilities: 32.54 12.29 11.10 16.24

Security deposit: 5.56 2.37 1.95 4.73

Book over draft - - 0.26 -

Provisions: 18.92 14.35 9.06 6.48

TOTAL : 80.26 40.56 31.87 44.86

WORKING CAPITAL (A-B): 100 100 100 100



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Analysis of Working capital:

1. INVENTORIES:

Interpretations: Inventories constitute the maximum portion of workingcapital. It is increasing year by year .The inventories as a percentage ofworking capital are always decreasing. Inventories in Nalco include the

following.

Raw materials: Raw materials occupy the least in the inventories in allthe years.

Stores and spares: Stores and spares also constitute an average nearly30% of the working capital. The firm has excessive blockage of funds inthe stores and spares.Semi/Finished Goods: Maximum portion of the inventory held bysemi/finished goods which almost occupy equal share in working capitalin all the years. Semi/finished products when compared with sales figureindicate that productivity and efficiency of plant has improved as saleshave grown up subsequently.Inventories of stores and spares ,other than insurance spares identifiedas not moved for more than 5 years valued at 5% of the cost.


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SUNDRY DEBTORS:

Interpretations:

Sundry debtors occupy very small portion of the working capital. It is

9.23% in the year 2005,1.26%in the year 2006,it is 0.89% in the year

2007 & it is 1.76 in the year 2008.It is a good signal for the company

because it indicates reduction in defective products as debtors in the

balance sheet represents debtors with respect to plant sales only. It is

seems that the sundry debtors reduces year by year it is good for the

company.

CASH AND BANK BALANCES:

INTERPRETATION:

Cash and bank balances occupy a major part of the working capital. It is

75.17% of the working capital in the year 2005,94.64% in the year2006,it is 94.43% in the year 2007&it is more than 100% in the year

2008 that is 102.41%.NALCO maintains a centralized cash management

system so the cash management is very good in NALCO. For



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centralized cash management system, NALCO has chosen State Bank of

India (S.B.I) as its sole banker and the control cash account of thecompany is maintained at the S.B.I. main branch, Bhubaneswar under

direct control of NALCOs Corporate Office. Here it is seen that the

cash and bank balances of NALCO increases year by year which is good

sign for the company.

OTHER CURRENT ASSETS:

Interpretation:Here it is seen that the other current assets are increasing year by year .Here it is seen that the other current assets are 8.16% in the year 2005,itis 5.11%in the year 2006,It is 5.55%in the year 2007 & it is 6.88% ofthe working capital in the year 2008.the other current assets holds a verynegligible portion of the working capital in all the subsequent 4 years.

These assets are those assets which are other than the assets which ismentioned in the current assets.

LOANS AND ADVANCES:

Interpretation:

Here in the loans and advances of Nalco we see that it is increasinggradually in the subsequent 4 years. The %of the loans and advancescover very negligible %of the working capital. Here it is 35.03% in theyear 2005, 15.74% in the year 2006, 10.63%in the year 2007& it is17.75% in the year 2008.


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SUNDRY CREDITERS:



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Interpretation:

Here in these 4 subsequent years it is seems that the sundry creditors

increase year by year by year. The sundry creditors on capital and others

also increase subsequently. On capital it is 6.24% in the year

2005,1.91%in the year 2006%,it is 7.94%in the year 2007 &it is 7.49%

in the year 2008.on others it is 16.85% in 2005,9.61% in the year

2006%,it is 6.82% in the year 2007 & it is 9.46% in the year 2008 ofthe total working capital.

OTHER CURRENT LIABILITIES:

Interpretation:

Here it is seems thats the other current liabilities also increasing

gradually year by year. This figure represent not heavy amount of

current liabilities occurs by NALCO. It is 32.54% in the year 2005,it is

12.29%in the year 2006,it is 11.10% in the year 2007 & 16.24% in the

year 2008. It seems that it does not constitute a huge amount of working

capital.

SECURITY DEPOSITS:



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Interpretations:

The security deposits increases gradually year by year in the 4 years.

Security deposits refers to those current liabilities which taken from the

customers who wants to purchase some specific type of products .It

occupies a very small portion of working capital. The security deposits

constitute a very small portion of the working capital.

BOOK OVER DRAFT:

Interpretations:

The book over draft is nil in three years but it is 9.98% in the year

2007.which constitute a very small percentage of working capital.

PROVISIONS:

Interpretations:

Provisions from a basic ingredient of working capital as it constitute a

large portion of current liabilities. In absolute figures the provisions

increases in the year 2006 & it decreases in the year 2008.IT is 18.92%


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in the year 2005, 14.35% in 2006, 9.06% in 2007, 6.48% in 2008.which

is not constitute a huge % of working capital.



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OVERALL ANALYSIS OF WORKING CAPITAL:

Interpretations:

Here it is seems that the working capital increases in the year 2006

&2007 but it decreases in the year 2008.It is good for a company torequire less working capital. But in NALCO it increasing rapidly in the

subsequently in the year 2006 &2007 but it decreases we can interprets

that the plant is in a favorable condition. This made possible due to

proper co ordination between the departments, policies etc. In the last

four years the current asset always higher than the current liabilities

which avoids the risk of negative working capital which avoids ht e risk

of meeting the short term obligations on due date for the share

holders,lenders,and outsiders can trust upon the company.

It can concluded that the decreasing working capital of NALCO has not

shown any negative impact because the firm is still in a way to achieve

profit despite a large amount of working capital. The firm able to avail

more credits from i.e. the confidence of the creditors is not a stake.

21288562 Report on Working Capital (1)

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Transcript of 21288562 Report on Working Capital (1)