Working Capital Management

Syamaprasad College

Registration No: 016-1121-0589-10

College Roll No.:301-0202

B.Com (Hons.)Third Year

MdSabbirHussainWorking capital is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity.

I would like to express my special thanks of gratitude to my teachers as well as our principal who gave me the golden opportunity to do this wonderful project on the topic “Working Capital Management”, which also helped me in doing a lot of Research and i came to know about so many new thingsI am really thankful to them.Secondly i would also like to thank my parents and friends who helped me a lot in finishing this project within the limited time.

I am making this project not only for marks but to also increase my knowledge.THANKS AGAIN TO ALL WHO HELPED ME.

ACKNOWLEDGE

This is to certify that Md. SabbirHussain, B.com third year student of Syamaprasad College has done project work on “Working Capital Management” under the guidance of teachers of Syamaprasad College and have completed it successfully.

Regards,

Md. SabbirHussain

CERTIFICATE

Chapter-1:

IntroductionRelevance of the studyWorking Capital

Management theory

Chapter-2:Company Profile

Chapter-3: Research Methodology

Chapter-4: Analysis

Chapter-5: Findings of the study

Chapter-6: Conclusion & Recommendation

Chapter-7: Implication for future research

CONTENT

CHAPTER-1

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

INTRODUCTION

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 productionbut at the same time, it will consume a lot of

working capital. Here creeps the importance and need of efficient working capital management.

RELEVANCE OF

THE STUDY

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 research methodology of the study including sources of data collection,

formulas and statistical tools used for data analysis.

Chapter -4 represents results and findings.

Chapter -5 represents conclusion and suggestion.

Chapter -6 represents implication for future research.

MEANING AND DEFINATION:

A part from investment in fixed assets, every enterprise has to arrange for adequate funds for meeting day (operations) expenses to keep it a concern. So originally speaking working capital refers to the flow funds , necessary for working of enterprise however these is no agreement among the financial experts regarding the meaning of working capital. They define working capital in the following ways.

ACCORDING TO MEAD MALLOT:

“Working capital means current assets”.

ACCORDING TO WESTON AND BRIGHAM:

“Working capital refers to a firm investment in short term assets, cash, short term securities, accounts receivable and inventories”.

CONCEPT OF WORKING CAPITAL:-

There are 2 concepts of working capital:

Gross working capital: The term gross working capital also referred to as a working capital means the total current assets. Net working capital: The term net working capital can be defined in 2 ways.

1. The most common definition of net working capital is the different between current assets and current liabilities.

2. Alternate definition of net working capital is that portion of current assets which is financed with long term funds.

The task of the financial manager in managing working capital efficiency is to ensure sufficient liquidity in the operation of the enterprise. The liquidity of a

WORKING CAPITAL MANAGE

MENT THEORY

business firm is measured by its ability to satisfy short term obligations as they become due. The three basics measure of a firm’s overall liquidity are

1. The acid test ratio

2. The net working capital

3. The current ratio

In brief, they are useful in inter firm comparison of liquidity. Net working capital as a measure of liquidity is not very useful for comparing the performance of different firms, but it is quite useful for internal control. The net working capital helps in comparing the same firm over time.

NEED FOR WORKING CAPITAL:-

In order earn sufficient profits, a firm has to depend on its sales activities apart from others. We know that sales are not analysis converted into cash immediately. i.e., there is a time lack between the sale of a product and the realization of cash so, an adequate amount of working capital is required by a firm in the form of different current assets for its activities to continue uninterrupted and to tackle the problem that may arise because of the time lay. Practically this happens simply owing to the “operating cycle”(or) “ cash cycle”, involves the following steps.

(a) Conversion of cash into inventory.

(b) Conversion of inventory into receivables.

(c) Conversion of receivables into cash.

NATURE OF WORKING CAPITAL:-

The term working capital refers to current assets which may be defined as

(1) Those which are convertible in to cash or equivalents with in a period of one year and

(2) Those which are required to meet day operations.

This fixed assets as well as current assets, both required investment of funds. So, the management of working capital and of fixed assets, apparently seen to involve same type of consideration but it is not so. The management of capital involves different concepts and methodology than the techniques used in fixed assets management. The reason for this different is obvious. The very basics of fixed assets decision process (i.e. the capital budgeting ) and the working capital decision process are different. The fixed assets involve long period perspective and therefore, the concept of time value of money is applied where as in working capital the time horizon is limited, in general, to one year only and the time value of money concept is not considered. The fixed assets the long term profitability of the while the current assets affect the short term liquidity position. Managing current assets may require more attention than managing fixed assets. The financial manager must therefore continuously monitor the assets to ensure that the desire levels are being maintained. Since the amount of money invested in current assets can change rapidly. So does the financing required. Mismanagement of current assets can be costly. Too large an investment in current means tying up funds that can be productively used elsewhere (or it means added interest cost if the firm has borrowed funds to finance the investment in current assets). Excess investment may also expose the firm to undue risk eg. In case, the inventory cannot be sold or the receivable cannot be collected.

On the other hand, too little investment also can be expensive for ex:-insufficient inventory may mean that sales are lost as the goods which a customer wants are not available. The results is that financial managers spend a large chunk of their time managing the current assets because level of these assets changes quickly and a lack of attention paid to them may result in appreciably lower profits for firm. So, in the working capital management, a financial manager is faced with decisions involving some consideration as follows:

1. What should be the total investment in working capital of the firm?

2. What should be the level of individual current assets?

3. What should be the relative proportion of different sources to financial the working capital requirements?

Thus the working capital management may be defined as the management of firm’s sources and uses of working capital in order to maximize the wealth of the shareholders. The proper working capital management requires both the medium term planning (say up to 3 years) and the immediate to changes arising due to fluctuation in operating levels of the firm.

THE OPERTING CYCLE AND THE WORKING CAPITAL NEEDS:-

The working capital requirement of a firm depends, to a great extent up on the operating cycle of the firm. The operating cycle may be defined as the duration from the procurement of goods or raw materials and ending with sales realization. The length and nature of the operating cycle may differ from one firm to another depending up or the size and nature of the firm.

In a treading concern there is a serious of activities starting from procurement of goods ending with realization of sales revenue. Similarly in case manufacturing concern . This serious start form procurement of raw material and ending with the sales realization of finished foods. In both the cases however there is a time gap between the happening of the first event and the happening of last event . This time gap is called operating cycle. Thus the operating cycle of a firm consists of time required for the completion of chronological sequence of some or all of the following.

1. Procurement of raw material and services

2. Conversion of raw material in the work in progress.

3. Conversion of work in progress in to finished goods.

4. Sales of finished goods. (Cash or credit).

5. Conversion of receivable into cash.

The firm is after required to extend credit facilities to customers. The finished goods must be kept in store to take care of the orders and minimum cash balance

must be maintained. It must also have minimum of raw material to have smooth and uninterrupted production process. So in order to have a proper and smooth running of the business activities, the firm must make investment in all these current assets. This requirement of funds depend up on the operating cycle period of the firm and also denoted as the working capital needs of the firm.

OPERATING CYCLE PERIOD:-

The length of time duration of the operating cycle of any firm can be defined as the sum of its inventory conversion period and the receivable conversion period.

(1)INVENTORY CONVERSION PERIOD:-

It is the time required for the conversion of raw material in to finished goods sales. In a manufacturing concern the ICP is consisting of raw materials conversion period(RMCP), work in progress conversion period (WPCP), and the finished goods conversion period (FGCP). The RMCP refers to the period for which the raw material is generally kept in store before is issued to the production department. The WPCP refers to the period for which the raw material remains in the production process before it is taken out as a finished unit. The FGCP refers to the period for which finished units remain in stores before being sold to the customers.

(3) RECEIVABLES CONVERSION PERIOD (RCP):

It is the time required to convert the credit sales in to cash realization. It refers to the period between the occurrence of credit sales and collection of debtors.

The total of ICP and RCP is also known as total operating cycle period(TOCP). The firm might be getting some credit facilities from the supplier of raw material wag earners etc. this period for which the payment it these parties are deferred or delayed is known as deferral period. The net operating cycle of a firm is arrived at by deducting the deferral period from total operating cycle period. Thus,

NOC = TOCP-D = ICP+RCP- DP.

OPERATING CYCLE

The duration of time required for completing the following sequences of events in case of manufacturing firm s called the operating cycle.

1. Conversion of cash into raw material.

2. Conversion of raw material into work in progress.

3. Conversion of work in progress into finished goods.

4. Conversion of finished goods into debtors & bills receivable through sale.

5. Conversion of debtors & bills receivable into cash.

The duration of the operating cycle for the purpose of estimating working capital requirement is equivalent to the sum of duration of each of these tables less the credit period allowed by the suppliers of the firm.

TYPES OF WORKING CAPITAL

1. NET WORKING CAPITAL:

CASH

ACCOUNTS RECIEVABLE

FINISHED GOODS

RAW MATERIAL

WORK IN PROGRESS

The net working capital is the different between current assets and current liabilities. The concept of net working capital enables a firm to determine how much amount is left for operational requirements.

2. GROSS WORKING CAPITAL:

Gross working capital is the amount of funds invested in the various components of current assets.

3. PERMANENT WORKING CAPITAL:

Permanent working capital is the minimum amount of current assets which is needed to conduct a business even during the dullest season of the year. The amount varies from year to year depending up on the growth of the company and stage of business cycle in which it operates. It is the amount of funds required to produce goods and services which are necessary to satisfy demand at a particular point.

4. TEMPORARY OR VARIABLE WORKING CAPITAL:

It is represents the additional assets which are required at different times during the operating year additional inventory, extra cash etc., seasonal working capital is the additional amount of current assets particularly cash, receivables and inventory which is required during the more active business seasons of the year.

5. BALANCE SHEET WORKING Capital:

The balance sheet working capital is one which calculated from the items appearing in the balance sheet. Gross working capital which is represented by the excess of current assets, and net working capital which is represented by the excess of current assets over current liabilities are examples of balance sheet working capital.

6. CASH WORKING Capital:

Cash working capital is one which is calculated from the appearing in the profit and loss account. It shows the real flow of money or value at a particular

time and is considered to be the most realistic approach in working capital management. It is the basis of the operating cycle concept which has assumed a great importance in financial management in recent years. The reason is the working capital indicates the adequacy of the cash flow. Which is an essential pre-requisite of a business.

7. NEGATIVE WORKING Capital:

Numbers working capital emerges when current liabilities exceed current assets. Such a situation is not absolutely theoretical, and occurs when a firm is nearing a crisis of some magnitude.

49 DETERMINANTS OF WORKING CAPITAL:-

Numbers of rules are formulated to determine the working capital requirement of the firm. A large number of factors influence the working capital needs of the firm. All these factors have different importance, also the importance of the factor change for a firm over time. Therefore analysis of the relevant factor should be made in order to determine the total investment in working capital requirements of the firm.

1. Nature and size of business

2. Seasonality of operation

3. Production policy

4. Marketing conditions

5. Business cycle fluctuation

6. Credit policy

7. Conditions of supply

8. Working capital policy

9. Current assets in relation to sales

NATURE OF BUSINESS:-

The working capital requirement of a firm is closing related to the nature of its business. A service firm like an electricity. A service firm like an electricity undertaking of a transport corporation, which has short operating cycle and sells on cash basis, has modest working capital requirement. On the other hand manufacturing concern like machine tools units which has long operating cycle and which sells largely on credit had varied substantial working capital management.

SEASONALITY OF OPERATION:-

Firms which have market seasonally in their operation usually have highly function working capital requirement. For a sugar industry the raw material i.e., sugar cane is available in particular season only. So sugar industry mainly depends upon seasonality of operations.

PRODUCTION POLICY

A firm marked by pronounced seasonal fluctuations in its sales many pursue a production policy which many reduce the shape variation is working capital requirement.

MARKETING CONDITIONS:

In view of competitive conditions prevailing in the firm may have to offer liberal credit terms, to customs resulting in higher debtors, even large inventories many be maintain to serve an order as and when received. Thus the working capital tends to be high as a result of investors in inventions & receivable.

BUSINESS CYCLE FLUCTUATIONS:-

Different phases of business cycle i.e. boom, recession, recoveryetc, also effect working capital requirement. In case of born conditions inflationary pressure appear and business activities expand. As a result the overall need for cash , inventories etc., increase resulting more and more funds blocked in these current assets. In case of recession period. However, there is usually dullness in

business activities and there will be opposite effect on the level of working capital.

CREDIT POLICY:-

The credit policy means the totality of terms and conditions on which goods are sold and purchased. At firm has interact with 2 types of credit policies at a time one, the credit policy of the supplier of raw material, goods etc, and two the credit policy relating to credit which it extends to its customer. In both the cases, however, the firm while deciding its credit policy has to take care of credit policy of the market for example affirm might be purchasing goods and services on credit but selling foods only for cash the working capital requirement of this firm will be lower than that of a firm which is purchasing cash, but has to sell on credit basis.

CONDITIONS OF SUPPLY:-

If the supply is prompt and adequate the firm can manage with small inventory, if the supply is unpredicted and service then the firm has to ensure continuity of production.

WORKING CAPITAL POLICY:-

Two important issues in formulation the working capital policy are:

1. What should be the ratio of current assets to sales?

2. What should be the ratio of short term financing to long-term financing.

CURRENT ASSETS IN RELATION TO SALES:

It usually does the investment in current assets cannot be specified unequally. In sales of uncertainty the outlook on current assets would consist of base component meant to meet normal requirement and safety component mean to copy with unusual demands and requirements. The safety assets policy of the firm.

1. If the firm pursues a very conservation current assets policy is should carry ahigh level of current assets in relation to sales.

2. If the adopts a moderate current assets policy it would carry a moderate level of current assets in relation to assets.

3. If the term follows highly aggressive current assets policy. It would carry a low level of current assets in relation of sales.

A conservative current assets policy trends to reduce risk. The surplus current assets under the policy enable firm to copy rather easily with variations in sales.

54&55 an aggressive current assets policy seeking to minimize the investment in current assets exposes the firm to greater risk.

RATIO OF SHORT TERM FINANCING TO LONG TERM FINANCING:-

What would be the relative proportions of short-term bank financing on one hand and long-term sources of finance and the other hand. The board policy alternatives in the respect are:

1. A conservative current assets financing policy.

2. An aggressive current assets financing policy.Conservative current assets financing policy refills less on short-term bank financing and more long onterm sources like debentures.An aggressive current financing policy relies heavily on short-term bank finance and seek to reduce dependence on long –term financing.

CHOOSING THE WORKING CAPITAL POLICY:-

The overall working capital policy adopted by the firm may broadly:-

1. Conservative

2. Moderate

3. Aggressive

CONSERVATIVE:

A conservative overall working capital policy means that the firm chooses conservative current assets policy along with conservative current assets financing policy.

MODERATE:

A moderate overall working capital policy reflects a combination of a conservative current assets policy and aggressive current assets financing policy or a combination of an aggressive current assets policy and conservative current assets financing policy.

AGGRESSIVE:

An aggressive overall working capital consists of an aggressive current assets policy and aggressive current assets financing policy.

FINANCING OF WORKING CAPITAL:-

Normally, financing arrangements are planned for a combination of needs including capital expenditure and working capital investment the assessment of sources of funds from a package and rarely will be possible to concept up to a particular shows to a specific application or use at the same time financing manager does make an assessment of the investment needs as well as current assets and decider an a proper mix of long and short term funds. Taking note of the internal generation of funds for 56 &57 the period in question be decisions on the extent to which the firm would resort to issue of share or long short-term borrowing to mobile the required sources.

Typically the current assets of a firm are supported by the combination of long term and short term sources of financing long term sources of finance are equity, preference term loans and debentures which primarily are fixed assets and secondarily provide working capital margin.

Where the commitments are certain but cash flows are not clearly predictable, it would wise to cut down drastically the number and extent of short term debts to manageable levels and prefer longer maturity schedules for debts.

Short term debts can take care of the seasonal needs of the organization even here to take care of vagaries in cash flow; a part of the funds required may be obtained from sources with longer maturity schedules of the debts. Thus usually permanent and long-term finance is used to finance the permanent requirements or fixed assets and the net permanent current assets and an apart of the reasonable short term needs.

The important sources of finance which more or less exclusively support current assets are:

1. Trade credit

2. Working capital advances by commercial bank.

3. Public corporate deposits

4. Inter corporate deposits

5. Short term loans from financial institutions .

6. Rights debentures for working capital.

7. Emerging sources commercial paper and factoring.

Of all the above the most significant sources of working capital finance are trade credit and bank borrowings, after trade credit bank borrowing are the next important sources of financing working capital requirements of firms in India. Tandon committee has suggested guidelines for the ratio allocation and optimumuse of the bank credit for the working capital requirement.

TANDON COMMITTEE RECOMMENDATIONS:-

1. The borrowers should indicate the likely demand for credit. For this purpose, he should draw operating plans for the ensuring year and supply them bankers. This procedure will facilitate credit planning at the bankers credit needs in a realistic manner and the periodic follow up during the ensuring year

2. The bankers should finance only the genuine production needs of the borrower. The borrower should maintain the reasonable levels of the investor

and receivable. He should hold just enough to carry on his targets production. Efficient management of resources should, therefore, be ensured to eliminate slow moving and flabby inventories.

3. The working capital needs of the borrower cannot be entirely financed by the bankers. They will finance only a reasonable part for the remaining borrower should depend upon his own funds, generated internally and externally.

CHORE COMMITTEE RECOMMENDATIONS:-

1. Borrowers should submit quarterly projection of cash credit banks.

2. The banks while assessing the credit requirements from borrowers should fix separate limits whereas feasible.

3. As far as possible the borrowers should be discouraged for approaching the bank frequently limitation in excess of sanction limits.

4. Suitable provision should be made for charging of penalty rate of interest in even of any defaults in the timely repayment of working capital loan.

CHANGES IN WORKING CAPITAL:-

The working capital of a concern is subject to changes due to several reasons. As we know that the gross working capital is equal to current assets. But net working capital we mean the excess of current assets over current liabilities. The net working capital is therefore, affected by the following transactions.

1. Which increase the current but not the current liabilities.

2. Which decrease the current assets and current liabilities both increase in the same direction by a transaction it does not bring any change in the net working capital of the concern. Only the total of current assets and current liabilities increase and decrease.

REASONS FOR CHANGES IN WORKING CAPITAL:-

1. Changes in the level of sales and\ or operating expenses.

2. Policy changes.

3. Changes in the technology.

STATEMENT OF CHANGES IN WORKING CAPITAL:-

Until now any increase decrease in any individual item of current assets and current liabilities was shown in the funds flow statement. But now a statement is prepared to deficit the changes in working capital. The net increase or decrease is then carried forward to the funds flow statement.

The statement of working capital is prepared with the help of current assets and current liabilities of the two periods the figures of 2 periods are compared. If there is an increase in the amount of any current liabilities in the current year in comparison to that in that in the previous year, it will result to an increase in the working capital. Similarly, a decrease in the amount of any current assets or an increase in amount of current liabilities in the current year in comparison to that in the previous year and total decrease in the end is compared and the different of total increase and total decrease shows net increase or decrease in the working capital.

Net increase in working capital is an application of funds and net decrease in working capital in the source of funds. A form of statement is shown below.

CHAPTER-2

ORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)

Registered Office: Janpath, Bhubaneswar - 751022Phone : (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.

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 cktkms 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.

COMPANY

PROFILE

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 DespatchCentres

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.

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 DespatchCentres

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

RelatedActivities) 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 the

fourth 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 Transmission

Corporation Limited “ was incorporated on 29.03.2004 to carry on the

business 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

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

RESEARCH

METHODOLOGY

working capitalmanagement 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. 2006-2007

2. Annual report of OPTCL 2007-2008

3. Annual report of OPTCL. 2008-2009

4. Annual report of OPTCL. 2009-2010

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-4

Theresult 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 1: COMPONENTS OF WORKING CAPITAL)

Table 1.1 2006-2007(Rs) 2007-2008(Rs) 2008-2009(Rs) 2009-2010(Rs)

Cash 648,276,812 490,881,183 907,019,750 727,106,129

Debtors 798196201 1,05,24,79,982 1,05,50,97,473 1,05,56,31,698

Inventories 751064690 76,68,65,262 80,85,19,278 96,90,56,460

sundry Creditors 61,03,22,496 66,51,67,980 68,95,26,597 72,40,51,456

Provisions 83,08,65,819 1,30,45,17,744 4,81,70,02,603 5,69,56,67,475

An insight into the table reveals that:

Cash and bank balances in 2006-2007 were Rs 648276812. It is decreased to Rs

490,881183. With a-24.27% growth. In 2008-2009 it increased to Rs 907,019,750. And

then it suddenly decreased to Rs 727,106,129.

Debtors increases which was not a good sign. In 2006-2007 debtors were Rs

79,81,96,201 and it increased Rs 105,24,79,982 a total increase in Rs 254283781. In

2008-2009 it was Rs 1,05,50,97,473. And in 2009-2010 it again increased to Rs

1,05,56,31,698.

ANALYSIS

Inventories were increased at a good speed. The inventories were Rs 79,81,96,201 in

2006-2007. In 2007-2008 it increased to Rs 76,68,65,262, ultimately increase in Rs

15800572, with the percentage growth 2.10%. In 2008-2009 it increased to Rs

80,85,19,278 with the increase in 7.7% . in 2009-2010 it again increased to 96,90,56,460

with a increase in 29%.

Sundry creditors also increased a lot. In 2006-2007 it was Rs 61, 03, 22,496. Then it

increased by Rs 5,4 8,45,484 which ultimately amounted to Rs66,51,67,980 with a

increase of 8.99%. in the year 2007-2008. In 2008-2009 it increased to Rs 68,95,26,597

with a percentage increase of 12.98%. in 2009-2010 it again increase to Rs 72,40,51,456.

Provisions also increased throughout this 4years. In 2006-2007 it was Rs83,08,65,819.

Then it increased to Rs 1,30,45,17,744 with a percentage increase of 57%. In 2008-2009

it again increased to Rs4,81,70,02,603 with a percentage increase in 479%. In 2009-2010

it again increased to Rs 5,69,56,67,475.

(Table2 : Variables of Working Capital Management)

VARIABLES YEARS

2006-2007 2007-2008 2008-2009 2009-2010

ROTA (Return on Total Assets)

0.15 0.16 0.22 0.10

OPM (operating profit margin)

61.55% 56.40% 27.78% 34.65%

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

0.64:1 0.55:1 0.43:1 0.33:1

CR (Current Ratio) 1.28:1 0.94:1 0.86:1 0.62:1

QAR (Quick Assets Ratio)

0.58:1 0.46:1 0.27:1 0.22

CA/TA (Current Assets to Total

0.13 0.12 0.21 0.16

Assets)

CL/TA (Current Liabilities to Total Assets)

0.11 0.13 0.24 0.26

SK/CA (Stocks to Current Assets)

0.23 0.25 0.13 0.19

TD/CA (Trade Debtors to Current Assets)

0.25 0.34 0.17 0.21

CA_TURN (Current Assets Turnover is Sales/Current Assets)

1.10 1.29 1.08 0.60

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

in the table reveals the following findings;

Return on total asset came 0.15 in 2006-2007, 0.16 in 2007-2008, 0.22 in 2008-2009 and

0.10 in 2009-2010.

Operating profit margin was 61.55% in 2006-2007 then it reduced to 56.40%, 27.78%,

and 34.65% in 2007-2008, 2008-2009, and 2009-2010 respectively. Anything between

65% to 85% is known as a good operating margin. And for OPTCL is a sign of alarm.

Gearing ratio came 0.64:1 in 2006-2007 and in 2007-2008 it is 0.55:1 and 0.43:1 and

0.33:1 in 2008-2009 and 2009-2010.

Current ratio generally reduced for the organisation, in 2006-2007 it was 1:28 and it

reduced to 0.94:1 in 2007-2008 and then it again reduced to to0.86:1 and 0.62 in 2008-

2009 and 2009-2010 respectively.

Quick asset ratio in 2006-2007 as it was 0.58:1, in 2007-2008 it became 0.46:1 and in

2008-2009 and in 2009-2010 it became 0.27:1 and 0.22:1.

Current asset to total asset ratio came 0.13, 0.12, 0.21 and 0.16 in the year 2006-2007,

2007-2008, 2008-2009, and 2009-2010.

Current liability to total asset ratio came 0.11 in 2006-2007, in 2007-2008 it came 0.13,

and in 2008-2009 and 2009-2010 it came 0.24:1 and 0.26:1 respectively.

Stock to current asset is 0.23, 0.25, 0.13, and 0.19 in respective years.

Trade debtors in 2006-2007 is 0.25, in 2007-2008 is 0.34, in 2008-2009 is 0.17 and in

2009-2010 is 0.21.

Current asset turnover is 1.10 in 2006-2007, 1.29 in 2007-2008, 1.08 in 2008-2009 and

become 0.60 in 2009-2010

Table 3: Components of Current ratio, quick ratio and Absolute Liquid Ratios

2006-2007 2007-2008 2008-2009 2009-2010

Current ratio1.28:1 0.94:1 0.86:1 0.62:1

Quick ratio 0.58:1 0.46:1 0.27:1 0.22

Absolute liquid ratio

0.25:1 0.15:1 0.12:1 0.08:1

SK/CA 0.23 0.25 0.13 0.19

TD/CA 0.25 0.34 0.17 0.21

CA/TA 0.13 0.12 0.21 0.16

CL/TA 0.11 0.13 0.24 0.26

CCC( cash conversion cycle)

Inventory days 77 days 70 days 43 days 115days

Debtor turnover days

125days 85days 57days 126days

Creditors turnover days

63 days 61days 37 days 86days

Table-3 revels the components of current ratio, quick ratio and absolute quick ratio. From the table following things can be derived:

In 2006-2007 it is found that the current ratio is 1.28:1 which is just below the standard of

2:1. In 2007-2008, it is found that the current ratio of OPTCL is 10.94:1. 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. The cash and bank balance is found to be decreased

this year in comparison to that of previous year where as the current liabilities and

provisions both have increased this year. In 2008-2009, it is found that the current ratio of

OPTCL is 0.86:1. . 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.

Quick ratio in 2006-2007 it was 0.58:1 and 0.46:1, 0.27:1 and 0.22:1 in 2007-2008, 2008-2009,

and 2009-2010 respectively.

In the year 2006-2007 the Absolute Liquid Ratio is found to be 0.25:1. In the year 2007-

2008 the Absolute Liquid Ratio of OPTCL is found to be 0.15:1. 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.

Stock to current asset is 0.23, 0.25, 0.13, and 0.19 in respective years.

Trade debtor to current asset ratio come 0.25, 0.34, 0.17 and 0.21 respectively.

Current asset to total asset ratio came 0.13, 0.12, 0.21 and 0.16 in the year 2006-2007,

2007-2008, 2008-2009, and 2009-2010.

Current liabilities to total asset came 0.11 in 2006-2007 and in 2007-2008 it came 0.13 ,

in 2008-2009 it came 0.24:1 and in 2009-2010 it came 0.26:1.

Cash conversion ratio for inventory came 77days, 70 days, 43 days and 115 days.

Cash conversion for debtor comes 125 days in 2006-2007, and it reduced to 85 and 57 days in

2007-2008, 2008-2009 respectively. But in 2009-2010 it increases to 126 days. Cash conversion

ratio came 63days, 61days, 37days and 86days respectively.

LIQUIDITY RATIO

Table 4:CURRENT RATIO- (CURRENT ASSETS/CURRENT LIABILITY)

YEAR CURRENT ASSET(IN RUPEES)

CURRENT LIABILITY(IN RUPEES)

RATIO

2006-2007 3,21,50,26,429 2,50,80,12,516 1.28:1

2007-2008 3,10,61,19,303 3,35,96,86,508 0.94:1

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

2006-2007 2007-2008 2008-2009 2009-2010

current ra-tio

1.28 0.940000000000001

0.860000000000001

0.620000000000008

0.1

0.3

0.5

0.7

0.9

1.1

1.3 1.28

0.940000000000001 0.86000000000000

1

0.620000000000008

CURRENT RATIO

RATI

O

From the table 4 and diagram of Current Ratios of different financial years of OPTCL, various

results can be made.

2006-2007 it was found that the current ratio was 1.28:1 which is below the standard of

2:1. It is due to a decrease of total current assets from the previous year to current year.

Still it is manageable and also the condition was under the control.

In 2007-2008, it was found that the current ratio of OPTCL was 0.94:1. It was below the

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

increase in current liability this year. The cash and bank balance is found to be decreased

this year in comparison to that of previous year where as the current liabilities and

provisions both have increased this year.

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 time.

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.

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.

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

TABLE 5:Quick Ratio-(Liquid Asset/ Current Liability)

YEAR LIQUID ASSET CURRENT LIABILITY RATIO

2006-2007 1,44,64,73,013 2,50,80,12,516 0.58:1

2007-2008 1,54,33,61,165 3,35,96,86,508 0.46:1

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

2006-2007 2007-2008 2008-2009 2009-20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.58

0.46

0.270.22

QUICK RATIO

YEARS

RATIO

TABLE 6:

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

YEAR Absolute Liquid Asset Current Liability Ratio

2006-2007 64,82,76,812 2,50,80,12,516 0.25:1

2007-2008 49,08,81,183 3,35,96,86,508 0.15:1

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

2006-20072007-2008

2008-20092009-2010

0

0.05

0.1

0.15

0.2

0.25

0.25

0.15

0.12

0.08

ABSOLUTE LIQUID RATIO

year

ratio

By going through the table 6 & diagram of Absolute Liquid Ratio, balance sheet of OPTCL the

following results can be drawn.

In the year 2006-2007 the Absolute Liquid Ratio was found to be 0.25:1. Though it is

below the normal standard still it is in a manageable condition.

In the year 2007-2008 the Absolute Liquid Ratio of OPTCL was found to be 0.15:1

which is below from the previous year. It is due to a decrease in cash and bank balances

and also a slightly increase in Current Liabilities.

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. This is due to less

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

Table 7:

CASH FLOW STATEMENTS

(2009-2010) (2008-2009) (2007-2008)amount in (Rs) amount in (Rs) amount in (Rs)

profit/loss before tax & extraordinary items

-71,37,17,644 -18,30,29,883 -3,64,99,383

adjustment for:appropriation to reserves and surpluses 1,18,36,39,044 6,33,87,383 11,15,56,818

interest and finance charges 54,16,01,198 97,24,54,617 1,10,65,54,318

Depreciation 1,08,22,03,592 1,09,74,37,879 1,09,90,58,990

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

excess provision written back -1,04,00,87,510 -47,574 -209

interest income -4,55,13,310 -6,90,09,008 -5,03,60,383

provisions for wealth tax 27,846 46,318 46,305

provision/write off against theft materials 15,22,603 29,50,312 28,65,292

provisions for obsolete stock-store etc 1,11,96,801

bad and doubtful debt 4,47,68,652 11,63,525 92,89,278

provisions for fringe benefit tax -------------------- -23,96,915 -21,13,256

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGE (A) 1,05,74,70,893 1,88,59,83,078 2,25,46,20,994

WORKING CAPITAL CHANGEstores and spares -16,20,59,785 -4,46,04,328 -2,98,62,664

sundry debtors -4,53,02,877 -37,81,016 -26,35,73,059

other current assets -59,43,581 -1,43,98,325 -2,44,71,317

loan and advances 1,20,34,71,087 -2,72,53,85,618 24,60,67,167

current liabilities 4,93,59,037 42,88,03,928 42,01,27,401

Provisions 1,91,87,52,382 3,52,31,00,656 47,36,52,134

NET WORKING CAPITAL CHANGES (B)

2,95,82,76,263 1,16,37,35,296 82,19,39,662

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

4,01,57,47,156 3,04,97,18,374 3,07,65,60,656

CASH FLOW FROM INVESTING ACTIVITIES:

capital expenditure (CAPEX) -93,41,57,641 -91,68,37,432 -1,03,91,08,694

Interest received revenue 4,55,13,310 6,90,09,008 5,03,60,383

CASH GENERATED FROM INVESTING ACTIVITIES ( C )

-88,86,44,331 -84,78,28,424 -98,87,48,311

CASH FLOW FROM FINANCING ACTIVITIES:

proceeds from secured loan -1,06,41,24,474 -1,05,96,33,683 -1,02,66,95,328

proceeds from unsecured loan 32,39,10,165 -6,95,82,948 -36,86,01,393

interest paid -2,61,68,02,137 -88,70,89,752 -83,19,11,252

proceed from share capital 5,00,00,000 23,05,55,000 -----------------

CASH FLOW FROM FINANCING ACTIVITIES (D)

-3,30,70,16,446 -1,78,57,51,383 -2,24,52,07,973

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

-17,99,13,621 41,61,38,567 -15,73,95,628

Cash and cash equivalent at the beginning of the year

90,70,19,750 49,08,81,183 64,82,76,812

cash equivalent at the end of the period 72,71,06,129 90,70,19,750 49,08,81,184

Table 7 defines the following:

Cash generated from investing activities, Rs88,86,44,331 , Rs84,78,28,424 andRs

98,87,48,311 in the year 2009-2010, 2008-2009 and 2007-2008 respectively.

Hence, there is a generation of Rs.4,01,57,47,156 cash flow from its operating activities

for the year 2009-2010, where as in 2008-2009, it was Rs.3,04,97,18,374. And in 2007-

2008 it was 3,07,65,60,656.

The net cash flow of Rs-3,307,016,446 from financing activities in 2009-10. where it was

-1,78,57,51,383 and -2,24,52,07,973 in 2008-2009 and 2008-2007 respectively.

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

2009-2010 is a negative figure of Rs.-17,99,13,621. It became positive in the year 2008-

2009, which was Rs 41, 61, 38,567. And in 2007-2008 it becameRs-1573, 95,628.

Table-8:

Size of Working Capital: (Amount. In Rs.)

CURRENT ASSETS(CA) 2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees)

Stores and spares 751064690 76,68,65,262 80,85,19,278 96,90,56,460

Sundry debtors 798196201 1,05,24,79,982 1,05,50,97,473 1,05,56,31,698

Cash and bank balances 648276812 49,08,81,183 90,70,19,750 72,71,06,129

Other current assets 628081987 65,25,53,304 66,69,51,629 74,48,94,758

Loan and advances 389406739 14,33,39,572 2,86,87,25,189 1,58,26,86,333

Total 3,21,50,26,429 3,10,61,19,303 6,30,63,13,319 5,07,93,75,378

Less: CURRENT LIABILITIES(CL)

2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees)

Sundry creditors 61,03,22,496 66,51,67,980 68,95,26,597 72,40,51,456

Deposits and retention from suppliers/contractors

12,50,63,350 13,71,54,497 14,91,29,269 12,89,91,075

Interest accrued but not due on loans

6,27,33,789 2,05,82,149 1,30,49,185 51,73,055

Liabilities for wealth tax 37,299 47,240 47,253 28,781

Electricity duty payable 2,12,903 49,092 1,82,269 1,56,113

Liabilities for fringe benefit tax

23,41,534 44,54,790 68,51,705 68,51,705

Other liabilities 87,64,35,326 1,22,77,13,016 1,61,76,99,768 1,65,27,44,614

Total 1,67,71,46,697 2,05,51,68,764 2,47,64,86,046 2,51,79,96,799

Provisions 83,08,65,819 1,30,45,17,744 4,81,70,02,603 5,69,56,67,475

Total 2,50,80,12,516 3,35,96,86,508 7,29,34,88,649 8,21,36,64,274

working capital( CA-CL) 70,70,13,913 -25,35,67,205 -98,71,75,330 -3,13,42,88,896

From the table -8 following things are derived:

In 2006-2007, working capital was Rs70,70,13,913 because current asset was more than current

liabilities. In 2007-2008 working was became negative due to the fact that current liabilities

exceeds current assets. In 2008-2009 it became Rs 98,71,75,330 dueto excessive of provisions.

In that year current liabilities exceeds current assets. In 2009-2010, working capital again

became negative.

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-9:

Working Capital Size trend

Years 2006-2007 2007-2008 2008-09 2009-10

Net W.C (A-B) 70,70,13,913 25,35,67,205 -98,71,75,330 -3,13,42,88,896

W.C. Indices 100 35.86 -139.62 -443.31

(Amount.In Rs.)

2006-2007 2007-2008 2008-2009 2009-2010

W.C trend 100 35.86 -139.62 -443.31

-450

-350

-250

-150

-50

50

150

WORKING CAPITAL TREND

Axis Title

From the table 9 followings things are derived:It is observed that in 2006-2007, working capital indices was very high due to current assets exceeded current liabilities. In 2007-2008indices was also high because current asset were more than current liabilities. In 2007-2008 the company was able to manage their working capital efficiently. But in 2008-2009 and 2009-2010 it became negative. Here in the year 2008-2009 and 2009-2010 current liabilities exceeded current assets.

TABLE-10:

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

Working capital turnover ratio

YEAR Cost of Sales Net working capital Ratio

2007 3553494401 707013913 5.03times

2008 3997558798 -25,35,67,205 -15.7times

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

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

2006-2007 2007-2008 2008-2009 2009-2010

-20

-15

-10

-5

0

5

10

5.03

-15.7

-6.88

-0.97000000000000

1

WORKING CAPITAL TURNOVER RATIO

YEARS

ratio

From the table 10 following things derived:

In the year 2006-2007, there was an increased in working capital turnover ratio to 5.03.

However, in the year 2007-2008, it was -15.7 which indicates there was a decrease in net

current assets due to increase in current liabilities.

In the year 2008-2009, it was -6.88 which is better than the previous year.

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.

TABLE 11:

STATEMENT SHOWING CHANGES IN WORKING CAPITAL(2007 and 2008)

(2006-2007)(Rs)

(20072008)(Rs)

Increase in working capital(Rs)

Decrease in working capital

(Rs)

Current assets

Stores and spares 751064690 766865262 15800572 -

Sundry debtors 798196201 1052479982 254283781 -

Cash & bank balances 648276812 490881183 - 157395629

Other current assets 628081987 652553304 24471317 -

Loans & advances 389406739 143339572 - 246067167

Total 3215026429 3106119303

Current liabilities

Current liabilities 1677146697 2055168764 - 378022067

Provisions 830865819 1304517744 - 473651925

Total 2508012516 3359686508

960581118

Working capital(currentassets-current

liabilities)

707013913 -253567205

Net decrease in working capital

-960581118

-253567205 -253567205 1255136788 1255136788

From the table 11 following things are derived:

By going through the statement showing changes in working capital the following results can be

made.

That, the total current asset of the year 2007-2008 is decreased to Rs. 3,10,61,19,303

from a previous year’s figure of Rs. 3215026429.

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.

The cash and bank balances of the organization have a decrease of Rs. 157395629 from

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

Rs. 143339572 from the previous year’s figure of Rs. 389406739.

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

from the previous year’s figure.

The total current liabilities of the year 2007-2008 are increased to Rs.3359686508 from a

previous year’s figure of Rs.2508012516.

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.

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.

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.

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.960581118(2007-2008), which has impacted the steady increase of current working

capital & negatively affected the profitability of the organization.

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 (2007-

2008).

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-12:

STATEMENT SHOWING CHANGES IN WORKING CAPITAL

( 2009 TO 2010)

(2008-2009)(Rs)

(2009-2010)(Rs)

Increase in working capital(Rs)

Decrease in working capital(Rs)

Current assetsStores 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 table 12 showing changes in working capital the following results can

be made:

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

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

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.

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.

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

from the previous year’s figure.

The total current liabilities of the year 2009-2010 are increased to Rs8, 21,36,64,27 from a

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

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.

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.

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

is a sign of decrease in working capital.

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.

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).

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.

Total assets are basically

classified in two parts as fixed

assets and current assets. Fixed

CURRENT ASSETS

AND CURRENT LIABILITI

ES

CURRENT ASSETS

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 13

CURRENT ASSETS SIZE

Current assets(CA) 2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees)

Stores and spares 751064690 76,68,65,262 80,85,19,278 96,90,56,460

Sundry debtors 798196201 1,05,24,79,982

1,05,50,97,473 1,05,56,31,698

Cash and bank balances 648276812 49,08,81,183 90,70,19,750 72,71,06,129

Other current assets 628081987 65,25,53,304 66,69,51,629 74,48,94,758

Loan and advances 389406739 14,33,39,572 2,86,87,25,189 1,58,26,86,333

Total of CA 3,21,50,26,429 3,10,61,19,303

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

CA indices 100 99.61 196.15 157.99

2006-2007 2007-2008 2008-2009 2009-2010

current asset 100 99.61 196.15 157.99

25

75

125

175

225

100 99.61

196.15

157.99

CURRENT ASSET INDICES

indices

(Amnt.In Rs.)

From the table-13 followings things are derived:The current asset indices show growth in the

year 2006-2007. In 2007-2008 it declines marginally and in 2008-2009 it again increase and in

2009-2010 it declines.

TABLE-14

CURRENT ASSET TURNOVER RATIO- (sales/current Assets)

YEAR SALES CURRENT ASSETS RATIO

2007 3,55,34,94,401 3,21,50,26,429 1.10

2008 3,99,75,58,798 3,10,61,19,3030 1.29

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

2006-2007 2007-2008 2008-2009 2009-20100

0.2

0.4

0.6

0.8

1

1.2

1.4

1.1

1.29

1.08

0.600000000000001

CURRENT ASSET TURNOVER RATIO

YEAR

RATI

O

From the table 5.14 following things are derived: In the year 2006-2007, the current asset

turnover was 1.10 which became 1.29, 1.08, and 0.60 in the year 2007-2008, 2008-2009

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 15:(No. in %)

Current assets(CA) 2007 2008 2009 2010

Stores and spares 23.37 24.69 12.82 19.08

Sundry debtors 24.82 33.89 16.73 20.78

Cash and bank balances 20.16 15.80 14.38 14.31

Other current assets 19.54 21.01 10.58 14.67

Loan and advances 12.11 4.61 45.49 31.16

Total of CA 100 100 100 100

2006-2007 2007-2008 2008-2009 2009-20100

5

10

15

20

25

30

35

40

45

50

stores and spares

sundry debtors

cash and bank

other current assets

loans and advances

year

percentage

2007(rupees) 2008(rupees) 2009(rupees) 2010(rupees)

Sundry creditors 61,03,22,496 66,51,67,980 68,95,26,597 72,40,51,456

Deposits and retention from suppliers/contractors

12,50,63,350 13,71,54,497 14,91,29,269 12,89,91,075

Interest accrued but not due on loans

6,27,33,789 2,05,82,149 1,30,49,185 51,73,055

Liabilities for wealth tax 37,299 47,240 47,253 28,781

Electricity duty payable  2,12,903 49,092 1,82,269 1,56,113

Liabilities for fringe benefit tax 23,41,534 44,54,790 68,51,705 68,51,705

Other liabilities 87,64,35,326 1,22,77,13,016 1,61,76,99,768 1,65,27,44,614

Total 1,67,71,46,697 2,05,51,68,764 2,47,64,86,046 2,51,79,96,799

Provisions 83,08,65,819 1,30,45,17,744 4,81,70,02,603 5,69,56,67,475

Total 2,50,80,12,516 3,35,96,86,508 7,29,34,88,649 8,21,36,64,274

Current liabilities indices 100 133.96 290.81 327.50

CURRENT LIABILITIES:-

TABLE 16:

TABLE 17

CURRENT LIABILITIES SIZE

2006-2007 2007-2008 2008-2009 2009-20100

50

100

150

200

250

300

350

100133.96

290.81327.5

CURRENT LIABILITIEScurrent liabilities

years

indi

ces

From the table 17 following things are derived:The current liabilities graph shows a rapid

growth. In 2006-2007 ,the current asset indices is 100 and thereafter it increases to 133.96,

290.81, 327.5 in 2007-2008, 2008-2009, 2009-2010 respectively. The current liabilities

increased at a speed.

TABLE 18

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

YEAR Net Sales Average Debtors Ratio Average Collection

Period (365/DTR)days

2007 3,55,34,94,401 1216845410 2.92 125

2008 3,99,75,58,798 925338091.5 4.32 85

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

2006-2007 2007-2008 2008-2009 2009-20100

1

2

3

4

5

6

7

2.92

4.32

6.44

2.89

DEBTOR TURN OVER RATIO

years

ratio

2006-2007 2007-2008 2008-2009 2009-20100

20

40

60

80

100

120

140125

85

57

126

AVERAGE COLLECTION PERIOD

YEARS

DAYS

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

over Ratio, profit and loss accounts and balance sheets of OPTCL the following results can be

drawn.

In the year 2006-2007 the debtor turnover ratio is 2.92 times and the average collection

period is found to be 125 days. This year, there is a higher value of debtor turn over and a

shorter average collection period in comparison to that of previous year. This is a good

indication.

In the year 2007-2008 the debtor’s turnover ratio is 4.32 times and the average collection

period is 85 days. This year, the value of debtor’s turnover is higher than the previous

year due to decrease in average debtors and an increase in net sales. And the average

collection period is also shorter than the previous year’s figure.

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.

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.

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.

Theshorter 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.

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.

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.

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

and to act as change agents.

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.

Cash should be managed properly.

Effort should be made to reduce the current liabilities and to increase the current asset.

Placing the responsibility for collecting the debt upon the centre that made the sale

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 2006-2007 to 2009-2010.

Years Average collection period (x)

Average payment period(y)

XY X2 y2

2006-2007 125 63 7875 15625 3969

2007-2008 85 61 5185 7225 3721

2008-2009 57 37 2109 3249 1369

2009-2010 126 86 10836 15876 7396

∑x= 393 ∑ Y=247 XY=26005

∑ x2 =

41975

∑ y2 =16455

KARL PEARSONS’S COFFICIENT OF CORRELETION:

By putting the values in the formula the “r” came =0.86

From the calculation value of “r” come =0.86 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, 2006-2007,

2007-2008, 2008-2009 and 2009-2010.

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 2006-2007 to 2009-2010.

years Average collection period (x)

sundry debtors(in crore)

XyX2 y2

2006-2007 125 80 10000 15625 6400

2007-2008 85 105 8925 7225 11025

2008-2009 57 106 6042 3249 11236

2009-2010 126 106 13356 15876 11236

∑x= 393 ∑Y=394 XY=38323

∑ x2 =41975

∑ y2 =39897

KARL PERSON’S COFFICIENT OF CORRELETION:

The correlation came negative to the second hypothesis.

After putting the data “r” is found= -0.52. So the hypothesis is rejected. 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) XY

X2 y2

2006-2007 251 322 80822 63001 103684

2007-2008 336 321 107856 112896 103041

2008-2009 729 631 459999 531441 398161

2009-2010 821 508 417068 674041 258064

∑x=2137 ∑Y=1782 XY= 1065745

∑ x2 = 1381379 ∑ y2 = 862950

KARL PERSON’S COFFICIENT OF CORRELETION:

=0.88

As the hypothesis is positive 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.

CHAPTER-5

Following are the findings of the study:

Working capital of three years i.e., (2007-2008, 2008-2009, 2009-2010) is in negative

figure. The reason is that the company’s current liabilities exceeds current assets from

2006-2007 to 2009-2010. The company created more provisions throughout this 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.

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

for 2006-2007 is satisfactory but in the year 2007-2008, 2008-2009, 2009-2010 situations

becomes worst. The reason behind the increase in current liabilities and provisions. It is

not a good sign for the company.

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.

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 2006-2007 to 2009-2010. But there is a rapid increase in case of

current liabilities like sundry creditors, deposits and retention from suppliers, liabilities

for fringe benefit tax and provisions.

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.

FINDIN

GS OF

THE

STUDY

The current asset trend increased from 2007 to 2009, but in 2010 it declines. The current

assets like stores and spare increased in 2006-2007 to 2007-2008 but in 2008-2009 it

declined and then it is increased in 2009-2010. Sundry debtors increased from

2006-2007 to 2007-2008 but it declined in 2008-2009 but again it is increased in 2009-

2010.

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

accured but not due on loans, liabilities for wealth tax, electricity duty payable, liabilities

for fringe benefit tax increased from 2006-2007 to 2009-2010.

Debtor’s turnover ratio improved from 2007 to 2009 and so number of collection period

decreases. But in 2010 debtor’s turnover ratio decreases and collection period increases.

In 2006-2007 it was 126 days. Then it is reduced to 85 and 57 days in 2007-2008 and

2008-2009 respectively. But in 2009-2010 it again increased to 125 days.

Current asset ratio decrease throughout the year. It was 1.10 in 2006-2007 then it

increased to 1.29 then a fall down occurred as it was 1.08 in 2008-2009 and 0.60 in 2009-

2010.

Working capital turnover ratio was positive in 2006-2007; it became negative in 2007-

2008, 2008-2009 and 2009- 2010. It was 5.03 times in 2006-2007 then is sloped

downward and it was -15.7, -6.88, -0.97 in 2007-2008, 2008-2009, 2009-2010

respectively.

CHAPTER -6

On the basis of data analysis on working capital management

in OPTCL, the following conclusions arrived.

The company has gross profit for the past four years

(2006-07, 2007-08, 2008-09, and 2009-10) 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.

The OPTCL didn’t manage the liquidity position of the company. The liquidity position

was in a good condition and in 2006-07, it was also satisfactory. But, in the year 2007-08,

2008-2009, 2009-10 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.

During the year 2006-07, 2007-08, 2008-2009 and 2009-2010 the company’s liquid

assets were not satisfactory.

The average collection period of the company during the year 2006--2007 is 125 days, it

is reduced to 85 days in 2007-2008 and again it reduced to 57days in 2008-2009, but the

average collection period again increases to 126 days in 2009-2010.

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.

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

CONCLUSIO

N

CONCLUSION AND 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 overhead 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.

RECOMMEN

DATION

CHAPTER -7

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

4years of data. There is future scope for studying these things.

IMPLI

CATIO

N FOR

FUTUR

E

RESEA

RCH

TEXT BOOKS:

1. MaheswariDrS.n “Financial management”, Ninth edition,

2006 sultan chand& sons, New Delhi

2. Pandey I.M., “Financial Management”, Vikas Publishing

House Pvt.Ltd. 8th Edition 1999.

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”, Wishvaprakashan, 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

BIBL

IOGR

APH

Y

www. Investopedia.com

www.moneycontrol.com

www.wikipedia.com

BALANCE

SHEETS OF

OPTCL

PROFIT &

LOSS ACCOUNTS

OF OPTCL

:ANNEXTURE:

 BALANCE SHEETs OF OPTCL(IN RUPEES)

  as on 31st march2010

as on 31st march 2009

as aon 31st march 2008

as on 31st march 2007

i)sources of funds    

1.shareholder’s funds    

Share capital 881,255,000 831,255,000 600,700,000 600,700000

share reserves and surplus 6,824,666,950 5,531,676,826 5,368,362,657

5,143,178,990

7,705,921,950 6,362,931,826 5,969,062,657

5,743,878,990

2.loans funds    

Secured loans 2,970,843,099 4,034,967,573

5,094,601,256

6,121,296,584

Unsecured loans 7,338,214,991 9,081,629,634

9,058,314,752

9,128,121,439

3. others funds    

Consumer security deposit455,334

 83,334 83,334

 83,334

ii)application of funds    

1.fixed assets 26,037,473,415

24,152,614,571

22,725,369,686

20,664,373,798

Gross block    

Less: accumulated depreciation 12,519,750,138

11,437,546,544

10,340,108,668

9,241,049,678

Net block 13,517,723,277

12,715,068,027

12,385,261,018

11,423,324,120

Capital work-in-progress 5,760,703,817 6,711,033,019

7,221,440,474

8,243,327,667

2.investments 270,550,000 270,550,000 270,550,000 270,550,000

3.current assets, loans and advances

   

Stores and spaces 969,056,460 808,519,278 766,865,262 751,064,690

Sundry debtors 1,055,631,698 1,055,097,473

1,052,479,982

798,196,201

Cash and bank balance 727,106,129 907,019,750 490,881,183 648,276,812

Other current assets 744,894,758 738,951,177 652,553,304 628,081,987

Loans and advances 1,582,686,333 2,786,157,419

143,339,572 389,406,739

Less:  

Current liabilities and provisions

    

Current liabilities 2,517,996,799 2,476,486,046

2,055,168,764

1,677,146,697

Provisions 5,695,667,475 4,817,002,603

1,304,517,744

830,865,819

    

Net current assets -3,134,288,896 -997,743,553 -253,567,205 707,013,913

4(a) miscellaneous expenditure to the extent not

written off or adjustedare not written off or adjusted

   3,026,423

 6,052,846

 9079269

 

(b)profit and loss account (1,600,747,175)

(777,678,451)

(492,324,866)

(340,085,378)

 PROFIT AND LOSS

ACCOUNTS

FOR THE YEAR ENDED

31.03.2010 31.03.2009 31.03.2008 31.03.2007

INCOME        

Revenue from wheeling of Power 3,05,16,27,568 6,78,92,95,427 3,99,75,58,798 3553494401

Other Income 1,36,62,18,959 36,84,47,083 28,21,03,171 168611550

Total 4,41,78,46,527 7,15,77,42,510 4,27,96,61,969 3722105951

EXPENDITURE  

Administrative, General & Other

Expenses

3,49,84,56,298 5,27,76,66,633 2,39,99,88,627 1,42,31,94,067

Depreciation 1,08,03,34,520

1,09,82,4

1,352 1,08,54,85,700

 

986,381,451

Total 4,57,87,90,818 6,35,79,07,985 3,48,54,74,327 2,40,95,75,518

Profit/ (Loss) before interest & finance

charges

-16,09,44,291 78,18,34,525 79,41,87,642 1,31,25,30,433

Interest & Finance Charges -54,16,01,198 -97,24,54,617 -1,10,65,54,318 -1,16,23,12,531

Net prior period income/(expenditure) -1,11,72,155 75,90,209 27,58,67,293 -15,59,79,199

Profit/(Loss) before Taxation &

Contingency

-71,37,17,644 -18,30,29,884 -3,64,99,383 -57,61,297

Provision for taxation:-        

Current year 0 0 0 0

Fringe Benefit Tax 0 0 -2113256 -2341534

Profit After Tax -71,37,17,644 -23,96,915 -38612639 -8102831

Reserve Appropriation  ------------ -18,54,26,799  ------------  -------------

Appropriation to Contingencies Reserve -10,93,51,080 -9,99,26,786 -11,36,26,849 -8,24,85,483

Profit/(Loss) After Taxation &

Contingency Reserve

-82,30,68,724 -28,53,53,585 -15,22,39,488 -9,05,88,314

Balance of P&L Account Brought

Forward from Last Year

-77,76,78,451 -49,23,24,866 -34,00,85,378 -24,94,97,064

Balance Carried over to Balance Sheet -1,60,07,47,175 -77,76,78,451 -49,23,24,866 -34,00,85,378