CHAPTER-1

INTRODUCTION
BACKGROUND OF STUDY:
Whatever may be the organization, working capital plays an important role, as the
company needs capital for its day to day expenditure. Thousands of companies fail each
year due to poor working capital management practices. Entrepreneurs often don't
account for short term disruptions to cash flow and are forced to close their operations.
In simple term, working capital is an excess of current assets over the current liabilities.
ood working capital management reveals higher returns of current assets than the
current liabilities to maintain a steady li!uidity position of a company. "therwise,
working capital is a re!uirement of funds to meet the day to day working expenses. #o a
proper way of management of working capital is highly essential to ensure a dynamic
stability of the financial position of an organization.
"$%&' is one of the largest power transmission organizations in the country, which
plays the role of transmission of electricity in the entire state of "rissa. #eeing the good
opportunity to study financial systems and practices of "$%&', it is relatively important
take up internship assignment on (W")*I+ &,$I%,' -,+,E-E+% I+
"$%&'.. /uring the pro0ect work, it is being analyzed the working capital position of
this organization. /ecisions relating to working capital and short term financing are
referred to as working capital management. %hese involve managing the relationship
between a firm's short1term assets and its short1term liabilities. %he 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 short1term debt and upcoming
operational expenses.
Working capital management deals with maintaining the levels of working capital to
optimum, because if a concern has inade!uate opportunities and if the working capital is
more than re!uired then the concern will lose money in the form of interest on the
blocked funds. %herefore working capital management plays a very important role in
the profitability of a company. ,nd also due to heavy competitions among different
organization.s it is now compulsory to look after working capital
[1]
RELEVANCE OF STUDY
,t "$%&' a substantial part of the total assets are covered by current assets. &urrent
assets form around 2341 534 of the total assets. 6owever this could be less profitable
on the assumption that current assets generate lesser returns as compared to fixed assets.
7ut in today.s competition it becomes mandatory to keep large current assets in form of
inventories so as to ensure smooth production an excellent management of these
inventories has to be maintained to strike a balance between all the inventories re!uired
for the production.
#o, in order to manage all these inventories and determine the investments in each
inventories, the system call for an excellent management of current assets which is
really a tough 0ob as the amount of inventories re!uired are large in number.
6ere comes the need of working capital management or managing the investments in
current assets. %hus in big companies like "$%&' it is not easy at all to implement a
good working capital management as it demands individual attention on its different
components.
%he study of working capital management is very helpful for the organisation to know
its li!uidity position. %he study is relevant to the organization to know the day to day
expenditure. %his study is relevant to give an idea to utilise the current assets.
%his study is also relevant to the student as they can use it as a reference. %his report
will help in conducting further research. "ther researcher can use this pro0ect as
secondary data
PROBLEM STATEMENT:
Working capital management or simply the management of capital invested in current
assets is the focus of study. #o topic is to study working capital management of "$%&'.
Working capital is the fund invested by a firm in current assets. +ow 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 re!uired for smooth production runs.
6olding of sufficient current assets will ensure smooth and un interrupted production
[2]
but at the same time, it will consume a lot of working capital. 6ere creeps the
importance and need of efficient working capital management. Working capital
management aims at managing capital assets at optimum level, the level at which it will
aid smooth running of production and also it will involve investment of nominal
working capital in capital assets.
8%he problem generally explains that, less attention has been paid to the area of short1
term finance, in particular that of working capital management. #uch 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 inade!uate
planning and control of working capital is one of the more common causes of business
failure.9
HYPOTHESIS OF THE STUDY:
%he following are the hypothesis of the study
:; %he firm is facing difficulty in paying short1term debt.
<; %he firm is not properly managing the sundry debtor.
2; %he current liabilities are increasing than current assets year by year.
OBJECTIVE OF THE STUDY= Everything in life holds some kinds of ob0ectives to
be fulfilled. %his study is not an exception to it. %he following are a few straight
forward goals which i have tried to fulfil in my pro0ect=
:; %o study the various components of working capital.
<; %o analyze the li!uidity trend.
2; %o analyze the working capital trend.
5; %o appraise the utilization of current asset and current liabilities and find out short1
comings if any.
>; %o suggest measure for effective management of working capital.
[3]
LIMITATIONS OF THE STUDY:-
?ollowing are the limitations of the study=
:; %he topic working capital management is itself a very vast topic yet very important
also. /ue to time restraints it was not possible to study in depth in get knowledge what
practices are followed at "$%&'.
<; -any facts and data are such that they are not to be disclosed because of the
confidential nature of the same.
2; #ince the financial matters are sensitive in nature the same could not ac!uired easily.
5; %he study is restricted to only the ?our @ear data of "$%&'.
CHAPTERISATION:
?ollowing are the chapterisation of the study=
&hapter1: represents the background of the study, relevance of the study, problem
statements, hypothesis, ob0ectives as well as limitations of the study.
&hapter1< represents company profile of "$%&'.
&hapter12 represents review of literature.
&hapter15 represents research methodology of the study including sources of data
collection, formulas and statistical tools used for data analysis.
&hapter 1> represents results and findings.
&hapter 1A represents conclusion and suggestion.
&hapter 1B represents implication for future research.
[4]
CHAPTER-2
COMPANY PROFILE
ORISSAPOWERTRANSMISSIONCORPORATIONLIMITED.(OPTCL)
R!"#$%& O''"(: J)*+)$,- B,./)*#0)% - 121322 P,4* : (3516)- 2261723 8
2262723
")I##, $"WE) %),+#-I##I"+ &")$"),%I"+ 'I-I%E/ C"$%&';, one of the
largest %ransmission Dtility in the country was incorporated in -arch <335 under the
&ompanies ,ct, :E>A as a company wholly owned by the overnment of "rissa to
undertake the business of transmission and wheeling of electricity in the #tate.
#tarted commercial operation from 3:.35.<33> only as a %ransmission 'icensee. Ca
deemed %ransmission 'icensee under #ection :5 of Electricity ,ct, <332;
+otified as the #tate %ransmission Dtility C#%D; by the #tate ovt. and discharges
the #tate 'oad /ispatch functions.
%he registered office of the &ompany is situated at 7hubaneswar, the capital of the #tate
of "rissa. Its pro0ects and field units are spread all over the #tate. "$%&' became fully
operational with effect from Eth Fune <33> conse!uent upon issue of "rissa Electricity
)eform C%ransfer of %ransmission and )elated ,ctivities; #cheme, <33> under the
provisions of Electricity ,ct, <332 and the "rissa )eforms ,ct, :EE> by the #tate
overnment for transfer and vesting of transmission related activities of )I/&" with
"$%&'. %he &ompany has been designated as the #tate %ransmission Dtility in terms of
#ection 2E of the Electricity ,ct, <332. $resently the &ompany is carrying on intra state
transmission and wheeling of electricity under a license issued by the "rissa Electricity
)egulatory &ommission. %he &ompany is also discharging the functions of #tate 'oad
/espatch &entre. %he &ompany owns Extra 6igh Goltage %ransmission system and
operates about E>>3.E2 ckt kms of transmission lines at 533 kG, <<3 kG, :2< kG levels
and H: nos. of substations with transformation capacity of -G,. %he day1to1day affairs
of the &ompany are managed by the -anaging /irector assisted by whole1time
?unctional /irectors as per the advice of the 7oard of /irectors constituted. %hey are in
turn assisted by a team of dedicated and experienced professionals in the various fields.
[5]
VISION AND MISSION OF OPTCL:
VISION:
:;%o build up "$%&' as one of the best transmission utility in the country in terms of
uninterrupted power supply, minimizing the loss, contributing states. industrial growth.
<;/evelopment of a well coordinated transmission system in the backdrop of formation
of strong +ational $ower rid as a flagship, endeavour to steer the development of
$ower #ystem on $lanned path leading to cost effective fulfilment of the ob0ective of
'Electricity to ,ll. at affordable price.
MISSION:
$lan I operate the %ransmission system so as to ensure that transmission system built,
operated and maintained to provide efficient, economical and coordinated system of
%ransmission and meet the overall performance #tandards.
Ci; %o upgrade the transmission system network so as to handle power to the tune of
2333 -W for :334 availability of power to each family.
Cii; %o 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 techno1commercially
viable model of the country
OBJECTIVES OF OPTCL:
%o effectively operate %ransmission lines and #ub1#tations in the #tate for evacuation of
power from the state generating stations feed power to state distribution companies,
wheeling of $ower to other states, maintenance of the existing lines and sub1stations for
power transmission and to undertake power system improvement by renovation, up1
gradation and modernization of the transmission network.
"$%&' being a #tate %ransmission Dtility $ublic ,uthority has set the following
ob0ectives.
[6]
Dndertake transmission and wheeling of electricity through intra1 #tate %ransmission
system
:; /ischarge all functions of planning and coordination relating to Intra #tate, inter
#tate transmission system with &entral %ransmission Dtility, #tate ovt. enerating
&ompanies, )egional $ower 7oard, ,uthority, 'icensees or other person notified by
#tate ovt. in this behalf.
<; Ensure development of an efficient and economical system of intra state and inter
#tate transmission lines for smooth flow of electricity from generating station s to the
load centres.
2; $rovide non1discriminatory 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 #tate &ommission on payment of transmission chargesJsurcharge as
may be specified by the #tate &ommission.
5; Exercise supervision and control over the intra1state transmission system, efficient
operation and maintenance of transmission lines and substations and operate #tate 'oad
/espatch &entres to ensure optimum scheduling and despatch of electricity and to
ensure integrated operation of power systems in the #tate.
>;)estore power at the earliest possible time through deployment of emergency
)estoration system in the event of any +atural /isasters like super cyclone, flood etc.
[7]
[8]
POWER SECTOR REFORM IN THE STATE:
%he $ower #ector )eforms in the #tate of "rissa was started during +ovember :EE2
in an organized manner. %he main ob0ective of the reform was to unbundle
generation, transmission and distribution and to establish an independent and
transparent )egulatory &ommission in order to promote efficient and accountability
in the $ower #ector.
In order to implement the reform, in the first phase, two corporate entities namely
rid &orporation of "rissa 'imited C)I/&"; and "rissa 6ydro $ower
&orporation 'imited C"6$&; were established in ,pril :EE>. )I/&" was
incorporated under the &ompanies ,ct, :E>A in ,pril :EE> to own and operate the
transmission and distribution systems in the #tate. #imilarly "6$& was
incorporated to own and operate all the hydro generating stations in the #tate.
%he #tate overnment enacted the "rissa Electricity )eform ,ct, :EE> which came
into force with effect from :.5.:EEA. In exercise of power under #ection <2 and <5
of the "rissa Electricity )eform ,ct, :EE>,the #tate ovt. notified the "rissa
Electricity )eform C%ransfer of Dndertakings, ,ssets, 'iabilities, proceedings and
$ersonnel ; #cheme )ules :EEA. ,s per the scheme, the transmission ,distribution
activities of the erstwhile "#E7 along with the related assets, liabilities, personnel
and proceedings were vested on )I/&" . #imultaneously the hydro generation
activities of "#E7 along with related assets, liabilities, personnel and proceedings
were vested on "6$&.
In order to privatize the distribution functions of electricity in the #tate, four
/istribution &ompanies namely &entral Electricity #upply &ompany of "rissa
'imited C&E#&";, +orth Eastern Electricity #upply &ompany of "rissa 'imited
C+E#&";, southern Electricity #upply &ompany of "rissa limited C#"D%6&"; I
Western Electricity #upply &ompany "rissa 'imited CWE#&"; were incorporated
under the &ompanies ,ct, :E>A as separate corporate entities. /uring +ovember
:EEH the #tate ovt. issued the 8"rissa Electricity )eform C%ransfer of ,ssets,
'iabilities, $roceedings and $ersonnel of )I/&" to distribution &ompanies; )ules
:EEH9 wherein the electricity distribution and retail supply activities along with the
related assets, liabilities, personnel and proceedings were transferred from )I/&"
to the four /istribution &ompanies. %hrough a process of international &ompetitive
7idding CI&7;, the four /istribution &ompanies were privatized during :EEE.
,fter separation of /istribution business, )I/&" left with electricity
%ransmission and 7ulk #upplyJ%rading activities. )I/&" was also declared as the
#tate %ransmission Dtility and was discharging the functions of #tate 'oad /espatch
&entre C#'/&;.
%he overnment of India enacted the Electricity ,ct, <332 which came into effect
REFORM ACHIEVEMENT:
-ilestones of "rissa $ower #ector )eform
:; ?irst %ransfer between "6$& and )I/&" effected on :st ,pril, :EEA
<;"E) ,ct, :EE> created "rissa Electricity )egulatory &ommission,
a )egulatory 7ody which became functional on :.H.:EEA
2; Dnbundling of %ransmission and /istribution via #econd %ransfer #cheme
effective from +ovember <A, :EEH
5;E %ariff "rders after public hearing have been passed by "E)&
C?@EH, ?@EE, ?@33, ?@3:, ?@3<, ?@32, ?@35, ?@3>, ?@3A;
>; 7#E# took over management and operational control of 2 /istribution &ompanies
CWE#&", #"D%6&" and +E#&"; from ,pril :, :EEE

A; $rivatization of /istribution completed with ,E# taking over the
fourth distribution company, &E#&" from #eptember :, :EEE

B; &E#&" remained under the management of an ,dministrator C&E";
appointed by "E)& with effect from <B.H.<33:

H;, new public limited company under the name 8 "rissa $ower %ransmission
&orporation 'imited 8 was incorporated on <E.32.<335 to carry on the
business of %ransmission, #%D, and #'/& functions of )I/&"
E; "$%&' became functional on :.5.<33>. )I/&" continue to carry on
its 7ulk #upply and %rading functions
[9]
CHAPTER-7: REVIEW OF LITERATURE
%he purpose of this chapter is to present a review of literature relating to the working
capital management. %he following are the literature review by different authors and
different research scholars.
P)## C.L.- P"9 R.H
1
C:EH5;, studied that over the past 53 years ma0or theoretical
developments have occurred in the areas of longer1term investment and financial
decision making. -any of these new concepts and the related techni!ues are now being
employed successfully in industrial practice. 7y contrast, far less attention has been paid
to the area of short1term finance, in particular that of working capital management. #uch
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 inade!uate planning and control of working capital is one of the more common
causes of business failure.
H%:';& B
2
C:EE3;, studied that 8&ash is king911so say the money managers who share
the responsibility of running this country's businesses. ,nd with banks demanding more
from their prospective borrowers, greater emphasis has been placed on those
accountable for so1called working capital management. Working capital management
refers to the management of current or short1term assets and short1term liabilities. In
essence, the purpose of that function is to make certain that the company has enough
1
Pass C.L., Pike R.H: An overview of working capital management and corporate financing (!"#$.
2
Her%feld &' How to (nderstand )orking Capital *anagement (!!+$.
[10]
assets to operate its business. 6ere are things you should know about working capital
management.
S)<";4!;. F.)*& D<"%!.*# K
7
(233=), studied that the effect of working capital
management on firm profitability. In accordance with this aim, to consider statistically
significant relationships between firm profitability and the components of cash
conversion cycle at length, a sample consisting of Istanbul #tock Exchange CI#E; listed
3
,amilogl- .. and /emirg-nes 0., 12e 3ffect of )orking Capital *anagement on .irm
Profita4ilit5: 3vidence from 1-rke5 (6++"$
[11]
A++.,)<"- R)*>"$, B
#
(233=)- studied impact of firms' capital expenditure on their
working capital management. %he author used the data collected from listed companies
in the %hailand #tock Exchange. %he study used #chulman and &ox's C:EH>; +et
'i!uidity 7alance and Working &apital )e!uirement as a proxy for working capital
measurement and developed multiple regression models. %he empirical research found
that firms' capital expenditure has a significant impact on working capital management.
%he study also found that the firms' operating cash flow, which was recognized as a
control variable, has a significant relationship with working capital management.
H)%&()#$; J
2
(233?).- studied that Working capital, sometimes called gross working
capital, simply refers to the firm's total current assets Cthe short1term ones;, cash,
marketable securities, accounts receivable, and inventory. While long1term financial
analysis primarily concerns strategic planning, working capital management deals with
day1to1day operations. 7y making sure that production lines do not stop due to lack of
raw materials, that inventories do not build up because production continues unchanged
when sales dip, that customers pay on time and that enough cash is on hand to make
payments when they are due. "bviously without good working capital management, no
firm can be efficient and profitable.
T,)(,)++";;@ G
5
(233?$., 8Working &apital -anagement -anages ?low of ?unds9,
C<33E; describes that Working capital is the cash needed to carry on operations during
the cash conversion cycle, i.e. the days from paying for raw materials to collecting cash
from customers. )aw materials and operating supplies must be bought and stored to
ensure uninterrupted production. Wages, salaries, utility charges and other incidentals
must be paid for converting the materials into finished products. &ustomers must be
allowed a credit period that is standard in the business. "nly at the end of this cycle
does cash flow in again
4
App-2ami, Ran7it2 & A' 12e 8mpact of .irms9 Capital 3:pendit-re on )orking Capital
*anagement: An 3mpirical ,t-d5 across 8nd-stries in 12ailand, (6++"$
5
Hardcastle' )orking Capital *anagement,(6++!$.
6
12ac2appill5 ;. )orking Capital *anagement *anages .low of .-nds,(6++!$
[12]
B*&)- N)*(@A B,)*!- Y";"
1
(6++"$, studied impact of working capital management
on the operating performance and growth of new public companies. %he study also
sheds light on the relationship of working capital with debt level, firm risk, and industry.
Dsing a sample of initial public offerings CI$"'s;, the study finds a significant positive
association between higher levels of accounts receivable and operating performance.
%he study further finds that maintaining control Ci.e. lower amounts; over levels of cash
and securities, inventory, fixed assets, and accounts.
D./@ R
=
(6++"$., studied %he working capital in a firm generally arises out of four
basic factors like sales volume, technological changes, seasonal , cyclical changes and
policies of the firm. %he strength of the firm is dependent on the working capital as
discussed earlier but this working capital is itself dependent on the level of sales volume
of the firm. %he firm re!uires current assets to support and maintain operational or
functional activities. 7y current assets we mean the assets which can be converted
readily into cash say within a year such as receivables, inventories and li!uid cash. If
the level of sales is stable and towards growth the level of cash, receivables and stock
will also be on the high.
M(C;.% B
?
(6++<$., 8Working &apital Works9 describes that &ash is the lifeline of a
company. If this lifeline deteriorates, so does the company's ability to fund operations,
reinvest and meet capital re!uirements and payments. Dnderstanding a company's cash
flow health is essential to making investment decisions. , good way to 0udge a
company's cash flow prospects is to look at its working capital management CW&-;.
&ash is king, especially at a time when fund raising is harder than ever. 'etting it slip
away is an oversight that investors should not forgive. ,nalyzing a company's working
capital can provide excellent insight into how well a company handles its cash, and
whether it is likely to have any on hand to fund growth and contribute to shareholder
value.
7
&eneda, =anc5' >2ang, ?ilei, )orking Capital *anagement, ;rowt2 and Performance of =ew
P-4lic
Companies, Credit @ .inancial *anagement Review, (6++"$
8
/-4e5 R, )orking Capital *anagementAan 3ffective 1ool for Brganisational ,-ccess (6++"$
9
*cCl-re &, )orking Capital )orks (6++<$
[13]
G)## D
13
(6++C$., studied K&ash is the lifeblood of businessK is an often repeated maxim
amongst financial managers. Working capital management refers to the management of
current or short1term assets and short1term liabilities. &omponents of short1term assets
include inventories, loans and advances, debtors, investments and cash and bank
balances. #hort1term liabilities include creditors, trade advances, borrowings and
provisions. %he ma0or emphasis is, however, on short1term assets, since short1term
liabilities arise in the context of short1term assets. It is important that companies
minimize risk by prudent working capital management.
M)@*)%& E. R'.#
11
(!!C$, ,rgued that attempts to improve working capital by
delaying payment to creditors is counter1productive to individuals and to the economy
as a whole. &laims that altering debtor and creditor levels for individual tiers within a
value system will rarely produce any net benefit. $roposes that stock reduction
generates system1wide financial improvements and other important benefits. Drges
those organizations seeking concentrated working capital reduction strategies to focus
on stock management strategies based on 8lean supply1chain9 techni!ues.
T,4<)# M. K%.!%
12
(6++D$, studied distinct levels of W&- measures for different
industries, which tend to be stable over time. -any factors help to explain this
discovery. %he improving economy during the period of the study may have resulted in
improved turnover in some industries, while slowing turnover may have been a signal
of troubles ahead. "ur results should be interpreted cautiously. "ur study takes places
over a short time frame during a generally improving market. In addition, the survey
suffers from survivorship bias L only the top firms within each industry are ranked each
year and the composition of those firms within the industry can change annually.
10
;ass /, How 1o 8mprove )orking Capital *anagement (6++C$
11
*a5nard 3. Raf-se, )orking capital management: an -rgent need to refoc-s *anagement
/ecision, (!!C$
12
12omas *. 0r-eger, An Anal5sis of )orking Capital *anagement Res-lts Across 8nd-stries
American Eo-rnal of &-siness, (6++D$
[14]
E;>;;@
17
C<33<; empirically examined the relationship between profitability and
li!uidity, as measured by current ratio and cash gap Ccash conversion cycle; on a sample
of E<E 0oint stock companies in #audi ,rabia. Dsing correlation and regression analysis,
El0elly MENfound significant negative relationship between the firm's profitability and its
li!uidity level, as measured by current ratio. %his relationship is more pronounced for
firms with high current ratios and long cash conversion cycles. ,t the industry level,
however,he found that the cash conversion cycle or the cash gap is of more importance
as a measure of li!uidity than current ratio thataffects profitability. %he firm size
variable was also found to have significant effect on profitability at the industry level.
L):)%"&"# )*& T%@'4*"&"#
16
(6++#$, conducted a cross sectional study by using a sample
of :2: firms listed on the ,thens #tock Exchange for the period of <33: 1 <335 and
found statistically significant relationship between profitability, measured through gross
operating profit, and the cash conversion cycle and its components Caccounts
receivables, accounts payables, and inventory;. 7ased on the results analysis of annual
data by using correlation and regression tests, they suggest that managers can create
profits for their companies by correctly handling the cash conversion cycle and by
keeping each component of the conversion cycle Caccounts receivables, accounts
payables, and inventory; at an optimal level.
R),<)* )*& N)#%
12
(6++#$, studied the effect of different variables of working capital
management including average collection period, inventory turnover in days, average
payment period, cash conversion cycle, and current ratio on the net operating
profitability of $akistani firms. %hey selected a sample of E5 $akistani firms listed on
*arachi #tock Exchange for a period of six years from :EEE 1 <335 and found a strong
negative relationship between variables of working capital management and
profitability of the firm. %hey found that as the cash conversion cycle increases, it leads
to decreasing profitability of the firm and managers can create positive value for the
shareholders by reducing the cash conversion cycle to a possible minimum level.
13
3l7ell5' cas2 conversion c5cle 5ear (6++6.$
14
La%aridis and 1r5fonidis, cas2 conversion c5cle 5ear (6++#$
15
Ra2eman and =asr' varia4les of working capital management 5ear ( 6++#$.
[15]
G)%(")-T%.; )*& M)%$"*:-S4;)*4
C
(!!C$ collected a panel of H,HB< small to
medium1sized enterprises C#-Es; from #pain covering the period :EEA 1 <33<. %hey
tested the effects of working capital management on #-E profitability using the panel
data methodology. %he results, which are robust to the presence of endogeneity,
demonstrated that managers could create value by reducing their inventories and the
number of days for which their accounts are outstanding. -oreover, shortening the cash
conversion cycle also improves the firm's profitability.
F);4+ )*& A>";4%
<
C<332;, used a sample of >3 +igerian !uoted non1financial firms
for the period :EEA 1<33>. %heir study utilized panel data econometrics in a pooled
regression, where time1series and cross1sectional observations were combined and
estimated. %hey found a significant negative relationship between net operating
profitability and the average collection period, inventory turnover in days, average
payment period and cash conversion cycle for a sample of fifty +igerian firms listed on
the +igerian #tock Exchange. ?urthermore, they found no significant variations in the
effects of working capital management between large and small firms.
K4.<) G.@
1=
, C<33:; in a study on, 8W4%9"*! ()+"$); <)*)!<*$ "* ,);$,()%C-
Working capital is the re!uired to finance the day to day operations of an organization.
Working capital may be re!uire to bridge the gap between buying of stocked items to
eventual payment for goods sold on account. Working capital also has to fund the gap
when products are on hand but being held in stock. $roducts in stock are at full cost,
effectively they are company cash resources which are out of circulation therefore
additional working capital is re!uired to meet this gap which can only be reclaimed
when the stocks are sold Cand only if these stocks are not replaced; and payment for
them is received. Working capital re!uirements have to do with profitability and much
more to do with cash flow.
:A
;arciaA1er-el and *artine%A,olano' working capital management of ,*3s 5ear !!C.
17
.alope and A7ilore: -tilisation of reso-rces 5ear 6++F
18
$ 0o-ma ;-5, (6++$)orking capital management in 2ealt2care www.Gakdesni%.ed-.tr Hol-me
D' page =o <CA"!
[16]
M,<$ SEN- E&) ORUC (2332)
1?
in the study DR;)$"4*#,"+ /$0* $, ''"("*(@
4' 04%9"*! ()+"$); <)*)!<*$ )*& (4<+)*@ #":C- ,s it is known, one of the
reasons which cause change in working capital from one period to another is the change
in management efficiency. %he change in management efficiency will affect the change
in working capital in a way as increaser or reducer from on period to another. In this
study, the effect of change in management efficiency in working capital management in
to the change in working capital is compared by company size and sectors. %he data of
this study covers sixty periods as the total of !uarterly financial statement of >>
manufacturing companies which were in operation in Istanbul #tock exchange CI#E;
between the years :EE2 and <33B. In every period we studied, for inventories short term
commercial receivables and short term commercial liabilities, and calculated the effect
of change in management efficiency on to the effect of working capital change. In all
sectors considered, in the change in working capital, and observed the effect of reducing
of efficiency in inventory management. It is also observed that efficiency change in the
management of the short term commercial receivables and the short term commercial
liabilities by the company sizes and sectors make a positive effect in to the change in
working capital
B%);@- R.- (!!<$
6+
in a study on, 8W4%9"*! C)+"$); <)*)!<*$ (4*(+$# 04%9
#,$ .*"E%#"$@ 4' +,4*"FC. &oncept application of concept in the #imulation
reference to concept in reading cash conversion cycle cash conversions is the process of
managing a company.s cash inflows and outflows. In the simulation, the finance
manager was responsible for balancing sales with collections or accounts receivables
Ccash inflows; and purchases with payments or accounts payables Ccash outflows;. %his
delicate balance maintains the company.s balance sheet keeping the cash and loans in a
situation of financial stability and keeping the money from being tied up. $rinciples of
corporate finance. Working capital management. +ew @ork= -craw16ill.
19
*e2met ,3=, 3da BR(C (6++D$ Relations2ip 4etween t2e efficienc5 of working capital
management and compan5 si%e, www.Gakdesni%.ed-.tr Hol-me 6' Pages =o F6A#6
20
&reale5, R., (!!<$ )orking capital management )orking Capital management concepts work
s2eet -niversit5 of p2oeni:. Hol-me ' Pages =o 6FA6"
[17]
CHAPTER-6
RESEARCH METHODOLOGY
)esearch methodology is a systematic approach in management research to achieve
pre1defined ob0ectives. It helps a researcher to guide during the course of research work.
)ules and techni!ues stated in research methodology save time and labour of the
researcher as researcher know how to proceed to conduct the study as per the ob0ective.
SELECTION OF TOPIC= %he selection of topic is a crucial factor in any research
study. %here 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. %housands 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. +ow 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 re!uired for smooth production runs. 6olding of sufficient current
assets will ensure smooth and un interrupted production but at the same time, it will
consume a lot of working capital. 6ere creeps the importance and need of efficient
working capital management. ,fter due to consultation with the external guide Jinternal
guide, the topic was finalized and titled as1DA STUDY ON WORKING CAPITAL
MANAGEMENT IN OPTCL- BBSRC
SELECTION OF LOCATION FOR THE STUDY: %he location for study was
selected as the corporate office of "$%&', 7hubaneswar.
RESEARCH DESIGN: D, )esearch 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 procedure9 %he research design followed to study the
[18]
working capital management in ")I##, $"WE) %),+#-I##I"+ &")$"),%I"+
'I-I%E/ C"$%&'; is /escriptive and ,nalytical )esearch /esign.
SOURCES OF DATA COLLECTION:
:. #econdary data collection
S(4*&)%@ &)$) (4;;($"4*:
%he secondary data are those which have already collected and stored. #econdary data
easily get those secondary data from records, 0ournals, annual reports of the company
etc. It will save the time, money and efforts to collect the data. #econdary data also
made available through trade magazines, annual reports, books etc.
%his pro0ect is based secondary data collected through annual reports of the
organization. %he data collection was aimed at study of working capital management of
the company.
P%4>($ "# /)#& 4*
:. ,nnual report of "$%&'. <33A1<33B
<. ,nnual report of "$%&' <33B1<33H
2. ,nnual report of "$%&'. <33H1<33E
5. ,nnual report of "$%&'. <33E1<3:3
FORMULAS OF RATIO ANALYSIS G DEFINITION
RATIO:
)atio analysis is the powerful tool of financial statements analysis. , ratio is define as
8the indicated !uotient of two mathematical expressions9 and as 8the relationship
between two or more things9. %he absolute figures reported in the financial statement do
not provide meaningful understanding of the performance and financial position of the
firm. )atio helps to summaries large !uantities of financial data and to make !ualitative
0udgment of the firm.s financial performance.
[19]
ROLE OF RATIO ANALYSIS
)atio 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. )atio
analysis is one of the best possible techni!ues available to management to impart the
basic functions like planning and control. ,s 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. "n 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. #imilarly, 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. &urrent ratio which shows a constant decline trend may be indicate the need for
further introduction of long term finance in order to increase the li!uidity position. ,s
the ratio analysis is concerned with all the aspect of the firm.s financial analysis
li!uidity, 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.
LIHUDITY RATIO:
'i!uidity refers to ability of a concern to meet its current obligations as and when these
become due. %he short1term obligations are met by realising amounts from current,
floating or circulating asset. %he current asset either be li!uid or near li!uidity. %hese
should be convertible into cash for paying obligation of short1term nature. %o measure
the li!uidity of a firm, following ratios can be calculated=
A) CURRENT RATIO: &urrent assets include cash and those assets which can be
converted in to cash within a year, such marketable securities, debtors and inventories.
,ll obligations within a year are include in current liabilities. &urrent liabilities include
creditors, bills payable accrued expenses, short term bank loan income tax liabilities and
long term debt maturing in the current year. &urrent ratio indicates the availability of
current assets in rupees for every rupee of current liability.

&D))E+% ),%I" O &D))E+% ,##E%J &D))E+% 'I,7I'I%IE#
[20]
B) HUICK RATIO OR ACID TEST: Puick ratios establish the relationship between
!uick or li!uid assets and liabilities. ,n asset is li!uid if it can be converting in to cash
immediately or reasonably soon without a loss of value. &ash is the most li!uid asset
.other assets which are consider to be relatively li!uid and include in !uick assets are
debtors and bills receivable and marketable securities. Inventories are considered as less
li!uid. Inventory normally re!uired some time for realizing into cash. %heir value also
be tendency to fluctuate. %he !uick ratio is found out by dividing !uick assets by current
liabilities.
PDI&* ),%I" O total li!uid assetJ total current liabilities
C) ABSOLUTE LIHUID ASSET: Even though debtors and bills receivables are
considered as more li!uid then inventories, it cannot be converted in to cash
immediately or in time. %herefore while calculation of absolute li!uid ratio only the
absolute li!uid 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.
,7#"'D%E 'IPDI/ ),%I"Oabsolute li!uid assetJ total current liabilities
EFFICIENCY RATIO: ?unds are invested in various assets in business to make sales
and earn profits. %he efficiency with which assets are managed directly affects the
volume of sale. ,ctivity ratios measure the efficiency and effectiveness with which a
firm manages its resources or assets. %hese ratios are also called turnover ratios.
A) DEBTORS TURNOVER RATIO: )eceivable turnover ratio provides relationship
between credit sales and receivables of a firm. It indicates how !uickly receivables are
converted into sales.
/E7%")# %D)+"GE) ),%I"O #,'E#J ,GE),E ,&&"D+% )E&EIG,7'E#.
,GE),E ,J& )E&EIG,7'E#O opening trade debtorQ &losing trade debtorJ<
,GE),E &"''E&%I"+ $E)I"/O C2A>J/%); days
"r )E&EIG,7'E# R 2A>J sale
[21]
B) WORKING CAPITAL TURNOVER RATIO: It signifies that for an amount of
sales, a relative amount of working capital is needed. If any increase in sales
contemplated working capital should be ade!uate and thus this ratio helps management
to maintain the ade!uate level of working capital. %he ratio measures the efficiency with
which the working capital is being used by a firm. It may thus compute net working
capital turnover by dividing sales by net working capital.
W")*I+ &,$I%,'%D)+"GE) ),%I"Ocost of salesJ net working capital
CURRENT ASSET TURNOVER RATIO:
&D))E+% ,##E% %D)+"GE) ),%I"O sales J current asset
STATISTICAL TOOLS USED FOR DATA ANAYLSIS:
%he various statistical tools used for data analysis is as follows=
a; %ables=
b; 7ar1chart
c; raphs
d; &orrelation
ANALYTICAL TOOLS USED:
%he analytical tools used for data analysis is as follows=
a; )atio analysis
b; #chedule of change in working capital
c; &ash flow statements
[22]
CHAPTER-2
RESULTS AND FINDINGS
%he result and discussion of the study is presented in five different sections. %he first
sections explain about the various components of working capital, variable of working
capital. %he second section explains about the li!uidity trend of the organization. %he
third section explains about the working capital trend .%he fourth section explains the
utilization of current assets and current liabilities. %he fifth section explains the measure
to effective management of working capital.
%he first section explains about the various components of working capital and variables
of working capital. %he components of working capital are presented in %able >.:.
(TABLE 2.1: COMPONENTS OF WORKING CAPITAL)
T)/; 1.1 2335-
2331(%#)
2331-233=(R#) 233=-233?(R#) 233?-2313(R#)
&ash A5H,<BA,H:< 5E3,HH:,:H2 E3B,3:E,B>3 B<B,:3A,:<E
Debtors BEH:EA<3: :,3>,<5,BE,EH< :,3>,>3,EB,5B2 :,3>,>A,2:,AEH
Inventories B>:3A5AE3 BA,AH,A>,<A< H3,H>,:E,<BH EA,E3,>A,5A3
sundry
&reditors
A:,32,<<,5EA AA,>:,AB,EH3 AH,E>,<A,>EB B<,53,>:,5>A
$rovisions H2,3H,A>,H:E :,23,5>,:B,B55 5,H:,B3,3<,A32 >,AE,>A,AB,5B>
,n insight into the table reveals that=
a; &ash and bank balances in <33A1<33B were )s A5H<BAH:<. It is decreased to )s
5E3,HH::H2. With a1<5.<B4 growth. In <33H1<33E it increased to )s E3B,3:E,B>3. ,nd
then it suddenly decreased to )s B<B,:3A,:<E.
b; /ebtors increases which was not a good sign. In <33A1<33B debtors were )s
BE,H:,EA,<3: and it increased )s :3>,<5,BE,EH< a total increase in )s <>5<H2BH:. In
<33H1<33E it was )s :,3>,>3,EB,5B2. ,nd in <33E1<3:3 it again increased to )s
:,3>,>A,2:,AEH.
c; Inventories were increased at a good speed. %he inventories were )s BE,H:,EA,<3: in
<33A1<33B. In <33B1<33H it increased to )s BA,AH,A>,<A<, ultimately increase in )s
:>H33>B<, with the percentage growth <.:34. In <33H1<33E it increased to )s
[23]
H3,H>,:E,<BH with the increase in B.B4 . in <33E1<3:3 it again increased to
EA,E3,>A,5A3 with a increase in <E4.
d; #undry creditors also increased a lot. In <33A1<33B it was )s A:, 32, <<,5EA. %hen it
increased by )s >,5 H,5>,5H5 which ultimately amounted to )s AA,>:,AB,EH3 with a
increase of H.EE4. in the year <33B1<33H. In <33H1<33E it increased to )s AH,E>,<A,>EB
with a percentage increase of :<.EH4. in <33E1<3:3 it again increase to )s
B<,53,>:,5>A.
e; $rovisions also increased throughout this 5years. In <33A1<33B it was
)sH2,3H,A>,H:E. %hen it increased to )s :,23,5>,:B,B55 with a percentage increase of
>B4. In <33H1<33E it again increased to )s5,H:,B3,3<,A32 with a percentage increase in
5BE4. In <33E1<3:3 it again increased to )s >,AE,>A,AB,5B>.
(T)/; 2.2: V)%")/;# 4' W4%9"*! C)+"$); M)*)!<*$)
VARIABLES YEARS
<33A1<33B <33B1<33H <33H1<33E <33E1<3:3
)"%, C)eturn on %otal
,ssets;
3.:> 3.:A 3.<< 3.:3
"$- Coperating profit
margin;
A:.>>4 >A.534 <B.BH4 25.A>4
E,) Cearing )atio
i.e. financial debt J total
assets;
3.A5=: 3.>>=: 3.52=: 3.22=:
&) C&urrent )atio; :.<H=: 3.E5=: 3.HA=: 3.A<=:
P,) CPuick ,ssets
)atio;
3.>H=: 3.5A=: 3.<B=: 3.<<
&,J%, C&urrent ,ssets
to %otal ,ssets;
3.:2 3.:< 3.<: 3.:A
&'J%, C&urrent
'iabilities to %otal
,ssets;
3.:: 3.:2 3.<5 3.<A
#*J&, C#tocks to 3.<2 3.<> 3.:2 3.:E
[24]
&urrent ,ssets;
%/J&, C%rade /ebtors
to &urrent ,ssets;
3.<> 3.25 3.:B 3.<:
&,S%D)+ C&urrent
,ssets %urnover is
#alesJ&urrent ,ssets;
:.:3 :.<E :.3H 3.A3
%he various variables of working capital is presented in table >.<. ,n analysis of data
presented in the table reveals the following findingsT
,; )eturn on total asset came 3.:> in <33A1<33B, 3.:A in <33B1<33H, 3.<< in <33H1<33E
and 3.:3 in <33E1<3:3.
7; "perating profit margin was A:.>>4 in <33A1<33B then it reduced to >A.534,
<B.BH4, and 25.A>4 in <33B1<33H, <33H1<33E, and <33E1<3:3 respectively. ,nything
between A>4 to H>4 is known as a good operating margin. ,nd for "$%&' is a sign of
alarm.
&; earing ratio came 3.A5=: in <33A1<33B and in <33B1<33H it is 3.>>=: and 3.52=: and
3.22=: in <33H1<33E and <33E1<3:3.
/; &urrent ratio generally reduced for the organisation, in <33A1<33B it was :=<H and it
reduced to 3.E5=: in <33B1<33H and then it again reduced to to3.HA=: and 3.A< in <33H1
<33E and <33E1<3:3 respectively.
E; Puick asset ratio in <33A1<33B as it was 3.>H=:, in <33B1<33H it became 3.5A=: and
in <33H1<33E and in <33E1<3:3 it became 3.<B=: and 3.<<=:.
?; &urrent asset to total asset ratio came 3.:2, 3.:<, 3.<: and 3.:A in the year <33A1
<33B, <33B1<33H, <33H1<33E, and <33E1<3:3.
; &urrent liability to total asset ratio came 3.:: in <33A1<33B, in <33B1<33H it came
3.:2, and in <33H1<33E and <33E1<3:3 it came 3.<5=: and 3.<A=: respectively.
6; #tock to current asset is 3.<2, 3.<>, 3.:2, and 3.:E in respective years.
[25]
I; %rade debtors in <33A1<33B is 3.<>, in <33B1<33H is 3.25, in <33H1<33E is 3.:B and in
<33E1<3:3 is 3.<:.
F; &urrent asset turnover is :.:3 in <33A1<33B, :.<E in <33B1<33H, :.3H in <33H1<33E
and become 3.A3 in <33E1<3:3
T)/; 2.7: C4<+4**$# 4' C.%%*$ %)$"4- I."(9 %)$"4 )*& A/#4;.$ L"I."& R)$"4#
2335-2331 2331-233= 233=-233? 233?-2313
&urrent ratio
:.<H=: 3.E5=: 3.HA=: 3.A<=:
Puick ratio 3.>H=: 3.5A=: 3.<B=: 3.<<
,bsolute li!uid
ratio
3.<>=: 3.:>=: 3.:<=: 3.3H=:
#*J&, 3.<2 3.<> 3.:2 3.:E
%/J&, 3.<> 3.25 3.:B 3.<:
&,J%, 3.:2 3.:< 3.<: 3.:A
&'J%, 3.:: 3.:2 3.<5 3.<A
CCC( ()#, (4*E%#"4* (@(;)
Inventory days BB days B3 days 52 days ::>days
/ebtor turnover
days
:<>days H>days >Bdays :<Adays
&reditors
turnover days
A2 days A:days 2B days HAdays

T)/;-2.7 %E;# $, (4<+4**$# 4' (.%%*$ %)$"4- I."(9 %)$"4 )*& )/#4;.$ I."(9
%)$"4. F%4< $, $)/; '4;;40"*! $,"*!# ()* / &%"E&:
[26]
a; In <33A1<33B it is found that the current ratio is :.<H=: which is 0ust below the
standard of <=:. In <33B1<33H, it is found that the current ratio of "$%&' is :3.E5=:. It
is below the standard of <=: and it is due to a decrease in total current assets from
previous year and an increase in current liability this year. %he 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 <33H1<33E, it is found
that the current ratio of "$%&' is 3.HA=:. . It is a not good indication according to the
rule of thumb. 7ecause the firm has more current liabilities than current assets. %he firm
may not be able to meet its short term obligations in time. In <33E1<3:3, it is found that
the current ratio of "$%&' was 3.A<=: it was not a good indication according to rule of
thumb.
b; Puick ratio in <33A1<33B it was 3.>H=: and 3.5A=:, 3.<B=: and 3.<<=: in <33B1<33H, <33H1
<33E, and <33E1<3:3 respectively.
c; In the year <33A1<33B the ,bsolute 'i!uid )atio is found to be 3.<>=:. In the year
<33B1<33H the ,bsolute 'i!uid )atio of "$%&' is found to be 3.:>=:. %he ,bsolute
'i!uid )atio of the firm for the financial year <33H1<33E is found to be 3.:<=: which is
below the normal standard of :=< or 3.>=:. %his is due to less cash and bank balances of
the organization in comparison to the &urrent 'iabilities. In the year <33E1<3:3, the
absolute li!uid ratio found to be 3.3H=:.
d; #tock to current asset is 3.<2, 3.<>, 3.:2, and 3.:E in respective years.
e; %rade debtor to current asset ratio come 3.<>, 3.25, 3.:B and 3.<: respectively.
f; &urrent asset to total asset ratio came 3.:2, 3.:<, 3.<: and 3.:A in the year <33A1<33B,
<33B1<33H, <33H1<33E, and <33E1<3:3.
&urrent liabilities to total asset came 3.:: in <33A1<33B and in <33B1<33H it came 3.:2 ,
in <33H1<33E it came 3.<5=: and in <33E1<3:3 it came 3.<A=:.
h; &ash conversion ratio for inventory came BBdays, B3 days, 52 days and ::> days.
[27]
&ash conversion for debtor comes :<> days in <33A1<33B, and it reduced to H> and >B
days in <33B1<33H, <33H1<33E respectively. 7ut in <33E1<3:3 it increases to :<A days.
&ash conversion ratio came A2days, A:days, 2Bdays and HAdays respectively.
[28]
THE SECOND SECTION EJPLAINS ABOUT THE LIHUIDITY TREND OF
THE ORGANIBATION.
LIHUIDITY RATIO
CURRENT RATIO
T)/;2.6
CURRENT RATIO- (CURRENT ASSETS8CURRENT LIABILITY)
YEAR CURRENT ASSET
(IN RUPEES)
CURRENT LIABILITY
(IN RUPEES)
RATIO
2335-2331 7-21-23-25-62? 2-23-=3-12-215 1.2=:1
2331-233= 7-13-51-1?-737 7-72-?5-=5-23= 3.?6:1
233=-233? 5-73-57-17-71? 1-2?-76-==-56? 3.=5:1
233?-2313 2-31-?7-12-71= =-21-75-56-216 3.52:1
?rom the table >.5 and diagram of &urrent )atios of different financial years of "$%&',
various results can be made.
[29]
,; <33A1<33B it was found that the current ratio was :.<H=: which is below the standard
of <=:. It is due to a decrease of total current assets from the previous year to current
year. #till it is manageable and also the condition was under the control.
7; In <33B1<33H, it was found that the current ratio of "$%&' was 3.E5=:. It was below
the standard of <=: and it is decrease in total current assets from previous year and an
increase in current liability this year. %he cash and bank balance is found to be
decreased this year in comparison to that of previous year where as the current liabilities
and provisions both have increased this year.
&; In <33H1<33E, it was found that the current ratio of "$%&' was 3.HA=:. . It is a not
good indication according to the rule of thumb. 7ecause the firm has more current
assets than current liabilities. %he firm may be able to meet its short term obligations in
time.
/; In <33E1<3:3, it was found that the current ratio of "$%&' was 3.A<=:. It was not a
good indication according to rule of thumb. 7ecause the firm has more current assets
than current liabilities. %he firm was not able to meet its short term obligation in time.
E; 7ecause of increase in administrative overhead expenses, super annuity benefits and
payment of past loan etc. are the ma0or factor for increasing of current liabilities.
?; #ituation can be controlled. #o more emphasis can be given on these areas to reduce
current liabilities and to increase current assets so that the actual standard of <=: can be
achieved.
In addition to, company should make clear cut strategic planning to sell electricity to
ma0or industries at industrial rate to achieve higher revenue
TABLE2.2 H."(9 R)$"4 - (L"I."& A##$8 C.%%*$ L")/";"$@)
YEAR LIHUID ASSET CURRENT LIABILITY RATIO
2335-2331 1-66-56-17-317 2-23-=3-12-215 3.2=:1
2331-233= 1-26-77-51-152 7-72-?5-=5-23= 3.65:1
233=-233? 1-?5-21-11-227 1-2?-76-==-56? 3.21:1
233?-2313 1-1=-21-71-=21 =-21-75-56-216 3.22:1
[30]
FROM THE TABLE 2.2 FOLLOWING THINGS ARE DERIVED:
,; %he Puick )atio or the ,cid %est )atio of "$%&' for the financial year <33A1<33B
was found to be 3.>H=: and the normal standard for is :=:. #o it is a manageable
situation.
7; In the year <33B1<33H it was found that the Puick )atio of "$%&' was 3.5A=: which
was below the normal standard. It was due to a little bit increase in current liabilities in
comparison to that of previous year. #till it was also in a manageable position and by
giving a small effort the normal standard of :=: can be achieved.
&; In the year <33H1<33E it Is found that the PDI&* ratio of "$%&' I# 3.<B=:, which is
0ust normal standard. It is due to a little bit increase in current liabilities.
/; In the year <33E1<3:3 it is found that the Puick ratio was 3.<<=:. Which is below
standard of :=:U -anagement should have an eye on to that.
[31]
TABLE 2.5
ABSOLUTE LIHUID RATIO- (ABSOLUTE LIHUID ASSET8CURRENT
LIABILITY):
YEAR A/#4;.$ L"I."& A##$ C.%%*$ L")/";"$@ R)$"4
2335-2331 56-=2-15-=12 2-23-=3-12-215 3.22:1
2331-233= 6?-3=-=1-1=7 7-72-?5-=5-23= 3.12:1
233=-233? ?3-13-1?-123 1-2?-76-==-56? 3.12:1
233?-2313 12-11-35-12? =-21-75-56-216 3.3=:1
7y going through the table >.A I diagram of ,bsolute 'i!uid )atio, balance sheet of
"$%&' the following results can be drawn.
,; In the year <33A1<33B the ,bsolute 'i!uid )atio was found to be 3.<>=:. %hough it
is below the normal standard still it is in a manageable condition.
[32]
7; In the year <33B1<33H the ,bsolute 'i!uid )atio of "$%&' was found to be 3.:>=:
which is below from the previous year. It is due to a decrease in cash and bank balances
and also a slightly increase in &urrent 'iabilities.
&; %he ,bsolute 'i!uid )atio of the firm for the financial year <33H1<33E is found to be
3.:<=: which is below the normal standard of :=< or 3.>=:. %his is due to less cash and
bank balances of the organization in comparison to the &urrent 'iabilities.
/; In the year <33E1<3:3, the absolute li!uid ratio found to be 3.3H=:. %his is due to less
cash and bank balances of the organization in comparison to the &urrent liabilities.
(T)/; 2.1)
CASH FLOW STATEMENTS
(233?-2313) (233=-233?) (2331-233=)
)<4.*$ "* (R#) )<4.*$ "* (R#) )<4.*$ "* (R#)
profitJloss before tax I extraordinary items
-11-71-11-566 -1=-73-2?-==7 -7-56-??-7=7
ad0ustment for=
appropriation to reserves and surpluses
:,:H,2A,2E,355 A,22,HB,2H2 ::,:>,>A,H:H
interest and finance charges
>5,:A,3:,:EH EB,<5,>5,A:B :,:3,A>,>5,2:H
/epreciation
:,3H,<<,32,>E< :,3E,B5,2B,HBE :,3E,E3,>H,EE3
preliminary expenses WJ"
23,<A,5<2 23,<A,5<2 23,<A,5<2
excess provision written back
1:,35,33,HB,>:3 15B,>B5 1<3E
interest income
15,>>,:2,2:3 1A,E3,3E,33H 1>,32,A3,2H2
provisions for wealth tax
<B,H5A 5A,2:H 5A,23>
provisionJwrite off against theft materials
:>,<<,A32 <E,>3,2:< <H,A>,<E<
provisions for obsolete stock1store etc
:,::,EA,H3:
bad and doubtful debt
5,5B,AH,A>< ::,A2,><> E<,HE,<BH
provisions for fringe benefit tax
11111111111111111111 1<2,EA,E:> 1<:,:2,<>A
OPERATING PROFIT BEFORE
WORKING CAPITAL CHANGE (A)
1-32-16-13-=?7 1-==-2?-=7-31= 2-22-65-23-??6
WORKING CAPITAL CHANGE
stores and spares
1:A,<3,>E,BH> 15,5A,35,2<H 1<,EH,A<,AA5
sundry debtors
15,>2,3<,HBB 12B,H:,3:A 1<A,2>,B2,3>E
other current assets
1>E,52,>H: 1:,52,EH,2<> 1<,55,B:,2:B
loan and advances
:,<3,25,B:,3HB 1<,B<,>2,H>,A:H <5,A3,AB,:AB
current liabilities
5,E2,>E,32B 5<,HH,32,E<H 5<,3:,<B,53:
$rovisions
:,E:,HB,><,2H< 2,><,2:,33,A>A 5B,2A,><,:25
NET WORKING CAPITAL CHANGES
(B)
2-?2-=2-15-257 1-15-71-72-2?5 =2-1?-7?-552
CASH GENERATED FROM THE
OPERATION (A)K(B)
6-31-21-61-125 7-36-?1-1=-716 7-31-52-53-525
[33]
CASH FLOW FROM INVESTING
ACTIVITIES:
capital expenditure C&,$EV; 1E2,5:,>B,A5: 1E:,AH,2B,52< 1:,32,E:,3H,AE5
Interest received revenue 5,>>,:2,2:3 A,E3,3E,33H >,32,A3,2H2
CASH GENERATED FROM
INVESTING ACTIVITIES ( C )
-==-=5-66-771 -=6-1=-2=-626 -?=-=1-6=-711
CASH FLOW FROM FINANCING
ACTIVITIES:
proceeds from secured loan 1:,3A,5:,<5,5B5 1:,3>,EA,22,AH2 1:,3<,AA,E>,2<H
proceeds from unsecured loan 2<,2E,:3,:A> 1A,E>,H<,E5H 12A,HA,3:,2E2
interest paid 1<,A:,AH,3<,:2B 1HH,B3,HE,B>< 1H2,:E,::,<><
proceed from share capital >,33,33,333 <2,3>,>>,333 11111111111111111
CASH FLOW FROM FINANCING
ACTIVITIES (D)
-7-73-13-15-665 -1-1=-21-21-7=7 -2-26-22-31-?17
NET CASH GENERATED FROM ALL
ACIVITIES (AKBKCKD)
-11-??-17-521 61-51-7=-251 1:>,B2,E>,A<H
&ash and cash e!uivalent at the beginning
of the year
E3,B3,:E,B>3 5E,3H,H:,:H2 A5,H<,BA,H:<
cash e!uivalent at the end of the period
12-11-35-12? ?3-13-1?-123 6?-3=-=1-1=6
T)/; 2.1 &'"*# $, '4;;40"*!:
a; &ash generated from investing activities, )s1HH,HA,55,22: , )s1H5,BH,<H,5<5 and
)s1EH, HB, 5H,2:: in the year <33E1<3:3, <33H1<33E and <33B1<33H respectively.
b;6ence, there is a generation of )s.5,3:,>B,5B,:>A cash flow from its operating
activities for the year <33E1<3:3, where as in <33H1<33E, it was )s.2,35,EB,:H,2B5. ,nd
in <33B1<33H it was 2,3B,A>,A3,A>A.
c; %he net cash flow of )s12,23B,3:A,55A from financing activities in <33E1:3. where it
was 1:,BH,>B,>:,2H2 and 1<,<5,><,3B,EB2 in <33H1<33E and <33H1<33B respectively.
d;%hat, the net cash flow from its operating, investing and financing activities for the
year <33E1<3:3 is a negative figure of )s.1:B,EE,:2,A<:. It became positive in the year
<33H1<33E, which was )s 5:, A:, 2H,>AB. ,nd in <33B1<33H it became)s1:>B2, E>,A<H.
T, $,"%& #($"4* F+;)"*# )/4.$ $, 04%9"*! ()+"$); $%*&
T)/;-2.=
S": 4' W4%9"*! C)+"$);:
[34]
C,mount. In )s.;
CURRENT ASSETS(CA) 2331(%.+#) 233=(%.+#) 233?(%.+#) 2313(%.+#)
#tores and spares
751064690 76,68,65,26
2
80,85,19,27
8
96,90,56,460
#undry debtors
798196201 1,05,24,79,9
82
1,05,50,97,
473
1,05,56,31,69
8
&ash and bank balances
648276812 49,08,81,18
3
90,70,19,75
0
72,71,06,129
"ther current assets
628081987 65,25,53,30
4
66,69,51,62
9
74,48,94,758
'oan and advances
389406739 14,33,39,57
2
2,86,87,25,
189
1,58,26,86,33
3
%otal
3,21,50,26,
429
3,10,61,19,
303
6,30,63,13
,319
5,07,93,75,
378
'ess= CURRENT
LIABILITIES(CL)
2331(%.+#) 233=(%.+#) 233?(%.+#) 2313(%.+#)
#undry creditors
61,03,22,496 66,51,67,98
0
68,95,26,59
7
72,40,51,456
/eposits and retention from
suppliersJcontractors
12,50,63,350 13,71,54,49
7
14,91,29,26
9
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
'iabilities 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
'iabilities for fringe benefit
tax
23,41,534 44,54,790 68,51,705 68,51,705
"ther liabilities
87,64,35,326 1,22,77,13,0
16
1,61,76,99,
768
1,65,27,44,61
4
%otal
1,67,71,46,6
97
2,05,51,68,7
64
2,47,64,86,
046
2,51,79,96,79
9
$rovisions
83,08,65,819 1,30,45,17,7
44
4,81,70,02,
603
5,69,56,67,47
5
%otal
2,50,80,12,
516
3,35,96,86,
508
7,29,34,88
,649
8,21,36,64,
274
04%9"*! ()+"$);( CA-CL)
70,70,13,91
3
-
25,35,67,2
05
-
98,71,75,3
30
-
3,13,42,88,
896
F%4< $, $)/; -2.= '4;;40"*! $,"*!# )% &%"E&:
In <33A1<33B, working capital was )sB3,B3,:2,E:2 because current asset was more than
current liabilities. In <33B1<33H working was became negative due to the fact that
current liabilities exceeds current assets. In <33H1<33E it became )s 1EH,B:,B>,223 due
[35]
to excessive of provisions. In that year current liabilities exceeds current assets. In
<33E1<3:3, working capital again became negative.
WORKING CAPITAL TREND ANALYSIS: In working capital analysis the direction
at changes over a period of time is of crucial importance. Working capital is one of the
important fields of management. It is therefore very essential for an analyst to make a
study about the trend and direction of working capital over a period of time. #uch
analysis enables as to study the upward and downward trend in current assets and
current liabilities and its effect on the working capital position. 8%he term trend is very
commonly used in day1today conversion trend, also called secular or long term need is
the basic tendency of population, sales, income, current assets, and current liabilities to
grow or decline over a period of time9 8%he trend is defined as smooth irreversible
movement in the series. It can be increasing or decreasing.9 Emphasizing the
importance of working capital trends, 8analysis of working capital trends provide as
base to 0udge whether the practice and privilege policy of the management with regard
to working capital is good enough or an important is to be made in managing the
working capital funds.
TABLE-2.?
W4%9"*! C)+"$); S": $%*&
Y)%# 2335-2331 2331-233= 233=-3? 233?-13
N$ W.C (A-B) 13-13-17-?17 22-72-51-232 -?=-11-12-773 -7-17-62-==-=?5
W.C. I*&"(# 133 72.=5 -17?.52 -667.71
[36]
C,mount. In )s.;
F%4< $, $)/; 2.? '4;;40"*!# $,"*!# )% &%"E&: It is observed that in <33A1<33B,
working capital indices was very high due to current assets exceeded current liabilities.
In <33B1<33Hindices was also high because current asset were more than current
liabilities. In <33B1<33H the company was able to manage their working capital
efficiently. 7ut in <33H1<33E and <33E1<3:3 it became negative. 6ere in the year <33H1
<33E and <33E1<3:3 current liabilities exceeded current assets.
TABLE-2.13
WORKING CAPITAL TURN OVER RATIO- (SALES8NET WORKING
CAPITAL)
W4%9"*! ()+"$); $.%*4E% %)$"4
YEAR C4#$ 4' S);# N$ 04%9"*! ()+"$); R)$"4
2331 72276?6631 131317?17 2.37$"<#
233= 7??122=1?= A22-72-51-232 -12.1$"<#
233? 51=?2?2621 -?=-11-12-773 -5.==$"<#
2313 732152125= -7-17-62-==-=?5 -3.?1 $"<#
F%4< $, $)/; 2.13 '4;;40"*! $,"*!# &%"E&:
[37]
,; In the year <33A1<33B, there was an increased in working capital turnover ratio to
>.32.
7; 6owever, in the year <33B1<33H, it was 1:>.B which indicates there was a decrease in
net current assets due to increase in current liabilities.
&; In the year <33H1<33E, it was 1A.HH which is better than the previous year.
/; 7ut in <33E1<3:3, working capital turnover was 13.EB, which indicates there was
decrease in net current assets due to increase in current liabilities.
TABLE 2.11
STATEMENT SHOWING CHANGES IN WORKING CAPITAL
(2331 )*& 233=)
(2335-2331)
(R#)
(2331233=)
(R#)
I*(%)# "*
04%9"*!
()+"$);
(R#)
D(%)# "*
04%9"*! ()+"$);
(R#)
C.%%*$ )##$#
S$4%# )*& #+)%# B>:3A5AE3 BAAHA><A< :>H33>B< 1
S.*&%@ &/$4%# BEH:EA<3: :3><5BEEH< <>5<H2BH: 1
C)#, G /)*9
/);)*(#
A5H<BAH:< 5E3HH::H2 1 :>B2E>A<E
O$,% (.%%*$ )##$# A<H3H:EHB A><>>2235 <55B:2:B 1
L4)*# G )&E)*(# 2HE53AB2E :5222E>B< 1 <5A3AB:AB
T4$); 721232562? 713511?737
C.%%*$ ;")/";"$"#
C.%%*$ ;")/";"$"# :ABB:5AAEB <3>>:AHBA5 1 2BH3<<3AB
P%4E"#"4*# H23HA>H:E :235>:BB55 1 5B2A>:E<>
T4$); 223=312215 772?5=523=
EA3>H:::H
W4%9"*! ()+"$);
((.%%*$)##$#-
(.%%*$ ;")/";"$"#)
131317?17 -227251232
N$ &(%)# "*
04%9"*! ()+"$);
-?532=111=
-227251232 -227251232 12221751== 12221751==
F%4< $, $)/; 2.11 '4;;40"*! $,"*!# )% &%"E&:
7y going through the statement showing changes in working capital the following
results can be made.
[38]
,; that, the total current asset of the year <33B1<33H is decreased to )s. 2,:3,A:,:E,232
from a previous year.s figure of )s. 2<:>3<A5<E.
7; %he 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.
&; %he cash and bank balances of the organization have a decrease of )s. :>B2E>A<E
from the previous year.s figure. #imilarly the figure for loans and advances is also
decreased to )s. :5222E>B< from the previous year.s figure of )s. 2HE53AB2E.
/; %he other current assets like prepaid expenses and sundry receivables have also
increased from the previous year.s figure.
E; %he total current liabilities of the year <33B1<33H are increased to )s.22>EAHA>3H
from a previous year.s figure of )s.<>3H3:<>:A.
?;%hat, the increase for current liabilities is due to increase in the figure of sundry
creditors, deposits and retention from suppliersJcontractors, liabilities for wealth tax,
liabilities for fringe benefit tax and other liabilities from the previous year.s figure.
; /ue to increase in the value of stores and spares, sundry debtors, and other current
assets, there is a sign of increase in working capital. 6owever, 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.
6; /ue to increase in current liabilities and provisions for pension and gratuity and
retrospective revision of pay, there is a sign of decrease in working capital.
I;,s 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
)s.EA3>H:::HC<33B1<33H;, which has impacted the steady increase of current working
capital I negatively affected the profitability of the organization.
F; It is found that the current asset.s figure is decreased from the previous year.s figure
I the current liabilities figure is increased from the previous year. ,s a result of which,
there is a net decrease Cnegative figure; in working capital this financial year C<33B1
<33H;.
[39]
*; %hat, 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-2.12
STATEMENT SHOWING CHANGES IN WORKING CAPITAL
( 233? TO 2313)
(233=-233?)
(R#)
(233?-2313)
(R#)
I*(%)# "*
04%9"*!
()+"$);
(R#)
D(%)# "*
04%9"*!
()+"$);
(R#)
C.%%*$ )##$#
S$4%# )*& #+)%# H3H,>:E,<BH EA,E3,>A,5A3 :A3>2B:H< 1
S.*&%@ &/$4%# :,3>>,3EB,5B2 :,3>,>A,2:,AEH >25<<> 1
C)#, G /)*9
/);)*(#
E3B,3:E,B>3 B<,B:,3A,:<E :BEE:2A<:
O$,% (.%%*$
)##$#
AA,AE,>:,A<E B5,5H,E5,B>H BBE52:<E 1
L4)*# G )&E)*(# <,HA,HB,<>,:HE :,>H,<A,HA,222 1 :,<H,A3,2H,H>A
T4$); 5-73-57-17-71? 2-31-?7-12-71=
C.%%*$ ;")/";"$"#
C.%%*$ ;")/";"$"# <,5B,A5,HA,35A <,>:,BE,EA,BEE 1 5,:>,:3,B>2
P%4E"#"4*# 5,H:,B3,3<,A32 >,AE,>A,AB,5B> 1 HB,HA,A5,HB<
T4$); 1-2?-76-==-56? =-21-75-56-216
<:5B::2>AA
W4%9"*! ()+"$);
((.%%*$ )##$#-
(.%%*$ ;")/";"$"#)
-?=-11-12-773 -7-17-62-==-=?5
N$ &(%)# "*
04%9"*! ()+"$);
-2161117255
-7-17-62-==-=?5 -7-17-62-==-=?5 27=512=132 27=512=132
B@ !4"*! $,%4.!, $, $)/;2.12 #,40"*! (,)*!# "* 04%9"*! ()+"$); $, '4;;40"*!
%#.;$# ()* / <)&:
a; %hat, the total current asset of the year <33E1<3:3 is decreased to )s. >,3B,E2,B>,2BH
?rom a previous year.s figure of )s. A,23,A2,:2,2:E .
[40]
b; %he total value of stores and spare is increased from the previous year.s figure and
the value of sundry debtors is also increased from the previous year.s figure.
c; %he cash and bank balances of the organization have a decrease of
)s.:B,EE,:2,A<:from the previous year.s figure. #imilarly the figure for loans and
advances is also decreased to )s.:,>H,<A,HA,222 from the previous year.s figure of )s.
<,HA,HB,<>,:HE.
d; %he other current assets like prepaid expenses and sundry receivables have also
increased from the previous year.s figure.
e; %he total current liabilities of the year <33E1<3:3 are increased to )sH, <:,2A,A5,<B5
From a previous years fgure of s! 7,29,34,88,649!
f;%hat, the increase for current liabilities is due to increase in the figure of sundry
creditors, deposits and retention from suppliersJcontractors, liabilities for wealth tax,
liabilities for fringe benefit tax and other liabilities from the previous year.s figure.
g;/ue to increase in the value of stores and spares, sundry debtors, and other current
assets, there is a sign of increase in working capital. 6owever, due to a decrease in the
figure of cash, bank balances, loan and advances etc, there is a clear sign of decrease in
the working capital.
h;/ue to increase in current liabilities and provisions for pension and gratuity of pay,
there is a sign of decrease in working capital.
i;,s 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
)s. 1<:5B::2>AA C<33E1<3:3;, which has impacted the steady increase of current
working capital I negatively affected the profitability of the organization.
0;It is found that the current asset.s figure is decreased from the previous year.s figure I
the current liabilities figure is increased from the previous year. ,s a result of which,
there is a net decrease Cnegative figure; in working capital this financial year C<33E1
<3:3;.
[41]
k;%hat, 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.
SECTION-6 EJPLAINS ABOUT CURRENT ASSETS AND CURRENT
LIABILITIES
CURRENT ASSETS
%otal assets are basically classified in two parts as fixed assets and current assets. ?ixed
assets are in the nature of long term or life time for the organization. &urrent assets
convert in the cash in the period of one year. It means that current assets are li!uid
assets or assets which can convert in to cash within a year.
TABLE 2.17
CURRENT ASSETS SIBE
C.%%*$ )##$#(CA) 2331(%.+#) 233=(%.+#) 233?(%.+#) 2313(%.+#)
S$4%# )*& #+)%# B>:3A5AE3 BA,AH,A>,<A< H3,H>,:E,<BH EA,E3,>A,5A3
S.*&%@ &/$4%# BEH:EA<3: :,3>,<5,BE,EH< :,3>,>3,EB,5B2 :,3>,>A,2:,AEH
C)#, )*& /)*9
/);)*(#
A5H<BAH:< 5E,3H,H:,:H2 E3,B3,:E,B>3 B<,B:,3A,:<E
O$,% (.%%*$ )##$# A<H3H:EHB A>,<>,>2,235 AA,AE,>:,A<E B5,5H,E5,B>H
L4)* )*& )&E)*(# 2HE53AB2E :5,22,2E,>B< <,HA,HB,<>,:HE :,>H,<A,HA,222
T4$); 4' CA 7-21-23-25-62? 7-13-51-1?-737 5-73-57-17-71? 2-31-?7-12-71=
CA "*&"(# 133 ??.51 1?5.12 121.??
[42]
C,mnt. In )s.;
?rom the table1>.:2 followings things are derived= %he current asset indices show
growth in the year <33A1<33B. In <33B1<33H it declines marginally and in <33H1<33E it
again increase and in <33E1<3:3 it declines.
TABLE-2.16
CURRENT ASSET TURNOVER RATIO - (#);#8(.%%*$ A##$#)
YEAR SALES CURRENT ASSETS RATIO
2331 7-22-76-?6-631 7-21-23-25-62? 1.13
233= 7-??-12-2=-1?= 7-13-51-1?-737 1.2?
233? 5-1=-?2-?2-621 5-73-57-17-71? 1.3=
2313 7-32-15-21-25= 2-31-?7-12-71= 3.53
[43]
F%4< $, $)/; 2.16 '4;;40"*! $,"*!# )% &%"E&: In the year <33A1<33B, the current
asset turnover was :.:3 which became :.<E, :.3H, and 3.A3 in the year <33B1<33H,
<33H1<33E respectively. 7ut in the year <33E1<3:3, the current asset turnover was 3.A3
due to sale was less than the current assets.
COMPONENTS OF CURRENT ASSETS
,nalysis of current assets components enable one to examine in which components the
working capital fund has locked. , large tie up of funds in inventories affects the
profitability of the business or the ma0or portion of current assets is made up cash alone,
the profitability will be decreased because cash is non earning assets.
TABLE 2.12 C+o. in 4;
C.%%*$ )##$#(CA) 2331 233= 233? 2313
S$4%# )*& #+)%# <2.2B <5.AE :<.H< :E.3H
S.*&%@ &/$4%# <5.H< 22.HE :A.B2 <3.BH
C)#, )*& /)*9 /);)*(# <3.:A :>.H3 :5.2H :5.2:
O$,% (.%%*$ )##$# :E.>5 <:.3: :3.>H :5.AB
L4)* )*& )&E)*(# :<.:: 5.A: 5>.5E 2:.:A
T4$); 4' CA 133 133 133 133
[44]
2331(%.+#) 233=(%.+#) 233?(%.+#) 2313(%.+#)
S.*&%@ (%&"$4%# 51-37-22-6?5 55-21-51-?=3 5=-?2-25-2?1 12-63-21-625
D+4#"$# )*& %$*$"4* '%4<
#.++;"%#8(4*$%)($4%#
12-23-57-723 17-11-26-6?1 16-?1-2?-25? 12-=?-?1-312
I*$%#$ )((%.& /.$ *4$ &. 4*
;4)*#
5-21-77-1=? 2-32-=2-16? 1-73-6?-1=2 21-17-322
L")/";"$"# '4% 0);$, $)F 71-2?? 61-263 61-227 2=-1=1
E;($%"("$@ &.$@ +)@)/; 2-12-?37 6?-3?2 1-=2-25? 1-25-117
L")/";"$"# '4% '%"*! /*'"$ $)F 27-61-276 66-26-1?3 5=-21-132 5=-21-132
O$,% ;")/";"$"# =1-56-72-725 1-22-11-17-315 1-51-15-??-15= 1-52-21-66-516
T4$); 1-51-11-65-5?1 2-32-21-5=-156 2-61-56-=5-365 2-21-1?-?5-1??
P%4E"#"4*# =7-3=-52-=1? 1-73-62-11-166 6-=1-13-32-537 2-5?-25-51-612
T4$); 2-23-=3-12-215 7-72-?5-=5-23= 1-2?-76-==-56? =-21-75-56-216
C.%%*$ ;")/";"$"# "*&"(# 133 177.?5 2?3.=1 721.23
CURRENT LIABILITIES:-
TABLE 2.15
TABLE 2.11
[45]
CURRENT LIABILITIES SIBE
F%4< $, $)/; 2.11 '4;;40"*! $,"*!# )% &%"E&: %he current liabilities graph shows
a rapid growth. In <33A1<33B ,the current asset indices is :33 and thereafter it increases
to :22.EA, <E3.H:, 2<B.> in <33B1<33H, <33H1<33E, <33E1<3:3 respectively. %he
current liabilities increased at a speed.
(TABLE 2.1=)
DEBTOR TURN OVER RATIO- (NET SALES8AVERAGE DEBTORS)
YEAR N$ S);# AE%)! D/$4%# R)$"4 AE%)! C4;;($"4*
P%"4&
(7528DTR)&)@#
2331 7-22-76-?6-631 1215=62613 2.?2 122
233= 7-??-12-2=-1?= ?2277=3?1.2 6.72 =2
233? 5-1=-?2-?2-621 1-32-71-==-12= 5.66 21
2313 7-32-15-21-25= 1-32-27-56-2=5 2.=? 125
[46]

D/$4% T.%* OE% R)$"4- 7y going through our calculation table and diagrams of
/ebtor %urn over )atio, profit and loss accounts and balance sheets of "$%&' the
following results can be drawn.
,; In the year <33A1<33B the debtor turnover ratio is <.E< times and the average
collection period is found to be :<> days. %his year, there is a higher value of debtor
turn over and a shorter average collection period in comparison to that of previous year.
%his is a good indication.
[47]
7; In the year <33B1<33H the debtor.s turnover ratio is 5.2< times and the average
collection period is H> days. %his year, the value of debtor.s turnover is higher than the
previous year due to decrease in average debtors and an increase in net sales. ,nd the
average collection period is also shorter than the previous year.s figure.
&; In the year <33H1<33E the debtor turnover ratio is A.55 times and the average
collection period is >B days. %his year, the value of debtor turnover is higher than the
previous year due to decrease in average debtor.
/; In the year <33E1<3:3 the debtor turnover is <.HE times and the average collection
period is found to be :<A days. %his year, there is higher value of debtor turn over.
E; "$%&' used to collect pending dues directly from consumers for which, substantial
delay in getting payment was . 6owever, the present average period of collection is
decreased due to involvement of +E#&", #"D%6&", &E#&", WE#&" etc. for
collection of revenue on behalf of "$%&' and the same has been made through banks.
%he shorter the average collection period, the better the !uality of debtors, since a short
collection period implies the prompt payments by debtors. #o this is a good indication
for the organization.
S($"4* '"E !*%);;@ &'"*# M)#.%# $4 I<+%4E W4%9"*! C)+"$); M)*)!<*$
)$ OPTCL= %he essence of effective working capital management is proper cash flow
forecasting. %his should take into account the impact of unforeseen events, market
cycles, loss of a prime customer and actions by competitors. #o the effect of unforeseen
demands of working capital should be factored by company. %his was one of its reasons
for the variation of its revised working capital pro0ection from the earlier pro0ection.
a; It pays to have contingency plans to tide over unexpected events. While market1
leaders can manage uncertainty better, even other companies must have risk1
management procedures. %hese must be based on ob0ective and realistic view of the role
of working capital.
b; ,ddressing the issue of working capital on a corporate1wide basis has certain
advantages. &ash generated at one location can well be utilized at another.
c; ,n innovative approach, combining operational and financial skills and an all1
encompassing view of the company.s operations will help in identifying and
implementing strategies that generate short1term cash. %his can be achieved by having
the right set of executives who are responsible for setting targets and performance
[48]
levels. %hey could be then held accountable for delivering, encouraged to be
enterprising and to act as change agents.
d; Working capital management is an important yardstick to measure a company
operational and financial efficiency. %his aspect must form part of the strategic and
operational thinking. Efforts should constantly be made to improve the working capital
position. %his will yield greater efficiencies and improve customer satisfaction.
e; &ash should be managed properly.
f; Effort should be made to reduce the current liabilities and to increase the current
asset.
g; $lacing the responsibility for collecting the debt upon the centre that made the sale
HYPOTHESIS TESTING:
generally hypothesis means a mere assumption or some supposition to be proved or
disproved. 6ypothesis is usually considered as the principle instrument in research. Its
main function is to suggest new experiments and observations.
H@+4$,#"#: 1- T, '"%< "# ')("*! &"''"(.;$@ "* +)@"*! #,4%$-$%< &/$.
%he following table contains the details about the average collection period from
debtors and
average payment period to creditors from the period <33A1<33B to <33E1<3:3.
Y)%# AE%)!
(4;;($"4*
+%"4& (F)
AE%)!
+)@<*$
+%"4&(@)

JY J
2
@
2
2335-2331 122 57 1=12 12522 7?5?
2331-233= =2 51 21=2 1222 7121
233=-233? 21 71 213? 726? 175?
233?-2313 125 =5 13=75 12=15 17?5
LFM 7?7 L YM261 JYM25332
L F2 M
61?12
L @
2
M
15622
[49]
KARL PEARSONSNS COFFICIENT OF CORRELETION:
B@ +.$$"*! $, E);.# "* $, '4%<.;) $, D%C ()< M3.=5
?rom the calculation value of 8r9 come O3.HA which is a positive one. ,s the correlation
came a positive one which ensures that the firm is facing difficulty in paying short1term
debt. It is the case where current liabilities are increased throughout the financial years
from, <33A1<33B, <33B1<33H, <33H1<33E and <33E1<3:3.
HYPOTHESIS:2 THE FIRM IS NOT PROPERLY MANAGING THE SUNDRY
DEBTOR.
%he following table contains average collection period from debtors and sundry debtors
Cin crore; from the period <33A1<33B to <33E1<3:3.
@)%# AE%)!
(4;;($"4*
+%"4& (F)
#.*&%@ &/$4%#
("* (%4%)
J@
J
2
@
2
2335-2331 122 =3 13333 12522 5633
2331-233= =2 132 =?22 1222 11322
233=-233? 21 135 5362 726? 11275
233?-2313 125 135 17725 12=15 11275
LFM 7?7 LYM7?6 JYM7=727
L F2 M61?12
L @
2
M7?=?1
[50]
KARL PERSONNS COFFICIENT OF CORRELETION:
T, (4%%;)$"4* ()< *!)$"E $4 $, #(4*& ,@+4$,#"#.
,fter putting the data 8r9 is foundO 13.><. #o the hypothesis is re0ected. ,s the firm is
able to manage the sundry debtor.
HYPOTHESIS: 7- THE CURRENT LIABILITIES ARE INCREASING THAN
CURRENT ASSETS YEAR BY YEAR.
%he following table contains the amount of current liabilitiesCin crore; and current assets
Cin crore; from the period <33A1<33B to <33E1<3:3.
@)%# CURRENT
LIABILITIES
("* (%4%)
CURRENT
ASSETS
("* (%4%) JY
J
2
@
2
2335-2331 221 722 =3=22 57331 1375=6
2331-233= 775 721 131=25 112=?5 137361
233=-233? 12? 571 62???? 271661 7?=151
233?-2313 =21 23= 61135= 516361 22=356
LFM2171 LYM11=2 JYM
1352162
L F2 M 17=171?
L @
2
M =52?23

KARL PERSONNS COFFICIENT OF CORRELETION:
[51]
M3.==
,s the hypothesis is positive which ensures that the current liabilities of firm is
increased at a speed than current assets. #o the firm should have an eye to this one.
FINDINGS OF THE STUDY
[52]
F4;;40"*! )% $, '"*&"*!# 4' $, #$.&@:
a; Working capital of three years i.e., C<33B1<33H, <33H1<33E, <33E1<3:3; is in negative
figure. %he reason is that the company.s current liabilities exceeds current assets from
<33A1<33B to <33E1<3:3. %he company created more provisions throughout this 2
years. #undry creditors increased at a speed in these 2 years. It is an alarm sign for the
company. 7esides these sundry creditors, other current liabilities also increased like
deposits and retention from supplies, liability for wealth tax, electricity duty payable.

b; %he standard current ratio is <=:. ,nd for "$%&' it is not satisfactory. %he reason
behind such result is that the current liabilities exceed current assets. %he standard
current ratio for <33A1<33B is satisfactory but in the year <33B1<33H, <33H1<33E, <33E1
<3:3 situations becomes worst. %he reason behind the increase in current liabilities and
provisions. It is not a good sign for the company.
c; %he standard !uick ratio is :=:. ,nd for "$%&' it is not satisfactory. %he reason
behind "$%&' did not achieve the rule of thumb. %he current liabilities exceed the
li!uid assets. %here is an increase in current liabilities like sundry creditor, interest
accrued but not due on loans, liability for wealth tax and liabilities for fringe benefit tax
than of li!uid assets.
d; ,bsolute li!uid test ratio is below :=<, which are worries for "$%&'. %he reason is
that li!uid assets fall very short than current liabilities. %he current liabilities again
exceed the absolute li!uid assets. %here is not significant increase in absolute current
assets like cash and bank balances from <33A1<33B to <33E1<3:3. 7ut 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.
e; /ebtors of the company were highT they were increasing year by year, so more funds
were blocked in debtor. ,s the company is selling electricity to the sundry debtors and
the cash is not immediately received so some amount of cash is blocked in that matter.
f; %he current asset trend increased from <33B to <33E, but in <3:3 it declines. %he
current assets like stores and spare increased in <33A1<33B to <33B1<33H but in <33H1
<33E it declined and then it is increased in <33E1<3:3. #undry debtors increased from
<33A1<33B to <33B1<33H but it declined in <33H1<33E but again it is increased in <33E1
<3:3.
[53]
g; %he current liabilities trend increasing at a speed which is worried thing for company.
&urrent 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 <33A1<33B to <33E1<3:3.
h; /ebtor.s turnover ratio improved from <33B to <33E and so number of collection
period decreases. 7ut in <3:3 debtor.s turnover ratio decreases and collection period
increases. In <33A1<33B it was :<A days. %hen it is reduced to H> and >B days in <33B1
<33H and <33H1<33E respectively. 7ut in <33E1<3:3 it again increased to :<> days.
0; &urrent asset ratio decrease throughout the year. It was :.:3 in <33A1<33B then it
increased to :.<E then a fall down occurred as it was :.3H in <33H1<33E and 3.A3 in
<33E1<3:3.
k; Working capital turnover ratio was positive in <33A1<33BT it became negative in
<33B1<33H, <33H1<33E and <33E1 <3:3. It was >.32 times in <33A1<33B then is sloped
downward and it was 1:>.B, 1A.HH, 13.EB in <33B1<33H, <33H1<33E, <33E1<3:3
respectively.
CHAPTER -5
[54]
CONCLUSION AND RECOMMENDATION
: CONCLUSION:
"n the basis of data analysis on working capital management in "$%&', the following
conclusions arrived.
a; %he company has gross profit for the past four years C<33A13B, <33B13H, <33H13E,
and <33E1:3; in negatives and the current liabilities are increasing, in comparison to
current assets position. 6ence, it is an alarming sign for the smooth working capital
management.
b; %he "$%&' didn.t manage the li!uidity position of the company. %he li!uidity
position was in a good condition and in <33A13B, it was also satisfactory. 7ut, in the
year <33B13H, <33H1<33E, <33E1:3 the situation of li!uidity position was alarming due
to increase in total current liabilities and decrease in total current assets which led to the
decrease in the net working capital of the company.
c; /uring the year <33A13B, <33B13H, <33H1<33E and <33E1<3:3 the company.s li!uid
assets were not satisfactory.
d; %he average collection period of the company during the year <33A11<33B is :<>
days, it is reduced to H> days in <33B1<33H and again it reduced to >Bdays in <33H1
<33E, but the average collection period again increases to :<A days in <33E1<3:3.
e; %here is also satisfactory net cash flow from the operating, investing and financing
activities of the organization.
f;%hough the net working capital of the company is decreased, still the company is in a
better manageable position and the company.s present status of maintaining current
assets and current liabilities are satisfactory.
g; %hey are unable to manage their cash, funds and debts.
7y adapting better management practices, the company may attain a sound financial
position in future and able to manage its working capital efficiently
RECOMMENDATION
[55]
"$%&' is the soul of "rissa.s power transmission and is playing a pivotal role in
making surplus power consumption state through efficiently administering the system of
transmission. ?or improvement of organization.s profitability, much emphasis is needed
to improve the better working capital management by decreasing the current liabilities
through reducing of unplanned over head expenses. In such process, current assets
position will be improved through collection of revenue from power transmission as
well as recovery of past dues from consumers, ovt. and other agencies etc. %he
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. ?urther, the management should focus on shortening its average
collection period by changing its credit terms and conditions.
7y taking the above remedial measures, the organization can be an EG,Q company
with due emphasis on proper way of managing the working capital.
.
CHAPTER -1
[56]
IMPLICATION FOR FUTURE RESEARCH:
%his study is the foundation stone for carrying out further research in the field of
working capital management. ?urther research can be also be carried out the study of
working capital management. %his one of such preliminary research work and further
review of this research work can open up many dimensions for researchers. ,lthough
the ob0ective taken in research study is diverse, yet a trend can be observed from the
findings for future research work.
"ne of the ma0or 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. ,nd also it was study that depended on
5years of data. %here is future scope for studying these things.

[57]
DISCLAIMER
%he present study of working capital management in "$%&' is purely academic in
nature. %he analysis of the data and interpretation of the matters in the pro0ect report are
purely academic purpose and nobody should take it as a fact finding conclusion for
lodging any claim or submission of above facts for their personal benefits for which the
undersigned will not be held responsible. %he views suggestions, conclusions etc. are
the bonfied work of mine and nobody should claim or copy it for their benefit without
permission.
...
[58]
BIBLIOGRAPHY
TEJT BOOKS:
:. -aheswari /r #.n 8?inancial management9, +inth edition, <33A sultan chand I sons,
+ew /elhi
<. $andey I.-., 8?inancial -anagement9, Gikas $ublishing 6ouse $vt.'td. H
th
Edition
:EEE.
2. $rasanna &handra, 8?inancial management9, ?ourth edition :EEE, %ata -c.graw hill
publishing company ltd, +ew /elhi.
5. upta, sashi., 8financial management9, 5
th
edition,<33B, kalyani publisher, new delhi
>. *othari &.). 8)esearch -ethodology9, Wishva prakashan, +ew /elhi, <33:.
,)%I&'E#=
,n overview of working capital management and corporate financing.
Working capital management.
Working &apital -anagement -anages ?low of ?unds9 C@ear <33E;
8Working &apital -anagement1an Effective %ool for "rganisational #uccess9 @ear
C<33H;
W/#"$:
www. "ptcl.co.in
www. oogle.com
www. Investopedia.com
www.moneycontrol.com
www.wikipedia.com
[59]
: ANNEJTURE:
BALANCE SHEETS OF OPTCL
PROFIT G LOSS ACCOUNTS OF OPTCL


BALANCE SHEET# OF OPTCL(IN RUPEES)

)# 4* 71#$
<)%(,2313
)# 4* 71#$
<)%(, 233?
)# )4* 71#$
<)%(, 233=
)# 4* 71#$
<)%(, 2331
i;sources of funds

1.#,)%,4;&%N# '.*&#
#hare capital
HH:,<>>,333 H2:,<>>,333 A33,B33,333 A33,B33333
share reserves and surplus A,H<5,AAA,E>3 >,>2:,ABA,H<A >,2AH,2A<,A>B >,:52,:BH,EE3
[60]
1-132-?21-?23 5-752-?71-=25 2-?5?-352-521 2-167-=1=-??3
2.;4)*# '.*&#

#ecured loans <,EB3,H52,3EE 5,325,EAB,>B2 >,3E5,A3:,<>A A,:<:,<EA,>H5
Dnsecured loans
B,22H,<:5,EE: E,3H:,A<E,A25 E,3>H,2:5,B>< E,:<H,:<:,52E
7. 4$,%# '.*&#
&onsumer security deposit
5>>,225

H2,225 H2,225

H2,225
""))++;"()$"4* 4' '.*&#

1.'"F& )##$# <A,32B,5B2,5:> <5,:><,A:5,>B: <<,B<>,2AE,AHA <3,AA5,2B2,BEH
ross block

'ess= accumulated depreciation :<,>:E,B>3,:2H ::,52B,>5A,>55 :3,253,:3H,AAH E,<5:,35E,ABH
+et block
:2,>:B,B<2,<BB :<,B:>,3AH,3<B :<,2H>,<A:,3:H ::,5<2,2<5,:<3
&apital work1in1progress >,BA3,B32,H:B A,B::,322,3:E B,<<:,553,5B5 H,<52,2<B,AAB
<.investments
<B3,>>3,333 <B3,>>3,333 <B3,>>3,333 <B3,>>3,333
7.(.%%*$ )##$#- ;4)*# )*&
)&E)*(#

#tores and spaces EAE,3>A,5A3 H3H,>:E,<BH BAA,HA>,<A< B>:,3A5,AE3
#undry debtors
:,3>>,A2:,AEH :,3>>,3EB,5B2 :,3><,5BE,EH< BEH,:EA,<3:
&ash and bank balance B<B,:3A,:<E E3B,3:E,B>3 5E3,HH:,:H2 A5H,<BA,H:<
"ther current assets
B55,HE5,B>H B2H,E>:,:BB A><,>>2,235 A<H,3H:,EHB
'oans and advances :,>H<,AHA,222 <,BHA,:>B,5:E :52,22E,>B< 2HE,53A,B2E
'ess=

C.%%*$ ;")/";"$"# )*& +%4E"#"4*#

&urrent liabilities <,>:B,EEA,BEE <,5BA,5HA,35A <,3>>,:AH,BA5 :,ABB,:5A,AEB
$rovisions
>,AE>,AAB,5B> 5,H:B,33<,A32 :,235,>:B,B55 H23,HA>,H:E


N$ (.%%*$ )##$# -7-176-2==-=?5 -??1-167-227 -227-251-232 131-317-?17
6()) <"#(;;)*4.# F+*&"$.% $4
$, F$*$ *4$ 0%"$$* 4'' 4%
)&>.#$&
)% *4$ 0%"$$* 4'' 4% )&>.#$&

2,3<A,5<2

A,3><,H5A

E3BE<AE

(/)+%4'"$ )*& ;4## )((4.*$
(1-533-161-112) (111-51=-621) (6?2-726-=55) (763-3=2-71=)
PROFIT AND LOSS
ACCOUNTS
FOR THE YEAR ENDED
2:.32.<3:3 2:.32.<33E 2:.32.<33H 2:.32.<33B
INCOME
)evenue from wheeling of $ower 2,3>,:A,<B,>AH A,BH,E<,E>,5<B 2,EE,B>,>H,BEH 2>>25E553:
"ther Income :,2A,A<,:H,E>E 2A,H5,5B,3H2 <H,<:,32,:B: :AHA::>>3
%otal 6-61-1=-65-221 1-12-11-62-213 6-21-?5-51-?5? 7122132?21
[61]
EJPENDITURE
,dministrative, eneral I "ther
Expenses
2,5E,H5,>A,<EH >,<B,BA,AA,A22 <,2E,EE,HH,A<B :,5<,2:,E5,3AB
/epreciation :,3H,32,25,><3
:,3E,H<,5
:,2>< :,3H,>5,H>,B33 EHA,2H:,5>:
%otal 6-21-=1-?3-=1= 5-72-1?-31-?=2 7-6=-26-16-721 2-63-?2-12-21=
$rofitJ C'oss; before interest I finance
charges
1:A,3E,55,<E: BH,:H,25,><> BE,5:,HB,A5< :,2:,<>,23,522
Interest I ?inance &harges 1>5,:A,3:,:EH 1EB,<5,>5,A:B 1:,:3,A>,>5,2:H 1:,:A,<2,:<,>2:
+et prior period incomeJCexpenditure; 1:,::,B<,:>> B>,E3,<3E <B,>H,AB,<E2 1:>,>E,BE,:EE
$rofitJC'oss; before %axation I
&ontingency
1B:,2B,:B,A55 1:H,23,<E,HH5 12,A5,EE,2H2 1>B,A:,<EB
P%4E"#"4* '4% $)F)$"4*:-
&urrent year 3 3 3 3
?ringe 7enefit %ax 3 3 1<::2<>A 1<25:>25
$rofit ,fter %ax 1B:,2B,:B,A55 1<2,EA,E:> 12HA:<A2E 1H:3<H2:
)eserve ,ppropriation 111111111111 1:H,>5,<A,BEE 111111111111 1111111111111
,ppropriation to &ontingencies )eserve 1:3,E2,>:,3H3 1E,EE,<A,BHA 1::,2A,<A,H5E 1H,<5,H>,5H2
$rofitJC'oss; ,fter %axation I
&ontingency )eserve
1H<,23,AH,B<5 1<H,>2,>2,>H> 1:>,<<,2E,5HH 1E,3>,HH,2:5
7alance of $I' ,ccount 7rought
?orward from 'ast @ear
1BB,BA,BH,5>: 15E,<2,<5,HAA 125,33,H>,2BH 1<5,E5,EB,3A5
&alance Carried over to &alance ,2eet -1-53-31-61-112 -11-15-1=-621 -6?-27-26-=55 -76-33-=2-71=
[62]